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What changed in Evolent Health, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Evolent Health, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+490 added−549 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in Evolent Health, Inc.'s 2023 10-K

490 paragraphs added · 549 removed · 352 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

67 edited+30 added−64 removed108 unchanged
Biggest changeIn January 2023, we acquired NIA, a specialty benefit management organization that focuses on managing cost and quality in the areas of radiology, musculoskeletal, physical medicine and genetics. 1 The Company currently manages its operations and allocates resources across two reportable segments as follows: • Clinical Solutions, which includes our specialty care management and physician-oriented total cost of care solutions, along with the New Century Health, Vital Decisions, IPG, NIA and Evolent Care Partners brands; and • Evolent Health Services (“EHS”), focused on administrative simplification solution and supporting value-based business infrastructure.
Biggest changeIn January 2023, we acquired NIA, a specialty benefit management organization that focuses on managing cost and quality in the areas of radiology, musculoskeletal, physical medicine and genetics. As of January 1, 2023, we began managing our operations and allocating resources across one segment, instead of two.
Significant Activities On August 2, 2021, the Company, through a wholly owned subsidiary, entered into a definitive agreement for the Company to acquire Vital Decisions. On October 1, 2021, we consummated the acquisition of Vital Decisions for $46.5 million in cash and the issuance of 1.8 million shares of Class A common stock.
Significant Activities Acquisition of Vital Decisions On August 2, 2021, the Company, through a wholly owned subsidiary, entered into a definitive agreement for the Company to acquire Vital Decisions. On October 1, 2021, we consummated the acquisition of Vital Decisions for $46.5 million in cash and the issuance of 1.8 million shares of Class A common stock.
These go-to-market brand names include: (i) Value Based Services, wherein we support primarily health systems in their value-based operations and (ii) Evolent Care Partners, wherein we offer physicians the opportunity to join Evolent’s proprietary payer contracting vehicles, scaled risk pools, and operating model.
These go-to-market brand names include: (i) Value Based Services, wherein we support primarily health systems in their value-based operations and (ii) Evolent Care 2 Partners, wherein we offer physicians the opportunity to join Evolent’s proprietary payer contracting vehicles, scaled risk pools, and operating model.
We believe that our partners will require an end-to-end solution and we believe we are well 8 positioned to meet this demand by expanding the breadth of our offerings through not only organic growth, but also the acquisition of niche vendors and non-core portions of larger enterprises.
We believe that our partners will require an end-to-end solution and we believe we are well positioned to meet this demand by expanding the breadth of our offerings through not only organic growth, but also the acquisition of niche vendors and non-core portions of larger enterprises.
We believe our payer clients will benefit from a platform offering a broader set of specialty services in order to avoid the 6 inefficiencies of vendor fragmentation, and we believe they prefer fewer vendors that may provide more consistent services to their membership over time.
We believe our payer clients will benefit from a platform offering a broader set of specialty services in order to avoid the inefficiencies of vendor fragmentation, and we believe they prefer fewer vendors that may provide more consistent services to their membership over time.
We evaluate when these investment and compensation arrangements create financial relationships under the Stark Law and design structures that are intended to satisfy exceptions under the Stark Law or Medicare Shared Savings Program waiver. Antitrust Laws The antitrust laws are designed to prevent competitors from jointly fixing prices.
We evaluate when these investment and compensation arrangements create financial relationships under the Stark Law and design structures that are intended to satisfy exceptions under the Stark Law or Medicare Shared Savings Program waiver. 9 Antitrust Laws The antitrust laws are designed to prevent competitors from jointly fixing prices.
The Company has also established a captive insurance company under the laws of the State of Vermont and is subject to the captive insurance laws of that state. Intellectual Property Our continued growth and success depend, in part, on our ability to protect our intellectual property and proprietary technology, including our Identifi® software and CarePro TM platform.
The Company has also established a captive insurance company under the laws of the State of Vermont and is subject to the captive insurance laws of that state. 10 Intellectual Property Our continued growth and success depend, in part, on our ability to protect our intellectual property and proprietary technology, including our Identifi® software and CarePro TM platform.
Blackley holds a Bachelor of Arts degree in business from The University of North Carolina at Chapel Hill, and a master of business administration from Harvard Business School. 15 Dan McCarthy has served as our President since September 2022. Prior to his role as President, Mr.
Blackley holds a Bachelor of Arts degree in business from The University of North Carolina at Chapel Hill, and a Master of Business Administration from Harvard Business School. Dan McCarthy has served as our President since September 2022. Prior to his role as President, Mr.
McCarthy was the New Century Health’s Chief Executive Officer since 2019, and prior to that held multiple leadership roles within Evolent since joining the Company in 2014. Mr. McCarthy came to Evolent from McKinsey & Company, where he was a leader in the firm's health care practice. Mr.
McCarthy was the New Century Health Chief Executive Officer since 2019, and prior to that held multiple leadership roles within Evolent since joining the Company in 2014. Mr. McCarthy came to Evolent from McKinsey & Company, where he was a leader in the firm's health care practice. Mr.
Shams was a Director in KPMG, LLP’s Accounting Advisory Services practice from June 2015 until March 2018. Mr. Shams is a Certified Public Accountant in the Commonwealth of Virginia. Our executive officers are elected annually by our Board of Directors.
Shams was a Director in KPMG, LLP’s Accounting Advisory Services practice from June 2015 until March 2018. Mr. Shams is a Certified Public Accountant in the Commonwealth of Virginia. 13 Our executive officers are elected annually by our Board of Directors.
These exclusivity or other restrictive provisions may apply to specific competitors of our partners or specific geographic areas, subject to certain exceptions. Accordingly, these exclusivity clauses may prevent us from entering into relationships with certain potential partners. The contracts with our partners impose other obligations on us.
These exclusivity or other restrictive provisions may apply to specific competitors of our partners or specific geographic areas, subject to certain exceptions. Accordingly, these exclusivity clauses may prevent us from entering into relationships with certain potential partners. 7 The contracts with our partners impose other obligations on us.
Expand Offerings to Meet Evolving Market Needs There are multiple business offerings that our partners may require to operate in a value-based care environment that we do not currently provide, including but not limited to: • physician employment; • PBM expansion to include additional specialty pharmacy management capabilities; • additional specialty lines of business beyond oncology, cardiology and musculoskeletal, including kidney and fetal-maternal medicine care; • on-site or specialty clinic services; and • consumer engagement and digital outreach.
Expand Offerings to Meet Evolving Market Needs There are multiple business offerings that our partners may require to operate in a value-based care environment that we do not currently provide, including but not limited to: • physician employment; • PBM expansion to include additional specialty pharmacy management capabilities; • additional Specialty Technology and Services Suite lines of business beyond oncology, cardiology and musculoskeletal, including kidney and fetal-maternal medicine care; • on-site or specialty clinic services; and • consumer engagement and digital outreach.
Substantially all of our operations are conducted through Evolent Health LLC and its consolidated subsidiaries and the financial results of Evolent Health LLC are consolidated in the financial statements of Evolent Health, Inc. Website to Access Our Reports Our internet website address is www.evolenthealth.com.
Substantially all of our operations are conducted through Evolent Health LLC and its consolidated subsidiaries and the financial results of Evolent Health LLC are consolidated in the financial statements of Evolent Health, Inc. Website to Access Our Reports Our internet website address is www.evolent.com.
Our contracts governing the relationships with our operating partners include key terms which may include the period of performance, revenue rates, advanced billing terms, service level agreements, termination clauses, exclusivity clauses and right of first refusal clauses.
Our contracts governing the relationships with our partners include key terms which may include the period of performance, revenue rates, advanced billing terms, service level agreements, termination clauses, exclusivity clauses and right of first refusal clauses.
A variety of state and federal regulators enforce these laws, including but not limited to the U.S. Department of Health and Human Services (HHS), the Federal Trade Commission, state attorneys general and other state regulators.
A variety of state and federal regulators enforce these laws, including but not limited to the U.S. Department of Health and Human Services, the Federal Trade Commission, state attorneys general and other state regulators.
As we increase our 10 exposure to Medicare and Medicaid businesses through new and existing partners, we increase our exposure to changes in government policy with respect to and regulation of the Medicaid and Medicare programs in which we and our partners participate.
As we increase our exposure to Medicare and Medicaid businesses through new and existing partners, we increase our exposure to changes in government policy with respect to and regulation of the Medicaid and Medicare programs in which we and our partners participate.
We make available, free of charge, on or through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. 16
We make available, free of charge, on or through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. 14
Prior to co-founding the Company, Mr. Blackley was the Executive Director of Corporate Development and Strategic Planning at The Advisory Board from June 2007 to August 2011. Our President, Dan McCarthy, served as the New Century Health’s Chief Executive Officer since 2019 and held multiple leadership roles within Evolent since joining the Company in 2014.
Blackley was the Executive Director of Corporate Development and Strategic Planning at The Advisory Board from June 2007 to August 2011. Our President, Dan McCarthy, served as the New Century Health’s Chief Executive Officer since 2019 and held multiple leadership roles within Evolent since joining the Company in 2014. Prior to joining the Company, Mr.
(ii) Design evidence-based clinical pathways We design high-quality evidence-based clinical pathways to drive provider behavior towards improved quality of care at a lower cost.
(ii) Designing evidence-based clinical pathways We design high-quality evidence-based clinical pathways to drive provider behavior towards improved quality of care at a lower cost.
The amount of revenue in a given platform and operations contract is typically driven by: (i) the number of members that Evolent is contracted to manage, (ii) the population types being served (e.g., Medicare, Medicaid, Commercial), (iii) the depth and breadth of the services and technology applications that our partners utilize from us.
The amount of revenue in a given contract is typically driven by: (i) the number of members that Evolent is contracted to manage, (ii) the population types being served (e.g., Medicare, Medicaid, commercial) and (iii) the depth and breadth of the services and technology applications that our partners utilize from us.
For example, we completed the following recent acquisitions which are expected to deepen capabilities of both Evolent and the acquired organizations, allowing cross-sell, an enhanced value proposition to partners and an opportunity to increase the margin profile of the combined organization: • On October 1, 2021, we completed the acquisition of Vital Decisions, a leading provider of technology-enabled advance care planning services. • On August 1, 2022, we completed the acquisition of IPG, a leading technology and services company providing surgical management solutions for musculoskeletal conditions. • On January 20, 2023, we completed the acquisition of NIA (also known as Magellan Specialty Health), the specialty benefit management organization that focuses on managing cost and quality in the areas of radiology, musculoskeletal, physical medicine, and genetics.
For example, we completed the following recent acquisitions which are expected to deepen capabilities of both Evolent and the acquired organizations, allowing cross-sell, an enhanced value proposition to partners and an opportunity to increase the margin profile of the combined organization: • On October 1, 2021, we completed the acquisition of Vital Decisions, a leading provider of technology-enabled advance care planning services. 6 • On August 1, 2022, we completed the acquisition of IPG, a leading technology and services company providing surgical management solutions for musculoskeletal conditions. • On January 20, 2023, we completed the acquisition of NIA (also known as “Magellan Specialty Health”), the specialty benefit management organization that focuses on managing cost and quality in the areas of radiology, musculoskeletal, physical medicine, and genetics.
The regulations and requirements applicable to us and other participants in Medicaid and Medicare programs are complex and subject to change. In particular, prior authorization standards and requirements of Medicaid and Medicare programs have come under increased scrutiny at the state and federal level.
The regulations and requirements applicable to us and other participants in Medicaid and Medicare programs are complex and subject to change. In particular, prior authorization standards and requirements, including Medicaid and Medicare programs, have come under increased scrutiny at the state and federal level.
Fraud, Waste and Abuse Laws Investigating and prosecuting healthcare fraud, waste and abuse continues to be a top priority for state and federal law enforcement entities. The focus of these efforts has been directed at Medicare, Medicaid, Health Insurance Marketplace and commercial products. Compliance with these laws may require substantial resources.
Fraud, Waste and Abuse Laws Investigating and prosecuting healthcare fraud, waste and abuse continues to be a top priority for state and federal law enforcement entities. The focus of these efforts has been directed at Medicare, Medicaid, the ACA’s Health Insurance Marketplace (“Health Insurance Marketplace”) and commercial products. Compliance with these laws may require substantial resources.
The transparent pathway development process for our specialty population health focal areas, oncology and cardiology, is designed to achieve the following objectives: • Reduce unnecessary clinical variation. • Support physician clinical decision making of evidence-based therapies. • Increase patient engagement. • Facilitate total cost-of-care management.
The transparent pathway development process for our specialty care management service solution’s health focal areas, oncology and cardiology, is designed to achieve the following objectives: • Reduce unnecessary clinical variation. • Support physician clinical decision making of evidence-based therapies. • Increase patient engagement. • Facilitate total cost-of-care management.
Typically, these contracts provide for a monthly payment calculated based on a specified rate multiplied by the number of members that our partners are managing. The specified rate varies depending on which market-facing solutions the partner has adopted and the number of services and technology applications they are utilizing.
Typically, these contracts provide for a monthly payment calculated based on a specified rate multiplied by the number of members that our partners are managing. The specified rate varies depending on which market-facing solutions the partner has adopted and the number of our solutions they are utilizing.
While they typically contain year-to-year renewal provisions, we cannot assure you any or all of these contracts will be renewed in any particular year. NIA’s contracts with customers typically have stated terms of one to three years, and in certain cases contain renewal provisions (at the customer’s option) for successive terms of between one and two years (unless terminated earlier).
While they typically contain year-to-year renewal provisions, we cannot assure you any or all of these contracts will be renewed in any particular year. NIA’s contracts with partners typically have stated terms of one to three years, and in certain cases contain renewal provisions (at the partner’s option) for successive terms of between one and two years (unless terminated earlier).
The services provided by Evolent Health Services include: • Health plan services : Health plan services is a comprehensive suite of services including third-party administration, enrollment and billing support, medical and utilization management, third-party payment and program integrity support and provider network contracting services.
The administrative services provided by the Company include: • Health plan services : Health plan services is a comprehensive suite of services including third-party administration, enrollment and billing support, medical and utilization management, third-party payment and program integrity support and provider network contracting services.
Through the technological and clinical integration, we achieve, our solutions are delivered as engrained components of our partners’ core operations rather than as add-on solutions. Evolent Health Services Overview Our Evolent Health Services segment includes our integrated value-based care platform designed to help our customers manage and administer patient health in a more cost-effective manner.
