UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
WASHINGTON, D.C. 20549 |
_________________________ |
FORM 10-Q |
_________________________ |
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Delaware | 32-0454912 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
800 N. Glebe Road, Suite 500, Arlington, Virginia | 22203 |
(Address of principal executive offices) | (Zip Code) |
Item | Page | |
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3. | ||
4. | ||
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1A. | ||
2. | ||
3. | ||
4. | ||
5. | ||
6. | ||
E-1 |
• | the structural change in the market for health care in the United States; |
• | uncertainty in the health care regulatory framework; |
• | the uncertain impact the results of the 2016 presidential and congressional elections may have on health care laws and regulations; |
• | our ability to effectively manage our growth; |
• | the significant portion of revenue we derive from our largest partners; |
• | our ability to offer new and innovative products and services; |
• | risks related to completed and future acquisitions, investments and alliances, including the acquisitions of Valence Health, Inc., excluding Cicerone Health Solutions, Inc. (“Valence Health”) and Aldera Holdings, Inc. (“Aldera”), which may be difficult to integrate, divert management resources, result in unanticipated costs or dilute our stockholders; |
• | certain risks and uncertainties associated with the acquisition of Valence Health, including revenues of Valence Health before and after the merger may be less than expected, the timing and extent of new lives expected to come onto the platform may not occur as expected and the expected results of Evolent may not be impacted as anticipated; |
• | the growth and success of our partners, which is difficult to predict and is subject to factors outside of our control, including premium pricing reductions and the ability to control and, if necessary, reduce health care costs; |
• | our ability to attract new partners; |
• | our ability to recover the significant upfront costs in our partner relationships; |
• | our ability to estimate the size of our target market; |
• | our ability to maintain and enhance our reputation and brand recognition; |
• | consolidation in the health care industry; |
• | competition which could limit our ability to maintain or expand market share within our industry; |
• | our ability to partner with providers due to exclusivity provisions in our contracts; |
• | restrictions and penalties as a result of privacy and data protection laws; |
• | adequate protection of our intellectual property, including trademarks; |
• | any alleged infringement, misappropriation or violation of third-party proprietary rights; |
• | our use of “open source” software; |
• | our ability to protect the confidentiality of our trade secrets, know-how and other proprietary information; |
• | our reliance on third parties and licensed technologies; |
• | our ability to use, disclose, de-identify or license data and to integrate third-party technologies; |
• | data loss or corruption due to failures or errors in our systems and service disruptions at our data centers; |
• | online security risks and breaches or failures of our security measures; |
• | our reliance on Internet infrastructure, bandwidth providers, data center providers, other third parties and our own systems for providing services to our users; |
• | our reliance on third-party vendors to host and maintain our technology platform; |
• | our dependency on our key personnel, and our ability to attract, hire, integrate and retain key personnel; |
• | the risk of potential future goodwill impairment on our results of operations; |
• | our indebtedness and our ability to obtain additional financing; |
• | our ability to achieve profitability in the future; |
• | the requirements of being a public company; |
• | our adjusted results may not be representative of our future performance; |
• | the risk of potential future litigation; |
• | our holding company structure and dependence on distributions from Evolent Health LLC; |
• | our obligations to make payments to certain of our pre-IPO investors for certain tax benefits we may claim in the future; |
• | our ability to utilize benefits under the tax receivables agreement described herein; |
• | our ability to realize all or a portion of the tax benefits that we currently expect to result from past and future exchanges of Class B common units of Evolent Health LLC for our Class A common stock, and to utilize certain tax attributes of Evolent Health Holdings and an affiliate of TPG; |
• | distributions that Evolent Health LLC will be required to make to us and to the other members of Evolent Health LLC; |
• | our obligations to make payments under the tax receivables agreement that may be accelerated or may exceed the tax benefits we realize; |
• | different interests among our pre-IPO investors, or between us and our pre-IPO investors; |
• | the terms of agreements between us and certain of our pre-IPO investors; |
• | the potential volatility of our Class A common stock price; |
• | the potential decline of our Class A common stock price if a substantial number of shares become available for sale or if a large number of Class B common units are exchanged for shares of Class A common stock; |
• | provisions in our amended and restated certificate of incorporation and amended and restated by-laws and provisions of Delaware law that discourage or prevent strategic transactions, including a takeover of us; |
• | the ability of certain of our investors to compete with us without restrictions; |
• | provisions in our amended and restated certificate of incorporation which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees; |
• | our intention not to pay cash dividends on our Class A common stock; |
• | our ability to remediate the material weakness in our internal control over financial reporting; |
• | our status as an “emerging growth company”; and |
• | our lack of public company operating experience. |
As of | As of | |||||||
March 31, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 104,295 | $ | 134,563 | ||||
Restricted cash and restricted investments | 23,254 | 34,416 | ||||||
Accounts receivable, net (amounts related to affiliates: 2017 - $6,155; 2016 - $8,258) | 44,638 | 40,635 | ||||||
Prepaid expenses and other current assets (amounts related to affiliates: 2017 - $1,110; 2016 - $4,507) | 11,667 | 11,011 | ||||||
Investments, at amortized cost | 33,684 | 44,341 | ||||||
Total current assets | 217,538 | 264,966 | ||||||
Restricted cash and restricted investments | 8,661 | 6,000 | ||||||
Investments in and advances to affiliates | 1,636 | 2,159 | ||||||
Property and equipment, net | 35,459 | 31,179 | ||||||
Prepaid expenses and other non-current assets | 9,782 | 10,043 | ||||||
Intangible assets, net | 254,166 | 258,923 | ||||||
Goodwill | 627,204 | 626,569 | ||||||
Total assets | $ | 1,154,446 | $ | 1,199,839 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
Liabilities | ||||||||
Current liabilities: | ||||||||
Accounts payable (amounts related to affiliates: 2017 - $8,593; 2016 - $13,480) | $ | 39,613 | $ | 43,892 | ||||
Accrued liabilities (amounts related to affiliates: 2017 - $2,107; 2016 - $3,211) | 22,320 | 29,160 | ||||||
Accrued compensation and employee benefits | 16,993 | 38,408 | ||||||
Deferred revenue | 25,513 | 20,481 | ||||||
Total current liabilities | 104,439 | 131,941 | ||||||
Long-term debt, net of discount | 120,706 | 120,283 | ||||||
Other long-term liabilities | 14,091 | 14,655 | ||||||
Deferred tax liabilities, net | 18,470 | 20,846 | ||||||
Total liabilities | 257,706 | 287,725 | ||||||
Commitments and Contingencies (See Note 9) | ||||||||
Shareholders' Equity (Deficit) | ||||||||
Class A common stock - $0.01 par value; 750,000,000 shares authorized; 57,026,226 and 52,586,899 | ||||||||
shares issued and outstanding as of March 31, 2017, and December 31, 2016, respectively | 570 | 506 | ||||||
Class B common stock - $0.01 par value; 100,000,000 shares authorized; 10,948,832 and 15,346,981 | ||||||||
shares issued and outstanding as of March 31, 2017, and December 31, 2016, respectively | 109 | 153 | ||||||
Additional paid-in-capital | 621,187 | 555,250 | ||||||
Retained earnings (accumulated deficit) | 128,605 | 146,617 | ||||||
Total shareholders' equity (deficit) attributable to Evolent Health, Inc. | 750,471 | 702,526 | ||||||
Non-controlling interests | 146,269 | 209,588 | ||||||
Total shareholders' equity (deficit) | 896,740 | 912,114 | ||||||
Total liabilities and shareholders' equity (deficit) | $ | 1,154,446 | $ | 1,199,839 |
For the Three | |||||||
Months Ended | |||||||
March 31, | |||||||
2017 | 2016 | ||||||
Revenue | |||||||
Transformation (1) | $ | 10,235 | $ | 8,114 | |||
Platform and operations (1) | 96,003 | 41,335 | |||||
Total revenue | 106,238 | 49,449 | |||||
Expenses | |||||||
Cost of revenue (exclusive of depreciation and amortization | |||||||
expenses presented separately below) (1) | 67,528 | 28,610 | |||||
Selling, general and administrative expenses (1) | 53,550 | 31,946 | |||||
Depreciation and amortization expenses | 6,615 | 3,371 | |||||
Goodwill impairment | — | 160,600 | |||||
Total operating expenses | 127,693 | 224,527 | |||||
Operating income (loss) | (21,455 | ) | (175,078 | ) | |||
Interest income | 185 | 279 | |||||
Interest expense | (954 | ) | — | ||||
Income (loss) from affiliates | (522 | ) | — | ||||
Other income (expense), net | 2 | — | |||||
Income (loss) before income taxes and non-controlling interests | (22,744 | ) | (174,799 | ) | |||
Provision (benefit) for income taxes | 405 | (988 | ) | ||||
Net income (loss) | (23,149 | ) | (173,811 | ) | |||
Net income (loss) attributable to non-controlling interests | (5,137 | ) | (51,071 | ) | |||
Net income (loss) attributable to Evolent Health, Inc. | $ | (18,012 | ) | $ | (122,740 | ) | |
Earnings (Loss) Available for Common Shareholders | |||||||
Basic | $ | (18,012 | ) | $ | (122,740 | ) | |
Diluted | (18,012 | ) | (122,740 | ) | |||
Earnings (Loss) per Common Share | |||||||
Basic | $ | (0.34 | ) | $ | (2.91 | ) | |
Diluted | (0.34 | ) | (2.91 | ) | |||
Weighted-Average Common Shares Outstanding | |||||||
Basic | 52,599 | 42,185 | |||||
Diluted | 52,599 | 42,185 |
(1) | Amounts related to affiliates included above are as follows (see Note 16): | |||||||
Revenue | ||||||||
Transformation | $ | 198 | $ | 44 | ||||
Platform and operations | 6,778 | 7,002 | ||||||
Expenses | ||||||||
Cost of revenue (exclusive of depreciation and amortization expenses) | 6,344 | 5,128 | ||||||
Selling, general and administrative expenses | 405 | 383 |
For the Three | |||||||
Months Ended | |||||||
March 31, | |||||||
2017 | 2016 | ||||||
Cash Flows from Operating Activities | |||||||
Net income (loss) | $ | (23,149 | ) | $ | (173,811 | ) | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||
Loss from affiliates | 522 | — | |||||
Depreciation and amortization expenses | 6,615 | 3,371 | |||||
Goodwill impairment | — | 160,600 | |||||
Stock-based compensation expense | 5,104 | 4,335 | |||||
Deferred tax provision (benefit) | 405 | (988 | ) | ||||
Amortization of deferred financing costs | 229 | — | |||||
Accretion of bond premium/discounts | 57 | — | |||||
Other | 159 | 110 | |||||
Changes in assets and liabilities, net of acquisitions: | |||||||
Accounts receivables, net | (4,003 | ) | (4,835 | ) | |||
Prepaid expenses and other current assets | (629 | ) | 656 | ||||
Accounts payable, net of change in restricted cash and restricted investments | 4,222 | (2,896 | ) | ||||
Accrued liabilities | (6,727 | ) | 1,414 | ||||
Accrued compensation and employee benefits | (21,424 | ) | (12,302 | ) | |||
Deferred revenue | 4,581 | 3,494 | |||||
Other long-term liabilities | (727 | ) | 48 | ||||
Net cash provided by (used in) operating activities | (34,765 | ) | (20,804 | ) | |||
Cash Flows from Investing Activities | |||||||
Cash paid for asset acquisition or business combination | — | (11,500 | ) | ||||
Maturities and sales of investments | 10,600 | — | |||||
Purchases of property and equipment | (5,978 | ) | (3,353 | ) | |||
Change in restricted cash and restricted investments | — | 1,198 | |||||
Net cash provided by (used in) investing activities | 4,622 | (13,655 | ) | ||||
Cash Flows from Financing Activities | |||||||
Proceeds from stock option exercises | 542 | 25 | |||||
Taxes withheld for vesting of restricted stock units | (667 | ) | — | ||||
Net cash provided by (used in) financing activities | (125 | ) | 25 | ||||
Net increase (decrease) in cash and cash equivalents | (30,268 | ) | (34,434 | ) | |||
Cash and cash equivalents as of beginning-of-period | 134,563 | 145,726 | |||||
Cash and cash equivalents as of end-of-period | $ | 104,295 | $ | 111,292 |
Supplemental Disclosure of Non-cash Investing and Financing Activities | |||||||
Accrued property and equipment purchases | $ | 83 | $ | 90 | |||
Class A common stock issued in connection with business combinations | — | 10,534 | |||||
Measurement period adjustments related to business combinations | 635 | — | |||||
Change in accrued financing costs related to 2021 Notes | 196 | — | |||||
Effects of the March 2017 Secondary Offering | |||||||
Decrease in non-controlling interests as a result of Class B Exchanges | 59,585 | — |
Retained | |||||||||||||||||||||||||||||
Earnings | |||||||||||||||||||||||||||||
Class A | Class B | Additional | (Accum- | Non- | Total | ||||||||||||||||||||||||
Common Stock | Common Stock | Paid-in | ulated | controlling | Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit) | Interests | (Deficit) | ||||||||||||||||||||||
Balance as of December 31, 2015 | 41,491 | $ | 415 | 17,525 | $ | 175 | $ | 342,063 | $ | 306,688 | $ | 285,238 | $ | 934,579 | |||||||||||||||
Cumulative-effect adjustment from adoption of new | |||||||||||||||||||||||||||||
accounting principle | — | — | — | — | 468 | (329 | ) | (139 | ) | — | |||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 16,147 | — | — | 16,147 | |||||||||||||||||||||
Acceleration of unvested equity awards for Valence Health | |||||||||||||||||||||||||||||
employees | 162 | 2 | — | — | 3,897 | — | — | 3,899 | |||||||||||||||||||||
Exercise of stock options | 221 | — | — | — | 1,259 | — | — | 1,259 | |||||||||||||||||||||
Restricted stock units vested, net of shares withheld for taxes | 84 | — | — | — | 2,193 | — | — | 2,193 | |||||||||||||||||||||
Exchange of Class B common stock | 2,178 | 22 | (2,178 | ) | (22 | ) | 28,220 | — | (28,220 | ) | — | ||||||||||||||||||
Tax impact of Class B common stock exchange | — | — | — | — | 1,606 | — | — | 1,606 | |||||||||||||||||||||
Issuance of Class A common stock for business combinations | 8,451 | 67 | — | — | 177,715 | — | — | 177,782 | |||||||||||||||||||||
Tax impact of Class A common stock issued for | |||||||||||||||||||||||||||||
business combinations | — | — | — | — | 1,427 | — | — | 1,427 | |||||||||||||||||||||
Reclassification of non-controlling interests | — | — | — | — | (19,745 | ) | — | 19,745 | — | ||||||||||||||||||||
Net income (loss) | — | — | — | — | — | (159,742 | ) | (67,036 | ) | (226,778 | ) | ||||||||||||||||||
Balance as of December 31, 2016 | 52,587 | 506 | 15,347 | 153 | 555,250 | 146,617 | 209,588 | 912,114 | |||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 5,104 | — | — | 5,104 | |||||||||||||||||||||
Exercise of stock options | 94 | 20 | — | — | 522 | — | — | 542 | |||||||||||||||||||||
Restricted stock units vested, net of shares withheld for taxes | 60 | 1 | — | — | (668 | ) | — | — | (667 | ) | |||||||||||||||||||
Shares retired upon release from Valence Health escrow | (113 | ) | (1 | ) | — | — | 1 | — | — | — | |||||||||||||||||||
Exchange of Class B common stock | 4,398 | 44 | (4,398 | ) | (44 | ) | 59,585 | — | (59,585 | ) | — | ||||||||||||||||||
Tax impact of Class B common stock exchange | — | — | — | — | 2,796 | — | — | 2,796 | |||||||||||||||||||||
Reclassification of non-controlling interests | — | — | — | — | (1,403 | ) | — | 1,403 | — | ||||||||||||||||||||
Net income (loss) | — | — | — | — | — | (18,012 | ) | (5,137 | ) | (23,149 | ) | ||||||||||||||||||
Balance as of March 31, 2017 | 57,026 | $ | 570 | 10,949 | $ | 109 | $ | 621,187 | $ | 128,605 | $ | 146,269 | $ | 896,740 |
As of | As of | ||||||||
March 31, | December 31, | ||||||||
2017 | 2016 | ||||||||
Collateral for letters of credit | |||||||||
for facility leases (1) | $ | 3,948 | $ | 4,852 | |||||
Collateral with financial institutions (2) | 4,950 | 4,950 | |||||||
Pharmacy benefit management | |||||||||
and claims processing services (3) | 22,035 | 30,555 | |||||||
Other | 982 | 59 | |||||||
Total restricted cash | |||||||||
and restricted investments | 31,915 | 40,416 | |||||||
Non-current restricted investments (2) | 4,950 | 4,950 | |||||||
Non-current restricted cash (1) | 3,711 | 1,050 | |||||||
Total non-current restricted cash | |||||||||
and restricted investments | 8,661 | 6,000 | |||||||
Current restricted cash | |||||||||
and restricted investments | $ | 23,254 | $ | 34,416 |
Purchase consideration: | |||
Fair value of Class A common stock issued | $ | 9,864 | |
Cash for settlement of software license | 7,000 | ||
Cash | 17,481 | ||
Total consideration | $ | 34,345 | |
Tangible assets acquired: | |||
Receivables | $ | 624 | |
Prepaid expenses and other current assets | 272 | ||
Property and equipment | 1,065 | ||
Other non-current assets | 9 | ||
Identifiable intangible assets acquired: | |||
Customer relationships | 7,000 | ||
Technology | 2,500 | ||
Liabilities assumed: | |||
Accounts payable | 429 | ||
Accrued liabilities | 1,204 | ||
Accrued compensation and employee benefits | 605 | ||
Deferred revenue | 44 | ||
Goodwill | 25,157 | ||
Net assets acquired | $ | 34,345 |
Measurement | ||||||||||||||
As Previously | Period | |||||||||||||
Determined | Adjustment | As Revised | ||||||||||||
Purchase consideration: | ||||||||||||||
Fair value of Class A common stock issued | $ | 159,614 | $ | — | $ | 159,614 | ||||||||
Fair value of contingent consideration | 2,620 | — | 2,620 | |||||||||||
Cash | 54,799 | — | 54,799 | |||||||||||
Total consideration | $ | 217,033 | $ | 217,033 | ||||||||||
Tangible assets acquired: | ||||||||||||||
Restricted cash | $ | 1,829 | $ | — | $ | 1,829 | ||||||||
Accounts Receivable | 8,587 | — | 8,587 | |||||||||||
Prepaid expenses and other current assets | 3,465 | — | 3,465 | |||||||||||
Property and equipment | 6,241 | — | 6,241 | |||||||||||
Other non-current assets | 313 | — | 313 | |||||||||||
Favorable leases assumed (net of unfavorable leases) | 4,323 | — | 4,323 | |||||||||||
Identifiable intangible assets acquired: | ||||||||||||||
Customer relationships | 69,000 | — | 69,000 | |||||||||||
Technology | 18,000 | — | 18,000 | |||||||||||
Liabilities assumed: | ||||||||||||||
Accounts payable | 5,703 | — | 5,703 | |||||||||||
Accrued liabilities | 3,865 | — | 3,865 | |||||||||||
Accrued compensation and employee benefits | 9,200 | — | 9,200 | |||||||||||
Deferred revenue | 2,022 | 640 | 2,662 | |||||||||||
Other long-term liabilities | 2,328 | — | 2,328 | |||||||||||
Net deferred tax liabilities | 13,316 | — | 13,316 | |||||||||||
Goodwill | 141,709 | 640 | 142,349 | |||||||||||
Net assets acquired | $ | 217,033 | $ | 217,033 |
Purchase Consideration | |||
Fair value of Class A common stock issued | $ | 10,450 | |
Fair value of contingent consideration | 7,750 | ||
Total consideration | $ | 18,200 | |
Tangible assets acquired | |||
Prepaid asset | $ | 6,900 | |
Goodwill | 11,300 | ||
Net assets acquired | $ | 18,200 |
• | remove transaction costs related to the Passport transaction of $0.3 million recorded during 2016 and reclassify said amounts to the three months ended March 31, 2015; |
• | remove transaction costs related to the Passport transaction of $0.2 million recorded in the fourth quarter of 2015 and reclassify |
• | remove transaction costs related to Aldera and Valence Health of $0.2 million and $2.7 million, respectively, recorded during 2016, and reclassify said amounts to the three months ended March 31, 2015; |
• | remove one-time items, such as the gain on the release of our contingent liability related to Valence Health of $2.6 million, stock based compensation of $3.9 million related to the acceleration of Valence Health’s unvested equity awards and the lease abandonment charge related to the 14th Floor Space of $6.5 million, recorded during the fourth quarter of 2016 and reclassify said amounts to the three months ended March 31, 2015; |
• | record amortization expenses related to intangible assets beginning January 1, 2015, for intangible assets related to Valence Health and Aldera; |
• | record revenue and expenses related to the Valence Health MSA and TSA agreements for the three months ended March 31, 2016; |
• | remove the tax benefit associated with the Valence Health acquisition recorded during the fourth quarter of 2016 and reclassify said amounts to the three months ended March 31, 2015; and |
• | record rent expense related to Passport prepaid lease beginning January 1, 2015. |
For the Three | |||||
Months Ended | |||||
March 31, | |||||
2016 | |||||
Revenue | $ | 81,326 | |||
Net income (loss) | (177,620 | ) | |||
Net income (loss) attributable | |||||
to non-controlling interests | (46,022 | ) | |||
Net income (loss) attributable | |||||
to Evolent Health, Inc. | (131,598 | ) | |||
Net income (loss) available to | |||||
common shareholders: | |||||
Basic | (2.63 | ) | |||
Diluted | (2.63 | ) |
As of March 31, 2017 | |||||||||||||||
Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||
Costs | Gains | Losses | Value | ||||||||||||
U.S. Treasury bills | $ | 28,073 | $ | 40 | $ | 29 | $ | 28,084 | |||||||
Corporate bonds | 5,611 | 24 | 1 | 5,634 | |||||||||||
Total investments | $ | 33,684 | $ | 64 | $ | 30 | $ | 33,718 | |||||||
As of December 31, 2016 | |||||||||||||||
Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||
Costs | Gains | Losses | Value | ||||||||||||
U.S. Treasury bills | $ | 28,119 | $ | 116 | $ | 27 | $ | 28,208 | |||||||
Corporate bonds | 16,222 | 81 | 8 | 16,295 | |||||||||||
Total investments | $ | 44,341 | $ | 197 | $ | 35 | $ | 44,503 |
As of March 31, 2017 | As of December 31, 2016 | ||||||||||||||||
Amortized | Fair | Amortized | Fair | ||||||||||||||
Costs | Value | Costs | Value | ||||||||||||||
Due in one year or less | $ | 33,684 | $ | 33,718 | $ | 44,341 | $ | 44,503 | |||||||||
Due after one year through five years | — | — | — | — | |||||||||||||
Total | $ | 33,684 | $ | 33,718 | $ | 44,341 | $ | 44,503 |
As of March 31, 2017 | As of December 31, 2016 | |||||||||||||||||||||
Number of | Fair | Unrealized | Number of | Fair | Unrealized | |||||||||||||||||
Securities | Value | Losses | Securities | Value | Losses | |||||||||||||||||
Unrealized loss for less than twelve months | ||||||||||||||||||||||
U.S. Treasury bills | 3 | $ | 12,011 | $ | 13 | 1 | $ | 4,002 | $ | 1 |
As of | As of | |||||||
March 31, | December 31, | |||||||
2017 | 2016 | |||||||
Computer hardware | $ | 4,674 | $ | 4,474 | ||||
