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Transactions | 12 Months Ended
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Dec. 31, 2021
Business Combination and Asset Acquisition [Abstract] |
Transactions | Transactions Business Combinations Vital Decisions On October 1, 2021, the Company completed its acquisition of Vital Decisions, including 100% of the voting equity interests. Vital Decisions is a leading provider of technology-enabled advance care planning services, ensuring that the care of individuals with serious illness aligns with their values and changing preferences throughout their health journey and, in particular, as they approach end-of-life decisions. The transaction is expected to deepen our capabilities, allowing us to cross-sell across customers and enhance our value proposition to partners. Total merger consideration, net of cash on hand and certain closing adjustments, was $117.7 million, based on the closing price of the Company’s Class A common stock on the NYSE on October 1, 2021. The merger consideration consisted of $46.5 million of cash consideration, 1.8 million shares of Class A common stock, fair valued at $56.6 million as of October 1, 2021, and an earn-out of up to $45.0 million, fair valued at $14.6 million as of October 1, 2021. See Note 18 for additional information regarding the fair value determination of the earn-out consideration. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of October 1, 2021, as follows (in thousands):
Purchase consideration:
Cash | $ | 46,500 |
Fair value of Class A common stock issued | 56,626 |
Fair value of contingent consideration | 14,600 |
Total consideration | $ | 117,726 |
Tangible assets acquired: |
Cash and cash equivalents | $ | 1,430 |
Accounts receivable | 3,301 |
Prepaid expenses and other current assets | 78 |
Other non-current assets | 2,564 |
Total tangible assets acquired | 7,373 |
Identifiable intangible assets acquired: |
Customer relationships | 32,500 |
Technology | 5,000 |
Corporate trade name | 2,500 |
Total identifiable intangible assets acquired | 40,000 |
Liabilities assumed: |
Accounts payable | 93 |
Accrued liabilities | 661 |
Accrued compensation and employee benefits | 970 |
Deferred tax liabilities, net | 499 |
Deferred revenue | 2,000 |
Operating lease liabilities | 2,712 |
Total liabilities assumed | 6,935 |
Goodwill | 77,288 |
Net assets acquired | $ | 117,726 |
The fair value of the receivables acquired, as shown in the table above, approximates the gross contractual amounts and is expected to be collectible in full. Identifiable intangible assets associated with customer relationships, technology and corporate trade names will be amortized on a straight-line basis over their preliminary estimated useful lives of 13 years, 5 years, and 15 years, respectively. The customer relationships are primarily attributable to existing contracts with current customers. The technology consists primarily of a proprietary advance care planning documentation portal where patients can input information, and doctor/patient conversations are populated for later reference. The corporate trade name reflects the value that we believe the Vital Decisions brand name carries in the market. The fair value of the intangible assets was determined using the income approach and the relief from royalty 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. The relief from royalty approach estimates the fair value of an asset by calculating how much an entity would have to spend to lease a similar asset. 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 cross-selling opportunities and the acquired assembled workforce and was all allocated to the Clinical Solutions segment. Goodwill is considered to be an indefinite lived asset. $69.6 million of the goodwill recorded on the transaction is deductible for tax purposes. The amounts above reflect management’s estimate of the fair value of the tangible and intangible assets acquired and liabilities assumed. Any necessary adjustments will be finalized within one year from the date of acquisition. Equity Investments Passport On May 28, 2019, UHC, Passport Health Solutions, LLC (“PHS I”), the Company and EVH Passport entered into an Asset Purchase Agreement (the “Passport APA”), which provided for the sale of substantially all of the assets of UHC and PHS I, including UHC’s Kentucky Medicaid contract (the “Passport Medicaid Contract”), to EVH Passport for a purchase price of $70.0 million in cash and the issuance of a 30% interest in EVH Passport (the “Passport Purchase Price”) to The University of Louisville, the University of Louisville Physicians, University Medical Center, the Jewish Heritage Fund for Excellence, Norton Healthcare, Inc. and the Louisville/Jefferson County Primary Care Association (collectively, the “Sponsors”). On June 18, 2019, the Company contributed $40.0 million to UHC in the form of an advance for regulatory capital requirements under an agreement with UHC (the “Passport Note”). The Passport Note carried a fixed interest rate of 6.5% per annum. Additionally, on June 6, 2019, the Company and UHC entered into an Indemnity Agreement (the “Indemnity Agreement”), with an insurance company (the “Surety”). The Surety issued a performance bond in the amount of $25.0 million to secure UHC’s performance under its Medicaid Contract. Pursuant to the Indemnity Agreement, the Company and UHC were jointly and severally liable to the Surety in the maximum amount of the bond, plus certain costs of the Surety, in the event of losses arising under the bond. The bond’s original expiry date was June 30, 2020 and during the three months ended June 30, 2020, was extended to December 31, 2020. The bond was released in October 2020. On December 30, 2019, UHC, PHS I, the Company and EVH Passport consummated the transactions