Through the technological and clinical integration, we achieve, our solutions are delivered as engrained components of our partners’ core operations rather than as add-on solutions. Administrative Services Our administrative services solution includes our integrated value-based care platform designed to help our customers manage and administer patient health in a more cost-effective manner.
Differentiated from what we consider to be traditional PBMs, our solution is integrated into patient care and engages population health levers including generic utilization, provider management, and utilization management to reduce pharmacy costs. • Risk management : Our risk management services provide the capabilities needed to successfully manage risk for payers, including analysis, data and operational integration with payer processes, and ongoing performance management. • Analytics and reporting : Our analytics and reporting services provide the ongoing and ad hoc analytic teams and reports required to measure, inform and improve performance, including population health analytics, market analytics, network evaluation, staffing models, physician effectiveness, clinical delivery optimization and patient engagement. • Leadership and management : Our local and national talent assist our partners in effectively managing the performance of their value-based operations. 4 Identifi® is our proprietary technology system that aggregates and analyzes data, manages care workflows and engages patients.
Differentiated from what we consider to be traditional PBMs, our solution is integrated into patient care and engages population health levers including generic utilization, provider management, and utilization management to reduce pharmacy costs. • Risk management : Our risk management services provide the capabilities needed to successfully manage risk for payers, including analysis, data and operational integration with payer processes, and ongoing performance management. • Analytics and reporting : Our analytics and reporting services provide the ongoing and ad hoc analytic teams and reports required to measure, inform and improve performance, including population health analytics, market analytics, network evaluation, staffing models, physician effectiveness, clinical delivery optimization and patient engagement. • Leadership and management : Our local and national talent assist our partners in effectively managing the performance of their value-based operations.
In addition, certain of our contracts provide that if we fail to meet specified implementation targets, the contracts will terminate and we will be subject to financial penalties. The initial term of New Century Health contracts, including contracts of IPG and Vital Decisions, typically have a multi-year initial term.
In addition, certain of our contracts provide that if we fail to meet specified implementation targets, the contracts will terminate and we will be subject to financial penalties. The initial terms of New Century Health contracts, including contracts of IPG and Vital Decisions, typically are multi-year.
The table below presents certain demographic data based on our latest engagement surveys for each of the respective years below (results are based on self-identification): December 31, 2022 2021 2020 Gender (global representation) Women 62 % 62 % 67 % Men 38 % 38 % 33 % Racial and ethnic minorities (U.S. representation) Black or African American 22.2 % 21.8 % 23.7 % Asian 12.6 % 13.8 % 11.6 % Hispanic or Latino 14.1 % 12.1 % 11.2 % Two or more races 2.8 % 2.7 % 2.8 % American Indian or Alaska Native 0.3 % 0.2 % 0.3 % Native Hawaiian or Other Pacific Islander 0.4 % 0.4 % 0.2 % Leadership Representation (Managing Director level or above) Women 48 % 50 % 46 % Minorities 28 % 29 % 28 % Employee self-identification (U.S. representation) LGBTQ+ 8.7 % 7.2 % 6.8 % Veteran 2.0 % 2.4 % 2.6 % Disabled Individual 7.8 % 4.8 % 5.1 % Information about our Executive Officers Our executive officers as of February 24, 2023, were as follows: Name Age Position Seth Blackley 44 Chief Executive Officer Dan McCarthy 38 President John Johnson 39 Chief Financial Officer Steve Tutewohl 50 Chief Operating Officer Jonathan Weinberg 55 General Counsel Aammaad Shams 39 Chief Accounting Officer Seth Blackley is our co-founder and has served as our Chief Executive Officer since October 2020 and served as our President from August 2011 until his promotion.
The table below presents certain demographic data based on our latest engagement surveys for each of the respective years below (results are based on self-identification): December 31, 2023 2022 2021 Gender (global representation) Women 68% 62 % 62 % Men 32% 38 % 38 % Racial and ethnic minorities (U.S. representation) Black or African American 21.4% 22.2 % 21.8 % Asian 10.8% 12.6 % 13.8 % Hispanic or Latino 11.7% 14.1 % 12.1 % Two or more races 3.0% 2.8 % 2.7 % American Indian or Alaska Native 0.4% 0.3 % 0.2 % Native Hawaiian or Other Pacific Islander 0.4% 0.4 % 0.4 % Leadership Representation (Managing Director level or above) Women 50 % 48 % 50 % Racial and ethnic minorities 30 % 28 % 29 % Employee self-identification (U.S. representation) LGBTQ+ 11.3 % 8.7 % 7.2 % Veteran 10.1 % 2.0 % 2.4 % Disabled Individual 13.9 % 7.8 % 4.8 % 12 Information about our Executive Officers Our executive officers as of February 22, 2024, were as follows: Name Age Position Seth Blackley 45 Chief Executive Officer Dan McCarthy 39 President John Johnson 40 Chief Financial Officer Emily Rafferty 41 Chief Operating Officer Jonathan Weinberg 56 General Counsel Aammaad Shams 40 Chief Accounting Officer Seth Blackley is our co-founder and has served as our Chief Executive Officer since October 2020 and served as our President from August 2011 until his promotion.
In addition, we provide comprehensive quality management for oncology and cardiology patients from diagnosis through advance care planning services as well as identifying the highest quality, lowest site of care for outpatient orthopedic surgeries.
In addition, we provide comprehensive quality management for oncology and cardiology patients from diagnosis through advance care planning services as well as identifying high quality, lowest cost of care for outpatient orthopedic surgeries.
Johnson was the Managing Partner at Riverbend Analytics, LLC from December 2015 until April 2016 and the Vice President of Strategy at PSA Healthcare from February 2013 until November 2015. Mr. Johnson holds a Bachelor of Arts degree in Physics from Cornell University. Steve Tutewohl has served as our Chief Operating Officer since June 2020. Mr.
Johnson was the Managing Partner at Riverbend Analytics, LLC from December 2015 until April 2016 and the Vice President of Strategy at PSA Healthcare from February 2013 until November 2015. Mr. Johnson holds a Bachelor of Arts degree in Physics from Cornell University. Emily Rafferty has served as our Chief Operating Officer since July 2023.
We leverage a custom specialty care management workflow platform, CarePro TM , to provide clinical decision support and manage providers to high-quality care, while aiming to achieve significant cost savings. Our technology consists of a clinical decision support portal that provides oversight of individual treatment plans for pathway adherence.
We leverage a custom workflow platform, CareProTM, as part of our Specialty Technology and Services Suite, to provide clinical decision support and manage providers to high-quality care, while aiming to achieve significant cost savings. Our technology consists of a clinical decision support portal that provides oversight of individual treatment plans for pathway adherence.
Clinical Solutions Our Clinical Solutions segment has two primary solutions: (i) specialty care management services and (ii) total cost of care management. From time to time, we package our solutions under various go-to-market brand names to create product differentiation. Our partners may engage us to provide one, or multiple types of solutions, depending on specific needs.
Our Solutions We have three primary solutions: (i) specialty care management services, (ii) total cost of care management and (iii) administrative services. From time to time, we package our solutions under various go-to-market brand names to create product differentiation. Our partners may engage us to provide one, or multiple types of solutions, depending on their specific needs.
Differentiated Offering by Performing More Services Utilizing An Integrated Strategy Building off of our strength in oncology and cardiology, we believe the acquisition of NIA will accelerate our market leadership to serve the needs of large scale, national payer organizations to manage the cost and quality of care across large and complex medical specialties.
Since our inception, we have invested a significant amount in expanding our offerings. 4 Differentiated Offering by Performing More Services Utilizing An Integrated Strategy Building off of our strength in oncology and cardiology, we believe the acquisition of NIA will accelerate our market leadership to serve the needs of large scale, national payer organizations to manage the cost and quality of care across large and complex medical specialties.
Our Chief Financial Officer, John Johnson, served as the Chief Financial Officer for New Century Health along with various roles within the Company since 2016. 7 Growth Opportunities Multiple Avenues for Growth with Our Existing, Embedded Partner Base We have established a multi-year partnership model with multiple drivers of embedded growth through the following avenues: • growth in lives in existing covered populations; • partners expanding into new lines of value-based care to capture growth in new profit pools; • cross-selling additional solutions to existing partners; and • capturing value created through a variety of value-based arrangements by participating alongside our partners in upside risk sharing arrangements.
Growth Opportunities Multiple Avenues for Growth with Our Existing, Embedded Partner Base We have established a multi-year partnership model with multiple drivers of embedded growth through the following avenues: • growth in lives in existing covered populations; • partners expanding into new lines of value-based care to capture growth in new profit pools; • cross-selling additional solutions to existing partners; and • capturing value created through a variety of value-based arrangements by participating alongside our partners in upside risk sharing arrangements.
If we fail to comply with applicable state privacy laws, we could be subject to additional sanctions. 12 Federal and state consumer protection laws are being applied increasingly by the FTC, Federal Communications Commission and states’ attorneys general to regulate the collection, use, storage and disclosure of personal or patient information, through websites or otherwise, and to regulate the presentation of website content and to regulate direct marketing, including telemarketing and telephonic communication.
Federal and state consumer protection laws are being applied increasingly by the FTC, Federal Communications Commission and states’ attorneys general to regulate the collection, use, storage and disclosure of personal or patient information, through websites or otherwise, and to regulate the presentation of website content and to regulate direct marketing, including telemarketing and telephonic communication.
Our activities relating to the way we sell and market our services, including our risk adjustment solution, may be subject to scrutiny under these laws. 11 The HIPAA health care fraud statute created a class of federal crimes, including health care fraud and false statements relating to health care matters, known as the “federal health care offenses.” The HIPAA health care fraud statute prohibits, among other things, executing a scheme to defraud any health care benefit program, while the HIPAA false statements statute prohibits, among other things, concealing a material fact or making a materially false statement in connection with the payment for health care benefits, items or services.
The HIPAA health care fraud statute created a class of federal crimes, including health care fraud and false statements relating to health care matters, known as the “federal health care offenses.” The HIPAA health care fraud statute prohibits, among other things, executing a scheme to defraud any health care benefit program, while the HIPAA false statements statute prohibits, among other things, concealing a material fact or making a materially false statement in connection with the payment for health care benefits, items or services.
Our applications scale with the clinical, financial and administrative needs of our provider partners. As additional capabilities are required by our partners, they are often deployed as applications through Identifi®. Sources of Revenue The majority of our revenue is derived from recurring multi-year platform and operations contracts.
Our applications scale with the clinical, financial and administrative needs of our provider partners. As additional capabilities are required by our partners, they are often deployed as applications through Identifi®. 3 Sources of Revenue The majority of our revenue is derived from recurring multi-year contracts which we believe enables us to have strong visibility into future revenue.
Proven Leadership Team We have made a significant investment in building an industry-leading management team. Our senior leadership team has extensive experience in the health care industry and a track record of delivering measurable clinical, financial and operational improvement for health care providers and payers. Our Chief Executive Officer, Seth Blackley, had served as our President since August 2011.
Our senior leadership team has extensive experience in the health care industry and a track record of delivering measurable clinical, financial and operational improvement for health care providers and payers. Our Chief Executive Officer, Seth Blackley, had served as our President since August 2011. Prior to co-founding the Company, Mr.
We were founded in 2011, ahead of the implementation of the ACA and before the rapid expansion of programs, such as Medicare ACOs or Medicare Bundled Payment Initiatives. Since our inception, we have invested a significant amount in expanding our offerings.
We were founded in 2011, ahead of the implementation of the ACA and before the rapid expansion of programs, such as Medicare ACOs or Medicare bundled payment initiatives.
Although the revenue from our contracts is not guaranteed because certain of our contracts are terminable for convenience by our partners after a notice period has passed, certain partners would be required to pay us a termination fee in certain circumstances. 9 Termination fees and the related notice period in certain of our contracts are determined based on the scope of the market-facing solutions that the partner has adopted and the duration of the contract.
Although the revenue from our contracts is not guaranteed because certain of our contracts are terminable for convenience by our partners after a notice period has passed, certain partners would be required to pay us a termination fee in certain circumstances.
Risk Factors - Risks relating to our business and industry.” Research and Development Our research and development expenditures primarily consist of our strategic investment in enhancing the functionality and usability of our software, Identifi® and developing programs and processes to maximize care delivery efficiency and effectiveness. We also capitalize software development costs related to Identifi® and CarePro TM .
Risk Factors - Risks relating to Data Protection, Privacy, Cybersecurity, Intellectual Property and Technology.” Research and Development Our research and development expenditures primarily consist of our strategic investment in enhancing the functionality and usability of our software, Identifi® and developing programs and processes to maximize care delivery efficiency and effectiveness.
(iii) Leverage proprietary specialty care management technology Our legacy NCH business leverages a custom specialty care management workflow platform, CarePro TM , to provide clinical decision support and manage providers to high-quality care, while aiming to achieve significant cost savings. Our technology consists of a clinical decision support portal that provides oversight of individual treatment plans for pathway adherence.
(iii) Deploying proprietary specialty care management technology Our legacy New Century Health business leverages a custom specialty care management workflow platform, CarePro TM , to provide clinical decision support and manage providers to high-quality care, while aiming to achieve significant cost savings.
We focus on the oncology, cardiology and increasingly the musculoskeletal, physical medicine and genetics markets with the objective of helping providers and payers deliver higher quality, more affordable care.
Today we focus on the oncology, cardiology, and musculoskeletal markets, supported by diagnostics like radiology and genetic testing, with the objective of helping providers and payers deliver higher quality, more affordable care.
Specialty Care Management Services Solution The foundation for our specialty care management services solution was derived through our acquisition in 2018 of New Century Health, a national population health leader in managing specialty care for Medicare, commercial and Medicaid members under performance-based and technology and services arrangements.
Specialty Care Management Services Solution The foundation for our specialty care management services solution was our acquisition in 2018 of New Century Health, a national leader in managing specialty care for Medicare members under performance-based and technology and services arrangements. Since then, we have continued to invest in the solution to broaden, deepen, and scale its capabilities.
Tutewohl received his B.S. in risk management, math and actuarial science from the University of Wisconsin. Jonathan Weinberg has served as our General Counsel since January 2014. Prior to joining Evolent, Mr. Weinberg was a Senior Vice President and Deputy General Counsel for Coventry Health Care, Inc.
Rafferty holds a B.B.A. in economics and management from University of Iowa and completed the Executive Development Program at the Wharton School of the University of Pennsylvania. Jonathan Weinberg has served as our General Counsel since January 2014. Prior to joining Evolent, Mr. Weinberg was a Senior Vice President and Deputy General Counsel for Coventry Health Care, Inc.