Furniture and equipment | 2,448 | 2,448 | ||||||
Internal-use software development costs | 27,237 | 21,385 | ||||||
Leasehold improvements | 8,117 | 8,108 | ||||||
Total property and equipment | 42,476 | 36,415 | ||||||
Accumulated depreciation and amortization | (7,017 | ) | (5,236 | ) | ||||
Total property and equipment, net | $ | 35,459 | $ | 31,179 |
For the Three | ||||||||||
Months | For the Year | |||||||||
Ended | Ended | |||||||||
March 31, | December 31, | |||||||||
2017 | 2016 | |||||||||
Balance as of beginning-of-period | $ | 626,569 | $ | 608,903 | ||||||
Goodwill Acquired (1) | — | 178,266 | ||||||||
Measurement period adjustments (2) | 635 | — | ||||||||
Goodwill Impairment | — | (160,600 | ) | |||||||
Balance as of end-of-period | $ | 627,204 | $ | 626,569 |
As of March 31, 2017 | ||||||||||||||
Weighted- | ||||||||||||||
Average | Gross | Net | ||||||||||||
Remaining | Carrying | Accumulated | Carrying | |||||||||||
Useful Life | Amount | Amortization | Value | |||||||||||
Corporate trade name | 18.2 | $ | 19,000 | $ | 1,741 | $ | 17,259 | |||||||
Customer relationships | 21.2 | 203,500 | 11,341 | 192,159 | ||||||||||
Technology | 4.9 | 50,500 | 9,828 | 40,672 | ||||||||||
Below market lease, net | 9.0 | 4,323 | 247 | 4,076 | ||||||||||
Total | $ | 277,323 | $ | 23,157 | $ | 254,166 |
As of December 31, 2016 | ||||||||||||||
Weighted- | ||||||||||||||
Average | Gross | Net | ||||||||||||
Remaining | Carrying | Accumulated | Carrying | |||||||||||
Useful Life | Amount | Amortization | Value | |||||||||||
Corporate trade name | 18.4 | $ | 19,000 | $ | 1,505 | $ | 17,495 | |||||||
Customer relationships | 21.5 | 203,500 | 9,018 | 194,482 | ||||||||||
Technology | 5.2 | 50,500 | 7,753 | 42,747 | ||||||||||
Below market lease, net | 9.4 | 4,323 | 124 | 4,199 | ||||||||||
Total | $ | 277,323 | $ | 18,400 | $ | 258,923 |
As of | As of | ||||||||
March 31, | December 31, | ||||||||
2017 | 2016 | ||||||||
Carrying value | $ | 120,706 | $ | 120,283 | |||||
Unamortized discount | 4,294 | 4,717 | |||||||
Principal amount | $ | 125,000 | $ | 125,000 | |||||
Remaining amortization period (years) | 4.7 | 4.9 |
• | the timing of the exchanges and the price of the Class A shares at the time of the transaction, triggering a tax basis increase in the Company’s asset and a corresponding benefit to be realized under the TRA; and |
• | the amount and timing of our taxable income - the Company will be required to pay 85% of the tax savings as and when realized, if any. If the Company does not have taxable income, it will not be required to make payments under the TRA for that taxable year because no tax savings were actually realized. |
For the Three | |||||
Months Ended | |||||
March 31, | |||||
2017 | 2016 | ||||
Customer A | 17.1 | % | 12.9 | % | |
Customer B | 11.2 | % | * | ||
Customer C | * | 18.3 | % | ||
Customer D | * | 14.2 | % | ||
Customer E | * | 11.4 | % |
As of | As of | ||||||
March 31, | December 31, | ||||||
2017 | 2016 | ||||||
Customer B | 19.2 | % | * | ||||
Customer D | 9.6 | % | * | ||||
Customer F | 10.4 | % | * | ||||
Customer G | * | 14.3 | % |
For the Three | |||||||
Months Ended | |||||||
March 31, | |||||||
2017 | 2016 | ||||||
Net income (loss) | $ | (23,149 | ) | $ | (173,811 | ) | |
Less: | |||||||
Net income (loss) attributable to non-controlling interests | (5,137 | ) | (51,071 | ) | |||
Net income (loss) available for common shareholders (1) (2) | $ | (18,012 | ) | $ | (122,740 | ) | |
Weighted-average common shares outstanding (2) (3) | 52,599 | 42,185 | |||||
Earnings (Loss) per Common Share | |||||||
Basic | $ | (0.34 | ) | $ | (2.91 | ) | |
Diluted | (0.34 | ) | (2.91 | ) |
(1) | For periods of net loss, net income (loss) available for common shareholders is the same for both basic and diluted purposes. |
(2) | Each Class B common unit of Evolent Health LLC can be exchanged (together with a corresponding number of shares of our Class B common stock) for one share of our Class A common stock. As holders exchange their Class B common shares for Class A common shares, our interest in Evolent Health LLC will increase. Therefore, shares of our Class B common stock are not considered dilutive shares for the purposes of calculating our diluted earnings (loss) per common share as related adjustment to net income (loss) available for common shareholders would equally offset the additional shares, resulting in the same earnings (loss) per common share. |
(3) | For periods of net loss, shares used in the earnings (loss) per common share calculation represent basic shares as using diluted shares would be anti-dilutive. |
For the Three | |||||
Months Ended | |||||
March 31, | |||||
2017 | 2016 | ||||
Exchangeable Class B common stock | 15,347 | 17,525 | |||
Restricted stock units ("RSU") | 485 | 12 | |||
Options | 2,915 | 457 | |||
Convertible senior notes | 5,201 | — | |||
Total | 23,948 | 17,994 |
For the Three | |||||||
Months Ended | |||||||
March 31, | |||||||
2017 | 2016 | ||||||
Award Type | |||||||
Stock options | $ | 4,053 | $ | 3,818 | |||
Performance-based stock options | 110 | 25 | |||||
RSUs | 941 | 492 | |||||
Total | $ | 5,104 | $ | 4,335 | |||
Line Item | |||||||
Cost of revenue | $ | 349 | $ | 444 | |||
Selling, general and | |||||||
administrative expenses | 4,755 | 3,891 | |||||
Total | $ | 5,104 | $ | 4,335 |
For the Three | |||||
Months Ended | |||||
March 31, | |||||
2017 | 2016 | ||||
Stock options | 866,849 | 857,130 | |||
Performance-based stock options | — | 267,770 | |||
RSUs | 387,597 | 385,713 |
For the Three | |||||||
Months Ended | |||||||
March 31, | |||||||
2017 | 2016 | ||||||
Non-controlling interests as of beginning-of-period | $ | 209,588 | $ | 285,238 | |||
Cumulative-effect adjustment from adoption of new accounting principle | — | (139 | ) | ||||
Decrease in non-controlling interests as a result of the exchange | |||||||
of Class B common stock for Class A common stock | |||||||
as part of the March Secondary Offering | (59,585 | ) | — | ||||
Reclassification of non-controlling interests | 1,403 | — | |||||
Net income (loss) attributable to non-controlling interests | (5,137 | ) | (51,071 | ) | |||
Non-controlling interests as of end-of-period | $ | 146,269 | $ | 234,028 |
• | Level 1 - inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date; |
• | Level 2 - inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date and the fair value can be determined through the use of models or other valuation methodologies; and |
• | Level 3 - inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability. |
As of March 31, 2017 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | |||||||||||||||
Cash and cash equivalents (1) | $ | 5,986 | $ | — | $ | — | $ | 5,986 | |||||||
Liabilities | |||||||||||||||
Contingent consideration (2) | $ | — | $ | — | $ | 8,300 | $ | 8,300 |
As of December 31, 2016 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | |||||||||||||||
Cash and cash equivalents (1) | $ | 1,128 | $ | — | $ | — | $ | 1,128 | |||||||
Liabilities | |||||||||||||||
Contingent consideration (2) | $ | — | $ | — | $ | 8,300 | $ | 8,300 |
For the Three | |||||||
Months Ended | |||||||
March 31, | |||||||
2017 | 2016 | ||||||
Balance as of beginning-of-period | $ | 8,300 | $ | — | |||
Additions | — | 7,766 | |||||
Balance as of end-of-period | $ | 8,300 | $ | 7,766 |
Fair | Valuation | Significant | Assumption or | ||||||||
Value | Technique | Unobservable Inputs | Input Ranges | ||||||||
Contingent consideration (1) | $ | 8,300 | Real options approach | Risk-adjusted recurring revenue CAGR | 97.0 | % | (2) | ||||
Discount rate/time value | 2.5% - 4.5% |
For the Three | ||||||||||||||
Months Ended | Change Over | |||||||||||||
March 31, | Prior Period | |||||||||||||
(in thousands) | 2017 | 2016 | $ | % | ||||||||||
Revenue | ||||||||||||||
Transformation | $ | 10,235 | $ | 8,114 | $ | 2,121 | 26.1 | % | ||||||
Platform and operations | 96,003 | 41,335 | 54,668 | 132.3 | % | |||||||||
Total revenue | 106,238 | 49,449 | 56,789 | 114.8 | % | |||||||||
Expenses | ||||||||||||||
Cost of revenue (exclusive of | ||||||||||||||
depreciation and amortization | ||||||||||||||
expenses presented separately below) | 67,528 | 28,610 | 38,918 | 136.0 | % | |||||||||
Selling, general and | ||||||||||||||
administrative expenses | 53,550 | 31,946 | 21,604 | 67.6 | % | |||||||||
Depreciation and amortization expenses | 6,615 | 3,371 | 3,244 | 96.2 | % | |||||||||
Goodwill impairment | — | 160,600 | (160,600 | ) | — | |||||||||
Total operating expenses | 127,693 | 224,527 | (96,834 | ) | (43.1 | )% | ||||||||
Operating income (loss) | $ | (21,455 | ) | $ | (175,078 | ) | $ | 153,623 | 87.7 | % | ||||
Transformation revenue as | ||||||||||||||
a % of total revenue | 9.6 | % | 16.4 | % | ||||||||||
Platform and operations revenue | ||||||||||||||
as a % of total revenue | 90.4 | % | 83.6 | % | ||||||||||
Cost of revenue as a % | ||||||||||||||
of total revenue | 63.6 | % | 57.9 | % | ||||||||||
Selling, general and administrative | ||||||||||||||
expenses as a % of total revenue | 50.4 | % | 64.6 | % |
For the Three | |||||||
Months Ended | |||||||
March 31, | |||||||
2017 | 2016 | ||||||
Net cash provided by (used in) operating activities | $ | (34,765 | ) | $ | (20,804 | ) | |
Net cash provided by (used in) investing activities | 4,622 | (13,655 | ) | ||||
Net cash provided by (used in) financing activities | (125 | ) | 25 |
Less | More | ||||||||||||||||||
Than | 1 to 3 | 3 to 5 | Than | ||||||||||||||||
1 Year | Years | Years | 5 Years | Total | |||||||||||||||
Operating leases for facilities | $ | 8,971 | $ | 15,814 | $ | 8,769 | $ | 21,187 | $ | 54,741 | |||||||||
Purchase obligations | 1,440 | 393 | — | — | 1,833 | ||||||||||||||
2021 Notes interest payments | 2,466 | 4,992 | 5,022 | — | 12,480 | ||||||||||||||
2021 Notes principal repayment | — | — | 125,000 | — | 125,000 | ||||||||||||||
Total | $ | 12,877 | $ | 21,199 | $ | 138,791 | $ | 21,187 | $ | 194,054 |
• | Increase our ownership in our consolidated operating subsidiary, Evolent Health LLC. See “Item 1. Financial Statements - Note 4” for additional information; |
• | Increase the number of outstanding shares of our Class A common stock. See “Item 1. Financial Statements - Note 10” for information relating to potentially dilutive securities and the impact on our historical earnings per share; and |
• | Increase our tax basis in our share of Evolent Health LLC’s tangible and intangible assets and possibly subject us to payments under the TRA agreement. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 12” in our 2016 Form 10-K for further information on tax matters related to the exchange of Class B common shares. |
• | hired additional full-time accounting resources and financial planning and analysis resources with experience to address complex, non-routine transactions: |
◦ | during 2015, we hired a senior director of revenue and technical accounting, a director of financial reporting, a manager of revenue and a senior revenue accountant; |
◦ | we expanded the accounting team by adding an associate director of revenue in 2016 and an associate director of accounting in 2017; |
◦ | from December 31, 2014 to March 31, 2017, our finance and accounting headcount increased from 5 to 27. |
• | reallocated responsibilities across our accounting department based on potential risk and complexity of transactions and tasks to be reviewed; |
• | strengthened our review procedures and formalized documentation of the reviews surrounding complex, non-routine transactions; |
• | implemented additional monitoring programs, which included the formation of a disclosure committee comprised of members of our executive committee and finance and accounting leadership; |
• | implemented training programs for various processes to train employees in respect of our established processes and controls, especially with regard to complex, non-routine transactions; |
• | engaged our actuarial department to assist in the review of significant estimates in various areas, including incurred but not reported liabilities; and |
• | implemented a new contract management process to facilitate the documentation and review of complex contracts by appropriate accounting personnel and relevant company stakeholders. |
By: | /s/ Nicholas McGrane | |
Name: | Nicholas McGrane | |
Title: | Chief Financial Officer | |
By: | /s/ Lydia Stone | |
Name: | Lydia Stone | |
Title: | Principal Accounting Officer and Controller |
2.1 | * | Agreement and Plan of Merger, dated July 12, 2016, by and among Evolent Health, Inc., Electra Merger Sub, LLC, |
Valence Health, Inc. and North Bridge Growth Management Company LLC and Philip Kamp, in their capacity as | ||
securityholders’ representative, filed as Exhibit 2.1 to the Company’s Report on Form 8-K filed with the SEC on | ||
July 14, 2016, and incorporated herein by reference | ||
2.2 | * | First Amendment to Agreement and Plan of Merger, dated October 3, 2016, by and among Evolent Health, Inc., |
Electra Merger Sub, LLC, Valence Health, Inc. and North Bridge Growth Management Company LLC and | ||
Philip Kamp, in their capacity as securityholders’ representative, filed as Exhibit 2.2 to the Company’s Report | ||
on Form 8-K filed with the SEC on October 3, 2016, and incorporated herein by reference | ||
31.1 | Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 | |
of the Sarbanes-Oxley Act of 2002 | ||
32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 | |
of the Sarbanes-Oxley Act of 2002 | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
* | The Company agrees to furnish supplementally to the SEC a copy of any omitted schedule or exhibit upon the | |
request of the SEC in accordance with Item 601(b)(2) of Regulation S-K | ||
1. | I have reviewed this quarterly report on Form 10-Q of Evolent Health, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: | May 10, 2017 | /s/ Frank Williams | |
Name: Frank Williams | |||
Title: Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Evolent Health, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: | May 10, 2017 | /s/ Nicholas McGrane | |
Name: Nicholas McGrane | |||
Title: Chief Financial Officer |
1. | The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2017 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: | May 10, 2017 | /s/ Frank Williams | |
Name: Frank Williams | |||
Title: Chief Executive Officer |
1. | The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2017 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: | May 10, 2017 | /s/ Nicholas McGrane | |
Name: Nicholas McGrane | |||
Title: Chief Financial Officer |
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
May 05, 2017 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | Evolent Health, Inc. | |
Entity Central Index Key | 0001628908 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 | |
Class A | ||
Entity Common Stock, Shares Outstanding | 57,724,767 | |
Class B | ||
Entity Common Stock, Shares Outstanding | 10,285,265 |
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Accounts receivable, related parties | $ 6,155 | $ 8,258 |
Prepaid expenses and other current assets, related parties | 1,110 | 4,507 |
Accounts payable, related parties | 8,593 | 13,480 |
Accrued liabilities, related parties | $ 2,107 | $ 3,211 |
Class A | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized (in shares) | 750,000,000 | 750,000,000 |
Common stock, issued (in shares) | 57,026,226 | 52,586,899 |
Common stock, outstanding (in shares) | 57,026,226 | 52,586,899 |
Class B | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock, issued (in shares) | 10,948,832 | 15,346,981 |
Common stock, outstanding (in shares) | 10,948,852 | 15,346,981 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Cash Flows from Operating Activities | ||
Net income (loss) | $ (23,149) | $ (173,811) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Loss from affiliates | 522 | 0 |
Depreciation and amortization expenses | 6,615 | 3,371 |
Goodwill impairment | 0 | 160,600 |
Stock-based compensation expense | 5,104 | 4,335 |
Amortization of deferred financing costs | 405 | (988) |
Amortization of deferred financing costs | 229 | 0 |
Accretion of bond premium/discounts | 57 | 0 |
Accretion of bond premium/discounts | 159 | 110 |
Changes in assets and liabilities, net of acquisitions: | ||
Accounts receivables, net | (4,003) | (4,835) |
Prepaid expenses and other current assets | (629) | 656 |
Accounts payable, net of change in restricted cash and restricted investments | 4,222 | (2,896) |
Accrued liabilities | (6,727) | 1,414 |
Accrued compensation and employee benefits | (21,424) | (12,302) |
Deferred revenue | 4,581 | 3,494 |
Other long-term liabilities | (727) | 48 |
Net cash provided by (used in) operating activities | (34,765) | (20,804) |
Cash Flows from Investing Activities | ||
Cash paid for asset acquisition or business combination | 0 | (11,500) |
Maturities and sales of investments | 10,600 | 0 |
Purchases of property and equipment | (5,978) | (3,353) |
Change in restricted cash and restricted investments | 0 | 1,198 |
Net cash provided by (used in) investing activities | 4,622 | (13,655) |
Cash Flows from Financing Activities | ||
Proceeds from stock option exercises | 542 | 25 |
Taxes withheld for vesting of restricted stock units | (667) | 0 |
Net cash provided by (used in) financing activities | (125) | 25 |
Net increase (decrease) in cash and cash equivalents | (30,268) | (34,434) |
Cash and cash equivalents as of beginning-of-period | 134,563 | 145,726 |
Cash and cash equivalents as of end-of-period | 104,295 | 111,292 |
Supplemental Disclosure of Non-cash Investing and Financing Activities | ||
Accrued property and equipment purchases | 83 | 90 |
Class A common stock issued in connection with business combinations | 0 | 10,534 |
Measurement period adjustments related to business combinations | 635 | 0 |
Change in accrued financing costs related to 2021 Notes | 196 | 0 |
Effects of the March 2017 Secondary Offering | ||
Decrease in non-controlling interests as a result of Class B Exchanges | $ 59,585 | $ 0 |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
Total |
Common Stock
Class A
|
Common Stock
Class B
|
Additional Paid-in Capital |
Retained Earnings (Accumulated Deficit) |
Non-controlling Interests |
---|---|---|---|---|---|---|
Beginning balance (in shares) at Dec. 31, 2015 | 41,491 | 17,525 | ||||
Beginning balance, amount at Dec. 31, 2015 | $ 934,579 | $ 415 | $ 175 | $ 342,063 | $ 306,688 | $ 285,238 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||
Cumulative-effect adjustment from adoption of new accounting principle | 0 | 468 | (329) | (139) | ||
Stock-based compensation expense | 16,147 | 16,147 | ||||
Acceleration of unvested equity awards for Valence Health employees (in shares) | 162 | |||||
Acceleration of unvested equity awards for Valence Health employees | 3,899 | $ 2 | 3,897 | |||
Exercise of stock options (in shares) | 221 | |||||
Exercise of stock options | 1,259 | $ 0 | 1,259 | |||
Restricted stock units vested, net of shares withheld for taxes (in shares) | 84 | |||||
Restricted stock units vested, net of shares withheld for taxes | 2,193 | $ 0 | 2,193 | |||
Exchange of Class B common stock (in shares) | 2,178 | (2,178) | ||||
Exchange of Class B common stock | 0 | $ 22 | $ (22) | 28,220 | (28,220) | |
Tax impact of Class B common stock exchange | 1,606 | 1,606 | ||||
Issuance of Class A common stock for business combinations (in shares) | 8,451 | |||||
Issuance of Class A common stock for business combinations | 177,782 | $ 67 | 177,715 | |||
Tax impact of Class A common stock issued for business combination | 1,427 | 1,427 | ||||
Reclassification of non-controlling interests | 0 | (19,745) | 19,745 | |||
Net income (loss) | (226,778) | (159,742) | (67,036) | |||
Ending balance (in shares) at Dec. 31, 2016 | 52,587 | 15,347 | ||||
Ending balance, amount at Dec. 31, 2016 | 912,114 | $ 506 | $ 153 | 555,250 | 146,617 | 209,588 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||
Cumulative-effect adjustment from adoption of new accounting principle | 0 | |||||
Stock-based compensation expense | 5,104 | 5,104 | ||||
Exercise of stock options (in shares) | 94 | |||||
Exercise of stock options | 542 | $ 20 | 522 | |||
Restricted stock units vested, net of shares withheld for taxes (in shares) | 60 | |||||
Restricted stock units vested, net of shares withheld for taxes | (667) | $ 1 | (668) | |||
Shares retired upon release from Valence Health escrow (in shares) | (113) | |||||
Shares retired upon release from Valence Health escrow | 0 | $ (1) | 1 | |||
Exchange of Class B common stock (in shares) | 4,398 | (4,398) | ||||
Exchange of Class B common stock | 0 | $ 44 | $ (44) | 59,585 | (59,585) | |
Tax impact of Class B common stock exchange | 2,796 | 2,796 | ||||
Reclassification of non-controlling interests | 0 | (1,403) | 1,403 | |||
Net income (loss) | (23,149) | (18,012) | (5,137) | |||
Ending balance (in shares) at Mar. 31, 2017 | 57,026 | 10,949 | ||||
Ending balance, amount at Mar. 31, 2017 | $ 896,740 | $ 570 | $ 109 | $ 621,187 | $ 128,605 | $ 146,269 |
Basis of Presentation, Summary of Significant Accounting Policies and Change in Accounting Principle |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation, Summary of Significant Accounting Policies and Change in Accounting Principle | Basis of Presentation, Summary of Significant Accounting Policies and Change in Accounting Principle Basis of Presentation In our opinion, the accompanying unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to fairly state our financial position, results of operations, and cash flows. The Consolidated Balance Sheet at December 31, 2016, has been derived from audited financial statements as of that date. The interim consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain footnote disclosure normally included in financial statements prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) has been omitted pursuant to instructions, rules, and regulations prescribed by the United States Securities and Exchange Commission (“SEC”). The disclosures provided herein should be read in conjunction with the audited financial statements and notes thereto included in our 2016 Form 10-K. Summary of Significant Accounting Policies Certain GAAP policies that significantly affect the determination of our financial position, results of operations and cash flows, are summarized below. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 2” in our 2016 Form 10-K for a complete summary of our significant accounting policies. Accounting Estimates and Assumptions The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses for the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates. In the accompanying consolidated financial statements, estimates are used for, but not limited to, the valuation of assets, liabilities, consideration related to business combinations and step acquisitions, revenue recognition including discounts and credits, estimated selling prices for deliverables in multiple element arrangements, contingent payments, allowance for doubtful accounts, depreciable lives of assets, impairment of long lived assets (including equity method investments), stock-based compensation, deferred income taxes and valuation allowance, contingent liabilities, valuation of intangible assets (including goodwill) and the useful lives of intangible assets. Principles of Consolidation The consolidated financial statements include the accounts of Evolent Health, Inc. and its subsidiaries. All inter-company accounts and transactions are eliminated in consolidation. Operating Segments Operating segments are defined as components of a business that earn revenue and incur expenses for which discrete financial information is available that is evaluated, on a regular basis, by the chief operating decision maker (“CODM”) to decide how to allocate resources and assess performance. The Company’s CODM, the Chief Executive Officer, allocates resources at a consolidated level and therefore the Company views its operations and manages its business as one operating segment. All of the Company’s revenue is generated in the United States and all assets are located in the United States. Restricted Cash and Restricted Investments Restricted cash and restricted investments are carried at cost and include cash and investments used to collateralize various contractual obligations (in thousands) as follows:
(1) Represents restricted cash related to collateral for letters of credit required in conjunction with lease agreements. See Note 9 for further discussion of our lease commitments. (2) Represents collateral for letters of credit held with financial institutions for risk-sharing arrangements. The collateral amount is invested in restricted certificates of deposit with original maturities in excess of 12 months. The restricted investments are classified as held-to-maturity and stated at amortized cost. Fair value of the certificates of deposit is determined using Level 2 inputs and approximates cost as of March 31, 2017. See Note 9 for further discussion of our risk-sharing arrangements. (3) Represents cash held on behalf of clients to process PBM and other claims. Goodwill We recognize the excess of the purchase price, plus the fair value of any non-controlling interests in the acquiree, over the fair value of identifiable net assets acquired as goodwill. Goodwill is not amortized, but is reviewed at least annually for indications of impairment, with consideration given to financial performance and other relevant factors. We perform impairment tests of goodwill at our single reporting unit level, which is consistent with the way management evaluates our business. Acquisitions to date have been complementary to the Company’s core business, and therefore goodwill is assigned to our single reporting unit to reflect the synergies arising from each business combination. As discussed in Note 3, we adopted Accounting Standards Update (“ASU”) 2017-04, Intangibles-Goodwill and Other - Simplifying the Test for Goodwill Impairment, effective January 1, 2017. The adoption resulted in an update to our accounting policy for goodwill impairment. Under the updated policy, we perform a one-step test in our evaluation of the carrying value of goodwill, if qualitative factors determine it is necessary to complete a goodwill impairment test. In the evaluation, the fair value of the relevant reporting unit is determined and compared to the carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable, and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value and a charge is reported in impairment of goodwill on our Consolidated Statements of Operations. See Note 7 for additional discussion regarding goodwill impairment tests. Change in Accounting Principle In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions, including accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. During the second quarter of 2016, we elected to early adopt ASU 2016-09 effective January 1, 2016. Adoption of ASU 2016-09 resulted in a cumulative effect reduction to beginning retaining earnings of $0.5 million as of January 1, 2016, and an increase in net income (loss) of approximately $0.1 million for the three months ended March 31, 2016. The increase was due to our policy election to recognize share-based award forfeitures as they occur, as opposed to applying an estimated forfeiture rate. As we adopted the new guidance during the second quarter of 2016, the revised results of operations were not reflected in our Form 10-Q for the three months ended March 31, 2016, filed with the SEC on May 16, 2016. However, the revised results of operations were incorporated in this Form 10-Q and our 2016 Form 10-K. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 18” in our 2016 Form 10-K for further information about the impact of the adoption. |
Organization |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | Organization Evolent Health, Inc. was incorporated in December 2014 in the state of Delaware, and is a managed services firm that supports leading health systems and physician organizations in their migration toward value-based care and population health management. The Company’s services include providing our customers, who we refer to as partners, with a population management platform, integrated data and analytics capabilities, pharmacy benefit management (“PBM”) services and comprehensive health plan administration services. Together these services enable health systems to manage patient health in a more cost-effective manner. The Company’s contracts are structured as a combination of advisory fees, monthly member service fees, percentage of plan premiums and shared medical savings arrangements. The Company’s headquarters is located in Arlington, Virginia. Our predecessor, Evolent Health Holdings, Inc. (“Evolent Health Holdings”), merged with and into Evolent Health, Inc. in connection with the Offering Reorganization, as defined and discussed in our 2016 Form 10-K. Prior to our initial public offering (“IPO”) in June 2015 and the offering reorganization we undertook in connection therewith, Evolent Health Holdings did not control Evolent Health LLC, our operating subsidiary company due to certain participating rights granted to our investor, TPG Global, LLC and certain of its affiliates (“TPG”). However, Evolent Health Holdings was able to exert significant influence on Evolent Health LLC and, accordingly, accounted for its investment in Evolent Health LLC using the equity method of accounting through June 3, 2015. Subsequent to the offering reorganization which occurred on June 4, 2015, (the “Offering Reorganization”), the financial results of Evolent Health LLC have been consolidated in the financial statements of Evolent Health, Inc. As of March 31, 2017, the Company owned 83.9% of the economic interests and 100% of the voting rights in Evolent Health LLC, and is the sole managing member of Evolent Health LLC. Since its inception, the Company has incurred losses from operations. As of March 31, 2017, the Company had cash and cash equivalents of $104.3 million. The Company believes it has sufficient liquidity for the next twelve months as of the date the financial statements were available to be issued. |
Recently Issued Accounting Standards |
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Accounting Policies [Abstract] | |
Recently Issued Accounting Standards | Recently Issued Accounting Standards Adoption of New Accounting Standards In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other - Simplifying the Test for Goodwill Impairment. The purpose of the ASU is to simplify the subsequent measurement of goodwill. The ASU eliminates Step 2 from the goodwill impairment test. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We believe this newly adopted principle is preferable as it reduces the complexity of performing a goodwill impairment test. As a result, we adopted this standard effective January 1, 2017. Our updated accounting policy for goodwill impairment is described in Note 2. While the adoption of this ASU may have a material impact in determining the results of future goodwill impairment tests and thus impact our consolidated financial statements in the future, there was no impact of the adoption during the three months ended March 31, 2017. In March 2016, the FASB issued ASU 2016-07, Investments-Equity Method and Joint Ventures - Simplifying the Transition to the Equity Method of Accounting. The purpose of this ASU is to eliminate the requirement to retroactively adopt the equity method of accounting when an investment qualifies for the equity method as a result of an increase in the level of ownership interest or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We adopted this standard effective January 1, 2017. The adoption did not have a material impact on our financial statements for the three months ended March 31, 2017. In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging - Contingent Put and Call Options in Debt Instruments. The purpose of this ASU is to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely rated to their debt hosts. An entity performing the assessment under the amendments in the ASU is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We adopted this standard effective January 1, 2017. The adoption did not have a material impact on our financial statements for the three months ended March 31, 2017. Future Adoption of New Accounting Standards In January 2017, the FASB issued ASU 2017-01, Business Combinations - Clarifying the Definition of a Business. The purpose of the ASU is to add guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU provides a screen to determine when an integrated set of assets and activities is not a business. The ASU also provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective date. We intend to adopt the requirements of this standard effective January 1, 2018, and are currently evaluating the impact on our consolidated financial statements. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash. The purpose of the ASU is to reduce diversity in practice regarding the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments in the ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. We intend to adopt the requirements of this standard effective January 1, 2018, and are currently evaluating the impact of the adoption on our Consolidated Statements of Cash Flows. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This ASU provides updated guidance on eight specific cash flow issues to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We intend to adopt the requirements of this standard effective January 1, 2018, and are currently evaluating the impact of the adoption on our Consolidated Statements of Cash Flows. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. With respect to assets measured at amortized cost, such as held-to-maturity assets, the update requires presentation of the amortized cost net of a credit loss allowance. The update eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses as opposed to the previous standard, when an entity only considered past events and current conditions. With respect to available for sale debt securities, the update requires that credit losses be presented as an allowance rather than as a write-down. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We intend to adopt the requirements of this standard effective January 1, 2020 and are currently evaluating the impact of the adoption on our financial condition and results of operations. In February 2016, the FASB issued ASU 2016-02, Leases, in order to establish the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. This update introduces a new standard on accounting for leases, including a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized). The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. We intend to adopt the requirements of this standard effective January 1, 2019, and are currently evaluating the impact of the adoption on our financial condition and results of operations. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, in order to clarify the principles of recognizing revenue. This standard establishes the core principle of recognizing revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB defines a five-step process that systematically identifies the various components of the revenue recognition process, culminating with the recognition of revenue upon satisfaction of an entity’s performance obligation. By completing all five steps of the process, the core principles of revenue recognition will be achieved. In March 2016, the FASB issued an update to the new revenue standard (ASU 2014-09) in the form of ASU 2016-08, which amended the principal-versus-agent implementation guidance and illustrations in the new revenue guidance. The update clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued another update to the new revenue standard in the form of ASU 2016-10, which amended the guidance on identifying performance obligations and the implementation guidance on licensing. These ASUs were followed by two further updates issued during May 2016: ASU 2016-11, which rescinds certain SEC guidance, such as the adoption of ASUs 2014-09 and 2014-16, including accounting for consideration given by a vendor to a customer, and ASU 2016-12, which is intended to clarify the objective of the collectability criterion while identifying the contract(s) with a customer. The new revenue standard (including updates) will be effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted only as of annual reporting periods beginning after December 15, 2016. We intend to adopt the requirements of this standard effective January 1, 2018, and while we are evaluating the impact to our financial condition and results of operations, we expect the adoption of this ASU to require the inclusion of additional disclosures surrounding the nature and timing of our revenue. In our efforts to adopt this ASU, we have formulated an implementation team that is currently engaged in the evaluation process. We have evaluated a number of our contracts and at this point there is no clear indication regarding overall impact to our consolidated financial statements. We intend to complete the process during 2017, and until we have a clear indication of the impact of the adoption of the new standard we will not finalize our implementation method. We have evaluated all other issued and unadopted ASUs and believe the adoption of these standards will not have a material impact on our results of operations, financial position, or cash flows. |
Transactions |
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Transactions | Transactions Business Combinations Aldera On November 1, 2016, the Company completed the acquisition of Aldera, including 100% of the voting equity interests. Aldera is the primary software provider for the Valence Health (as defined below) TPA platform. The acquisition provides control over a key vendor for Valence Health’s TPA services. The merger consideration, net of certain closing and post-closing adjustments was $34.3 million based on the closing price of the Company’s Class A common stock on the New York Stock Exchange on November 1, 2016, and consisted of approximately 0.5 million shares of the Company’s Class A common stock, $17.5 million in cash and $7.0 million related to the settlement of a prepaid software license. As a result of the Class A common stock issued for the Aldera transaction, the Company’s ownership of Evolent Health LLC increased from 77.2% to 77.4% due to the Company having been issued Class A membership units in Evolent Health LLC in exchange for the contribution of Aldera to Evolent Health LLC post-acquisition. Prior to the acquisition of Aldera, Evolent entered into a perpetual license agreement for development rights and use of Aldera proprietary software for $7.0 million. Upon closing the acquisition of Aldera, the Company concluded that the $7.0 million prepaid asset recorded by Evolent and the deferred revenue balance recorded by Aldera for the perpetual software license should be assessed as a prepayment for a software license that was effectively settled upon acquisition and is eliminated in the post-combination consolidated financial statements. No gain or loss was recognized on settlement as management determined the $7.0 million license fee to be priced at fair value and the license agreement did not include a settlement provision. The Company increased the consideration transferred for the acquisition of Aldera by $7.0 million for the effective settlement of the prepaid software license at the recorded amount, bringing the total consideration paid for the acquisition to $34.3 million. The Company incurred approximately $0.2 million in transaction costs related to the Aldera acquisition, which were recorded within “Selling, general and administrative expenses” on our Consolidated Statements of Operations for the year ended December 31, 2016. The Company has accounted for the transaction as a business combination using purchase accounting. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of November 1, 2016, as follows (in thousands):
The fair value of the receivables acquired, as shown in the table above, approximates the gross contractual amounts deemed receivable by management. Identifiable intangible assets associated with technology and customer relationships will be amortized on a straight-line basis over their estimated useful lives of 5 and 15 years, respectively. The technology is related to source code for licensed software used to support the third party administration platform offered to Aldera’s clients. The fair value of the intangible assets was primarily determined using the income approach. The income approach estimates fair value for an asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a required rate of return that reflects the relative risk of achieving the cash flows and the time value of money. Goodwill is calculated as the difference between the acquisition date fair value of the total consideration and the fair value of the net assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition. The goodwill is attributable primarily to the acquired assembled workforce and expected cost and revenue synergies. Goodwill is considered an indefinite lived asset. The transaction was a taxable business combination for the Company and the amount of goodwill determined for tax purposes is deductible upon the beginning of the amortization period for tax purposes. The amounts above reflect management’s preliminary estimate of the fair value of the tangible and intangible assets acquired and liabilities assumed based on a valuation performed using currently available information. The Company recorded immaterial measurement period adjustments, which primarily impacted accrued liabilities, during the three months ended March 31, 2017. The net impact of these adjustments resulted in a decrease to goodwill of less than $0.1 million during the three months ended March 31, 2017. As the adjustments were immaterial, we did not update the purchase price allocation table. Any remaining adjustments are expected to be finalized within one year of the acquisition date. Valence Health On October 3, 2016, the Company completed its acquisition of Valence Health, including 100% of the voting equity interests. Valence Health, based in Chicago, Illinois, was founded in 1996 and provides value-based administration, population health and advisory services. In its 20 year history, Valence Health has developed particular expertise in the Medicaid and pediatric markets. The addition of Valence Health is expected to strengthen the Company’s operational capabilities and provide increased scale and client diversification. The merger consideration, net of certain closing and post-closing adjustments was $217.0 million based on the closing price of the Company’s Class A common stock on the New York Stock Exchange on October 3, 2016, and consisted of 7.0 million shares of the Company’s Class A common stock and $54.8 million in cash. The final number of shares to be issued is still subject to adjustment, pending a concluded net working capital settlement. The shares issued to Valence Health stockholders represented approximately 10.5% of the Company’s issued and outstanding Class A common stock and Class B common stock immediately following the transaction. As a result of the Class A common stock issued for the Valence Health transaction, the Company’s ownership in Evolent Health LLC increased from 74.6% to 77.2% due to the Company having been issued Class A membership units in Evolent Health LLC in exchange for the contribution of Valence Health to Evolent Health LLC post acquisition. The transaction also included an earn-out of up to $12.4 million, fair valued at $2.6 million as of October 3, 2016, payable by January 30, 2017, in the Company’s Class A common stock, tied to new business activity contracted on or before December 31, 2016. The fair value was determined by assigning probabilities to potential business activity in the pipeline as of the acquisition date. As of December 31, 2016, Valence Health did not contract sufficient business to be eligible for payment of the earn-out consideration. As a result, the Company recorded a gain of $2.6 million in accordance with the release of the contingent liability for the year ended December 31, 2016, which is recorded within “(Gain) loss on change in value of contingent consideration” on our Consolidated Statements of Operations. The Company incurred approximately $2.7 million of transaction costs related to the Valence Health acquisition for the year ended December 31, 2016. Approximately $2.6 million of the transaction costs are recorded within “Selling, general and administrative expenses” and less than $0.1 million are recorded within “Cost of revenue” on our Consolidated Statements of Operations. The Company has accounted for the transaction as a business combination using purchase accounting. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of October 3, 2016. During the three months ended March 31, 2017, the Company recorded an adjustment to deferred revenue. The purchase price allocation, as previously determined, the measurement period adjustment and the purchase price allocation, as revised, are as follows (in thousands):