contemplated by the Passport APA (the “Passport Closing”). At the Passport Closing, $16.2 million of the cash Passport Purchase Price was held back until such time as PHS I delivers to EVH Passport certain owned real property and improvements free and clear of all encumbrances. In addition, at the Passport Closing, EVH Passport and UHC entered into an agreement that provided for the administration and assumption of the financial risks by EVH Passport of UHC’s dual eligible special needs business (the “DNP Business”) until such time as EVH Passport became certified as a Medicare Advantage Organization and the D-SNP Business could be transferred to EVH Passport. On October 1, 2020, the D-SNP Business was transferred from UHC to EVH Passport. At the Passport Closing, EVH Passport assumed UHC’s obligations under the Passport Note and the Indemnity Agreement. On July 16, 2020, EVH Passport, Evolent Health LLC and Molina Healthcare, Inc. (“Molina”) entered into an Asset Purchase Agreement (the “Molina APA”), which contemplated the sale by EVH Passport to Molina of certain assets, including certain intellectual property rights of EVH Passport and EVH Passport’s rights under the Passport Medicaid Contract. On September 1, 2020, EVH Passport and Molina consummated the transactions contemplated by the Molina APA (the “Molina Closing”) and the Passport Medicaid Contract was novated to Molina. As a result, EVH Passport began to wind down its business. In connection with the Molina Closing, Molina deposited $20.0 million in cash in escrow, which was subsequently released to EVH Passport in January 2021. In addition, at the Molina Closing, Molina and EVH Passport entered into an agreement that provided for the assumption of the financial risks by Molina of the D-SNP Business until such time as Molina’s Kentucky health plan becomes certified as a Medicare Advantage Organization and the D-SNP Business is transferred Molina. The Company and EVH Passport continued to administer the D-SNP Business until January 1, 2021, at which time Molina became responsible for its administration until the D-SNP Business was officially transferred to Molina effective September 1, 2021. Prior to the Molina Closing, the Company accounted for its investment in EVH Passport as an unconsolidated variable interest entity under the equity method of accounting. As a result of the transaction, the Company concluded that a reconsideration event occurred whereby EVH Passport was determined to be a voting interest entity and that Evolent had a controlling financial interest in EVH Passport; accordingly, the Company consolidated EVH Passport as of September 1, 2020 in its consolidated financial statements. The Company accounted for the transaction as an asset acquisition, as the Company concluded that assets acquired as a result of the consolidation did not meet the criteria to be classified as a business under GAAP. Following the Molina Closing and consolidation of EVH Passport in the Company’s consolidated financials, on November 16, 2020, EVH Passport redeemed the Sponsors’ equity interests in EVH Passport for $20.0 million in cash in accordance with the terms of EVH Passport’s Stockholders’ Agreement, and, as a result, EVH Passport became a wholly owned subsidiary of the Company. As part of the consolidation, the Company recorded assets primarily consisting of cash and cash equivalents and restricted cash and cash equivalents of $159.8 million, available for sale securities of $88.6 million, receivables related to unsettled sales of securities of $43.0 million and other assets of $50.2 million and total liabilities primarily comprised of reserve for claims and performance-based arrangements of $164.8 million and accrued liabilities of $50.0 million. Subsequent to winddown activities, any remaining capital will be distributed to the Company subject to regulatory approval from the Kentucky Department of Insurance. In addition, the Passport Note was eliminated upon consolidation, and as of December 31, 2020, the outstanding principal balance of the $40.0 million Passport Note was repaid in full by EVH Passport including approximately $3.6 million of accrued interest. During the first quarter of 2021, pursuant to the terms of the Molina APA, EVH Passport received a cash payment from Molina in the amount of $23.0 million based on the number of enrollees above a certain threshold in the D-SNP Business and Molina's Medicaid plan following the open enrollment period for plan year 2021. The payment is recorded in gain on transfer of membership on the consolidated statement of operations and comprehensive income (loss). The foregoing amount represents 50% of the payment that EVH Passport is eligible to receive pursuant to the terms of the Molina APA based on the number of such enrollees. The remaining 50% was received in the first quarter of 2022 and was recorded as a receivable on our consolidated balance sheet and a gain on transfer of membership on the consolidated statement of operations and comprehensive income (loss) during the year ended December 31, 2021 as there were no remaining uncertainties related to realization. Loss on Disposal of Assets During 2019, the Company, through a consolidated subsidiary, entered into an agreement with an unrelated party to provide services and support to providers, independent physician associations, and other provider groups. During the first quarter of 2020, the Company sold its interest in the subsidiary and recorded a loss on disposal of assets of $6.4 million in the consolidated statements of operations and comprehensive income (loss). The Company did not have any continuing involvement with the subsidiary after the consummation of this transaction.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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