The partnership model enables cultural alignment, integration into the care delivery and payment workflow, contractual relationships and a cycle of clinical and cost improvement with shared financial benefit. We have sought to partner with leading payers and providers in sizable markets, which we believe creates a growth cycle that benefits from the secular transition to value-based care.
Partner Relationships We have sought to partner with leading payers and providers in sizable markets, which we believe creates a growth cycle that benefits from the secular transition to value-based care.
(i) High-performance provider networks We develop high-performance provider networks with tools, capabilities and incentives to align and support physicians. We develop and manage comprehensive specialty networks, provide physician engagement and support and identify provider financial incentive alignment.
We develop and manage comprehensive specialty networks, provide physician engagement and support and identify provider financial incentive alignment.
Going forward, we expect CMS, Congress, and state agencies to continue to closely scrutinize each component of the Medicare and Medicaid programs, as well as modify the terms and requirements of the programs. It is not possible to predict the outcome of this congressional or regulatory activity, either of which could adversely affect us.
Additionally, expansion of enforcement activity could adversely affect our business and financial condition. Going forward, we expect CMS, Congress, and state agencies to continue to closely scrutinize each component of the Medicare and Medicaid programs, as well as modify the terms and requirements of the programs.
Our platform integrates clinical analytics and protocols, pharmacy management, physician engagement, network management and claims payment to drive improved outcomes for partners.
Our technology consists of a clinical decision support portal that provides oversight of individual treatment plans for pathway adherence. Our platform integrates clinical analytics and protocols, pharmacy management, physician engagement, network management and claims payment to drive improved outcomes for partners.
Financial Statements - Note 25” for additional discussion regarding the sale of Series A Convertible Preferred Shares. Competitive Strengths We believe we are well-positioned to benefit from the transformations occurring in health care payment and delivery described above.
NIA is part of Evolent’s specialty care management offering. Refer to “Part II - Item 8. Financial Statements and Supplementary Data - Note 4” for additional discussion regarding the NIA acquisition. Competitive Strengths We believe we are well-positioned to benefit from the transformations occurring in health care payment and delivery described above.
Financial Statements - Note 10” for additional discussion regarding the exchange of 2024 Notes. On November 17, 2022, Evolent Health LLC, a wholly owned subsidiary of the Company, and the Company entered into a definitive agreement for the Company to acquire NIA (the “NIA acquisition”).
Acquisition of NIA On November 17, 2022, Evolent Health LLC and the Company entered into a definitive agreement for the Company to acquire NIA.
Employee Well-Being We believe that we have a responsibility to help maintain the health and well-being of our employees. We provide our employees with comprehensive benefits including: medical insurance, dental, vision, PTO and 401k plan. In addition, we offer 100% paid maternity leave, parental leave, fertility support, bariatric surgery, diabetes and hypertension program offerings.
We provide our employees with benefits including medical insurance, dental, vision, paid time off, and 401k plan with company match for eligible employees. In addition, we offer fertility support, bariatric surgery, diabetes, and hypertension program offerings, as well as 100% paid pregnancy leave and parental leave.
Evolent is an equal opportunity employer and works to create an environment where diverse perspectives can belong, grow and lead regardless of gender, national origin, ethnicity or other protected class. In 2022, we continue to build on established diversity, equity and inclusion initiatives as we aim to continue to create a more equitable workspace.
Diversity, Equity and Inclusion Evolent stands firm behind its commitment to DEI efforts, and overall non-discrimination practices. Evolent is an equal opportunity employer and works to create an environment where diverse perspectives can belong, grow, and lead regardless of gender, national origin, ethnicity, or other protected class.
The partnership model enables cultural alignment, integration into the provider care delivery and payment work-flow, contractual relationships and a cycle of clinical and cost improvement with shared financial benefit. In certain cases, we also agree to participate alongside our partners in risk-sharing or other support arrangements to increase our alignment of interests via performance-based relationships.
The partnership model enables cultural alignment, integration into the provider care delivery and payment work-flow, contractual relationships and a cycle of clinical and cost improvement with shared financial benefit.
Identifi® links our processes with those of our partners and other third parties to create a connected clinical delivery ecosystem, stratify patient populations, standardize clinical workflows and enable high-quality, cost-effective care. The configurable nature and broad capabilities of Identifi® help enhance the benefits our partners receive from our services and increase the effectiveness of our partners’ existing technology architecture.
Identifi® is our proprietary technology system that aggregates and analyzes data, manages care workflows and engages patients. Identifi® links our processes with those of our partners and other third parties to create a connected clinical delivery ecosystem, stratify patient populations, standardize clinical workflows and enable high-quality, cost-effective care.
Medicare Advantage Organization (“MAOs”) utilization management practices have been the focus of a report by the Department of Health and Human Services Office of Inspector General as well as another recent calendar year 2024 proposed rule by CMS (“CY 2024 Proposed Rule”).
Medicare Advantage Organization (“MAOs”) utilization management practices have been the focus of a 2022 report by the Department of Health and Human Services Office of Inspector General as well as new final rules by (CMS-4201-F and CMS-0057-F). CMS-4201-F, effective calendar year 2024, imposes several requirements on MAOs with respect to their use of prior authorization.
The CY 2024 Proposed Rule would impose several requirements on MAOs with respect to their use of prior authorization. The U.S. Congress (“Congress”) and state and local legislatures and regulators may propose and adopt legislation or policy changes or implementations effecting additional fundamental changes with respect to Medicare and Medicaid programs.
Congress (“Congress”) and state and local legislatures and regulators may propose and adopt legislation or policy changes or implementations effecting additional fundamental changes with respect to Medicare and Medicaid programs. Such changes in the law, or new interpretations of existing laws, may have a significant impact on our methods and costs of doing business.
As of February 16, 2023 , we had approximately 5,100 global employees. None of our employees are represented by a labor union, and we are not a party to any collective bargaining agreements.
None of our employees are represented by a labor union, and we are not a party to any collective bargaining agreements. Our primary human capital objective is to attract, retain and develop great talent that is committed to our mission and business objectives.
On June 24, 2022, the Company, through a wholly owned subsidiary, entered into a definitive agreement for the Company to acquire IPG. On August 1, 2022, we consummated the acquisition of IPG for $256.5 million in cash and the issuance of 3.7 million shares of Class A common stock.
Vital Decisions is part of Evolent’s specialty care management services solution. Acquisition of IPG On June 24, 2022, the Company, through a wholly owned subsidiary, entered into a definitive agreement for the Company to acquire IPG.
We believe in pay for performance and structure our compensation to annually incentivize and reward high performance.
We believe in pay for performance and structure our compensation to annually incentivize and reward high performance. We periodically review and evaluate our compensation and pay practices for market competitiveness. Employee Growth and Development We believe the continued growth and development of our talent is critical to maintaining our success and growth as a company.
Our research and development expenditures and capitalized software development costs also include the suite of products developed primarily by New Century Health. Human Capital Management We believe our commitment to and investment in human capital enables our continued efforts to reduce the total cost of care, improve clinical quality and simplify administration.
We also capitalize software development costs related to Identifi® and CarePro TM . Our research and development expenditures and capitalized software development costs also include the suite of products developed primarily by New Century Health. Human Capital Management We believe our people differentiate our business and power our mission. As of December 31, 2023, we had approximately 4,700 global employees.
On January 20, 2023, we consummated the NIA acquisition for $400.0 million in cash, $265.0 million in debt financing provided by Ares Capital Corporation and the issuance of 8.5 million shares of Class A common stock. NIA reports into Evolent’s specialty care management offering, New Century Health, and is consolidated into the Company’s Clinical Solutions segment.
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 Capital Corporation (“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.
IPG reports into Evolent’s specialty care management offering, New Century Health, and is consolidated into the Company’s Clinical Solutions segment. Refer to “Part II - Item 8. Financial Statements - Note 4” for additional discussion regarding the IPG transaction.
On August 1, 2022, we consummated the acquisition of IPG for $256.5 million in cash and the issuance of 3.7 million shares of Class A common stock. IPG is part of Evolent’s specialty care management services solution. Refer to “Part II - Item 8. Financial Statements and Supplementary Data - Note 4” for additional discussion regarding the IPG transaction.
We focus on the following key measures and objectives in managing our business in order to deploy and develop our human capital strategy: • Employee Compensation and Incentives • Employee Training and Career Development • Employee Well Being • Diversity, Equity and Inclusion Employee Compensation and Incentives We aim to attract and retain the highest caliber of health care talent.
We focus on the following areas to this strategy: • Talent Attraction, Selection, and Hiring • Employee Compensation and Incentives • Employee Training and Career Development • Employee Well Being • Diversity, Equity and Inclusion (“DEI”) Talent Attraction, Selection, and Hiring We seek to source the right talent by looking at both internal and external talent pools.
Removed
Business Market Opportunity We are a market leader in the new era of value-based care, in which leading health systems and physician organizations, which we refer to as providers, as well as health plans, which we refer to as payers, are moving their business models from traditional fee-for-service (“FFS”) reimbursement to an increasingly integrated clinical and financial responsibility for populations.
Added
Item 1. Business Market Opportunity Evolent is a market leader in connecting care for people with complex conditions like cancer, cardiovascular disease, and musculoskeletal diagnoses. We work on behalf of health plans and other risk-bearing entities and payers (our customers) to support physicians and other healthcare providers (our users) in providing high quality evidence-based care to their patients.
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We refer to our provider and payer customers as partners. We consider this integration of health care delivery and financial responsibility with the aim of lowering cost, enhancing quality, and improving satisfaction, to be the core of value-based care.
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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.
Removed
We believe the pace of this integration is accelerating, driven by price pressure in traditional FFS health care, a market environment that is incentivizing value-based care models, growth in consumer-focused insurance programs, such as Medicare Advantage and innovation in data and technology.
Added
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).
Removed
The U.S. health care market was $4.3 trillion in spending during 2022, accounting for 20% of the United State Gross Domestic Product.
Added
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 financial incentives with the best evidence.
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As of December 31, 2021, it is estimated that approximately 61% of all health care payments in the United States are tied in some way to quality of care or value, with the remainder based purely on FFS reimbursement.
Added
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.
Removed
However, the proportion of payments tied to quality and value varies significantly by health plan line of business and the majority of current value-based models remain tied to FFS frameworks.
Added
We now provide a broad spectrum of specialty care management services in oncology, cardiology, musculoskeletal markets and holistic total cost of care management along with an integrated platform for health plan administration and value-based business infrastructure under one go to market package.