The fair value of the receivables acquired, as shown in the table above, approximates the gross contractual amounts due under contracts of $9.1 million, of which $0.5 million is expected to be uncollectible. Identifiable intangible assets associated with customer relationships and technology will be amortized on a straight-line basis over their preliminary estimated useful lives of 20 and 5 years, respectively. The customer relationships are primarily attributable to long-term existing contracts with current customers. The technology is an existing platform Valence Health uses to provide services to customers. The fair value of the intangible assets was primarily determined using the income approach. The income approach estimates fair value for an asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a required rate of return that reflects the relative risk of achieving the cash flows and the time value of money. Goodwill is calculated as the difference between the acquisition date fair value of the total consideration and the fair value of the net assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition. The goodwill is attributable primarily to the acquired assembled workforce and expected cost and revenue synergies. Goodwill is considered an indefinite lived asset. The merger was structured as a tax-free reorganization and therefore the Company received carryover basis in the assets and liabilities acquired; accordingly, the Company recognized net deferred tax liabilities associated with the difference between the book basis and the tax basis for the assets and liabilities acquired, as well as the Valence Health net operating loss tax carryforward received in the merger, in the amount of $13.3 million, resulting in additional goodwill. The purchased and additional goodwill created due to the increase in the deferred tax liability were not deductible for tax purposes. The Company contributed the acquired assets and liabilities of Valence Health to Evolent Health LLC, resulting in a taxable gain of $52.7 million for the Company, not recognized for financial reporting purposes. The amounts above reflect management’s preliminary estimate of the fair value of the tangible and intangible assets acquired and liabilities assumed based on a valuation performed using currently available information, inclusive of measurement period adjustments. The Company recorded a measurement period adjustment to increase deferred revenue and goodwill by approximately $0.6 million during the three months ended March 31, 2017. Approximately $0.2 million of the $0.6 million was recorded as revenue during the three months ended March 31, 2017. Any remaining necessary adjustments are expected to be finalized within one year from the date of acquisition. Our results for the year ended December 31, 2016, included approximately $3.9 million in stock compensation expense related to the acceleration of unvested Valence Health equity awards that vested upon the close of the Valence Health acquisition. The expense is related to Valence Health employees that remained with the Company following the close of the acquisition. Our results from operations for the year ended December 31, 2016, also included a lease abandonment expense of approximately $6.5 million in conjunction with a rental space acquired as part of the Valence Health acquisition. Immediately following the acquisition, the Company made a decision to abandon and sublet its rented space at 540 W. Madison Street, Suite 1400, Chicago, Illinois (the “14th Floor Space”). The 14th Floor Space was completely vacated and is not being used in any manner by Evolent following the date of the merger. Accordingly, the Company believes it effectively ceased using the 14th Floor Space on October 3, 2016. As of October 3, 2016, the total gross value of remaining lease payments was $20.8 million and the gross value of reasonably estimable sublease rentals was $13.5 million. The Company applied a discount rate of 5%, based on its estimated incremental unsecured borrowing rate, resulting in an estimated net present value of the abandonment loss of approximately $6.5 million, the long-term portion of which is recorded within “Other long-term liabilities” and the short-term portion of which is recorded within “Accrued liabilities” on our Consolidated Balance Sheets. The abandonment loss was recorded within “Selling, general and administrative expenses” on our Consolidated Statements of Operations for the year ended December 31, 2016. In conjunction with our acquisition of Valence Health on October 3, 2016, we also signed a Master Service Agreement (the “MSA”), as well as a Transition Service Agreement (the “TSA”) with Cicerone Health Solutions, Inc., the surviving Valence Health, Inc. state insurance cooperative business not acquired by Evolent (“CHS”). The MSA and the TSA are at market rates and, therefore, there is no allocation of purchase price to these arrangements. The terms of the MSA stipulate that the Company will provide service information technology, system configuration and medical management services to CHS’s state insurance cooperative clients until December 31, 2018. Based on management’s analysis, the terms of the MSA are at fair market value. Under the terms of the TSA, the Company will provide back office information technology support to CHS and CHS will provide back office finance and human resources support to Evolent until December 31, 2017. Additionally, employees of both entities will have mutual employee health care claims administration through a self-funded plan. Based on management’s analysis, the terms of the TSA are at fair market value. Passport On February 1, 2016, the Company entered into a strategic alliance with University Health Care, Inc. d/b/a Passport Health Plan (“Passport”), a nonprofit community-based and provider-sponsored health plan administering Kentucky Medicaid and federal Medicare Advantage benefits to approximately 0.3 million Kentucky Medicaid and Medicare Advantage beneficiaries. As part of the transaction, we issued 1.1 million Class A common shares to acquire capabilities and assets from Passport to enable us to build out a Medicaid Center of Excellence based in Louisville, Kentucky. Additional equity consideration of up to $10.0 million may be earned by Passport should we obtain new third party Medicaid businesses in future periods. This transaction also includes a 10-year arrangement under which we will provide various health plan management and managed care services to Passport. The Company incurred approximately $0.2 million in transaction costs related to the Passport acquisition for the year ended December 31, 2016. The transaction costs were recorded within “Selling, general and administrative expenses” on our Consolidated Statements of Operations. The Company has accounted for the transactions with Passport as a business combination using purchase accounting. The fair value of the total consideration transferred in connection with the close of the transaction was $18.2 million, of which the Class A common shares were valued at $10.5 million and the contingent equity consideration was initially valued at $7.8 million. The fair value of the shares issued was determined based on the closing price of the Company’s Class A common stock on the NYSE as of February 1, 2016, and the quantity of shares issued was determined under a pricing collar set forth in the purchase agreement. The contingent consideration of $8.3 million is a mark-to-market liability recorded within “Other long-term liabilities” on our Consolidated Balance Sheets as of March 31, 2017, and December 31, 2016. We recorded a re-measurement loss of approximately $0.5 million based on a change in the discount rate during the fourth quarter of 2016. The fair value of the contingent equity consideration was estimated based on the real options approach, a form of the income approach, which estimated the probability of the Company achieving future revenues under the agreement. Key assumptions include the discount rate and the probability-adjusted recurring revenue forecast. A further discussion of the fair value measurement of the contingent consideration is provided in Note 15. The purchase price was allocated to the assets acquired based on their fair values as of February 1, 2016, as follows (in thousands):
The prepaid asset is related to an acquired facility license agreement as the Company was provided with leased facilities which house the acquired Passport employees at no future cost to the Company. The fair value of the acquired facility license agreement was determined by comparing the current market value of similar lease spaces to the facilities occupied by the acquired Passport personnel to obtain a market value of the occupied space, with the present value of the determined market value of the occupied space classified as the acquired facility license agreement prepaid asset. The goodwill is attributable partially to the acquired assembled workforce. The transaction was a taxable business combination for the Company and the amount of goodwill determined for tax purposes is deductible upon the beginning of the amortization period for tax purposes. Pro Forma Financial Information (Unaudited) The unaudited pro forma Consolidated Statements of Operations presented below gives effect to (1) the Aldera transaction as if it had occurred on January 1, 2015, (2) the Valence Health transaction as if it had occurred on January 1, 2015, and (3) the Passport transaction as if it had occurred on January 1, 2015. The following pro forma information includes adjustments to:
said amounts to the three months ended March 31, 2015;
This pro forma data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the transactions described above occurred in the specified prior periods. The pro forma adjustments were based on available information and assumptions that the Company believes are reasonable to reflect the impact of these transactions on the Company’s historical financial information on a pro forma basis (in thousands, except per share data).
Securities Offerings March 2017 Secondary Certain Investor Stockholders have an existing exchange right that allows receipt of newly-issued shares of the Company’s Class A common stock in exchange (a “Class B Exchange”) for an equal number of shares of the Company’s Class B common stock (which are subsequently canceled) and an equal number of Evolent Health LLC’s Class B common units (“Class B units”). Class B units received by the Company from relevant Investor Stockholders are simultaneously exchanged for an equivalent number of Class A units of Evolent Health LLC, and Evolent Health LLC cancels the Class B units it receives in the Class B Exchange. In March 2017, the Company completed a secondary offering of 7.5 million shares of its Class A common stock at a price to the underwriters of $19.53 per share (the “March 2017 Secondary”). The shares sold in the offering were sold by certain affiliates of TPG, The Advisory Board Company (“The Advisory Board”), UPMC and Ptolemy Capital, LLC (“Ptolemy Capital”) (together, the “Investor Stockholders”). The Company did not receive any proceeds from the sale of the shares. The shares sold in the March 2017 Secondary consisted of 3.1 million existing shares of the Company’s Class A common stock owned and held by the Investor Stockholders and 4.4 million newly-issued shares of the Company’s Class A common stock received by certain Investor Stockholders pursuant to Class B Exchanges. As a result of these Class B Exchanges and Evolent Health LLC’s cancellation of the Class B units during the March 2017 Secondary, the Company’s economic interest in Evolent Health LLC increased from 77.4% to 83.9% as of March 31, 2017, and, accordingly, we reclassified a portion of our non-controlling interests into shareholders’ equity attributable to Evolent Health, Inc. The Company’s economic interest in Evolent Health LLC will increase if further Class B Exchanges occur. September 2016 Secondary In September 2016, the Company completed a secondary offering of 8.6 million shares of its Class A common stock at a price to the public of $22.50 per share (the “September 2016 Secondary”). The shares sold in the offering were sold by Investor Stockholders and certain management selling stockholders (together with the Investor Stockholders, the “Selling Stockholders”). The Company did not receive any proceeds from the sale of the shares. The shares sold in the September 2016 Secondary consisted of 6.4 million existing shares of the Company’s Class A common stock owned and held by the Selling Stockholders and 2.2 million newly-issued shares of the Company’s Class A common stock received by certain Investor Stockholders pursuant to Class B Exchanges. As a result of these Class B Exchanges and Evolent Health LLC’s cancellation of the Class B units during the September 2016 Secondary, the Company’s economic interest in Evolent Health LLC increased from 71.0% to 74.6% as of September 22, 2016, and, accordingly, we reclassified a portion of our non-controlling interests into shareholders’ equity attributable to Evolent Health, Inc. Asset Acquisition Vestica On March 1, 2016, the Company entered into an Asset Purchase Agreement between Vestica Healthcare, LLC (“Vestica”) and Evolent Health LLC. As part of the transaction, the Company paid $7.5 million to acquire certain assets from Vestica to further align our interests with one of our existing partners. Vestica can earn an additional $4.0 million in consideration, which is being held in escrow, based on certain future events. This transaction also includes an arrangement under which Vestica will continue to perform certain services on our behalf related to the acquired assets. We accounted for the transaction as an asset acquisition where the assets acquired were measured based on the amount of cash paid to Vestica as well as transaction costs incurred as the fair value of the assets given was more readily determinable than the fair value of the assets received. We classified and designated identifiable assets acquired and we assessed and determined the useful lives of the acquired intangible assets subject to amortization. As a result, we recorded a $7.5 million customer relationship intangible asset with a useful life of thirteen years. The transaction was a taxable asset purchase. |
Investments |
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Investments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | Investments Our investments are classified as held-to-maturity as we have both the intent and ability to hold the investments until their individual maturities. The amortized cost, gross unrealized gains and losses, and fair value of our investments as measured using Level 2 inputs (in thousands) were as follows:
The amortized cost and fair value of our investments by contractual maturities (in thousands) were as follows:
The following table summarizes our held-to-maturity securities in an unrealized loss position as of the periods noted below. These securities are aggregated by major security type and length of time that the individual securities have been in a continuous unrealized loss position (in thousands, except number of securities):
We did not hold any securities in a continuous unrealized loss position for twelve months or longer as of March 31, 2017, or December 31, 2016. When a held-to-maturity investment is in an unrealized loss position, we assess whether or not we expect to recover the entire cost basis of security, based on our best estimate of the present value of cash flows expected to be collected from the debt security. Factors considered in our analysis include the reasons for the unrealized loss position, the severity and duration of the unrealized loss position, credit worthiness and forecasted performance of the investee. In cases where the estimated present value of future cash flows is less than our cost basis, we recognize an other than temporary impairment and write the investment down to its fair value. The new cost basis would not be changed for subsequent recoveries in fair value. While some of the securities held in the investment portfolio have decreased in value since the date of acquisition, the severity of loss and the duration of the loss position are not significant for the three months ended March 31, 2017 and 2016, respectively. The Company does not intend, nor does the Company believe that it is likely, that the Company will be required to sell these securities before the recovery of the cost basis. |
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Property and Equipment, Net | Property and Equipment, Net The following summarizes our property and equipment (in thousands):
The Company capitalized $5.8 million and $3.4 million of internal-use software development costs for the three months ended March 31, 2017 and 2016, respectively. The net book value of capitalized internal-use software development costs was $25.0 million and $19.9 million as of March 31, 2017, and December 31, 2016, respectively. Depreciation expense related to property and equipment was $1.8 million and $0.7 million for the three months ended March 31, 2017 and 2016, respectively, of which amortization expense related to capitalized internal-use software development costs was $0.7 million and $0.2 million for the three months ended March 31, 2017 and 2016, respectively. |
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Goodwill and Intangible Assets, Net | Goodwill and Intangible Assets, Net Goodwill Goodwill has an estimated indefinite life and is not amortized; rather, it is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Our annual goodwill impairment review occurs during the fourth quarter of each fiscal year. We performed our 2016 evaluation on October 31, 2016, as further described in our 2016 Form 10-K. Our qualitative assessment did not identify sufficient indicators of impairment to require a Step 1 evaluation. In interim periods between annual goodwill reviews, we also evaluate qualitative factors that could cause us to believe our estimated fair value of our single reporting unit may be lower than the carrying value and trigger a Step 1 test including, but not limited to (i) macroeconomic conditions, (ii) industry and market considerations, (iii) our overall financial performance including an analysis of our current and projected cash flows, revenue and earnings, (iv) a sustained decrease in share price and (v) other relevant entity-specific events including changes in strategy, partners, or litigation. We did not identify any qualitative factors that would trigger a Step 1 test during the three months ended March 31, 2017. As discussed in Notes 2 and 3, we adopted ASU 2017-04 during the first quarter of 2017, thus changing our policy with regard to goodwill impairment testing. Following the adoption, we will perform a one-step test for goodwill impairment. The discussion below of our goodwill impairment testing during the first quarter of 2016 was performed using a two-step method under our previous policy. During the three months ended March 31, 2016, our common stock traded between $8.48 and $12.32, or an average common stock price of $10.33, compared to an average common stock price of $19.51 and $14.73 during the three month periods ended September 30, 2015, and December 31, 2015, respectively. A sustained decline in our common stock price and the resulting impact on our market capitalization is one of several qualitative factors we consider each quarter when evaluating whether events or changes in circumstances indicate it is more likely than not that a potential goodwill impairment exists. We concluded that the decline in common stock price observed during the first quarter of 2016 did represent a sustained decline and, as such, we performed a Step 1 impairment test of our goodwill as of March 31, 2016. Step 1 Results To determine the implied fair value for our single reporting unit, we used both a market multiple valuation approach (“market approach”) and a discounted cash flow valuation approach (“income approach”). In determining the estimated fair value, we considered the level of our Class A common stock price and assumptions that we believed market participants would make in valuing our reporting unit, including a control premium, as well as discounted cash flow calculations of management’s estimates of future financial performance and management’s long-term plans. This analysis also required us to make judgments about revenues, expenses, fixed asset and working capital requirements, the timing of exchanges of our Class B common shares, capital market assumptions and discount rates. In our March 31, 2016, Step 1 test, our most sensitive assumption for purposes of the market approach was our estimate of the control premium, and the most sensitive assumption related to the income approach, other than our cash flows, was the discount rate. As of March 31, 2016, our single reporting unit failed the Step 1 analysis as we determined that its implied fair value was less than its carrying value based on the weighting of the fair values determined under both the market and income approaches. As fair value was less than carrying value, we performed a Step 2 test to determine the implied fair value of our goodwill. Step 2 Results In our March 31, 2016, Step 2 test, the fair value of all assets and liabilities were estimated, including our tangible assets (corporate trade name, customer relationships and technology) for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of goodwill was then compared to the carrying amount of goodwill resulting in an impairment charge of $160.6 million on our Consolidated Statements of Operations. The impairment was driven primarily by the sustained decline in our share price as our estimates of our future cash flows and the control premium have remained consistent, combined with an increase in the discount rate period over period. As noted above, our determination of fair value used a weighting of the fair values determined under both the market and income approaches, with the market approach driving the significant reduction in overall firm value and related impairment of goodwill. The following table summarizes the changes in the carrying amount of goodwill (in thousands):
(1) Represents goodwill acquired as a result of the Passport, Valence Health and Aldera transactions, as discussed in Note 4. (2) Represents measurement period adjustments related to Valence Health and Aldera, as discussed in Note 4. Intangible Assets, Net As part of the Offering Reorganization, intangible assets of $169.0 million were recorded on our Consolidated Balance Sheets. We recorded additional intangible assets of $108.3 million related to our acquisitions in 2016, as discussed in Note 4. Details of our intangible assets (in thousands) are presented below:
Amortization expense related to intangible assets was $4.8 million and $2.6 million for the three months ended March 31, 2017 and 2016, respectively. Intangible assets are reviewed for impairment if circumstances indicate the Company may not be able to recover the asset’s carrying value. As discussed above, during the first quarter of 2016, our single reporting unit failed the Step 1 test for goodwill impairment, thus triggering an impairment analysis of the carrying value of our intangible asset group. In conjunction with the impairment testing of the carrying value of our goodwill, we performed an analysis to determine whether the carrying amount of our intangible asset group was recoverable. We performed a Step 1 test, which required management to compare the total undiscounted future cash flows of the intangible asset group to the current carrying amount. The total undiscounted cash flows included only the future cash flows that are directly associated with and that were expected to arise as a result of the use and eventual disposal of the asset group. Based on our Step 1 test, we concluded the carrying amount of our intangible asset group was recoverable given the pre-tax, undiscounted cash flows exceeded the carrying value of the intangible asset group. |
