We are exposed to credit losses primarily through our accounts receivable from revenue transactions, investments held at amortized cost and customer advance for regulatory capital and other notes receivable. We estimate expected credit losses based on past events, current conditions and reasonable and supportable forecasts. Expected credit losses are measured over the remaining contractual life of these assets. In addition, at March 31, 2020, as part of our analysis of expected credit losses, the Company considered the impacts of COVID-19 for the purposes of evaluating changes in the allowances for current and forward-looking conditions and determined it did not have a material impact on our allowances.

Accounts receivable represent the amounts owed to the Company for goods or services provided to customers or third parties. Current accounts receivables are classified within accounts receivable, net on the Company’s consolidated balance sheets, while non-current accounts receivables are classified within prepaid expenses and other noncurrent assets on the Company’s consolidated balance sheets.

We monitor our ongoing credit exposure through active review of counterparty balances against contract terms, due dates and business strategy. Our activities include timely account reconciliation, dispute resolution and payment confirmation. We may employ legal counsel to pursue recovery of defaulted receivables. In addition, the Company will establish a general reserve based on delinquency rates. Historical loss rates are determined for each delinquency bucket in 30-day past-due intervals, and then applied to the composition of the reporting

Based on an aging analysis of our trade accounts receivable, non-trade accounts receivable and contract assets at March 31, 2020, 49% were current, 26% were past due less than 60 days, with 43% past due less than 120 days. At March 31, 2020, we reported $117.9 million of accounts receivable, certain non-trade accounts receivable included in prepaids and other assets on the consolidated balance sheet and contract assets, net of allowances of $3.4 million. The following table summarizes the changes in allowance for credit losses on our accounts receivables, certain non-trade accounts receivable and contract assets for the three months ended March 31, 2020 (in thousands):

In January 2018, Evolent acquired certain assets from New Mexico Health Connections, including a commercial plan and health plan management services organization. The acquired assets were contributed to a new entity, True Health, which is a wholly-owned subsidiary of Evolent. True Health invests in certain debt securities which are classified as held-to-maturity in Evolent’s consolidated financial statements because True Health, as Evolent’s wholly-owned subsidiary, has the intent and ability to hold the securities until their individual maturities. True Health invests in debt securities pursuant to an investment policy governing the nature and type of investments based on the Company’s business strategy, risk tolerance, and investment objectives.



	Amortized Cost				Interest Income for the Three Months Ended March 31,
	March 31, 2020		December 31, 2019		2020		2019
U.S. Treasury bills	$	10,785	$	10,784	$	65	$	58
Corporate bonds	1,705		1,705		15		9
Collateralized mortgage obligations	6,192		5,472		53		12
Yankees	597		597		5		5
Total investments	$	19,279	$	18,558	$	138	$	84

The Company reviewed its held-to-maturity investments to determine which types of securities have zero risk of credit loss because payments are guaranteed by a third party. Based on this analysis, the Company determined that the expected credit losses on U.S. Treasury bills and mortgage backed securities from government sponsored enterprise (“GSE”) is zero. The expected credit losses on non-GSE backed securities is considered immaterial.

On June 18, 2019, we contributed the Passport Note under an agreement with Passport. The Passport Note carries a fixed interest rate of 6.5% per annum and is required to be repaid, plus accrued interest, in a single payment on July 1, 2025, the maturity date, or earlier, subject to regulatory approval. The Passport Note is required to be repaid out of surplus in excess of Passport’s obligations to its policyholders, claimant and beneficiary claims and all other creditors. The company recorded the Passport Note at amortized cost basis, including accrued interest, on the consolidated balance sheets and reports principal in customer advance for regulatory capital requirements, net of allowances and accrued interest in prepaid expenses and other non-current assets, net. The Passport Note is subject to a minimum

Evolent evaluated this note and employed a probability of default and loss given default framework which relies on contractual cash flows to determine the exposure at default at any point in the future. The model calculates contractual cash flows for all remaining periods of the note’s contractual life based on terms of the notes and utilize the amortization principles set forth within those terms under the assumption that the note will behave as expected under the contract. Forecasted probability of default rates and loss given default rates are applied in each future contractual period to determine the period-specific amount of default and the associated loss given that default has occurred. Forward looking probability of default and loss given default rates are forecasted using regression-based econometric techniques. Using reasonable and supportable forecasts of relevant macroeconomic conditions, Evolent forecasts expected future risk-based-capital percentages. Evolent utilizes these forecasted risk-based-capital percentages to derive the future probability of default and loss given default rates applied to the future period-specific exposure at default, as calculated based upon contractual loan terms, to derive an excepted loss estimate.

At March 31, 2020, we reported $40.0 million of customer advances for regulatory capital, net of allowances of $45 thousand. In addition, as of January 1, 2020 and March 31, 2020, the Passport Note is current on its payments of principal and interest. While the Company is currently accruing interest on the Passport Note, it may stop accruing interest in the future if the Passport Note borrower is in default of either principal or interest payments.

On September 30, 2019, we entered into an amended agreement with an equity method investee to reduce our maximum funding for operations to $5.0 million (the “Note”) through a line of credit. The Note carries a fixed interest rate of 6.5% per annum and is required to be repaid, plus accrued interest, in monthly payments on April 30, 2019 through the note end date of April 1, 2030. As of March 31, 2020 and December 31, 2019, the equity method investee had drawn $1.4 million and $1.0 million under this Note, respectively. The Company recorded the Note at amortized cost basis, including accrued interest, on the consolidated balance sheets and reports principal in prepaid expenses and other non-current assets, net and accrued interest in prepaid expenses and other current assets, net. The remaining undrawn amount is an off-balance sheet credit commitment which is subject to measurement because the Company does not have the ability to rescind its commitment to extend this credit unconditionally. The allowance associated with the undrawn amounts is recorded in other long-term liabilities on the consolidated balance sheets and will be reclassified from other long-term liabilities to prepaid expenses and other non-current assets on the consolidated balance sheets as the Note is drawn.

The probability of default assumption relies upon a set maximum period-specific rate which is derived based upon historical peer-institution loss experience. The loss given default rate for the Note is assumed to be 50% in every period. This assumption relies upon a 50/50 expectation of a good outcome versus a bad outcome given a default event’s occurrence. Under a good outcome, the Company would achieve a 100% recovery of the defaulted balance whereas under a bad outcome the Company would recover 0% of the defaulted balance.

At March 31, 2020, we reported $1.4 million of notes receivable, net of allowances on drawn principal of $14 thousand in prepaid expenses and other non-current assets and allowances on undrawn principal of $37 thousand in other long-term liabilities on the consolidated balance sheets. In addition, as of January 1, 2020 and March 31, 2020, the Note is current on its payments of principal and interest, however the Florida Agency for Healthcare Administration (the “Agency”) reviews requests for payments on a quarterly basis and will only approve the requests when it is satisfied that any repayment will not be reasonably likely to cause the borrower to be unable to meet its insolvency or surplus requirements. Circumstances under which the Agency will approve repayment include, but are not limited to, when the Premium to Surplus ratio is 10 to 1 or below. While the Company is currently accruing interest on the Note, it may stop accruing interest in the future if the Note borrower is in default of either principal or interest payments.