Removed
Government agencies and private organizations are focused on goals aimed at accelerating the adoption of risk-based reimbursement models to be the predominant form of health care payment by the end of the current decade.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks include, but are not limited to, the following: • We may be unable to efficiently integrate NIA into our operations. • The historical financial information of NIA related to the NIA acquisition may not be a reliable indicator of future results. • We derive a significant portion of our revenues from our largest partners. • The market for value-based health care in the United States is rapidly evolving. • The health care regulatory and political framework is uncertain and evolving. • If we are unable to offer new and innovative products and services or our products and services fail to keep pace our results of operations may suffer. • We have made and entered, and may in the future make and enter acquisitions, investments and alliances and joint ventures, which may be difficult to integrate, result in unanticipated costs or dilute our stockholders. • Our revenues and growth rely, in part, on our partners and revenues from our engagements, which are subject to factors outside of our control. • Failure to accurately underwrite performance-based contracts could result in a reduction in profitability for our specialty care management solution. • If we fail to effectively manage our growth and costs, our business could be harmed. • Public health emergencies such as the COVID-19 pandemic have adversely affected, and could in the future, adversely affect our business and the business of our customers and suppliers. • Our offshore support and professional services may prove difficult to manage or may not allow us to realize our cost reduction goals. • If we lose key members of our management team or employees or are unable to attract and retain employees, our compensation costs will increase and our business and operating results will be adversely affected. • We have recorded a significant amount of goodwill, and we may never realize the full value of our intangible assets, causing us to record impairments that may negatively affect our results of operations. • We may need to obtain additional financing. • We have experienced net losses in the past and we may not achieve profitability in the future. • We are and may become subject to litigation, proceedings, government inquiries, reviews, audits or investigations. • We typically incur significant upfront costs in our partner relationships, and if we are unable to develop or grow these partner relationships over time, we are unlikely to recover these costs and our operating results may suffer. • If we do not continue to attract new partners and successfully capture new opportunities, we may not achieve our financial projections, and our results of operations would be harmed. • As we enter into an increasing number and variety of risk sharing arrangements with partners, our revenues and profitability could be limited and negatively impacted. • If the estimates and assumptions we use to determine the size of the target markets for our services are inaccurate, our future growth rate may be impacted and our business would be harmed. • If we are not able to maintain and enhance our reputation and brand recognition, our business and results of operations will be harmed. • Consolidation in the health care industry could have a material adverse effect on us. • We face intense competition, which could limit our ability to maintain or expand market share within our industry, and if we do not maintain or expand our market share our business and operating results will be harmed. • Our offerings could be subject to audits by CMS and other governmental payers and whistleblower claims. • Exclusivity and right of first refusal clauses in some of our partner and founder contracts may prohibit us from partnering with certain other providers in the future, and limit our growth. • Increasing inflationary pressures and consumer costs may have a negative effect on our margins, profitability and results of operations • We are subject to privacy and data protection laws. • Data loss or corruption due to failures or errors in our systems or service disruptions at our data centers may adversely affect our reputation and relationships with existing partners, which could have a negative impact on us. • Our business is subject to online security risks, and if we are unable to safeguard the security and privacy of confidential data, we may face significant liabilities and our reputation and business will be harmed. • If we are unable to obtain, maintain and enforce intellectual property protection, others may be able to develop and commercialize technology and products similar to ours, and our ability to commercialize our technology and products may be adversely affected. • If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected. • Third parties may initiate legal proceedings alleging that we are infringing or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on us. 17 • Our use of “open source” software could adversely affect our ability to offer our services and subject us to possible litigation. • If we are unable to protect the confidentiality of our trade secrets, know-how and other proprietary information, the value of our technology and products could be adversely affected. • We do not control the intellectual property rights covering certain technologies and any loss of rights to these technologies or the rights licensed to us could prevent us from developing and/or commercializing our products. • Any restrictions on our use of, or ability to license, data, or our failure to license data and integrate third-party technologies, could have a material adverse effect on us. • We rely on Internet infrastructure, bandwidth providers, data center providers, other third parties and our own systems for providing services to our partners, and any failure or interruption in the services provided by these third parties or our own systems could expose us to litigation and negatively impact our relationships with partners, adversely affecting our brand and our business. • We rely on third-party vendors to host and maintain our technology platform. • If we identify material weaknesses in the future, we and our auditor may conclude that our internal control over financial reporting is not effective and we may be unable to produce timely and accurate financial statements. • We are required to pay certain of our pre-IPO investors for certain tax benefits we may claim in the future, and these amounts are expected to be material. • We will not be reimbursed for any payments made under the TRA in the event that any tax benefits are disallowed. • We may not be able to realize all or a portion of the tax benefits that resulted from the exchanges of Class B common units or from the utilization of certain NOLs and from payments made under the TRA. • In certain cases, payments by us under the TRA may be accelerated or significantly exceed the tax benefits we realize in respect of the tax attributes subject to the TRA. • The agreements between us and certain of our pre-IPO investors were made in the context of an affiliated relationship and may contain different terms than comparable agreements with unaffiliated third parties. • The conditional conversion feature of the 2025 Notes, if triggered, may adversely affect our financial condition and operating results. • The accounting method for convertible debt securities that may be settled in cash. • We are exposed to interest rate risk, which could cause the Company’s debt service obligations to increase significantly. • Our debt following the NIA acquisition is significant and could adversely affect our business and our ability to meet our obligations. • Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debt. • We expect that our stock price will be volatile and may fluctuate or decline significantly. • Our Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of holders of our Class A common stock. • The market price of our Class A common stock could decline due to the large number of shares of Class A common stock issuable upon conversion of our convertible notes or the Series A Preferred Stock, or by sales or issuances of substantial amounts of our Class A common stock. • Some provisions of Delaware law certificate of incorporation and our by-laws and certain of our contracts may deter third parties from acquiring us. • Our second amended and restated certificate of incorporation, as amended, and stockholders’ agreement contain provisions renouncing our interest and expectation to participate in certain corporate opportunities identified by or presented to certain of our pre-IPO investors. • Our certificate of incorporation designates the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes. • We do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Biggest changeThese risks include, but are not limited to, the following: • We may be unable to efficiently integrate NIA into our operations. • The historical financial information of NIA related to the NIA acquisition may not be a reliable indicator of future results. • We derive a significant portion of our revenues from our largest partners. • The market for value-based health care in the United States is rapidly evolving. • The health care regulatory and political framework is uncertain and evolving. • If we are unable to offer new and innovative products and services or our products and services fail to keep pace our results of operations may suffer. • We have made and entered, and may in the future make and enter acquisitions, investments and alliances and joint ventures, which may be difficult to integrate, result in unanticipated costs or dilute our stockholders. • Our revenues and growth rely, in part, on our partners and revenues from our engagements, which are subject to factors outside of our control. • Failure to accurately predict our exposure under performance-based contracts could result in a reduction in profitability. • If we fail to effectively manage our growth and costs, our business could be harmed. • Public health emergencies have adversely affected, and could in the future, adversely affect our business and the business of our customers and suppliers. • Our offshore support and professional services may prove difficult to manage or may not allow us to realize our cost reduction goals. • If we lose key members of our management team or employees or are unable to attract and retain employees, our compensation costs will increase and our business and operating results will be adversely affected. • We have recorded a significant amount of goodwill, and we may never realize the full value of our intangible assets, causing us to record impairments that may negatively affect our results of operations. • We may need to obtain additional financing. • We have experienced net losses in the past and we may not achieve profitability in the future. • We are and may become subject to litigation, proceedings, government inquiries, reviews, audits or investigations. • We typically incur significant upfront costs in our partner relationships, and if we are unable to develop or grow these partner relationships over time, we are unlikely to recover these costs and our operating results may suffer. • If we do not continue to attract new partners and successfully capture new opportunities with new or existing partners, we may not achieve our financial projections, and our results of operations would be harmed. • The costs of compliance with sustainability or other environmental, social responsibility or governance laws, regulations, or policies, including investor and client-driven policies and standards, could adversely affect our business. • As we enter into an increasing number and variety of risk sharing arrangements with partners, our revenues and profitability could be limited and negatively impacted. • If the estimates and assumptions we use to determine the size of the target markets for our services are inaccurate, our future growth rate may be impacted and our business would be harmed. • Consolidation in the health care industry could have a material adverse effect on us. • We face intense competition, which could limit our ability to maintain or expand market share within our industry, and if we do not maintain or expand our market share our business and operating results will be harmed. • Increasing inflationary pressures and consumer costs may have a negative effect on our margins, profitability and results of operations. • We are subject to data privacy and protection laws. • Data loss or corruption due to failures or errors in our systems or service disruptions at our data centers may adversely affect our reputation and relationships with existing partners, which could have a negative impact on us. • Our business is subject to online security risks, and if we are unable to safeguard the security and privacy of confidential data, we may face significant liabilities and our reputation and business will be harmed. • If we are unable to obtain, maintain and enforce intellectual property protection, others may be able to develop and commercialize technology and products similar to ours, and our ability to commercialize our technology and products may be adversely affected. • If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected. 15 • Third parties may initiate legal proceedings alleging that we are infringing or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on us. • Our use of “open source” software could adversely affect our ability to offer our services and subject us to possible litigation. • If we are unable to protect the confidentiality of our trade secrets, know-how and other proprietary information, the value of our technology and products could be adversely affected. • We do not control the intellectual property rights covering certain technologies and any loss of rights to these technologies or the rights licensed to us could prevent us from developing and/or commercializing our products. • Any restrictions on our use of, or ability to license, data, or our failure to license data and integrate third-party technologies, could have a material adverse effect on us. • We rely on Internet infrastructure, bandwidth providers, data center providers, other third parties and our own systems for providing services to our partners, and any failure or interruption in the services provided by these third parties or our own systems could expose us to litigation and negatively impact our relationships with partners, adversely affecting our brand and our business. • We rely on third-party vendors to host and maintain our technology platform. • If we identify material weaknesses in the future, we and our auditor may conclude that our internal control over financial reporting is not effective and we may be unable to produce timely and accurate financial statements. • We are required to pay certain of our pre-IPO investors for certain tax benefits we may claim in the future, and these amounts are expected to be material. • We will not be reimbursed for any payments made under the TRA in the event that any tax benefits are disallowed. • The agreements between us and certain of our pre-IPO investors were made in the context of an affiliated relationship and may contain different terms than comparable agreements with unaffiliated third parties. • The conditional conversion feature of the 2025 Notes and the 2029 Notes (each as defined below), if triggered, may adversely affect our financial condition and operating results. • We are exposed to interest rate risk, which could cause the Company’s debt service obligations to increase significantly. • Our debt following the NIA acquisition is significant and could adversely affect our business and our ability to meet our obligations. • Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debt. • Our Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of holders of our Class A common stock. • The market price of our Class A common stock could decline due to the large number of shares of Class A common stock issuable upon conversion of our convertible notes or the Series A Preferred Stock, or by sales or issuances of substantial amounts of our Class A common stock. • We do not anticipate paying any cash dividends on our common stock in the foreseeable future.
In addition to these health care laws and regulations, we are subject to various other laws and regulations, including, among others, other aspects of state insurance laws, the Stark Law relating to self-referrals, the whistleblower provisions of the False Claims Act, anti-kickback laws, antitrust laws and the privacy and data protection laws.
In addition to these health care laws and regulations, we are subject to various other laws and regulations, including, among others, other aspects of state insurance laws, the Stark Law relating to self-referrals, the whistleblower provisions of the False Claims Act, anti-kickback laws, antitrust laws and the privacy and data protection laws.
Resolution of these types of matters against us may result in our having to pay significant fines, judgments or settlements, which, if uninsured, or if the fines, judgments and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having a material adverse effect on our business, financial condition, results of operations, cash flow and per share trading price of our Class A common stock.
Resolution of these types of matters against us may result in us having to pay significant fines, judgments or settlements, which, if uninsured, or if the fines, judgments and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having a material adverse effect on our business, financial condition, results of operations, cash flow and per share trading price of our Class A common stock.
In addition, upon the occurrence of a refinancing or replacement of the entirety of the indebtedness under the Credit Agreement prior to its maturity that is provided solely by lenders who are not affiliates or approved funds of Ares Capital Management LLC, we will be required to redeem all shares of Series A Preferred Stock then outstanding for cash at a redemption price per share equal to 165.00% of the then-current liquidation preference of the Series A Preferred Stock, plus all accrued and unpaid dividends on the Series A Preferred Stock being redeemed, plus, solely in the event such refinancing or replacement is consummated prior to January 20, 2025, the aggregate amount of regular dividends per share which would have otherwise been payable on the Series A Preferred Stock from the date of redemption until January 20, 2025.
In addition, upon the occurrence of a refinancing or replacement of the entirety of the indebtedness under the Credit Agreement prior to its maturity that is provided solely by lenders who are not affiliates or approved funds of Ares Capital Management LLC, we will be required to redeem all shares of Series A Preferred Stock then outstanding for cash at a redemption price per share equal to 165.00% of the then-current liquidation preference of the Series A Preferred Stock, plus 40 all accrued and unpaid dividends on the Series A Preferred Stock being redeemed, plus, solely in the event such refinancing or replacement is consummated prior to January 20, 2025, the aggregate amount of regular dividends per share which would have otherwise been payable on the Series A Preferred Stock from the date of redemption until January 20, 2025.
In addition, any indebtedness we incur and restrictive covenants contained in the agreements related thereto could: 27 • make it difficult for us to satisfy our obligations, including interest payments on any debt obligations; • limit our ability to obtain additional financing to operate our business; • require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing our ability to use our cash flow to fund capital expenditures and working capital and other general operational requirements; • limit our flexibility to plan for and react to changes in our business and the health care industry; • place us at a competitive disadvantage relative to our competitors; • limit our ability to pursue acquisitions; and • increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business or the economy.
In addition, any indebtedness we incur and restrictive covenants contained in the agreements related thereto could: • make it difficult for us to satisfy our obligations, including interest payments on any debt obligations; • limit our ability to obtain additional financing to operate our business; • require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing our ability to use our cash flow to fund capital expenditures and working capital and other general operational requirements; • limit our flexibility to plan for and react to changes in our business and the health care industry; • place us at a competitive disadvantage relative to our competitors; • limit our ability to pursue acquisitions; and • increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business or the economy.
The risks and uncertainties relating to integrating the two businesses, and realizing the anticipated cost synergies, include, among other things: • the challenge of integrating complex organizations, platforms, systems, operating procedures, compliance programs, technology, networks and other assets of NIA; • the difficulties harmonizing differences in the business cultures of our company and NIA; • the inability to combine successfully our respective businesses in a manner that permits us to achieve the cost savings, revenue synergies and other anticipated benefits from the NIA acquisition; • the inability to minimize the diversion of management attention from ongoing business concerns during the process of integrating NIA into our businesses; • the inability to resolve potential conflicts that may arise relating to customer, supplier and other important relationships of our business and NIA; and • difficulties in retaining key management and other key employees.
The risks and uncertainties relating to integrating the two businesses, and realizing the anticipated cost synergies, include, among other things: • the challenge of integrating complex organizations, platforms, systems, operating procedures, compliance programs, technology, networks and other assets of NIA; • the difficulties harmonizing differences in the business cultures of our company and NIA; 16 • the inability to combine successfully our respective businesses in a manner that permits us to achieve the cost savings, revenue synergies and other anticipated benefits from the NIA acquisition; • the inability to minimize the diversion of management attention from ongoing business concerns during the process of integrating NIA into our businesses; • the inability to resolve potential conflicts that may arise relating to customer, supplier and other important relationships of our business and NIA; and • difficulties in retaining key management and other key employees.
If the Company undergoes a Change of Control (as defined in the Credit Agreement), the Company will be required to redeem all shares of Series A Preferred Stock then outstanding for cash at a price per share equal to the greater of (x) 150.00% of the then-current liquidation 42 preference per share of the Series A Preferred Stock, if such redemption occurs prior to January 20, 2025, and 135.00% of the then-current liquidation preference per share of the Series A Preferred Stock, if such redemption occurs on or after January 20, 2025, and (y) the value of the Class A Common Stock issuable upon conversion of a share of Series A Preferred Stock, which value shall be determined based on the value attributed to the Class A Common Stock in connection with such Change of Control.
If the Company undergoes a Change of Control (as defined in the Credit Agreement), the Company will be required to redeem all shares of Series A Preferred Stock then outstanding for cash at a price per share equal to the greater of (x) 150.00% of the then-current liquidation preference per share of the Series A Preferred Stock, if such redemption occurs prior to January 20, 2025, and 135.00% of the then-current liquidation preference per share of the Series A Preferred Stock, if such redemption occurs on or after January 20, 2025, and (y) the value of the Class A Common Stock issuable upon conversion of a share of Series A Preferred Stock, which value shall be determined based on the value attributed to the Class A Common Stock in connection with such Change of Control.
Acquisitions, investments and alliances, including our recent acquisitions of NIA, Vital Decisions, and IPG, could result in numerous risks to our business which could negatively impact our financial condition and results of operations, including: • difficulty converting platforms or integrating the purchased operations, products or technologies; • substantial unanticipated integration costs, delays and challenges that may arise in integration; • the loss of key customers who are in turn subject to risks and financial dislocation in their businesses; • the loss of key employees, particularly those of the acquired operations; • difficulty retaining or developing the acquired business’ customers; • adverse effects on our existing business relationships with customers, suppliers, other partners, standing with regulators; • challenges related to the integration and operation of businesses that operate in new geographic areas and new markets or lines of business; • unanticipated financial losses in the acquired business, including the risk of higher-than-expected health care costs; • failure to realize the potential cost savings or other financial benefits or the strategic benefits of the acquisitions, including failure to consummate any proposed or contemplated transaction; and 23 • liabilities, including acquired litigation, and expenses from the acquired businesses for contractual disputes with customers and other third parties, infringement of intellectual property rights, data privacy violations or other claims and failure to obtain indemnification for such liabilities or claims, and distraction of our personnel in connection with any related proceedings.