Long-term Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term Debt | Long-term Debt In December 2016, the Company issued $125.0 million aggregate principal amount of its 2.00% Convertible Senior Notes due 2021 (the “2021 Notes”) in a private placement to qualified institutional buyers within the meaning of Rule 144A under the Securities Act of 1933, as amended. The 2021 Notes were issued at par for net proceeds of $120.4 million. We incurred $4.6 million of debt issuance costs in connection with the 2021 Notes, which we are amortizing to non-cash interest expense using the straight line method over the contractual term of the 2021 Notes, since this method was not materially different from the effective interest method. The closing of the private placement of the 2021 Notes occurred on December 5, 2016. The Company intends to use the net proceeds for working capital and other general corporate purposes. Holders of the 2021 Notes are entitled to cash interest payments, which are payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2017, at a rate equal to 2.00% per annum. The 2021 Notes will mature on December 1, 2021, unless earlier repurchased or converted in accordance with their terms prior to such date. In addition, holders of the 2021 Notes may require the Company to repurchase their 2021 Notes upon the occurrence of a fundamental change at a price equal to 100.00% of the principal amount of the 2021 Notes being repurchased, plus any accrued and unpaid interest. Upon maturity, and at the option of the holders of the 2021 Notes, the principal amount of the notes may be settled via shares of the Company’s Class A common stock. For the three months ended March 31, 2017, the Company recorded approximately $0.6 million in interest expense and $0.2 million in non-cash interest expense related to the amortization of deferred financing costs. The 2021 Notes are convertible into shares of the Company’s Class A common stock, based on an initial conversion rate of 41.6082 shares of Class A common stock per $1,000 principal amount of the 2021 Notes, which is equivalent to an initial conversion price of approximately $24.03 per share of the Company’s Class A common stock. In the aggregate, the 2021 Notes are initially convertible into 5.2 million shares of the Company’s Class A common stock (excluding any shares issuable by the Company upon a conversion in connection with a make-whole provision upon a fundamental change under the indenture between Evolent Health, Inc. and U.S. Bank National Association, as trustee, related to the 2.00% convertible senior notes due 2021, dated as of December 5, 2016). The 2021 Notes are convertible, in multiples of $1,000 principal amount, at the option of the holders at any time prior to the close of business on the business day immediately preceding the maturity date. Upon conversion, we will deliver for each $1,000 principal amount of notes converted a number of shares of our Class A common stock equal to the applicable conversion rate (together with a cash payment in lieu of delivering any fractional share) on the third business day following the relevant conversion date. Convertible Senior Notes Carrying Value While the 2021 Notes are recorded on our accompanying unaudited interim consolidated balance sheets at their net carrying value of $120.7 million as of March 31, 2017, the 2021 Notes are privately traded by qualified institutional buyers (as defined in the SEC’s Rule 144A) and their fair value was $150.8 million, based on a traded price on March 31, 2017, a Level 2 input. As of December 31, 2016, the estimated fair value of the 2021 Notes was $125.0 million, which approximated cost as there were no significant movements in interest rates between the issuance date and December 31, 2016. The 2021 Notes also have embedded conversion options and contingent interest provisions. The following table summarizes the carrying value of the long-term debt (in thousands):
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Commitments and Contingencies |
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Commitments and Contingencies | Commitments and Contingencies UPMC Reseller Agreement The Company and UPMC are parties to a reseller, services and non-competition agreement, dated August 31, 2011, which was amended and restated by the parties on June 27, 2013 (as amended through the date hereof, the “UPMC Reseller Agreement”). Under the terms of the UPMC Reseller Agreement, UPMC has appointed the Company as a non-exclusive reseller of certain services, subject to certain conditions and limitations specified in the UPMC Reseller Agreement. In consideration for the Company’s obligations under the UPMC Reseller Agreement and subject to certain conditions described therein, UPMC has agreed not to sell certain products and services directly to the Company’s customers and top prospects. The Advisory Board Reseller Agreement The Company and The Advisory Board are parties to a services, reseller, and non-competition agreement, dated August 31, 2011, which was amended and restated by the parties on June 27, 2013, and May 1, 2015 (as so amended, “The Advisory Board Reseller Agreement”). Under the terms of The Advisory Board Reseller Agreement, The Advisory Board provides certain services to the Company on an as-requested basis. In addition, The Advisory Board has a right of first offer to provide certain specified services during the term of the Agreement and has the right to collect certain fees for specified referrals. Pursuant to the Advisory Board Reseller Agreement, Evolent entered into a services agreement with The Advisory Board in October 2016 whereby The Advisory Board will provide certain services to the Company in conjunction with risk adjustment services provided to one of our customers. Contingencies Tax Receivables Agreement In connection with the Offering Reorganization, the Company entered into the TRA with certain of its investors, which provides for the payment by the Company to these investors of 85% of the amount of the tax benefits, if any, that the Company is deemed to realize as a result of increases in our tax basis related to exchanges of Class B common units as well as tax benefits attributable to the future utilization of pre-IPO NOLs. These payment obligations are obligations of the Company. For purposes of the TRA, the benefit deemed realized by the Company will be computed by comparing its actual income tax liability to the amount of such taxes that the Company would have been required to pay had there been no increase to the tax basis of the assets of the Company as a result of the exchanges or had the Company had no NOL carryforward balance. The actual amount and timing of any payments under the TRA will vary depending upon a number of factors, including:
Due to the items noted above, and the fact that the Company is in a full valuation allowance position such that the deferred tax assets related to the Company’s historical pre-IPO losses and tax basis increase benefit from exchanges have not been realized, the Company has not recorded a liability pursuant to the TRA. Litigation Matters We are engaged from time to time in certain legal disputes arising in the ordinary course of business, including employment claims. When the likelihood of a loss contingency becomes probable and the amount of the loss can be reasonably estimated, we accrue a liability for the loss contingency. In connection with the Valence Health acquisition, the Company acquired certain in-process litigation; however, the Company is indemnified by the Valence Health sellers for certain matters and therefore has no potential material exposure. We continue to review accruals and adjust them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained, and our views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in our accrued liabilities would be recorded in the period in which such determination is made. The Company is not aware of any legal proceedings or claims as of March 31, 2017, or December 31, 2016, that the Company believes will have, individually or in the aggregate, a material adverse effect on the Company’s financial position or result of operations. Commitments Lease Commitments The Company has entered into lease agreements for its office locations in Arlington, Virginia, Chicago, Illinois, Lisle, Illinois and San Francisco, California. In addition, certain leases acquired as part of the Valence Health transaction included existing sublease agreements for office locations in Chicago, Illinois. Total rental expense, net of sublease income, on operating leases for the three months ended March 31, 2017 and 2016, was $2.6 million and $1.1 million, respectively. In connection with various lease agreements, the Company is required to maintain $3.9 million in letters of credit. As of March 31, 2017, the Company held $3.9 million in restricted cash and restricted investments as collateral for the letters of credit. Indemnifications The Company’s customer agreements generally include a provision by which the Company agrees to defend its partners against third party claims (a) for death, bodily injury, or damage to personal property caused by Company negligence or willful misconduct, (b) by former or current Company employees arising from such managed service agreements, (c) for intellectual property infringement under specified conditions and (d) for Company violation of applicable laws, and to indemnify them against any damages and costs awarded in connection with such claims. To date, the Company has not incurred any material costs as a result of such indemnities and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements. Registration rights agreement We entered into a registration rights agreement with The Advisory Board, UPMC, TPG and another investor to register for sale under the Securities Act, shares of our Class A common stock, including those delivered in exchange for Class B common stock and Class B common units. Subject to certain conditions and limitations, this agreement provides these investors with certain demand, piggyback and shelf registration rights. The registration rights granted under the registration rights agreement will terminate upon the date the holders of shares that are a party thereto no longer hold any such shares that are entitled to registration rights. Pursuant to our contractual obligations under this agreement, we filed a registration statement on Form S-3 with the SEC on July 28, 2016, which was declared effective on August 12, 2016. Pursuant to certain terms of the registration rights agreement, the Investor Stockholders sold 7.5 million shares of the Company’s Class A common stock as part of the March 2017 Secondary, as discussed in Note 4. Pursuant to the terms of the registration rights agreement, in the three months ended March 31, 2017, we incurred $0.3 million in expenses related to the March 2017 Secondary, which were recorded within “Selling, general and administrative expenses” on our Consolidated Statement of Operations. We will continue to pay all expenses relating to any demand, piggyback or shelf registration, other than underwriting discounts and commissions and any transfer taxes, subject to specified conditions and limitations. The registration rights agreement includes customary indemnification provisions, including indemnification of the participating holders of shares of Class A common stock and their directors, officers and employees by us for any losses, claims, damages or liabilities in respect thereof and expenses to which such holders may become subject under the Securities Act, state law or otherwise. Guarantees As part of our strategy to support certain of our partners in the Next Generation Accountable Care Program, we entered into upside and downside risk sharing arrangements. Our downside risk-sharing arrangements are limited to our fees and are executed through our wholly-owned captive insurance company. To satisfy the capital requirements of our insurance entity as well as state insurance regulators, Evolent entered into letters of credit of $5.0 million to secure potential losses related to insurance services. This amount is in excess of our actuarial assessment of loss. Credit and Concentration Risk The Company is subject to significant concentrations of credit risk related to cash and cash equivalents, investments and accounts receivable. As of March 31, 2017, approximately 94% of our $104.3 million of cash and cash equivalents are held in bank deposits with FDIC participating banks. While the Company maintains its cash and cash equivalents and investments with financial institutions with high credit ratings, it often maintains these deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses on cash and cash equivalents or investments to date. The following table summarizes those partners who represented at least 10% of our revenue for the periods presented:
* Represents less than 10.0% of the respective balance The following table summarizes those partners who represented at least 10% of our trade accounts receivable for the periods presented:
* Represents less than 10.0% of the respective balance |
Earnings (Loss) Per Common Share |
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Earnings (Loss) Per Common Share | Earnings (Loss) Per Common Share The following table sets forth the computation of basic and diluted earnings per share available for common stockholders (in thousands, except per share data):
Anti-dilutive shares (in thousands) excluded from the calculation of weighted-average common shares presented above are presented below:
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Stock-based Compensation |
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Stock-based Compensation | Stock-based Compensation Total compensation expense by award type and line item in our consolidated financial statements were as follows (in thousands):
No stock-based compensation in the totals above was capitalized as software development costs for the three months ended March 31, 2017 and 2016, respectively. Stock-based awards granted were as follows:
As discussed in Note 2, the Company elected to early adopt ASU 2016-09 effective January 1, 2016, resulting in a reduction to stock compensation expense of approximately $0.1 million for the three months ended March 31, 2016. ASU 2016-09 requires that certain amendments resulting from the adoption of the new pronouncement be applied using a modified-retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the guidance is adopted. Thus, the Company decreased beginning retained earnings by approximately $0.5 million on January 1, 2016, for amendments related to an accounting policy election to recognize share-based award forfeitures as they occur rather than applying an estimated forfeiture rate. In addition, the adoption of ASU 2016-09 changed how the Company recognizes excess tax benefits (“windfalls”) or deficiencies (“shortfalls”) related to share-based compensation. Prior to the adoption of ASU 2016-09, these windfalls and shortfalls were credited or charged, respectively, to additional paid-in capital in the Company’s Consolidated Balance Sheets when the amount of cash taxes paid was impacted by the windfalls and shortfalls. Under the revised standard, these windfalls and shortfalls are recognized prospectively as discrete tax benefit or discrete tax expense, respectively, in the Company’s Consolidated Statements of Operations without regard to the impact on cash taxes paid. For the three months ended March 31, 2017 and 2016, the Company recognized an immaterial discrete tax benefit related to net windfall tax benefits from share-based compensation, which increased the net operating loss (“NOL”) deferred tax asset and our valuation allowance. |
Income Taxes |
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Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes For interim periods, we recognize an income tax provision (benefit) based on our estimated annual effective tax rate expected for the full year. The Company recorded $0.4 million in income tax expense and $1.0 million in income tax benefit for the three months ended March 31, 2017 and 2016, respectively, which resulted in effective tax rates of (1.8)% and 0.6%, respectively. The income tax expense recorded during the three months ended March 31, 2017, primarily relates to the change in indefinite lived components and components expected to reverse outside of the net operating loss carryover period as part of the outside basis difference in our partnership interest in Evolent Health LLC. Neither of the components are considered a source of future taxable income for realizing the deferred tax assets, and with the exception of these components, the Company continues to record a valuation allowance against the net deferred tax assets. As a result of the increase in our ownership of Evolent Health LLC following the March 2017 Secondary discussed in Note 4 above, the Company reduced by the indefinite portion of the deferred tax liability related to the book basis compared to the tax basis in our partnership interest in Evolent Health LLC by $2.8 million for the three months ended March 31, 2017. The effect of this change in the deferred tax liability was recorded as additional paid-in capital. As of each applicable period-end, the Company has not recognized any uncertain tax positions, penalties or interest as we have concluded that no such positions exist. The Company is not currently subject to income tax audits in any U.S. or state jurisdictions for any tax year. Tax Receivables Agreement In connection with the Offering Reorganization, the Company entered into the TRA with certain of its investors, which provides for the payment by the Company to these investors of 85% of the amount of the tax benefits, if any, that the Company is deemed to realize as a result of increases in our tax basis related to exchanges of Class B common units as well as tax benefits attributable to the future utilization of pre-IPO NOLs. See Note 9 above and “Part II - Item 8. Financial Statements and Supplementary Data - Note 12” in our 2016 Form 10-K for discussion of our TRA. |
Investments In and Advances to Affiliates |
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Equity Method Investments and Joint Ventures [Abstract] | |
Investments In and Advances to Affiliates | Investments In and Advances to Affiliates Georgia Physicians for Accountable Care LLC During the second quarter of 2016, the Company acquired 21,429 Class B Units of Georgia Physicians for Accountable Care, LLC (“GPAC”) for $3.0 million in cash. The investment represented a 27% economic interest and a 28% voting interest in GPAC at the date of the transaction. As of March 31, 2017, the Company owned a 26% economic interest and a 28% voting interest in GPAC. The Company has determined it has significant influence but that it does not have control over GPAC. Accordingly, the investment is accounted for under the equity method of accounting and the Company will be allocated its proportional share of GPAC’s profits and losses for each reporting period. For the three months ended March 31, 2017, Evolent Health, Inc.’s proportional share of the losses of GPAC was $0.5 million. Concurrently, the Company also signed a long-term services agreement with GPAC to provide certain management, operational and support services to help GPAC manage elements of its service offerings. Revenue related to the long-term services agreement for the three months ended March 31, 2017, was approximately $0.2 million. |
Non-controlling Interests |
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Non-controlling Interests | Non-controlling Interests In connection with the closing of the IPO, we used the net proceeds of the IPO to purchase 13.2 million newly-issued Class A common units in Evolent Health LLC. Additionally we acquired 2.1 million Class A common units in Evolent Health LLC, at $17.00 per unit, as a result of the merger of the TPG affiliate with and into Evolent Health, Inc. as described in our 2016 Form 10-K. Immediately following the Offering Reorganization and IPO, the Company owned 70.3% of Evolent Health LLC. During the year ended December 31, 2016, the Company issued shares of its Class A common stock to acquire Passport, Valence Health and Aldera. For each share of Class A common stock issued by the Company, we received a reciprocal number of Class A units from Evolent Health LLC in exchange for contributing the acquired entities to Evolent Health LLC. As a result, our economic interest in Evolent Health LLC increased during the year from 70.3% to 70.8% due to Class A common shares issued for the acquisition of Passport and from 74.6% to 77.4% as a result of Class A common shares issued for the acquisitions of Valence Health and Aldera. In order to account for the change in our ownership interest in Evolent Health LLC, we reclassified a portion of our non-controlling interests into shareholders’ equity attributable to Evolent Health, Inc. As described in Note 4, the Company completed a secondary offering of 8.6 million shares of its Class A common stock at a price to the public of $22.50 per share in September 2016. The shares sold in the September 2016 Secondary consisted of 6.4 million existing shares of the Company’s Class A common stock owned and held by the Selling Stockholders and 2.2 million newly-issued shares of the Company’s Class A common stock received by certain Investor Stockholders pursuant to Class B Exchanges. As a result of these Class B Exchanges and Evolent Health LLC’s cancellation of the Class B units during the September 2016 Secondary, the Company’s economic interest in Evolent Health LLC increased from 71.0% to 74.6% as of September 22, 2016, and, accordingly, we reclassified a portion of our non-controlling interests into shareholders’ equity attributable to Evolent Health, Inc. As described in Note 4, the Company completed a secondary offering of 7.5 million shares of its Class A common stock at a price to the underwriters of $19.53 per share in March 2017. The shares sold in the March 2017 Secondary consisted of 3.1 million existing shares of the Company’s Class A common stock owned and held by the Investor Stockholders and 4.4 million newly-issued shares of the Company’s Class A common stock received by certain Investor Stockholders pursuant to Class B Exchanges. As a result of these Class B Exchanges and Evolent Health LLC’s cancellation of the Class B units during the March 2017 Secondary, the Company’s economic interest in Evolent Health LLC increased from 77.4% to 83.9% as of March 31, 2017, and, accordingly, we reclassified a portion of our non-controlling interests into shareholders’ equity attributable to Evolent Health, Inc. As of March 31, 2017, and December 31, 2016, we owned 83.9% and 77.4% of the economic interests in Evolent Health LLC, respectively. Changes in non-controlling interests (in thousands) for the periods presented were as follows:
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Fair Value Measurement |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurement | Fair Value Measurement GAAP defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) assuming an orderly transaction in the most advantageous market at the measurement date. GAAP also establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These tiers include:
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the particular asset or liability being measured. Recurring Fair Value Measurements In accordance with GAAP, certain assets and liabilities are required to be recorded at fair value on a recurring basis. The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis (in thousands):
(1) Represents the cash and cash equivalents that were held in a money market fund as of March 31, 2017, and December 31, 2016, as presented in the tables above. (2) Represents the contingent earn-out consideration related to the Passport acquisition as described further in Note 4. The Company recognizes any transfers between levels within the hierarchy as of the beginning of the reporting period. There were no transfers between fair value levels for the three month periods ended March 31, 2017 and 2016, respectively. In the absence of observable market prices, the fair value is based on the best information available and involves a significant degree of judgment, taking into consideration a combination of internal and external factors, including the appropriate risk adjustments for non-performance and liquidity risks. As discussed in Note 4, the strategic alliance with Passport includes a provision for additional equity consideration contingent upon the Company obtaining new third party Medicaid business in future periods. The significant unobservable inputs used in the fair value measurement of the Passport contingent consideration are the five-year risk-adjusted recurring revenue compound annual growth rate (“CAGR”) and the applicable discount rate. A significant increase in the assumed five-year risk-adjusted recurring revenue CAGR projection or decrease in discount rate in isolation would result in a significantly higher fair value of the contingent consideration. The changes in our contingent consideration, measured at fair value, for which the Company uses Level 3 inputs to determine fair value are as follows (in thousands):
The following table summarizes the fair value (in thousands), valuation techniques and significant unobservable inputs of our Level 3 fair value measurements as of March 31, 2017, and December 31, 2016:
(1) Related to additional Passport earn-out consideration as described further in Note 4. (2) The risk-adjusted recurring revenue CAGR is calculated over the five year period 2017-2021. Given that there was no recurring revenue in 2016, the calculation of the 2017 growth rate is based on a theoretical 2016 recurring revenue of $1.0 million, resulting in a higher growth rate. The risk-adjusted recurring revenue CAGR over the period 2018-2021 is 50.8%. Nonrecurring Fair Value Measurements In addition to the assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis as required by GAAP. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. This includes goodwill, intangible assets, property, plant and equipment, held-to-maturity investments and equity method investments. While not carried at fair value on a recurring basis, these items are continually monitored for indicators of impairment that would indicate current carrying value is greater than fair value. In those situations, the assets are considered impaired and written down to current fair value. Refer to Notes 4, 5, 6, 7 and 13 for further discussion of assets measured at fair value on a nonrecurring basis. Other Fair Value Disclosures The carrying amounts of cash and cash equivalents (those not held in a money market fund), restricted cash, receivables, prepaid expenses, accrued liabilities, accrued compensation and deferred rent approximate their fair values because of the relatively short-term maturities of these items and financial instruments. |
Related Parties |
3 Months Ended |
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Mar. 31, 2017 | |
Related Party Transactions [Abstract] | |
Related Parties | Related Parties As discussed in Note 13, Evolent owned a 26% economic interest in GPAC as of March 31, 2017, and is considered to have significant influence. As a result, the Company accounts for the investment under the equity method of accounting and is allocated its proportional share of GPAC’s profits and losses for each reporting period. In addition, the Company signed a long-term services agreement with GPAC to provide certain management, operational and support services to help GPAC manage elements of its service offerings. The Company also works closely with both of its founding investors, The Advisory Board and UPMC. The relationship with The Advisory Board is centered on providing certain specified services and making valuable connections with CEOs of health systems that could become partners. The Company’s relationship with UPMC is a subcontractor relationship where UPMC has agreed to execute certain tasks (primarily third-party administration or “TPA” services) relating to certain customer commitments. We also conduct business with a company in which UPMC holds a significant equity interest. Our founding investors and their related businesses are considered related parties and the balances and/or transactions with them were reported on our consolidated financial statements. Additionally, we issued shares of our stock to certain of our partners while concurrently entering into revenue contracts with those partners. Those partners are considered related parties and the balances and/or transactions with them were reported on our consolidated financial statements for the periods in which they held a significant equity interest in Evolent Health, Inc. |
Subsequent Events |
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Mar. 31, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events In connection with the March 2017 Secondary, the underwriters exercised, in full, their option to purchase an additional 1.1 million shares of Class A common stock (the “March 2017 Option to Purchase Additional Shares”) from the Investor Stockholders. The March 2017 Option to Purchase Additional Shares closed on May 1, 2017. The Company did not receive any proceeds from the sale of the shares. The shares sold in the March 2017 Option to Purchase Additional Shares consisted of 0.5 million existing shares of the Company’s Class A common stock owned and held by the Investor Stockholders. It also included 0.6 million newly-issued shares of the Company’s Class A common stock received by certain Investor Stockholders pursuant to Class B Exchanges for an equal number of the Company’s Class B common stock and an equal number of Class B units. Class B units received by the Company from certain Investor Stockholders were simultaneously exchanged for an equivalent number of Class A units of Evolent Health LLC, and Evolent Health LLC cancelled the Class B units it received in the Class B Exchanges. As a result of the Class B Exchanges in connection with the March 2017 Option to Purchase Additional Shares described above, the Company’s economic interest in Evolent Health LLC increased from 83.9% as of March 31, 2017, to 84.9% immediately after the closing of the March 2017 Option to Purchase Additional Shares. |
Basis of Presentation, Summary of Significant Accounting Policies and Change in Accounting Principle (Policies) |
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Mar. 31, 2017 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation In our opinion, the accompanying unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to fairly state our financial position, results of operations, and cash flows. The Consolidated Balance Sheet at December 31, 2016, has been derived from audited financial statements as of that date. The interim consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain footnote disclosure normally included in financial statements prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) has been omitted pursuant to instructions, rules, and regulations prescribed by the United States Securities and Exchange Commission (“SEC”). The disclosures provided herein should be read in conjunction with the audited financial statements and notes thereto included in our 2016 Form 10-K. |
Accounting Estimates and Assumptions | Accounting Estimates and Assumptions The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses for the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates. In the accompanying consolidated financial statements, estimates are used for, but not limited to, the valuation of assets, liabilities, consideration related to business combinations and step acquisitions, revenue recognition including discounts and credits, estimated selling prices for deliverables in multiple element arrangements, contingent payments, allowance for doubtful accounts, depreciable lives of assets, impairment of long lived assets (including equity method investments), stock-based compensation, deferred income taxes and valuation allowance, contingent liabilities, valuation of intangible assets (including goodwill) and the useful lives of intangible assets. |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of Evolent Health, Inc. and its subsidiaries. All inter-company accounts and transactions are eliminated in consolidation. |
Operating Segments | Operating Segments Operating segments are defined as components of a business that earn revenue and incur expenses for which discrete financial information is available that is evaluated, on a regular basis, by the chief operating decision maker (“CODM”) to decide how to allocate resources and assess performance. The Company’s CODM, the Chief Executive Officer, allocates resources at a consolidated level and therefore the Company views its operations and manages its business as one operating segment. All of the Company’s revenue is generated in the United States and all assets are located in the United States. |
Restricted Cash and Restricted Investments | Restricted Cash and Restricted Investments Restricted cash and restricted investments are carried at cost and include cash and investments used to collateralize various contractual obligations |
Goodwill | Goodwill We recognize the excess of the purchase price, plus the fair value of any non-controlling interests in the acquiree, over the fair value of identifiable net assets acquired as goodwill. Goodwill is not amortized, but is reviewed at least annually for indications of impairment, with consideration given to financial performance and other relevant factors. We perform impairment tests of goodwill at our single reporting unit level, which is consistent with the way management evaluates our business. Acquisitions to date have been complementary to the Company’s core business, and therefore goodwill is assigned to our single reporting unit to reflect the synergies arising from each business combination. As discussed in Note 3, we adopted Accounting Standards Update (“ASU”) 2017-04, Intangibles-Goodwill and Other - Simplifying the Test for Goodwill Impairment, effective January 1, 2017. The adoption resulted in an update to our accounting policy for goodwill impairment. Under the updated policy, we perform a one-step test in our evaluation of the carrying value of goodwill, if qualitative factors determine it is necessary to complete a goodwill impairment test. In the evaluation, the fair value of the relevant reporting unit is determined and compared to the carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable, and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value and a charge is reported in impairment of goodwill on our Consolidated Statements of Operations. See Note 7 for additional discussion regarding goodwill impairment tests. |
Adoption of New Accounting Standards and Adoption of New Accounting Standards | Adoption of New Accounting Standards In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other - Simplifying the Test for Goodwill Impairment. The purpose of the ASU is to simplify the subsequent measurement of goodwill. The ASU eliminates Step 2 from the goodwill impairment test. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We believe this newly adopted principle is preferable as it reduces the complexity of performing a goodwill impairment test. As a result, we adopted this standard effective January 1, 2017. Our updated accounting policy for goodwill impairment is described in Note 2. While the adoption of this ASU may have a material impact in determining the results of future goodwill impairment tests and thus impact our consolidated financial statements in the future, there was no impact of the adoption during the three months ended March 31, 2017. In March 2016, the FASB issued ASU 2016-07, Investments-Equity Method and Joint Ventures - Simplifying the Transition to the Equity Method of Accounting. The purpose of this ASU is to eliminate the requirement to retroactively adopt the equity method of accounting when an investment qualifies for the equity method as a result of an increase in the level of ownership interest or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We adopted this standard effective January 1, 2017. The adoption did not have a material impact on our financial statements for the three months ended March 31, 2017. In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging - Contingent Put and Call Options in Debt Instruments. The purpose of this ASU is to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely rated to their debt hosts. An entity performing the assessment under the amendments in the ASU is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We adopted this standard effective January 1, 2017. The adoption did not have a material impact on our financial statements for the three months ended March 31, 2017. Future Adoption of New Accounting Standards In January 2017, the FASB issued ASU 2017-01, Business Combinations - Clarifying the Definition of a Business. The purpose of the ASU is to add guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU provides a screen to determine when an integrated set of assets and activities is not a business. The ASU also provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective date. We intend to adopt the requirements of this standard effective January 1, 2018, and are currently evaluating the impact on our consolidated financial statements. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash. The purpose of the ASU is to reduce diversity in practice regarding the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments in the ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. We intend to adopt the requirements of this standard effective January 1, 2018, and are currently evaluating the impact of the adoption on our Consolidated Statements of Cash Flows. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This ASU provides updated guidance on eight specific cash flow issues to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We intend to adopt the requirements of this standard effective January 1, 2018, and are currently evaluating the impact of the adoption on our Consolidated Statements of Cash Flows. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. With respect to assets measured at amortized cost, such as held-to-maturity assets, the update requires presentation of the amortized cost net of a credit loss allowance. The update eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses as opposed to the previous standard, when an entity only considered past events and current conditions. With respect to available for sale debt securities, the update requires that credit losses be presented as an allowance rather than as a write-down. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We intend to adopt the requirements of this standard effective January 1, 2020 and are currently evaluating the impact of the adoption on our financial condition and results of operations. In February 2016, the FASB issued ASU 2016-02, Leases, in order to establish the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. This update introduces a new standard on accounting for leases, including a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized). The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. We intend to adopt the requirements of this standard effective January 1, 2019, and are currently evaluating the impact of the adoption on our financial condition and results of operations. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, in order to clarify the principles of recognizing revenue. This standard establishes the core principle of recognizing revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB defines a five-step process that systematically identifies the various components of the revenue recognition process, culminating with the recognition of revenue upon satisfaction of an entity’s performance obligation. By completing all five steps of the process, the core principles of revenue recognition will be achieved. In March 2016, the FASB issued an update to the new revenue standard (ASU 2014-09) in the form of ASU 2016-08, which amended the principal-versus-agent implementation guidance and illustrations in the new revenue guidance. The update clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued another update to the new revenue standard in the form of ASU 2016-10, which amended the guidance on identifying performance obligations and the implementation guidance on licensing. These ASUs were followed by two further updates issued during May 2016: ASU 2016-11, which rescinds certain SEC guidance, such as the adoption of ASUs 2014-09 and 2014-16, including accounting for consideration given by a vendor to a customer, and ASU 2016-12, which is intended to clarify the objective of the collectability criterion while identifying the contract(s) with a customer. The new revenue standard (including updates) will be effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted only as of annual reporting periods beginning after December 15, 2016. We intend to adopt the requirements of this standard effective January 1, 2018, and while we are evaluating the impact to our financial condition and results of operations, we expect the adoption of this ASU to require the inclusion of additional disclosures surrounding the nature and timing of our revenue. In our efforts to adopt this ASU, we have formulated an implementation team that is currently engaged in the evaluation process. We have evaluated a number of our contracts and at this point there is no clear indication regarding overall impact to our consolidated financial statements. We intend to complete the process during 2017, and until we have a clear indication of the impact of the adoption of the new standard we will not finalize our implementation method. We have evaluated all other issued and unadopted ASUs and believe the adoption of these standards will not have a material impact on our results of operations, financial position, or cash flows. |
Fair Value Measurement | Nonrecurring Fair Value Measurements In addition to the assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis as required by GAAP. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. This includes goodwill, intangible assets, property, plant and equipment, held-to-maturity investments and equity method investments. While not carried at fair value on a recurring basis, these items are continually monitored for indicators of impairment that would indicate current carrying value is greater than fair value. In those situations, the assets are considered impaired and written down to current fair value. Refer to Notes 4, 5, 6, 7 and 13 for further discussion of assets measured at fair value on a nonrecurring basis. Other Fair Value Disclosures The carrying amounts of cash and cash equivalents (those not held in a money market fund), restricted cash, receivables, prepaid expenses, accrued liabilities, accrued compensation and deferred rent approximate their fair values because of the relatively short-term maturities of these items and financial instruments. |
Basis of Presentation, Summary of Significant Accounting Policies and Change in Accounting Principle (Tables) |
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Schedule of restricted cash and cash equivalents | Restricted cash and restricted investments are carried at cost and include cash and investments used to collateralize various contractual obligations (in thousands) as follows:
(1) Represents restricted cash related to collateral for letters of credit required in conjunction with lease agreements. See Note 9 for further discussion of our lease commitments. (2) Represents collateral for letters of credit held with financial institutions for risk-sharing arrangements. The collateral amount is invested in restricted certificates of deposit with original maturities in excess of 12 months. The restricted investments are classified as held-to-maturity and stated at amortized cost. Fair value of the certificates of deposit is determined using Level 2 inputs and approximates cost as of March 31, 2017. See Note 9 for further discussion of our risk-sharing arrangements. (3) Represents cash held on behalf of clients to process PBM and other claims. |
Transactions (Tables) |
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Organizational Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of allocation of purchase price | The purchase price was allocated to the assets acquired based on their fair values as of February 1, 2016, as follows (in thousands):
The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of November 1, 2016, as follows (in thousands):
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Schedule of net assets acquired | The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of October 3, 2016. During the three months ended March 31, 2017, the Company recorded an adjustment to deferred revenue. The purchase price allocation, as previously determined, the measurement period adjustment and the purchase price allocation, as revised, are as follows (in thousands):
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Business acquisition, pro forma information | The pro forma adjustments were based on available information and assumptions that the Company believes are reasonable to reflect the impact of these transactions on the Company’s historical financial information on a pro forma basis (in thousands, except per share data).
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Investments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary investment holdings | The amortized cost, gross unrealized gains and losses, and fair value of our investments as measured using Level 2 inputs (in thousands) were as follows:
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Investments classified by contractual maturity date | The amortized cost and fair value of our investments by contractual maturities (in thousands) were as follows:
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Schedule of unrealized loss on held-to-maturity securities | The following table summarizes our held-to-maturity securities in an unrealized loss position as of the periods noted below. These securities are aggregated by major security type and length of time that the individual securities have been in a continuous unrealized loss position (in thousands, except number of securities):
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Property and Equipment, Net (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of property and equipment | The following summarizes our property and equipment (in thousands):
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Goodwill and Intangible Assets, Net (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of goodwill | The following table summarizes the changes in the carrying amount of goodwill (in thousands):
(1) Represents goodwill acquired as a result of the Passport, Valence Health and Aldera transactions, as discussed in Note 4. (2) Represents measurement period adjustments related to Valence Health and Aldera, as discussed in Note 4. |
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Schedule of intangible assets | Details of our intangible assets (in thousands) are presented below:
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Long-term Debt (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of convertible debt | The following table summarizes the carrying value of the long-term debt (in thousands):
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Commitments and Contingencies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of major customers | The following table summarizes those partners who represented at least 10% of our revenue for the periods presented:
* Represents less than 10.0% of the respective balance The following table summarizes those partners who represented at least 10% of our trade accounts receivable for the periods presented:
* Represents less than 10.0% of the respective balance |
Earnings (Loss) Per Common Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of basic and diluted earnings per share | The following table sets forth the computation of basic and diluted earnings per share available for common stockholders (in thousands, except per share data):
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Schedule of antidilutive securities excluded from computation of earnings per share | Anti-dilutive shares (in thousands) excluded from the calculation of weighted-average common shares presented above are presented below:
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Stock-based Compensation (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | Total compensation expense by award type and line item in our consolidated financial statements were as follows (in thousands):
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Stock-based awards granted | Stock-based awards granted were as follows:
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Non-controlling Interests (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Noncontrolling Interest [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in non-controlling interests | Changes in non-controlling interests (in thousands) for the periods presented were as follows:
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Fair Value Measurement (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of assets at fair value on recurring basis | The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis (in thousands):
(1) Represents the cash and cash equivalents that were held in a money market fund as of March 31, 2017, and December 31, 2016, as presented in the tables above. (2) Represents the contingent earn-out consideration related to the Passport acquisition as described further in Note 4. |
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Summary of liabilities at fair value on recurring basis | The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis (in thousands):
(1) Represents the cash and cash equivalents that were held in a money market fund as of March 31, 2017, and December 31, 2016, as presented in the tables above. (2) Represents the contingent earn-out consideration related to the Passport acquisition as described further in Note 4. |
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Changes in contingent consideration measured at fair value | The changes in our contingent consideration, measured at fair value, for which the Company uses Level 3 inputs to determine fair value are as follows (in thousands):
|
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Valuation techniques and significant unobservable inputs of Level 3 fair value measurements | The following table summarizes the fair value (in thousands), valuation techniques and significant unobservable inputs of our Level 3 fair value measurements as of March 31, 2017, and December 31, 2016:
(1) Related to additional Passport earn-out consideration as described further in Note 4. (2) The risk-adjusted recurring revenue CAGR is calculated over the five year period 2017-2021. Given that there was no recurring revenue in 2016, the calculation of the 2017 growth rate is based on a theoretical 2016 recurring revenue of $1.0 million, resulting in a higher growth rate. The risk-adjusted recurring revenue CAGR over the period 2018-2021 is 50.8%. |
Organization (Details) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Mar. 30, 2017 |
Dec. 31, 2016 |
Sep. 19, 2016 |
Sep. 18, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
Jun. 05, 2015 |
---|---|---|---|---|---|---|---|---|
Organization [Line Items] | ||||||||
Cash and cash equivalents | $ 104,295 | $ 134,563 | $ 111,292 | $ 145,726 | ||||
Evolent Health LLC | Pre-Organization Members | ||||||||
Organization [Line Items] | ||||||||
Evolent Health LLC ownership interest | 100.00% | |||||||
Evolent Health LLC | ||||||||
Organization [Line Items] | ||||||||
Parent's ownership percentage | 83.90% | 77.40% | 77.40% | 74.60% | 71.00% | 70.30% |
Basis of Presentation, Summary of Significant Accounting Policies and Change in Accounting Principle (Details) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017
USD ($)
segment
|
Dec. 31, 2016
USD ($)
|
|
Restricted Cash and Cash Equivalents Items [Line Items] | ||
Number of operating segments | segment | 1 | |
Total restricted cash and restricted investments | $ 31,915 | $ 40,416 |
Non-current restricted investments | 4,950 | 4,950 |
Non-current restricted cash | 3,711 | 1,050 |
Total non-current restricted cash and restricted investments | 8,661 | 6,000 |
Current restricted cash and restricted investments | 23,254 | 34,416 |
Letters of credit for facility leases | ||
Restricted Cash and Cash Equivalents Items [Line Items] | ||
Total restricted cash and restricted investments | 3,948 | 4,852 |
Collateral with financial institutions | ||
Restricted Cash and Cash Equivalents Items [Line Items] | ||
Total restricted cash and restricted investments | 4,950 | 4,950 |
Pharmacy benefit management and claims processing services | ||
Restricted Cash and Cash Equivalents Items [Line Items] | ||
Total restricted cash and restricted investments | 22,035 | 30,555 |
Other | ||
Restricted Cash and Cash Equivalents Items [Line Items] | ||
Total restricted cash and restricted investments | $ 982 | $ 59 |
Basis of Presentation, Summary of Significant Accounting Policies and Change in Accounting Principle - Change in Accounting Principle (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
Jan. 01, 2016 |
|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Decrease in retained earnings | $ (128,605) | $ (146,617) | ||
Increase in net income (loss) | $ (23,149) | $ (173,811) | $ (226,778) | |
Election to Recognize Share-based Award Forfeitures As They Occur | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Decrease in retained earnings | $ 500 | |||
ASU 2016-09 | Election to Recognize Share-based Award Forfeitures As They Occur | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Increase in net income (loss) | $ 100 |
Transactions - Aldera (Details) - USD ($) $ in Thousands, shares in Millions |
3 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Nov. 01, 2016 |
Mar. 31, 2017 |
Mar. 31, 2016 |
Mar. 30, 2017 |
Dec. 31, 2016 |
Oct. 31, 2016 |
Sep. 19, 2016 |
Sep. 18, 2016 |
Dec. 31, 2015 |
Jun. 05, 2015 |
|
Purchase consideration: | ||||||||||
Cash | $ 0 | $ 11,500 | ||||||||
Liabilities assumed: | ||||||||||
Goodwill | 627,204 | 626,569 | $ 626,569 | $ 608,903 | ||||||
Measurement period adjustment, decrease in goodwill (less than $.1 million) | $ (635) | $ 0 | ||||||||
Evolent Health LLC | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Parent's ownership percentage | 83.90% | 77.40% | 77.40% | 74.60% | 71.00% | 70.30% | ||||
Aldera | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Parent's ownership percentage | 100.00% | |||||||||
Transaction costs | $ 200 | |||||||||
Purchase consideration: | ||||||||||
Fair value of Class A common stock issued | $ 9,864 | |||||||||
Cash for settlement of software license | 7,000 | |||||||||
Cash | 17,481 | |||||||||
Total consideration | 34,345 | |||||||||
Tangible assets acquired: | ||||||||||
Receivables | 624 | |||||||||
Prepaid expenses and other current assets | 272 | |||||||||
Property and equipment | 1,065 | |||||||||
Other non-current assets | 9 | |||||||||
Liabilities assumed: | ||||||||||
Accounts payable | 429 | |||||||||
Accrued liabilities | 1,204 | |||||||||
Accrued compensation and employee benefits | 605 | |||||||||
Deferred revenue | 44 | |||||||||
Goodwill | 25,157 | |||||||||
Net assets acquired | 34,345 | |||||||||
Measurement period adjustment, decrease in goodwill (less than $.1 million) | $ 100 | |||||||||
Aldera | Customer relationships | ||||||||||
Identifiable intangible assets acquired: | ||||||||||
Identifiable intangible assets | $ 7,000 | |||||||||
Liabilities assumed: | ||||||||||
Useful life | 15 years | |||||||||
Aldera | Technology | ||||||||||
Identifiable intangible assets acquired: | ||||||||||
Identifiable intangible assets | $ 2,500 | |||||||||
Liabilities assumed: | ||||||||||
Useful life | 5 years | |||||||||
Aldera | Evolent Health LLC | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Parent's ownership percentage | 77.40% | 77.20% | ||||||||
Aldera | Class A | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Consideration transferred (in shares) | 0.5 |
Transactions - Valence Health (Details) - USD ($) $ in Thousands, shares in Millions |
3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 03, 2016 |
Mar. 31, 2017 |
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2016 |
Mar. 30, 2017 |
Oct. 02, 2016 |
Sep. 19, 2016 |
Sep. 18, 2016 |
Dec. 31, 2015 |
Jun. 05, 2015 |
|
Purchase consideration: | ||||||||||||
Cash | $ 0 | $ 11,500 | ||||||||||
Liabilities assumed: | ||||||||||||
Goodwill | 627,204 | 626,569 | $ 626,569 | $ 626,569 | $ 608,903 | |||||||
Measurement period adjustment, goodwill | $ 635 | 0 | ||||||||||
540 W. Madison Street, Suite 1400 | ||||||||||||
Liabilities assumed: | ||||||||||||
Remaining lease payments | $ 20,800 | |||||||||||
Estimated sublease value | $ 13,500 | |||||||||||
540 W. Madison Street, Suite 1400 | Commitments | ||||||||||||
Liabilities assumed: | ||||||||||||
Discount rate | 5.00% | |||||||||||
Evolent Health LLC | ||||||||||||
Business Acquisition [Line Items] | ||||||||||||
Parent's ownership percentage | 83.90% | 77.40% | 77.40% | 77.40% | 74.60% | 71.00% | 70.30% | |||||
Valence Health | ||||||||||||
Business Acquisition [Line Items] | ||||||||||||
Adjustment for removal of transaction costs | $ (2,700) | $ (2,700) | ||||||||||
Percentage of voting interests acquired | 100.00% | |||||||||||
Percentage of issued and outstanding common stock | 10.50% | |||||||||||
Contingent consideration arrangements (up to) | $ 12,400 | |||||||||||
Contingent consideration arrangements fair value | 2,600 | |||||||||||
Transaction costs | 2,700 | |||||||||||
Purchase consideration: | ||||||||||||
Fair value of Class A common stock issued | 159,614 | |||||||||||
Cash for settlement of software license | 2,620 | |||||||||||
Cash | 54,799 | |||||||||||
Total consideration | 217,033 | |||||||||||
Tangible assets acquired: | ||||||||||||
Restricted cash | 1,829 | |||||||||||
Receivables | 8,587 | |||||||||||
Prepaid expenses and other current assets | 3,465 | |||||||||||
Property and equipment | 6,241 | |||||||||||
Other non-current assets | 313 | |||||||||||
Favorable leases assumed (net of unfavorable leases) | 4,323 | |||||||||||
Liabilities assumed: | ||||||||||||
Accounts payable | 5,703 | |||||||||||
Accrued liabilities | 3,865 | |||||||||||
Accrued compensation and employee benefits | 9,200 | |||||||||||
Deferred revenue | 2,662 | |||||||||||
Other long-term liabilities | 2,328 | |||||||||||
Net deferred tax liabilities | 13,316 | |||||||||||
Goodwill | 142,349 | |||||||||||
Net assets acquired | 217,033 | |||||||||||
Acquired receivables | 9,100 | |||||||||||
Acquired receivables, estimated uncollectible | 500 | |||||||||||
Deferred tax liabilities | 13,300 | |||||||||||
Gain (loss) on disposition of assets | 52,700 | |||||||||||
Measurement period adjustment, accrued liabilities | 600 | |||||||||||
Measurement period adjustment, goodwill | $ 600 | |||||||||||
Accelerated compensation cost | $ (3,900) | $ 3,900 | $ 3,900 | |||||||||
Loss from lease abandonment | $ 6,500 | |||||||||||
Valence Health | Customer relationships | ||||||||||||
Identifiable intangible assets acquired: | ||||||||||||
Identifiable intangible assets | $ 69,000 | |||||||||||
Liabilities assumed: | ||||||||||||
Useful life | 20 years | |||||||||||
Valence Health | Technology | ||||||||||||
Identifiable intangible assets acquired: | ||||||||||||
Identifiable intangible assets | $ 18,000 | |||||||||||
Liabilities assumed: | ||||||||||||
Useful life | 5 years | |||||||||||
Valence Health | As Previously Determined | ||||||||||||
Purchase consideration: | ||||||||||||
Fair value of Class A common stock issued | $ 159,614 | |||||||||||
Cash for settlement of software license | 2,620 | |||||||||||
Cash | 54,799 | |||||||||||
Total consideration | 217,033 | |||||||||||
Tangible assets acquired: | ||||||||||||
Restricted cash | 1,829 | |||||||||||
Receivables | 8,587 | |||||||||||
Prepaid expenses and other current assets | 3,465 | |||||||||||
Property and equipment | 6,241 | |||||||||||
Other non-current assets | 313 | |||||||||||
Favorable leases assumed (net of unfavorable leases) | 4,323 | |||||||||||
Liabilities assumed: | ||||||||||||
Accounts payable | 5,703 | |||||||||||
Accrued liabilities | 3,865 | |||||||||||
Accrued compensation and employee benefits | 9,200 | |||||||||||
Deferred revenue | 2,022 | |||||||||||
Other long-term liabilities | 2,328 | |||||||||||
Net deferred tax liabilities | 13,316 | |||||||||||
Goodwill | 141,709 | |||||||||||
Net assets acquired | 217,033 | |||||||||||
Valence Health | As Previously Determined | Customer relationships | ||||||||||||
Identifiable intangible assets acquired: | ||||||||||||
Identifiable intangible assets | 69,000 | |||||||||||
Valence Health | As Previously Determined | Technology | ||||||||||||
Identifiable intangible assets acquired: | ||||||||||||
Identifiable intangible assets | 18,000 | |||||||||||
Valence Health | Measurement Period Adjustment | ||||||||||||
Purchase consideration: | ||||||||||||
Fair value of Class A common stock issued | 0 | |||||||||||
Cash for settlement of software license | 0 | |||||||||||
Cash | 0 | |||||||||||
Tangible assets acquired: | ||||||||||||
Restricted cash | 0 | |||||||||||
Receivables | 0 | |||||||||||
Prepaid expenses and other current assets | 0 | |||||||||||
Property and equipment | 0 | |||||||||||
Other non-current assets | 0 | |||||||||||
Favorable leases assumed (net of unfavorable leases) | 0 | |||||||||||
Liabilities assumed: | ||||||||||||
Accounts payable | 0 | |||||||||||
Accrued liabilities | 0 | |||||||||||
Accrued compensation and employee benefits | 0 | |||||||||||
Deferred revenue | 640 | |||||||||||
Other long-term liabilities | 0 | |||||||||||
Net deferred tax liabilities | 0 | |||||||||||
Goodwill | 640 | |||||||||||
Valence Health | Measurement Period Adjustment | Customer relationships | ||||||||||||
Identifiable intangible assets acquired: | ||||||||||||
Identifiable intangible assets | 0 | |||||||||||
Valence Health | Measurement Period Adjustment | Technology | ||||||||||||
Identifiable intangible assets acquired: | ||||||||||||
Identifiable intangible assets | 0 | |||||||||||
Valence Health | Selling, general and administrative expenses | ||||||||||||
Business Acquisition [Line Items] | ||||||||||||
Transaction costs | 2,600 | |||||||||||
Valence Health | Cost of revenue | ||||||||||||
Business Acquisition [Line Items] | ||||||||||||
Transaction costs | $ 100 | |||||||||||
Valence Health | Revenue | ||||||||||||
Liabilities assumed: | ||||||||||||
Measurement period adjustment, goodwill | $ 200 | |||||||||||
Valence Health | Evolent Health LLC | ||||||||||||
Business Acquisition [Line Items] | ||||||||||||
Parent's ownership percentage | 77.20% | 74.60% | ||||||||||
Valence Health | Class A | ||||||||||||
Business Acquisition [Line Items] | ||||||||||||
Equity interest issued or issuable (in shares) | 7.0 |
Transactions - Passport (Details) shares in Millions, beneficiary in Millions |
12 Months Ended | ||||
---|---|---|---|---|---|
Feb. 01, 2016
USD ($)
beneficiary
shares
|
Dec. 31, 2016
USD ($)
|
Mar. 31, 2017
USD ($)
|
Mar. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
|
Tangible assets acquired: | |||||
Goodwill | $ 626,569,000 | $ 627,204,000 | $ 626,569,000 | $ 608,903,000 | |
Passport | |||||
Business Acquisition [Line Items] | |||||
Number of medicaid and medicare advantage beneficiaries | beneficiary | 0.3 | ||||
Additional equity consideration (up to) | $ 10,000,000.0 | ||||
Term of health plan management and managed care services arrangement | 10 years | ||||
Transaction costs | $ 200,000 | ||||
Contingent consideration, liability | 7,800,000 | 8,300,000 | |||
Increase (decrease) in contingent consideration liability | $ 500,000 | ||||
Purchase consideration: | |||||
Fair value of Class A common stock issued | 10,450,000 | ||||
Fair value of contingent consideration | 7,750,000 | ||||
Total consideration | 18,200,000 | ||||
Tangible assets acquired: | |||||
Prepaid expenses and other current assets | 6,900,000 | ||||
Goodwill | 11,300,000 | ||||
Net assets acquired | $ 18,200,000 | ||||
Passport | Common Stock | Class A | |||||
Business Acquisition [Line Items] | |||||
Issuance of common stock (in shares) | shares | 1.1 |
Transactions - Pro Forma Information (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
Mar. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2016 |
|
Business Acquisition [Line Items] | |||||
Revenue | $ 81,326 | ||||
Net income (loss) | (177,620) | ||||
Net income (loss) attributable to noncontrolling interest | (46,022) | ||||
Net income (loss) attributable to Evolent Health, Inc. | $ (131,598) | ||||
Net income (loss) available to common shareholders, basic (in dollars per share) | $ (2.63) | ||||
Net income (loss) available to common shareholders, diluted (in dollars per share) | $ (2.63) | ||||
Passport | |||||
Business Acquisition [Line Items] | |||||
Adjustment for removal of transaction costs | $ (200) | $ (300) | |||
Passport | Recorded In 2016 | |||||
Business Acquisition [Line Items] | |||||
Adjustment for removal of transaction costs | $ 300 | ||||
Passport | Recorded In 2015 | |||||
Business Acquisition [Line Items] | |||||
Adjustment for removal of transaction costs | 200 | ||||
Aldera | |||||
Business Acquisition [Line Items] | |||||
Adjustment for removal of transaction costs | (200) | $ (200) | |||
Valence Health | |||||
Business Acquisition [Line Items] | |||||
Adjustment for removal of transaction costs | (2,700) | $ (2,700) | |||
Adjustment for removal of contingent liability | $ (2,600) | 2,600 | |||
Accelerated compensation cost | (3,900) | 3,900 | $ 3,900 | ||
Adjustment for removal of lease abandonment charge | $ (6,500) | $ 6,500 |
Transactions - Secondary Offering (Details) - $ / shares shares in Millions |
1 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Jun. 05, 2015 |
Mar. 31, 2017 |
Sep. 30, 2016 |
Mar. 30, 2017 |
Dec. 31, 2016 |
Sep. 19, 2016 |
Sep. 18, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
Sep. 30, 2015 |
|
Business Acquisition [Line Items] | ||||||||||
Share price (in usd per share) | $ 10.33 | $ 14.73 | $ 19.51 | |||||||
Class A | Common Stock | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Issuance of common stock (in shares) | 13.2 | 7.5 | 8.6 | |||||||
Share price (in usd per share) | $ 17.00 | $ 19.53 | $ 22.50 | |||||||
Class A | Common Stock | Investor Stockholders | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Issuance of common stock (in shares) | 4.4 | 2.2 | ||||||||
Class A | Common Stock | Evolent Health, Selling Stockholders | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Issuance of common stock (in shares) | 3.1 | 6.4 | ||||||||
Evolent Health LLC | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Parent's ownership percentage | 70.30% | 83.90% | 77.40% | 77.40% | 74.60% | 71.00% |