Acquisitions, investments and alliances, including our acquisitions of NIA, Vital Decisions, and IPG, could result in numerous risks to our business which could negatively impact our financial condition and results of operations, including: • difficulty converting platforms or integrating the purchased operations, products or technologies; • substantial unanticipated integration costs, delays and challenges that may arise in integration; • the loss of key customers who are in turn subject to risks and financial dislocation in their businesses; • the loss of key employees, particularly those of the acquired operations; • difficulty retaining or developing the acquired business’ customers; • adverse effects on our existing business relationships with customers, suppliers, other partners, standing with regulators; • challenges related to the integration and operation of businesses that operate in new geographic areas and new markets or lines of business; • unanticipated financial losses in the acquired business, including the risk of higher-than-expected health care costs; • failure to realize the potential cost savings or other financial benefits or the strategic benefits of the acquisitions, including failure to consummate any proposed or contemplated transaction; and • liabilities, including acquired litigation, and expenses from the acquired businesses for contractual disputes with customers and other third parties, infringement of intellectual property rights, data privacy violations or other claims and failure to obtain indemnification for such liabilities or claims, and distraction of our personnel in connection with any related proceedings.
The actual amount we will be required to pay under the TRA may be materially greater than these hypothetical amounts, as potential future payments will vary as a consequence of our tax position, the relevant tax basis analysis, our ability to generate sufficient future taxable income in order to be able to benefit from the aforementioned tax attributes, the character and timing of our taxable income and the income tax rates applicable at the time we realize cash savings attributable to our recognition and utilization of the aforementioned tax attributes.
The actual amount we will be required to pay under the TRA may be materially greater than these amounts, as potential future payments will vary as a consequence of our tax position, the relevant tax basis analysis, our ability to generate sufficient future taxable income in order to be able to benefit from the aforementioned tax attributes, the character and timing of our taxable income and the income tax rates applicable at the time we realize cash savings attributable to our recognition and utilization of the aforementioned tax attributes.
In addition, if we identify future material weaknesses in our internal controls over financial reporting or if we are unable to comply with the demands that are placed upon us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, in a timely manner, we may be unable to accurately report our financial results, or report them within the timeframes required by the SEC.
In addition, if we identify future material weaknesses in our internal controls over financial 35 reporting or if we are unable to comply with the demands that are placed upon us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, in a timely manner, we may be unable to accurately report our financial results, or report them within the timeframes required by the SEC.
If the IRS successfully challenges the tax basis increases resulting from the Class B Exchanges or the existence or amount of the pre-IPO NOLs at any point in the future after payments are made under the TRA, we will not be reimbursed for any payments we had made under the TRA (although future payments under the TRA, if any, would be netted against any unreimbursed payments to reflect the result of any such successful challenge by the IRS).
If the IRS successfully challenges the tax basis increases resulting from the Class B Exchanges or the existence or amount of the pre-IPO NOLs at any point in the future after payments are made under the TRA, we will not be reimbursed for any payments we had made under the TRA (although future payments under the TRA, if any, would be netted against any unreimbursed payments to reflect 36 the result of any such successful challenge by the IRS).
These threats could include cyber-attacks, the use of harmful malware or ransomware, security breaches, acts of vandalism or theft (including by employees), computer viruses, misplaced or lost data, programming and/or human errors, power outages, protected health information leakage from implementing third-party technology to process and share data, hardware failures or other similar events.
These threats include cyber-attacks, the use of harmful malware or ransomware, security breaches, acts of vandalism or theft (including by employees), computer viruses, misplaced or lost data, programming and/or human errors, power outages, protected health information leakage from implementing third-party technology to process and share data, hardware failures or other similar events.
If one or more holders elect to convert their 2025 Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.
If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.
The new law also grants additional patient protections, including requiring providers to send a good faith estimate of the expected charges for furnishing items or services to an insured patient’s health plan (or directly to an uninsured patient) before such items or services are delivered (including items or services reasonably expected to be provided in conjunction with scheduled items or services or that are reasonably expected to be delivered by another provider).
The new law also grants additional patient protections, including requiring providers to send a good faith estimate of the expected charges for furnishing items or services to an insured patient’s health plan (or directly to an uninsured patient) before such items or services are delivered (including items or services reasonably expected to be provided in conjunction with scheduled items or 19 services or that are reasonably expected to be delivered by another provider).
Furthermore, in April 2020, Congress enacted the Families First Coronavirus Response Act (the “FFCRA”), which requires Medicaid programs to keep individuals continuously enrolled through the end of the month in which the COVID-19 public health emergency (the “PHE”) is terminated. The PHE was most recently re-extended on October 13, 2022 through January 11, 2023.
Furthermore, in April 2020, Congress enacted the Families First Coronavirus Response Act, which requires Medicaid programs to keep individuals continuously enrolled through the end of the month in which the COVID-19 public health emergency (the “PHE”) is terminated. The PHE was most recently re-extended on October 13, 2022 through January 11, 2023.
However, there is no guarantee we will be able to enter into such agreements on acceptable terms or at all. The functionality of our services platforms depends, in part, on our ability to integrate with third-party applications and data management systems that our partners use and from which they obtain data.
However, there is no guarantee we will be able to enter into such agreements on acceptable terms or at all. The functionality of our 20 services platforms depends, in part, on our ability to integrate with third-party applications and data management systems that our partners use and from which they obtain data.
Results of any such litigation are difficult to predict and may require us to stop commercializing or using our products or technology, obtain licenses, modify our services and technology while we develop non-infringing substitutes or incur substantial damages, settlement costs or face a temporary 34 or permanent injunction prohibiting us from marketing or providing the affected products and services.
Results of any such litigation are difficult to predict and may require us to stop commercializing or using our products or technology, obtain licenses, modify our services and technology while we develop non-infringing substitutes or incur substantial damages, settlement costs or face a temporary or permanent injunction prohibiting us from marketing or providing the affected products and services.
While we maintain insurance covering certain security and privacy damages and claim expenses, we may not carry insurance or maintain coverage sufficient to compensate for all liability and such insurance may not be available for renewal on acceptable terms or at all, and in any event, insurance coverage would not address the reputational damage that could result from a security incident.
While we maintain insurance covering certain security and privacy damages and claim expenses, we may not carry insurance or 30 maintain coverage sufficient to compensate for all liability and such insurance may not be available for renewal on acceptable terms or at all, and in any event, insurance coverage would not address the reputational damage that could result from a security incident.
If the economics of a partnership change such that we are unlikely to fully recover those costs, we may be required to write off a portion or all of those deferred costs and revenues and our operating results may suffer. In 28 addition, we estimate the costs and timing for completing the transformation phase of relevant partner relationships.
If the economics of a partnership change such that we are unlikely to fully recover those costs, we may be required to write off a portion or all of those deferred costs and revenues and our operating results may suffer. In addition, we estimate the costs and timing for completing the transformation phase of relevant partner relationships.
We may, over time, increase our investment in protecting our intellectual property through additional trademark, patent and other intellectual property filings that could be expensive and time-consuming. Effective trademark, trade-secret and copyright protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of 33 defending our rights.
We may, over time, increase our investment in protecting our intellectual property through additional trademark, patent and other intellectual property filings that could be expensive and time-consuming. Effective trademark, trade-secret and copyright protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights.
In addition, Section 203 of the DGCL may affect the ability of an “interested stockholder” to engage in certain business combinations, for a period of three years following the time that the stockholder becomes an “interested stockholder.” We have elected in our second amended and restated certificate of incorporation, as amended, not to be subject to Section 203 of the DGCL.
In addition, Section 203 of the DGCL may affect the ability of an “interested stockholder” to engage in certain business combinations, for a period of three years following the time that the stockholder becomes an “interested stockholder.” We have elected in our second 41 amended and restated certificate of incorporation, as amended, not to be subject to Section 203 of the DGCL.
Under the UPMC IP Agreement, certain of UPMC’s proprietary analytics models and know-how are licensed to Evolent on a nonexclusive basis from UPMC; pursuant to the UPMC Technology Agreement, UPMC’s proprietary technology platform, associated know-how and the Identifi® trademark are licensed to Evolent on an irrevocable, non-exclusive basis from UPMC; in each case, subject to certain ongoing territorial, time and use 35 restrictions.
Under the UPMC IP Agreement, certain of UPMC’s proprietary analytics models and know-how are licensed to Evolent on a nonexclusive basis from UPMC; pursuant to the UPMC Technology Agreement, UPMC’s proprietary technology platform, associated know-how and the Identifi® trademark are licensed to Evolent on an irrevocable, non-exclusive basis from UPMC; in each case, subject to certain ongoing territorial, time and use restrictions.
If we lose key members of our management team or employees or are unable to attract and retain the employees we need, our compensation costs will increase and our business and operating results will be adversely affected. Our success depends largely upon the continued services of our key executive officers and recruitment of additional highly-skilled employees.
If we lose key members of our management team or employees or are unable to attract and retain the employees we need, our compensation costs will increase and our business and operating results will be adversely affected. 23 Our success depends largely upon the continued services of our key executive officers and recruitment of additional highly-skilled employees.
Our competitors are constantly developing products and services that may become more efficient or appealing to our existing partners and potential partners. Additionally, some health care information technology providers have begun to incorporate enhanced analytical tools and functionality into their core product and service offerings used by health care providers.
Our competitors are constantly developing products and services that may become more efficient or appealing to 27 our existing partners and potential partners. Additionally, some health care information technology providers have begun to incorporate enhanced analytical tools and functionality into their core product and service offerings used by health care providers.
In 29 addition, any factor that diminishes our reputation or that of our management, including failing to meet the expectations of our partners, or any adverse publicity or litigation involving or surrounding the Company or one of our joint venture partners, investors or strategic alliance partners could make it substantially more difficult for us to attract new partners.
In addition, any factor that diminishes our reputation or that of our management, including failing to meet the expectations of our partners, or any adverse publicity or litigation involving or surrounding the Company or one of our joint venture partners, investors or strategic alliance partners could make it substantially more difficult for us to attract new partners.
To operate without interruption, both we and our service providers must guard against: • damage from fire, power loss and other natural disasters; • telecommunications failures; • software and hardware errors, failures and crashes; • security breaches, computer viruses and similar disruptive problems; and • other potential interruptions.
To operate without interruption, both we and our service providers must guard against: • damage from fire, power loss and other natural disasters; 34 • telecommunications failures; • software and hardware errors, failures and crashes; • security breaches, computer viruses and similar disruptive problems; and • other potential interruptions.
The market for our products and services is fragmented, competitive and characterized by rapidly evolving technology standards, customer needs and the frequent introduction of new products and services. Our competitors range from smaller niche companies to large, well-financed and technologically-sophisticated entities.
The market for our solutions is fragmented, competitive and characterized by rapidly evolving technology standards, customer needs and the frequent introduction of new products and services. Our competitors range from smaller niche companies to large, well-financed and technologically-sophisticated entities.
These various laws in many cases are not preempted by HIPAA and may be subject to varying interpretations by the courts and government agencies, creating complex compliance issues for us and our partners and potentially exposing us to additional expense, adverse publicity and liability, any of which could adversely affect our business. • Federal and state consumer protection laws are increasingly being applied by the FTC and states’ attorneys general to regulate the collection, use, storage and disclosure of personal or individually identifiable information, through websites or otherwise, and to regulate the presentation of website content.
These various laws in many cases are not preempted by HIPAA and may be subject to varying interpretations by the courts and government agencies, creating complex compliance issues for us and our partners and potentially exposing us to additional expense, adverse publicity and liability, any of which could adversely affect our business. • Federal and state consumer protection laws are increasingly being applied by the FTC and states’ attorneys general to regulate the collection, use, storage and disclosure of personal information, through websites or otherwise, and to regulate the presentation of website content.
Even when our software does not cause these problems, the existence of these 32 errors might cause us to incur significant costs, divert the attention of our technical personnel from our product development efforts, impact our reputation and lead to significant partner relations problems.
Even when our software does not cause these problems, the existence of these errors might cause us to incur significant costs, divert the attention of our technical personnel from our product development efforts, impact our reputation and lead to significant partner relations problems.
If they succeed in registering or developing common law rights in such trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks to commercialize our technologies or products in certain relevant countries.
If they succeed in registering or developing 31 common law rights in such trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks to commercialize our technologies or products in certain relevant countries.
We are also subject to additional risks and uncertainties because we may be dependent upon and subject to the liability, losses or reputational damage relating to joint venture partners that are not entirely under our control.
We are also subject to additional costs, risks and uncertainties because we may be dependent upon and subject to the liability, losses or reputational damage relating to joint venture partners that are not entirely under our control.
As we grow, our customer acquisition costs could outpace our build-up of recurring revenue, and we may be unable to reduce our total operating costs through economies of scale such that we are unable to achieve profitability.
As we grow, our customer acquisition costs could outpace our build-up of recurring revenue, and we may be unable to reduce our total 25 operating costs through economies of scale such that we are unable to achieve profitability.
Such payment would be based on certain valuation assumptions and deemed events set forth in the TRA, including the assumption that we have sufficient taxable income to fully utilize 39 such tax benefits.
Such payment would be based on certain valuation assumptions and deemed events set forth in the TRA, including the assumption that we have sufficient taxable income to fully utilize such tax benefits.
We depend upon licenses from third parties for some of the technology and data used in our applications, and for some of the technology platforms upon which these applications are built and operate, including under the UPMC IP Agreement and the UPMC Technology Agreement.
We depend upon licenses from third parties for some of the technology and data used in our applications, and for some of the technology platforms upon which these applications are built and operate, including under the UPMC IP Agreement and the UPMC 33 Technology Agreement.
The Stark Law is relevant to our business because we frequently organize arrangements of various kinds under which (a) physicians and hospitals jointly invest in and own ACOs, clinically integrated networks and other entities that engage in value-based contracting with third-party payers or (b) physicians are paid by hospitals or hospital affiliates for care management, medical or other services related to value-based contracts.
The Stark Law is relevant to our business because we frequently organize arrangements of various kinds under which (a) providers and hospitals jointly invest in and own ACOs, clinically integrated networks and other entities that engage in value-based contracting with third-party payers or (b) providers are paid by hospitals or hospital affiliates for care management, medical or other services related to value-based contracts.
A cyber-attack that bypasses our, or our third-party providers’, security systems successfully could require us to expend significant resources to remediate any damage, and prevent future occurrences, interrupt our operations, damage our reputation and our relationship with our partners, expose us or other third parties to a risk of loss or misuse of confidential information, reduce demand for our products and services or subject us to significant liability through litigation as well as regulatory action.
A cyber-attack that bypasses our, or our third-party vendors’, security systems successfully could require us to expend significant resources to remediate any damage, and prevent future occurrences, interrupt our operations, damage our reputation and our relationship with our partners, expose us or other third parties to a risk of loss or misuse of confidential information, reduce demand for our products and services or subject us to significant liability through litigation as well as regulatory action.
The market for value-based health care in the United States continues to evolve, which makes it difficult to forecast demand for our products and services. 20 The market for value-based health care in the United States is rapidly evolving.
The market for value-based health care in the United States continues to evolve, which makes it difficult to forecast demand for our products and services. The market for value-based health care in the United States is rapidly evolving.
As we increase our exposure to Medicare and Medicaid businesses through new and existing partners, we increase our exposure to changes in government policy with respect to and regulation of the Medicaid and Medicare programs in which we and our partners participate.
As we increase our exposure to Medicare and Medicaid 18 businesses through new and existing partners, we increase our exposure to changes in government policy with respect to and regulation of the Medicaid and Medicare programs in which we and our partners participate.
We have identified instances of noncompliance in the past and cannot guarantee that we will not identify other instances in the future, or the outcome of 22 any regulatory investigation into any non-compliance.
We have identified instances of noncompliance in the past and cannot guarantee that we will not identify other instances in the future, or the outcome of any regulatory investigation into any non-compliance.
Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill may not be recoverable include macroeconomic conditions, industry and market considerations, our overall financial performance including an analysis of our current and projected cash flows, revenue and earnings, a sustained decrease in our share price and other relevant entity-specific events including changes in strategy, customers or litigation.
Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill may not be recoverable include macroeconomic conditions, industry and market considerations, our overall financial performance including an analysis of our current and projected cash flows, revenue and earnings, a sustained decrease in our share price and other relevant entity-specific events including changes in strategy, partners or litigation.
These restrictions could cause our business, financial condition and results of operations to be harmed if we found it advantageous to provide products or services to such third parties or in such territories during the restricted period. Increasing inflationary pressures and consumer costs may have a negative effect on our margins, profitability and results of operations.
These restrictions could cause our business, financial condition and results of operations to be harmed if we found it advantageous to provide products or services to such third parties or in such territories during the restricted period. Inflationary pressures and rising consumer costs may have a negative effect on our margins, profitability and results of operations.
Even if the markets in which we compete meet our size estimates and forecasted growth, our business could fail to grow at similar rates, if at all. Our estimates of the market opportunities for our services are based on the assumption that the strategic approaches we offer will be attractive to potential partners.
Even if the markets in which we compete meet our size estimates and forecasted growth, our business could fail to grow at similar rates, if at all. Our estimates of the market opportunities for our solutions are based on the assumption that the strategic approaches we offer will be attractive to potential partners.
In addition, certain of our products depend on maintaining our data and analytics platform, which is populated with data disclosed to us by our partners with their consent. If these partners revoke their consent for us to maintain, use, de-identify and share this data, consistent with applicable law, our data assets could be degraded.
In addition, certain of our services depend on maintaining our data and analytics platform, which is populated with data disclosed to us by our partners with their consent. If these partners revoke their consent for us to maintain, use, de-identify and share this data, consistent with applicable law, our data assets could be degraded.
Failure to comply with the HITECH Act could result in fines and penalties that could have a material adverse effect on us. • Numerous other federal and state laws may apply that restrict the use and protect the privacy and security of individually identifiable information, as well as employee personal information.
Failure to comply with the HITECH Act could result in fines and penalties that could have a material adverse effect on us. • Numerous other federal and state laws that may apply to us restrict the use of and protect the privacy and security of personal information, as well as employee personal information.
In addition, we may be unable to access future borrowings under our revolving facility if we are unable to satisfy the applicable conditions precedent. 41 Risks relating to ownership of our Class A common stock We expect that our stock price will be volatile and may fluctuate or decline significantly.
In addition, we may be unable to access future borrowings under our revolving facility if we are unable to satisfy the applicable conditions precedent. 39 Risks Relating to Ownership of Our Class A Common Stock We expect that our stock price will be volatile and may fluctuate or decline significantly.
We also engage third-party vendors to develop, maintain and enhance our technology solutions, and our ability to develop and implement new technologies is therefore dependent on our ability to engage suitable vendors. We may also need to license software or technology from third parties in order to maintain, expand or modify our technology-enabled services platform.
We also engage third-party vendors to develop, maintain and enhance the technology we use in our solutions, and our ability to develop and implement new technologies is therefore dependent on our ability to engage suitable vendors. We may also need to license software or technology from third parties in order to maintain, expand or modify our technology-enabled services platform.
Because some of our partners are participants in governmental programs, our services have in the past and may again in the future be subject to periodic surveys and audits by governmental entities or contractors for compliance with Medicare and other standards and requirements.
Because some of our partners are participants in governmental programs, our solutions have in the past and may again in the future be subject to periodic surveys and audits by governmental entities or contractors for compliance with Medicare and other standards and requirements.
We may also have to redesign our products or services so they do not infringe third-party intellectual property rights, which may not be possible or may require substantial monetary expenditures and time, during which our technology and products may not be available for commercialization or use.
We may also have to redesign our products or services so they do not infringe third-party intellectual property rights, which may not be possible or may require substantial monetary expenditures and time, during which our solutions may not be available for commercialization or use.
These outages and delays could reduce the level of Internet usage as well as the availability of the Internet to us for delivery of our Internet-based services. We rely on third-party vendors to host and maintain our technology platform. We rely on third-party vendors to host and maintain our technology platform, including Identifi®.
These outages and delays could reduce the level of Internet usage as well as the availability of the Internet to us for delivery of our Internet-based services. We rely on third-party vendors to host and maintain our technology platform.
The regulations and requirements applicable to us and other participants in Medicaid and Medicare programs are complex and subject to change. In particular, prior authorization standards and requirements of Medicaid and Medicare programs have come under increased scrutiny at the state and federal level.
The regulations and requirements applicable to us and other participants in Medicaid and Medicare programs are complex and subject to change. In particular, prior authorization standards and requirements, including Medicaid and Medicare programs, have come under increased scrutiny at the state and federal level.
Our success depends on providing high-quality products and services that health care providers use to improve clinical, financial and operational performance. If we cannot adapt to rapidly evolving industry standards, technology and increasingly sophisticated and varied partner needs, our existing technology could become undesirable or obsolete, which could harm our reputation.
Our success depends on providing high-quality products and services that health care providers use to improve clinical, financial and operational performance. If we cannot adapt to rapidly evolving industry standards, technology, including artificial intelligence, and increasingly sophisticated and varied partner needs, our existing technology could become undesirable or obsolete, which could harm our reputation.
We rely on internal systems as well as third-party suppliers, including bandwidth and telecommunications equipment providers, to provide our services. We do not maintain redundant systems or facilities for some of these services.
We rely on internal systems as well as third-party vendors, including bandwidth and telecommunications equipment providers, to provide our services. We do not maintain redundant systems or facilities for some of these services.
Some of our partners undertake a significant and prolonged evaluation process, often to determine whether our products and services meet their unique health system needs, which has in the past resulted in extended periods of time to establish a partner relationship. Our efforts involve educating our partners about the use, technical capabilities and benefits of our products and services.
Some of our partners undertake a significant and prolonged evaluation process, often to determine whether our solutions meet their unique health system needs, which has in the past resulted in extended periods of time to establish a partner relationship. Our efforts involve educating our partners about the use, technical capabilities and benefits of our solutions.
Despite our implementation of security and privacy measures designed to help ensure data security and compliance with applicable laws and rules, our facilities and systems, and those of our third-party providers, are vulnerable to threats.
Despite our implementation of security and privacy measures designed to help ensure data security and compliance with applicable laws and rules, our facilities and systems, and those of our third-party vendors, are vulnerable to threats.
If we are unable to sell additional products and services to existing partners, enter into and maintain favorable relationships with new partners or sufficiently grow our partners’ lives on platform, it could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to sell additional solutions to existing partners, enter into and maintain favorable relationships with new partners or sufficiently grow our partners’ lives on platform, it could have a material adverse effect on our business, financial condition and results of operations.
As the market for health care in the United States expands and more patents are issued, the risk increases that there may be patents issued to third parties that relate to our products and technology of which we are not aware or that we must challenge to continue our operations as currently contemplated.
As the market for health care in the United States expands and more patents are issued, the risk increases that there may be patents issued to third parties that relate to our solutions of which we are not aware or that we must challenge to continue our operations as currently contemplated.
If we fail to provide high-quality solutions and convince individual partners of our value proposition, we may not be able to retain existing partners or attract new partners.
If we fail to provide high-quality solutions and convince individual partners of our value proposition, we may not be able to retain existing partners, further penetrate existing partners, or attract new partners.
Our use of “open source” software could adversely affect our ability to offer our services and subject us to possible litigation. We use open source software in connection with our products and services.
Our use of “open source” software could adversely affect our ability to offer our services and subject us to possible litigation. We use open source software in connection with our solutions.
Moreover, costs of providing oncology, cardiology, radiology, musculoskeletal, physical medicine, genetics and other specialties are very hard to predict, in part as a result of rapidly changing utilization of new and existing drugs and changing diagnostic and therapeutic protocols.
Moreover, costs of providing oncology, cardiology, radiology (including advanced imaging), musculoskeletal, physical medicine, genetics and other specialties are very hard to predict, in part as a result of rapidly changing utilization of new and existing drugs and changing diagnostic and therapeutic protocols.
This significant amount of debt and other cash needs could have important consequences to us, including: • requiring a substantial portion of our cash flow from operations to make payments on this debt, thereby limiting the cash we have available to fund future growth opportunities, such as capital expenditures and acquisitions; • restrictive covenants in our debt arrangements and the arrangements governing our Series A Preferred Stock, which could limit our operations and borrowing; • the risk of a future credit ratings downgrade of our debt, increasing future debt costs and limiting the future availability of debt financing; 40 • increasing our vulnerability to general adverse economic and industry conditions and limiting our flexibility in planning for, or reacting to, changes in our business and industry, due to the need to use our cash to service our outstanding debt and Series A Preferred Stock; • placing us at a competitive disadvantage relative to our competitors that are not as highly leveraged and that may therefore be more able to invest in their business or use their available cash to pursue other opportunities, including acquisitions; and • limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise.
This significant amount of debt, preferred stock and other cash needs could have important consequences to us, including: • requiring a substantial portion of our cash flow from operations to make payments on this debt, thereby limiting the cash we have available to fund future growth opportunities, such as capital expenditures and acquisitions; • restrictive covenants in our debt arrangements and the arrangements governing our Series A Preferred Stock, which could limit our operations and borrowing; 38 • increasing our vulnerability to general adverse economic and industry conditions and limiting our flexibility in planning for, or reacting to, changes in our business and industry, due to the need to use our cash to service our outstanding debt and Series A Preferred Stock; • placing us at a competitive disadvantage relative to our competitors that are not as highly leveraged and that may therefore be more able to invest in their business or use their available cash to pursue other opportunities, including acquisitions; and • limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise.
We are party to an intellectual property and development services license agreement between Evolent and UPMC, or the UPMC IP Agreement, and a technology license agreement with UPMC, or the UPMC Technology Agreement.
We are party to an intellectual property and development services license agreement between Evolent and UPMC, or the UPMC IP Agreement, and a technology license agreement with UPMC (the “UPMC Technology Agreement”).
We must continue to invest significant resources in our personnel and technology in a timely and cost-effective manner in order to enhance our existing products and services and introduce new high-quality products and services that existing partners and potential new partners will want.
We must continue to invest significant resources in our personnel and technology, including artificial intelligence, in a timely and cost-effective manner in order to enhance our existing products and services and introduce new high-quality products and services that existing partners and potential new partners will want.
The security measures that we and our third-party vendors and subcontractors have in place to ensure compliance with privacy and data protection laws may not protect our facilities and systems from security breaches, acts of vandalism or theft, computer viruses, misplaced or lost data, programming and human errors or other similar events.
The security measures that we and our third-party vendors and subcontractors have in place to address privacy and data protection laws may not protect our facilities and systems from security breaches, acts of vandalism or theft, computer viruses, misplaced or lost data, programming and human errors or other similar events.
We may need to raise additional funds in order to: • finance unanticipated working capital requirements; • develop or enhance our technological infrastructure and our existing products and services; • fund strategic relationships, including joint ventures and co-investments; • fund additional implementation engagements; and • acquire complementary businesses, technologies, products or services.
We may need to raise additional funds in order to: • finance unanticipated working capital requirements; • develop or enhance our technological infrastructure and our existing solutions; • fund strategic relationships, including joint ventures and co-investments; • fund additional implementation engagements; • acquire complementary businesses, technologies, products or services; or 24 • refinance existing debt.
Risks Related to Data Protection Privacy, Cybersecurity, Intellectual Property and Technology We are subject to privacy and data protection laws governing the transmission, security and privacy of health information, which may impose restrictions on the manner in which we access personal data and subject us to penalties if we are unable to fully comply with such laws.
Risks Related to Data Protection Privacy, Cybersecurity, Intellectual Property and Technology We are subject to data privacy and protection laws governing the collection, use, disclosure and security of health information, which may impose restrictions on the manner in which we access personal data and subject us to penalties if we are unable to fully comply with such laws.
The trading price of our Class A common stock has been and may continue to be volatile and subject to wide price fluctuations in response to various factors, including: • economic and political conditions or events; • market conditions in the broader stock market in general, or in our industry in particular, including as a result of COVID-19 related impacts , inflationary pressures, and an uncertain macroeconomic environment due in part to the conflict between Russia and Ukraine; • actual or anticipated fluctuations in our quarterly financial reports and results of operations; • our ability to satisfy our ongoing capital needs and unanticipated cash requirements; • indebtedness incurred in the future; • introduction of new products and services by us or our competitors; • business developments of our partners; • issuance of new or changed securities analysts’ reports or recommendations; • sales of large blocks of our stock; • additions or departures of key personnel; • regulatory developments; and • litigation and governmental investigations.
The trading price of our Class A common stock has been and may continue to be volatile and subject to wide price fluctuations in response to various factors, including: • economic and political conditions or events; • market conditions in the broader stock market in general, or in our industry in particular, including as a result of public health emergencies, inflationary pressures, and an uncertain macroeconomic environment due in part to the conflict between Russia and Ukraine and the war between Israel and Hamas; • actual or anticipated fluctuations in our quarterly financial reports and results of operations; • our ability to satisfy our ongoing capital needs and unanticipated cash requirements; • indebtedness incurred in the future; • introduction of new products and services by us or our competitors; • business developments of our partners; • issuance of new or changed securities analysts’ reports or recommendations; • sales of large blocks of our stock; • additions or departures of key personnel; • regulatory developments; and • litigation and governmental investigations.
Privacy regulations under HIPAA also provide patients with rights related to understanding and controlling how their protected health information is used and disclosed. As a provider of services to entities subject to HIPAA, we are directly subject to certain provisions of the regulations as a “Business Associate.”.