Transactions - Vestica (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 01, 2016 |
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Business Acquisition [Line Items] | |||
Cash | $ 0 | $ 11,500 | |
Vestica | |||
Business Acquisition [Line Items] | |||
Cash | $ 7,500 | ||
Contingent consideration, liability | 4,000 | ||
Vestica | Customer relationships | |||
Business Acquisition [Line Items] | |||
Total consideration | $ 7,500 | ||
Useful life | 13 years |
Investments - Investment Summary (Details) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Schedule of Held-to-maturity Securities [Line Items] | ||
Amortized Costs | $ 33,684 | $ 44,341 |
Gross Unrealized Gains | 64 | 197 |
Gross Unrealized Losses | 30 | 35 |
Fair Value | 33,718 | 44,503 |
U.S. Treasury bills | ||
Schedule of Held-to-maturity Securities [Line Items] | ||
Amortized Costs | 28,073 | 28,119 |
Gross Unrealized Gains | 40 | 116 |
Gross Unrealized Losses | 29 | 27 |
Fair Value | 28,084 | 28,208 |
Corporate bonds | ||
Schedule of Held-to-maturity Securities [Line Items] | ||
Amortized Costs | 5,611 | 16,222 |
Gross Unrealized Gains | 24 | 81 |
Gross Unrealized Losses | 1 | 8 |
Fair Value | $ 5,634 | $ 16,295 |
Investments - Contractual Maturity (Details) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Investments [Abstract] | ||
Due in one year or less, Amortized Cost | $ 33,684 | $ 44,341 |
Due in one year or less, Fair Value | 33,718 | 44,503 |
Due after one year through five years, Amortized Cost | 0 | 0 |
Due after one year through five years, Fair Value | 0 | 0 |
Amortized Costs | 33,684 | 44,341 |
Fair Value | $ 33,718 | $ 44,503 |
Investments - Unrealized Losses (Details) - U.S. Treasury bills - Level 2 $ in Thousands |
Mar. 31, 2017
USD ($)
security
|
Dec. 31, 2016
USD ($)
security
|
---|---|---|
Schedule of Held-to-maturity Securities [Line Items] | ||
Unrealized loss for less than twelve months, Number of Securities | security | 3 | 1 |
Unrealized loss for less than twelve months, Fair Value | $ 12,011 | $ 4,002 |
Unrealized loss for less than twelve months, Unrealized Losses | $ 13 | $ 1 |
Property and Equipment, Net (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Property, Plant and Equipment [Line Items] | |||
Total property and equipment | $ 42,476 | $ 36,415 | |
Accumulated depreciation and amortization | (7,017) | (5,236) | |
Total property and equipment, net | 35,459 | 31,179 | |
Depreciation expense | 1,800 | $ 700 | |
Capitalized computer software, amortization | 700 | 200 | |
Computer hardware | |||
Property, Plant and Equipment [Line Items] | |||
Total property and equipment | 4,674 | 4,474 | |
Furniture and equipment | |||
Property, Plant and Equipment [Line Items] | |||
Total property and equipment | 2,448 | 2,448 | |
Internal-use software development costs | |||
Property, Plant and Equipment [Line Items] | |||
Total property and equipment | 27,237 | 21,385 | |
Total property and equipment, net | 25,000 | 19,900 | |
Capitalized computer software additions | 5,800 | $ 3,400 | |
Leasehold improvements | |||
Property, Plant and Equipment [Line Items] | |||
Total property and equipment | $ 8,117 | $ 8,108 |
Goodwill and Intangible Assets, Net (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 05, 2015 |
|
Finite-Lived Intangible Assets [Line Items] | ||||||
Share price (in usd per share) | $ 10.33 | $ 14.73 | $ 19.51 | |||
Goodwill impairment | $ 0 | $ 160,600 | ||||
Intangible assets, net | 254,166 | $ 258,923 | $ 169,000 | |||
Gross Carrying Amount | 277,323 | 277,323 | ||||
Accumulated Amortization | 23,157 | 18,400 | ||||
Net Carrying Value | 254,166 | $ 258,923 | ||||
Amortization of intangible assets | $ 4,800 | 2,600 | ||||
Customer relationships | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Weighted-Average Remaining Useful Life | 21 years 1 month 28 days | 21 years 6 months | ||||
Gross Carrying Amount | $ 203,500 | $ 203,500 | ||||
Accumulated Amortization | 11,341 | 9,018 | ||||
Net Carrying Value | $ 192,159 | $ 194,482 | ||||
Corporate trade name | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Weighted-Average Remaining Useful Life | 18 years 1 month 28 days | 18 years 4 months 26 days | ||||
Gross Carrying Amount | $ 19,000 | $ 19,000 | ||||
Accumulated Amortization | 1,741 | 1,505 | ||||
Net Carrying Value | $ 17,259 | $ 17,495 | ||||
Technology | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Weighted-Average Remaining Useful Life | 4 years 11 months | 5 years 2 months 15 days | ||||
Gross Carrying Amount | $ 50,500 | $ 50,500 | ||||
Accumulated Amortization | 9,828 | 7,753 | ||||
Net Carrying Value | $ 40,672 | $ 42,747 | ||||
Below market lease, net | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Weighted-Average Remaining Useful Life | 9 years | 9 years 5 months | ||||
Gross Carrying Amount | $ 4,323 | $ 4,323 | ||||
Accumulated Amortization | 247 | 124 | ||||
Net Carrying Value | $ 4,076 | $ 4,199 | ||||
Vestica | Customer relationships | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Acquired intangible assets | $ 108,300 | |||||
Minimum | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Share price (in usd per share) | $ 8.48 | |||||
Maximum | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Share price (in usd per share) | $ 12.32 |
Goodwill and Intangible Assets, Net - Goodwill (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Goodwill [Roll Forward] | ||
Balance as of beginning-of-period | $ 626,569 | $ 608,903 |
Goodwill Acquired | 0 | 178,266 |
Measurement period adjustment, goodwill | 635 | 0 |
Goodwill impairment | 0 | (160,600) |
Balance as of end-of-period | $ 627,204 | $ 626,569 |
Long-term Debt (Details) $ / shares in Units, shares in Millions |
1 Months Ended | 3 Months Ended | |
---|---|---|---|
Dec. 31, 2016
USD ($)
shares
$ / shares
|
Mar. 31, 2017
USD ($)
|
Mar. 31, 2016
USD ($)
|
|
Debt Instrument [Line Items] | |||
Amortization of deferred financing costs | $ 229,000 | $ 0 | |
Senior Notes | Convertible Senior Notes due 2021 | |||
Debt Instrument [Line Items] | |||
Face amount | $ 125,000,000.0 | 125,000,000 | |
Interest rate | 2.00% | ||
Proceeds from issuance of debt | $ 120,400,000 | ||
Debt issuance costs | $ 4,600,000 | ||
Repurchase price due to fundamental change as percentage of principal amount | 100.00% | ||
Interest expense | 600,000 | ||
Amortization of deferred financing costs | 200,000 | ||
Debt conversion denominator shares per principal amount | $ 1,000 | ||
Convertible debt carrying value | $ 120,283,000 | $ 120,706,000 | |
Senior Notes | Convertible Senior Notes due 2021 | Class A | Common Stock | |||
Debt Instrument [Line Items] | |||
Initial conversion rate per $1000 principal amount | 0.0416082 | ||
Conversion price (in dollars per share) | $ / shares | $ 24.03 | ||
Initial conversion amount (in shares) | shares | 5.2 |
Long-term Debt - Convertible Senior Notes Carrying Value and Interest Expense (Details) - Senior Notes - Convertible Senior Notes due 2021 - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2017 |
Dec. 31, 2016 |
|
Debt Instrument [Line Items] | ||
Carrying value | $ 120,706,000 | $ 120,283,000 |
Unamortized discount | 4,294,000 | 4,717,000 |
Principal amount | $ 125,000,000 | $ 125,000,000.0 |
Remaining amortization period | 4 years 8 months 6 days | 4 years 10 months 25 days |
Level 2 | ||
Debt Instrument [Line Items] | ||
Principal amount | $ 150,800,000 |
Commitments and Contingencies - Additional Information (Details) - USD ($) $ in Thousands, shares in Millions |
1 Months Ended | 3 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 05, 2015 |
Mar. 31, 2017 |
Sep. 30, 2016 |
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Restricted Cash and Cash Equivalents Items [Line Items] | ||||||
Tax receivables agreement, percent of tax savings to be paid | 85.00% | 85.00% | ||||
Rent expense | $ 2,600 | $ 1,100 | ||||
Payments of stock issuance costs | 300 | |||||
Restricted funds | $ 31,915 | 31,915 | $ 40,416 | |||
Common Stock | Class A | ||||||
Restricted Cash and Cash Equivalents Items [Line Items] | ||||||
Issuance of common stock (in shares) | 13.2 | 7.5 | 8.6 | |||
Letters of credit for facility leases | ||||||
Restricted Cash and Cash Equivalents Items [Line Items] | ||||||
Restricted funds | $ 3,948 | 3,948 | 4,852 | |||
Collateral with financial institutions | ||||||
Restricted Cash and Cash Equivalents Items [Line Items] | ||||||
Restricted funds | 4,950 | 4,950 | $ 4,950 | |||
Minimum | Letters of credit for facility leases | ||||||
Restricted Cash and Cash Equivalents Items [Line Items] | ||||||
Letters of credit outstanding, minimum | $ 3,900 | $ 3,900 |
Commitments and Contingencies - Concentration Risk (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Concentration Risk [Line Items] | ||||
Percentage of cash and cash equivalents held with FDIC participating banks | 94.00% | |||
Cash and cash equivalents | $ 104,295 | $ 111,292 | $ 134,563 | $ 145,726 |
Customer A | Customer Concentration Risk | Revenue | ||||
Concentration Risk [Line Items] | ||||
Concentration risk | 17.10% | 12.90% | ||
Customer B | Customer Concentration Risk | Revenue | ||||
Concentration Risk [Line Items] | ||||
Concentration risk | 11.20% | |||
Customer B | Customer Concentration Risk | Accounts Receivable | Customer Receivable | ||||
Concentration Risk [Line Items] | ||||
Concentration risk | 19.20% | |||
Customer C | Customer Concentration Risk | Revenue | ||||
Concentration Risk [Line Items] | ||||
Concentration risk | 18.30% | |||
Customer D | Customer Concentration Risk | Revenue | ||||
Concentration Risk [Line Items] | ||||
Concentration risk | 14.20% | |||
Customer D | Customer Concentration Risk | Accounts Receivable | Customer Receivable | ||||
Concentration Risk [Line Items] | ||||
Concentration risk | 9.60% | |||
Customer E | Customer Concentration Risk | Revenue | ||||
Concentration Risk [Line Items] | ||||
Concentration risk | 11.40% | |||
Customer F | Customer Concentration Risk | Accounts Receivable | Customer Receivable | ||||
Concentration Risk [Line Items] | ||||
Concentration risk | 10.40% | |||
Customer G | Customer Concentration Risk | Accounts Receivable | Customer Receivable | ||||
Concentration Risk [Line Items] | ||||
Concentration risk | 14.30% |
Earnings (Loss) Per Common Share - Computation of Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Net income (loss) | $ (23,149) | $ (173,811) | $ (226,778) |
Less: | |||
Net income (loss) attributable to non-controlling interests | (5,137) | (51,071) | |
Net income (loss) available for common shareholders | $ (18,012) | $ (122,740) | |
Weighted-average common shares outstanding (in shares) | 52,599,000 | 42,185,000 | |
Earnings (Loss) per Common Share | |||
Basic (in dollars per share) | $ (0.34) | $ (2.91) | |
Diluted (in dollars per share) | $ (0.34) | $ (2.91) | |
Class B | |||
Earnings (Loss) per Common Share | |||
Convertible preferred stock, shares issued upon conversion (in shares) | 1 |
Earnings (Loss) Per Common Share - Antidilutive Securities (Details) - shares shares in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Number of antidilutive securities excluded from the calculation of earning per share (in shares) | 23,948 | 17,994 |
Exchangeable Class B Common Stock | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Number of antidilutive securities excluded from the calculation of earning per share (in shares) | 15,347 | 17,525 |
Restricted stock and restricted stock units | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Number of antidilutive securities excluded from the calculation of earning per share (in shares) | 485 | 12 |
Options | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Number of antidilutive securities excluded from the calculation of earning per share (in shares) | 2,915 | 457 |
Convertible senior notes | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Number of antidilutive securities excluded from the calculation of earning per share (in shares) | 5,201 | 0 |
Stock-based Compensation - Compensation Expense (Details) - USD ($) |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
Jan. 01, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Share-based compensation expense | $ 5,104,000 | $ 4,335,000 | ||
Share-based compensation expense capitalized as software development costs | 0 | 0 | ||
Decrease in retained earnings | (128,605,000) | $ (146,617,000) | ||
Election to Recognize Share-based Award Forfeitures As They Occur | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Decrease in retained earnings | $ 500,000 | |||
Adjustments | ASU 2016-09 | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Share-based compensation expense | 100,000 | |||
Cost of revenue | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Share-based compensation expense | 349,000 | 444,000 | ||
Selling, general and administrative expenses | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Share-based compensation expense | 4,755,000 | 3,891,000 | ||
Stock options | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Share-based compensation expense | 4,053,000 | 3,818,000 | ||
Performance-based stock options | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Share-based compensation expense | 110,000 | 25,000 | ||
RSUs | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Share-based compensation expense | $ 941,000 | $ 492,000 |
Stock-based Compensation - Awards Granted (Details) - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Stock options | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock-based awards granted (in shares) | 866,849 | 857,130 |
Performance-based stock options | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock-based awards granted (in shares) | 0 | 267,770 |
RSUs | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock-based awards granted (in shares) | 387,597 | 385,713 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Income Tax Disclosure [Abstract] | ||
Provision (benefit) for income taxes | $ 405 | $ (988) |
Effective tax rate | (1.80%) | 0.60% |
Income Tax Contingency [Line Items] | ||
Tax receivables agreement, percent of tax savings to be paid | 85.00% | |
Evolent Health LLC | Additional Paid-in Capital | ||
Income Tax Contingency [Line Items] | ||
Decrease in deferred tax liability related to the book basis compared to the tax basis of partnership interest | $ 2,800 |
Investments In and Advances to Affiliates (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Jun. 30, 2016 |
Mar. 31, 2016 |
|
Schedule of Equity Method Investments [Line Items] | |||
Loss from affiliates | $ 522 | $ 0 | |
Revenue related to long-term services agreement | $ 200 | ||
GPAC | |||
Schedule of Equity Method Investments [Line Items] | |||
Equity method investment, cost | $ 3,000 | ||
Economic interest percentage | 26.00% | 27.00% | |
Equity method investment, ownership percentage | 28.00% | 28.00% | |
Loss from affiliates | $ 500 | ||
Class B | GPAC | |||
Schedule of Equity Method Investments [Line Items] | |||
Equity method investment, shares acquired (in shares) | 21,429 |
Non-controlling Interests (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
1 Months Ended | 3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 05, 2015 |
Mar. 31, 2017 |
Sep. 30, 2016 |
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
Mar. 30, 2017 |
Dec. 30, 2016 |
Sep. 19, 2016 |
Sep. 18, 2016 |
Dec. 31, 2015 |
Sep. 30, 2015 |
|
Noncontrolling Interest [Line Items] | ||||||||||||
Share price (in usd per share) | $ 10.33 | $ 14.73 | $ 19.51 | |||||||||
Stockholders' Equity Attributable to Noncontrolling Interest [Roll Forward] | ||||||||||||
Non-controlling interests as of beginning-of-period | $ 209,588 | |||||||||||
Cumulative-effect adjustment from adoption of new accounting principle | $ 0 | |||||||||||
Reclassification of non-controlling interests | 0 | 0 | ||||||||||
Net income (loss) attributable to non-controlling interests | (5,137) | $ (51,071) | ||||||||||
Non-controlling interests as of end-of-period | $ 146,269 | $ 146,269 | $ 209,588 | |||||||||
Evolent Health LLC | ||||||||||||
Noncontrolling Interest [Line Items] | ||||||||||||
Parent's ownership percentage | 70.30% | 83.90% | 83.90% | 77.40% | 77.40% | 74.60% | 71.00% | |||||
Evolent Health LLC | Passport | ||||||||||||
Noncontrolling Interest [Line Items] | ||||||||||||
Parent's ownership percentage | 70.80% | 70.30% | ||||||||||
Evolent Health LLC | Valence Health and Aldera | ||||||||||||
Noncontrolling Interest [Line Items] | ||||||||||||
Parent's ownership percentage | 77.40% | 74.60% | ||||||||||
Common Stock | Class A | ||||||||||||
Noncontrolling Interest [Line Items] | ||||||||||||
Issuance of common stock (in shares) | 13,200 | 7,500 | 8,600 | |||||||||
Issuance of common stock for business combinations (in shares) | 2,100 | 8,451 | ||||||||||
Share price (in usd per share) | $ 17.00 | $ 19.53 | $ 22.50 | $ 19.53 | ||||||||
Common Stock | Class A | Investor Stockholders | ||||||||||||
Noncontrolling Interest [Line Items] | ||||||||||||
Issuance of common stock (in shares) | 4,400 | 2,200 | ||||||||||
Common Stock | Class A | Evolent Health, Selling Stockholders | ||||||||||||
Noncontrolling Interest [Line Items] | ||||||||||||
Issuance of common stock (in shares) | 3,100 | 6,400 | ||||||||||
Non-controlling Interests | ||||||||||||
Stockholders' Equity Attributable to Noncontrolling Interest [Roll Forward] | ||||||||||||
Non-controlling interests as of beginning-of-period | $ 209,588 | 285,238 | $ 285,238 | |||||||||
Cumulative-effect adjustment from adoption of new accounting principle | 0 | (139) | (139) | |||||||||
Decrease in non-controlling interests as a result of the exchange of Class B common stock for Class A common stock as part of the March Secondary Offering | (59,585) | 0 | ||||||||||
Reclassification of non-controlling interests | 1,403 | 0 | 19,745 | |||||||||
Net income (loss) attributable to non-controlling interests | (5,137) | (51,071) | ||||||||||
Non-controlling interests as of end-of-period | $ 146,269 | $ 146,269 | $ 234,028 | $ 209,588 |
Fair Value Measurement - Assets and Liabilities on Recurring Basis (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Dec. 31, 2016 |
|
Liabilities | ||
Risk-adjusted recurring revenue compound annual growth rate, period | 5 years | |
Recurring | ||
Assets | ||
Cash and cash equivalents | $ 5,986 | $ 1,128 |
Liabilities | ||
Contingent consideration, liability | 8,300 | 8,300 |
Recurring | Level 1 | ||
Assets | ||
Cash and cash equivalents | 5,986 | 1,128 |
Liabilities | ||
Contingent consideration, liability | 0 | 0 |
Recurring | Level 2 | ||
Assets | ||
Cash and cash equivalents | 0 | 0 |
Liabilities | ||
Contingent consideration, liability | 0 | 0 |
Recurring | Level 3 | ||
Assets | ||
Cash and cash equivalents | 0 | 0 |
Liabilities | ||
Contingent consideration, liability | $ 8,300 | $ 8,300 |
Fair Value Measurement - Changes in Contingent Consideration (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
Balance as of beginning of period | $ 0 | |
Additions | $ 0 | 7,766 |
Balance as of end of period | $ 7,766 |
Fair Value Measurement - Valuation Techniques and Significant Unobservable Inputs (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
|
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] | ||||
Contingent consideration, fair value | $ 7,766 | $ 0 | ||
Theoretical recurring revenue | $ 1,000 | |||
Contingent consideration | Real options approach | Level 3 | ||||
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] | ||||
Contingent consideration, fair value | $ 8,300 | $ 8,300 | ||
Risk-adjusted expected growth rates | 97.00% | |||
Contingent consideration | Real options approach | Level 3 | Minimum | ||||
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] | ||||
Discount rate/time value | 2.50% | 2.50% | ||
Contingent consideration | Real options approach | Level 3 | Maximum | ||||
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] | ||||
Discount rate/time value | 4.50% | 4.50% | ||
Contingent consideration | Real options approach 2018-2021 | Level 3 | Minimum | ||||
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] | ||||
Risk-adjusted expected growth rates | 50.80% |
Related Parties (Details) |
Mar. 31, 2017 |
Jun. 30, 2016 |
---|---|---|
GPAC | ||
Related Party Transaction [Line Items] | ||
Economic interest percentage | 26.00% | 27.00% |
Subsequent Events (Details) - USD ($) shares in Millions |
3 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|
May 01, 2017 |
Mar. 31, 2017 |
Mar. 31, 2016 |
Mar. 30, 2017 |
Dec. 31, 2016 |
Sep. 19, 2016 |
Sep. 18, 2016 |
Jun. 05, 2015 |
|
Subsequent Event [Line Items] | ||||||||
Proceeds from stock option exercises | $ 542,000 | $ 25,000 | ||||||
Evolent Health LLC | ||||||||
Subsequent Event [Line Items] | ||||||||
Parent's ownership percentage | 83.90% | 77.40% | 77.40% | 74.60% | 71.00% | 70.30% | ||
Subsequent Event | ||||||||
Subsequent Event [Line Items] | ||||||||
Proceeds from stock option exercises | $ 0 | |||||||
Subsequent Event | Evolent Health LLC | ||||||||
Subsequent Event [Line Items] | ||||||||
Parent's ownership percentage | 84.90% | |||||||
Subsequent Event | Over-Allotment Option | Class A | ||||||||
Subsequent Event [Line Items] | ||||||||
Number of shares issued (in shares) | 1.1 | |||||||
Subsequent Event | Over-Allotment Option | Class A | Investor Stockholders | ||||||||
Subsequent Event [Line Items] | ||||||||
Number of shares issued (in shares) | 0.5 | |||||||
Subsequent Event | Over-Allotment Option | Class A | Class A Common Stock Pursuant To Class B Exchanges | Investor Stockholders | ||||||||
Subsequent Event [Line Items] | ||||||||
Number of shares issued (in shares) | 0.6 |
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