Further, the privacy regulations under HIPAA also provide patients with rights related to understanding and controlling how their protected health information is used and disclosed. As a provider of services to entities subject to HIPAA, we are directly subject to certain provisions of the regulations as a “Business Associate”.
Any disruption in the network access, telecommunications or co-location services provided by third-party providers or any failure of or by third-party providers’ systems or our own systems to handle current or higher volume of use could significantly harm our business. We exercise limited control over our third-party suppliers, which increases our vulnerability to problems with services they provide.
Any disruption in the network access, telecommunications or co-location services provided by third-party vendors or any failure of or by third-party vendors’ systems or our own systems to handle current or higher volume of use could significantly harm our business. We exercise limited control over our third-party vendors, which increases our vulnerability to problems with services they provide.
Certain of our customers are subject to Medicaid health plans with state contracts that come up for renewal from time to time and can be subject to an RFP process. If a customer loses its contract or an RFP process it would cause the Company to lose that portion of the customer’s business.
Certain of our partners are subject to Medicaid health plans with state contracts that come 17 up for renewal from time to time and can be subject to an RFP process. If a partner loses its contract or an RFP process it would cause the Company to lose that portion of the customer’s business.
See the risk factor captioned “If we lose key members of our management team or employees or are unable to attract and retain the employees we need, our compensation costs will increase and our business and operating results will be adversely affected.” While we are unable to predict the direction of the economy or if inflation will increase or revert to normal levels, if the current inflationary trends continue for a sustained period of time, our margins, profitability and results of operations could be adversely affected.
See the risk factor captioned “If we lose key members of our management team or employees or are unable to attract and retain the employees we need, our compensation costs will increase and our business and operating results will be adversely affected.” While we are unable to predict the direction of the 28 economy or if inflation will increase or revert to normal levels, if inflation levels remain elevated for a sustained period of time, our margins, profitability and results of operations could be adversely affected.
If the number of members covered by one or more of our partners’ plans were to be reduced by a material amount, or if member enrollment numbers in new plans are lower than expected, which was the case with our Florida Medicaid partners, such decrease would lead to a decrease in our expected revenue, which could harm our business, financial condition and results of operations.
If the number of members covered by one or more of our partners’ plans were to be reduced by a material amount, or if member enrollment numbers in new plans are lower than expected, such decrease would lead to a decrease in our expected revenue, which could harm our business, financial condition and results of operations.
Furthermore, our increased use of mobile and cloud technologies, including as a result of the shift to work-from-home arrangements as a result of the COVID-19 pandemic, has heightened these cybersecurity and privacy risks, including risks from cyber-attacks such as phishing, spam emails, hacking, social engineering, and malicious software including harmful malware and ransomware.
Furthermore, our increased use of mobile and cloud technologies, including as a result of the shift to work-from-home arrangements as a result of the COVID-19 pandemic, and the conflict between Russia and Ukraine, have heightened these cybersecurity and privacy risks, including risks from cyber-attacks such as phishing, spam emails, hacking, social engineering, and malicious software including harmful malware and ransomware.
A reduction in performance-based contract rates which are not accompanied by a reduction in covered services or expected underlying care trend could result in a decrease of New Century Health’s or NIA’s operating margins. If we fail to effectively manage our growth and cost structure, our business and results of operations could be harmed.
A reduction in 22 performance-based contract rates which are not accompanied by a reduction in covered services or expected underlying care trend could result in a decrease of our profitability and operating margins. If we fail to effectively manage our growth and cost structure, our business and results of operations could be harmed.
As an example, as part of our strategy to support certain partners, we entered into upside and downside risk-sharing arrangements. Through our specialty care management services, we take on members from payers through performance-based arrangements where we assume risks related to pricing of contracts.
As an example, as part of our strategy to support certain partners, we entered into upside and downside risk-sharing arrangements. Through our Performance Suite, we take on members from payers through performance-based arrangements where we assume risks related to pricing of contracts.
In addition to our recent acquisition of NIA we have made and entered into, and may in the future make and enter into acquisitions, investments, alliances and joint ventures, which may be difficult to integrate, divert management resources, result in unanticipated costs or dilute our stockholders.
We have made and entered into, and may in the future make and enter into acquisitions, investments, alliances and joint ventures, which may be difficult to integrate, divert management resources, result in unanticipated costs or dilute our stockholders.
In the event the conditional conversion feature of the 2025 Notes is triggered, holders of such notes will be entitled to convert such notes at any time during specified periods at their option.
In the event the conditional conversion feature of the 2025 Notes or 2029 Notes is triggered, holders of such notes will be entitled to convert such notes during specified periods at their option.
Financial Statements and Supplementary Data - Note 15 - “Tax Receivables Agreement.” These increases in tax basis and NOLs may reduce the amount of tax that we may otherwise be required to pay in the future, although the Internal Revenue Service (“IRS”) may challenge all or a part of the tax basis increases and NOLs, and a court could sustain such a challenge.
Financial Statements and Supplementary Data - Note 16 - “Income Taxes.” These increases in tax basis and NOLs may reduce the amount of tax that we may otherwise be required to pay in the future, although the Internal Revenue Service (“IRS”) may challenge all or a part of the tax basis increases and NOLs, and a court could sustain such a challenge.
Financial Statements and Supplementary Data - Note 15 - Tax Receivables Agreement” for additional information. In certain cases, payments by us under the TRA may be accelerated or significantly exceed the tax benefits we realize in respect of the tax attributes subject to the TRA.
Financial Statements and Supplementary Data - Note 16 - Income Taxes” for additional information. In certain cases, payments by us under the TRA may be accelerated or significantly exceed the tax benefits we realize in respect of the tax attributes subject to the TRA.
The unaudited pro forma condensed combined financial statements included in our Current Report on Form 8-K filed with the SEC on January 23, 2023, were presented for informational purposes only and are not necessarily indicative of what our actual financial condition or results of operations would have been had the NIA acquisition, Amendment No. 1 to the Credit Agreement and sale of the Series A Preferred Stock been completed on the date indicated.
The unaudited pro forma condensed combined financial statements included in Amendment Nos. 1 and 2 filed with the SEC on September 26, 2023 and October 16, 2023, respectively, to our Current Report on Form 8-K filed with the SEC on January 23, 2023, and our Current Report on Form 8-K filed with the SEC on November 3, 2023, were presented for informational purposes only and are not necessarily indicative of what our actual financial condition or results of operations would have been had the NIA acquisition, Amendment No. 1 to the Credit Agreement (as defined below) and sale of the Series A Preferred Stock been completed on the date indicated.
When other indications of goodwill impairment exist, we may be required to recognize additional impairments in the future as a result of market conditions or other factors related to our performance, including changes in our forecasted results, investment strategy, interest rates or assumptions used as part of the goodwill impairment analysis.
Financial Statements and Supplementary Data - Note 9.” When other indications of impairment exist, we may be required to recognize additional impairments in the future as a result of market conditions or other factors related to our performance, including changes in our forecasted results, investment strategy, interest rates or assumptions used as part of the goodwill impairment analysis.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters and executive officers are located in Arlington, Virginia, where we occupy approximately 34,000 square feet of office space. We also lease offices throughout the United States, and in Pune, India and Manila, Philippines. We lease all of our facilities and we do not own any real property.
Biggest changeItem 2. Properties Our corporate headquarters and executive officers are located in Arlington, Virginia, where we occupy approximately 8,500 square feet of office space effective January 1, 2024 with a new 7-year lease. We also lease offices throughout the United States, and in Pune, India and Manila, Philippines.
As provided in “Part II – Item 8. Financial Statements and Supplementary Data - Note 44 12 - Leases,” the total rental expense on operating leases, net of sublease income, was $14.6 million for the year ended December 31, 2022.
We lease all of our facilities and we do not own any real property. As provided in “Part II – Item 8. Financial Statements and Supplementary Data - Note 12 - Leases,” the total rental expense on operating leases, net of sublease income, was $14.0 million for the year ended December 31, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe number of record holders does not include individuals or entities who beneficially own shares and whose shares are held of record by a broker, bank, or other nominee, but does include each such broker, bank, or other nominee as one record holder. Dividends We have not declared or paid any cash dividends on our common stock.
Biggest changeThe number of record holders does not include individuals or entities who beneficially own shares and whose shares are held of record by a broker, bank, or other nominee, but does include each such broker, bank, or other nominee as one record holder.
We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our Class A common stock. 46 Recent Sales of Unregistered Securities, Purchases of Equity Securities by the Issuer or Affiliated Purchases or Other Stockholder Matters None.
We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our Class A common stock. Recent Sales of Unregistered Securities, Purchases of Equity Securities by the Issuer or Affiliated Purchases or Other Stockholder Matters None.
This graph assumes an investment of $100 at the closing price of the markets on December 31, 2017, in our Class A common stock, the NASDAQ Health Care Index and the NYSE Composite Index, and assumes the reinvestment of dividends, if any. The comparisons shown in the following graph are based upon historical data.
This graph assumes an investment of $100 at the closing price of the markets on December 31, 2018, in our Class A common stock, the NASDAQ Health Care Index and the NYSE Composite Index, and assumes the reinvestment of dividends, if any. The comparisons shown in the following graph are based upon historical data.
Performance Graph The following graph compares the cumulative total stockholder return on our Class A common stock for the 5 years ended December 31, 2022, to the cumulative total returns of the NASDAQ Health Care Index and the NYSE Composite Index over the same period.
Performance Graph The following graph compares the cumulative total stockholder return on our Class A common stock for the 5-years ended December 31, 2023, to the cumulative total returns of the NASDAQ Health Care Index and the NYSE Composite Index over the same 44 period.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market and Dividend Information Market Information Our Class A common stock is traded on the New York Stock Exchange under the symbol “EVH.” Holders As of February 16, 2023, there were 93 holders of record of our Class A common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market and Dividend Information Market Information Our Class A common stock is traded on the NYSE under the symbol “EVH.” Holders As of February 15, 2024, there were 84 holders of record of our Class A common stock.
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Dividends Series A Preferred Stock For the year ended December 31, 2023 the Series A Preferred stockholders were paid dividends in the amount of $18.8 million.
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We expect to continue to pay dividends to the Series A Preferred stockholders pursuant to the terms of the Securities Purchase Agreement we entered into on January 20, 2023 with the purchasers listed on Schedule I thereto (the “Securities Purchase Agreement”). Common Stock We have not declared or paid any cash dividends on our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest change(“Implantable”, collectively with Evolent, Endzone and TPG Growth Iceman Parent, the “Borrowers” and each a “Borrower”), certain subsidiaries of the Company, as guarantors, the lenders from time to time party thereto, Ares Capital Corporation, as administrative agent, and ACF Finco I LP, as collateral agent and as revolver agent (the “2022 Credit Agreement”), pursuant to which the lenders agreed to extend credit to the Borrowers in the form of the (i) 2022 Initial Term Loan Facility, with an aggregate principal amount of $175.0 million and (ii) a revolving credit facility in the aggregate principal amount of up to $50.0 million, to be determined by reference to the lesser of $50.0 million and a borrowing base (the “Revolving Facility” and, together with the 2022 Initial Term Loan Facility, the “2022 Credit Facilities”), subject to the satisfaction of specified conditions.
Biggest changeFinancial Statements and Supplementary Data - Note 4” for additional discussion regarding the NIA acquisition. 46 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.
Financing Activities 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 2022 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 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 Capital Corporation 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.
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.
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 a reporting unit’s fair value.
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.
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.
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.
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 extinguishment/repayment of debt, net, on the consolidated statements of operations and comprehensive income (loss).
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).
Business Combinations Companies acquired during each reporting period are reflected in the results of the Company effective from their respective dates of 52 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.
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 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 a reporting unit is 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.
Approximately $29.6 million and $14.4 million of total personnel costs were attributable to stock-based compensation expense for the year 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.
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.
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 units and intangible assets to decline and increase the risk of an impairment charge to earnings.
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.
While our selling, general and administrative expenses are expected to grow as we integrate NIA 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.
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.
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. 65
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
See “Part II - Item 8. Financial Statements - 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.
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.
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 gain on the disposal of assets 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.
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.
If the Company determines that it is more likely than not that the fair value of a reporting unit is below the carrying amount, a quantitative goodwill assessment is required. In the quantitative evaluation, the fair value of the relevant reporting unit is determined and compared to the carrying 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.
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 products. 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.
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.
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 platform and operations services over time using the time elapsed output method. Fixed consideration is recognized ratably over the contract term.
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.
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, 2022.
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.
The proceeds from the offer and sale of the Series A Preferred Stock were used, together with the proceeds from the Priority ABL Incremental Facility and Term Loan Incremental Facility, to finance the cash consideration payable for the acquisition of NIA and pay transaction fees and expenses. Refer to “Part II - Item 8.
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.
The increase was primarily driven by higher personnel fees due to increased headcount and expected benefit accruals to employees of $33.1 million primarily in our Clinical Solutions segment, 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 57 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.
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.
The change in gain from equity method investees for the year ended December 31, 2022, compared to 2021 is driven primarily by the sale of our Florida equity investee’s membership during the three months ended March 31, 2021.
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.
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 $1.6 million as of December 31, 2022.
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.
Loss on Extinguishment/Repayment of Debt 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.
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.
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 customers and members. Generally, we will apply the series guidance to the performance obligation as we have determined that each time increment is distinct.
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.
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 D-SNP 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.
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.
The increase included approximately $253.8 million from higher claims cost in our Clinical Solutions and Evolent Health Services segments 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 primarily in our Clinical Solutions segment, $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 primarily in our Evolent Health Services segment.
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.
Provision for (Benefit from) Income Taxes An income tax provision for (benefit from) of $(43.4) million, $0.5 million and $(2.4) million was recognized for the years ended December 31, 2022, 2021 and 2020, respectively, which resulted in effective tax rates of 69.9%, (1.6)% and 0.7%, respectively.
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.
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 (Series A Convertible Preferred Shares) 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.
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.
A commitment fee of (a) 2.00% of the aggregate amount of the commitments in respect of the Term Loan Facility as of the Closing Date and (b) 2.00% of the aggregate amount of the commitments in respect of the Revolving Facility was paid as of the Closing Date. Refer to “Part II - Item 8.
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.
We recorded interest expense (including amortization of deferred financing costs) of approximately $15.6 million, $25.4 million and $28.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.
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 Company’s proportional share of the gain from these investments was approximately $4.6 million, $13.2 million and $10.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.
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.
Investing Activities 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 New Mexico 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 Passport escrow and $5.6 million from returns from our equity method investments. 62 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 Passport escrow and returns of investment on equity method investments of $14.2 million.
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.
New Century Health Technology and Services Suite Average PMPM fee is defined as platform and operations revenue pertaining to the New Century Health Technology and Services Suite during the period reported divided by the average of the beginning and ending New Century Health Technology and Services 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.
Restricted Cash and Restricted Investments Restricted cash and restricted investments of $27.0 million is carried at cost and includes cash held on behalf of other entities for pharmacy and claims management services of $13.8 million, collateral for letters of credit required as security deposits for facility leases of $2.3 million, amounts held with financial institutions for risk-sharing arrangements of $10.9 million as of December 31, 2022.
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.
Evolent Health Services average PMPM fee is defined as platform and operations revenue pertaining to the Evolent Health Services segment during the period reported divided by the average of the beginning and ending Evolent Health Services 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.
Payments under the TRA are due within 100 days of filing the Company’s annual U.S. Federal income tax return. The Company has recorded a partial TRA liability of $46.0 million as of December 31, 2022. See “Part II - Item 8. Financial Statements - Note 15” for further details of the Company’s TRA.
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.
We use discounted cash flow analyses and market multiple analyses in order to estimate reporting unit fair values. Discounted cash flow analyses rely 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.
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.
Adoption of New Accounting Standards In August 2020, 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.
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.
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, 2022, the Company performed its annual goodwill impairment test for fiscal year 2022.
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.
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.
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.
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. 53 Our arrangements may also include other variable fees related to service level agreements, shared medical savings arrangements and other performance measures.
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.
In accordance with the series guidance, we allocate variable consideration to the period to which the fees relate. Contracts with Multiple Performance Obligations Our contracts with customers may contain multiple performance obligations, primarily when the customer has requested both transformation services and platform and operations services as these services are distinct from one another.
In accordance with the series guidance, we allocate variable consideration to the period to which the fees relate. 51 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.
Approximately $14.4 million and $12.8 million of total personnel costs were attributable to stock-based compensation expense for the year ended December 31, 2021 and 2020, respectively. Acquisition and severance costs accounted for approximately $4.4 million and $9.2 million of total selling, general and administrative expenses for the year ended December 31, 2021 and 2020, respectively.
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.
Financial Statements - Consolidated Statements of Cash Flows:” For the Year Ended December 31, 2022 2021 2020 Net cash and restricted cash provided by (used in) operating activities $ (11,553) $ 38,747 $ (16,225) Net cash and restricted cash provided by (used in) investing activities (259,115) (15,786) 261,072 Net cash and restricted cash provided by (used in) financing activities 131,541 (29,548) (11,862) Operating Activities 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.
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.
Change in Fair Value of Contingent Consideration We recorded a loss (gain) 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.
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. 56 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.
Changes in the fair value of contingent consideration, other than measurement period adjustments, are recognized as a change in fair value of contingent consideration and indemnification asset 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.
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).
Goodwill is not amortized, but is reviewed at least annually for indications of impairment, with consideration given to financial performance and other relevant factors. We perform impairment tests of goodwill at a reporting unit level. The Company has three reporting units and our annual goodwill impairment review occurs during the fourth quarter of each 50 year.
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 48 unit level.
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. Goodwill is assigned to the reporting unit that benefits from the synergies arising from the business combination.
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.
Comparison of the Results for the Year Ended December 31, 2021 to 2020 Revenue Total revenue decreased by $16.7 million, or 1.8%, to $908.0 million for the year ended December 31, 2021, as compared to 2020.
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.
Consolidated Results (in thousands, except percentages) For the Year Ended December 31, Change Over Prior Period For the Year Ended December 31, Change Over Prior Period 2022 2021 $ % 2021 2020 $ % Revenue $ 1,352,013 $ 907,957 $ 444,056 48.9% $ 907,957 $ 924,639 $ (16,682) (1.8)% Expenses Cost of revenue (exclusive of depreciation and amortization expenses presented separately below) 1,035,429 657,551 377,878 57.5% 657,551 696,581 (39,030) (5.6)% Selling, general and administrative expenses 269,269 219,499 49,770 22.7% 219,499 210,412 9,087 4.3% Depreciation and amortization expenses 67,195 60,037 7,158 11.9% 60,037 60,835 (798) (1.3)% Loss on disposal of assets and consolidation — — — —% — 698 (698) (100.0)% Goodwill impairment — — — —% — 215,100 (215,100) (100.0)% Change in fair value of contingent consideration (23,522) 13,281 (36,803) (277.1)% 13,281 3,860 9,421 244.1% Total operating expenses 1,348,371 950,368 398,003 41.9% 950,368 1,187,486 (237,118) (20.0)% Operating income (loss) $ 3,642 $ (42,411) $ 46,053 108.6% $ (42,411) $ (262,847) $ 220,436 83.9% Cost of revenue as a % of revenue 76.6 % 72.4 % 72.4 % 75.3 % Selling, general and administrative expenses as a % of revenue 19.9 % 24.2 % 24.2 % 22.8 % Comparison of the Results for Years 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.
Consolidated Results (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 — 8,107 100.0% — — — —% Right-of-use assets impairment 24,065 — 24,065 100.0% — — — —% 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 % 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.
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.
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.
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.
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.
Regular dividends on the Series A Preferred Stock will be paid quarterly in cash in arrears at a rate per annum equal to Adjusted Term SOFR (as defined in the Certificate of Designations) 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.
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%.
Lives on Platform and PMPM Fees Clinical Solutions Lives on Platform in our Performance Suite are calculated by summing members covered for oncology specialty care services and members covered for cardiology specialty care services for contracts not under ASO arrangements.
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.
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.
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.
The following table provides a summary of our total costs associated with the Repositioning Plan for the years ended December 31, 2021 and 2020, by major type of cost (in thousands): For the Year Ended December 31, Cumulative Amount Incurred through December 31, 2021 2021 2020 Severance and termination benefits $ 185 $ — $ 185 Office space consolidation 2,742 — 2,742 Professional services 4,391 1,275 5,666 Total $ 7,318 $ 1,275 $ 8,593 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.
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): 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 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.
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 - Note 4” for further details of the Company’s restricted cash balances.
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.
Acquisition of NIA On November 17, 2022, Evolent Health LLC, a wholly owned subsidiary of the Company, and the Company entered into a definitive agreement for the Company to acquire NIA.
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.
During the year ended December 31, 2022, accounts receivable, net, increased due primarily to the timing of cash receipts from Florida Blue Medicare, Inc. and Cook County Health and Hospital Systems combined with $34.2 million of receivables acquired as part of the IPG acquisition.
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.
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. In the ordinary course of business, our reportable segments enter into transactions with one another.
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.
Selling, General and Administrative Expenses The following table provides a summary of our total selling, general and administrative by segment for the year ended December 31, 2022, as compared to 2021 (amounts in thousands): For the Year Ended December 31, 2022 2021 2022 2021 2022 2021 2022 2021 Evolent Health Services Clinical Solutions Corporate Total Total $ 94,581 $ 86,480 $ 63,820 $ 34,696 $ 110,868 $ 98,323 $ 269,269 $ 219,499 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 in our Clinical Solutions segment and employee costs across all business units.
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 interest rate for all Loans will be calculated, at the option of the borrowers, (a) in the case of a term loan, at either the Adjusted Term SOFR Rate (as defined in the Credit Agreement) plus 6.00%, or the base rate plus 5.00% and (b) in the case of a revolving loan, at either the Adjusted Term SOFR Rate plus 4.00%, or the base rate plus 3.00%.
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.
Cash flows related to the True Health business were as follows: For the Year Ended December 31, 2021 2020 Cash flows provided by operating activities $ 5,002 $ 6,852 Cash flows (used in) provided by investing activities (2,494) 2,636 63 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 2023.
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.
Concurrently with Amendment No. 1, EVH LLC borrowed $25.0 million under the Priority ABL Incremental Facility and $240.0 million under the Term Loan Incremental Facility to finance, together with the proceeds from the sale of the Series A Preferred Stock (as defined below), the cash consideration payable for the acquisition of NIA and pay transaction fees and expenses.
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.
In parallel with these divestitures, we contracted with 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.
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.
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.
These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. 49 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.
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.
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.
When a contract has multiple performance obligations, we allocate the transaction price to each performance obligation based on the relative standalone 51 selling price using the expected cost margin approach.
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.
The Borrowers borrowed the loan under the 2022 Initial Term Loan Facility on August 1, 2022 (the “Initial Term Loan”), and also borrowed $50.0 million under the Revolving Facility on the Closing Date.
The Borrowers borrowed full amount under the Initial Term Loan Facility and the Initial Revolving Facility on the IPG Closing Date.
Revenue Recognition Contracts with Multiple Performance Obligations Our contracts with customers may contain multiple performance obligations, primarily when the customer has requested both transformation services and platform and operations services as these services are distinct from one another.
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.
Tax Receivable Agreement In connection with the Offering Reorganization, we entered into the TRA with the holders of Class B common units.
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.
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. We currently manage our operations and allocate resources across two reportable segments: EHS and Clinical Solutions.
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.
New Century Health Technology and Services Suite Lives on Platform are calculated by summing members covered for oncology specialty care services, members covered for cardiology specialty care services and members covered for advance care planning services for contracts under ASO arrangements. Members covered for more than one category are counted in each category.
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.
Selling, general and administrative expenses represented 24.2% and 22.8% of total revenue for the year ended December 31, 2021, as compared to 2020, respectively. 59 Depreciation and Amortization Expenses Depreciation and amortization expenses decreased $0.8 million, or 1.3%, to $60.0 million for the year ended December 31, 2021, as compared to 2020.
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.
Accounts Receivable, net Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts.
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.
Clinical Solutions Cases are calculated by summing the number of individuals receiving services through our IPG and Vital Decisions programs in a given period. 54 Clinical Solutions Performance Suite Average PMPM fee is defined as platform and operations services revenue pertaining to our Clinical Solutions Performance Suite during the period reported divided by the average of the beginning and ending Clinical Solutions Performance Suite Lives on Platform for the period divided by the number of months in the 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.
Management uses lives on platform, PMPM fees, cases and revenue per case 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.
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.
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. We are an agent when our role is to arrange for another entity to provide the services to the customer.
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.
Variable consideration is estimated using the most likely amount based on our historical experience and best judgment at the time. In our Clinical Solutions segment, we enter into capitation arrangements that may include performance-based arrangements and/or gainshare features.
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.
In these instances, we do not control the service before it is provided and recognize revenue on a net basis. We are the principal when we control the good or service prior to transferring control to the customer. We recognize revenue on a gross basis when we are the principal in the arrangement.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeRegular dividends on the Series A Preferred Stock will be paid quarterly in cash in arrears at a rate per annum equal to Adjusted Term SOFR (as defined in the Certificate of Designations) 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.
Biggest changeIn the case of (a) the revolving loan, interest is calculated at either the Adjusted Term SOFR Rate (as defined in the Certificate of Designation) plus 4.00%, or the base rate plus 3.00% and (b) the Series A Preferred Stock, dividends are to be 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%.
Interest Rate Risk As of December 31, 2022, the Company had cash and cash equivalents and restricted cash and restricted investments of $215.2 million, which consisted of bank deposits with FDIC participating banks of $214.4 million and bank deposits in international banks of $0.8 million.
Interest Rate Risk As of December 31, 2023, the Company had cash and cash equivalents and restricted cash and restricted investments of $223.5 million, which consisted of bank deposits with FDIC participating banks of $220.3 million and bank deposits in international banks of $3.2 million.
At this time, we have not entered into, but in the future, we may enter into, derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the effect hedging activities would have on our results of operations.
Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may, in the future, negatively affect our operating results as expressed in U.S. dollars. At this time, we have not entered into, but in the future, we may enter into, derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. As of December 31, 2022, we had $196.8 million of aggregate principal amount of convertible notes outstanding, which are fixed rate instruments and not subject to fluctuations in interest rates.
As of December 31, 2023, we had $575.0 million of aggregate principal amount of convertible notes outstanding, which are fixed rate instruments and not subject to fluctuations in interest rates.
Refer to the discussion in “Part II - Item 8. Financial Statements - Note 10” for additional information on our long-term debt. Foreign Currency Exchange Risk We have foreign currency risks related to our operating expenses denominated in currencies other than the U.S. dollar, primarily the Indian Rupee and the Philippino Peso.
Foreign Currency Exchange Risk We have foreign currency risks related to our operating expenses denominated in currencies other than the U.S. dollar, primarily the Indian Rupee and the Philippine Peso. In general, we are a net payer of currencies other than the U.S. dollar.
We recognized a foreign currency translation losses of $0.8 million, $84.0 thousand and $44.0 thousand for the years ended December 31, 2022, 2021 and 2020, respectively. 66
It is difficult to predict the effect hedging activities would have on our results of operations. We recognized a foreign currency translation loss of $0.1 million, $0.8 million and $0.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. 61
Changes in interest rates affect the interest earned on our cash and cash equivalents (including restricted cash). Our investments (including restricted investments) are classified as held-to-maturity and therefore are not subject to interest rate risk.
Changes in interest rates affect the interest earned on our cash and cash equivalents (including restricted cash). We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
All of our secured term loan and secured revolving credit facility and Series A Preferred Stock borrowings are floating rate instruments based on the SOFR and subject to fluctuations in interest rates. For every 1% increase in SOFR, the Company would record additional interest expense of $4.9 million per annum and preferred dividends of $1.8 million per annum.
For every 1% increase in SOFR, the Company would record additional interest expense of $0.4 million per annum and preferred dividends of $1.8 million per annum. Refer to the discussion in “Part II - Item 8. Financial Statements and Supplementary Data - Note 10” for additional information on our long-term debt.
In addition, as of December 31, 2022, we had $175.0 million of aggregate principal amount in a secured term loan and $50.0 million of aggregate principal amount in a secured revolving credit facility, which were subsequently increased through additional secured term loan borrowings of $240.0 million aggregate principal amount and secured revolving credit facility of $25.0 million of aggregate principal amount entered into as part of the NIA acquisition.
In addition, as of December 31, 2023, we have $37.5 million of aggregate principal amount in a secured revolving credit facility and $175.0 million of Series A Preferred Stock outstanding, all of which are floating rate instruments based on the SOFR and subject to fluctuations in interest rates.
Removed
In general, we are a net payor of currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may, in the future, negatively affect our operating results as expressed in U.S. dollars.

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