XML 40 R23.htm IDEA: XBRL DOCUMENT
v3.22.4

Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes An income tax expense (benefit) of $(43.4) million, $0.5 million, and $(2.4) million was recognized for the years ended December 31, 2022, 2021 and 2020, respectively. Our loss from continuing operations before income taxes was as follows (in thousands):
| For the Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Domestic | $ | (66,055) |  |  | $ | (32,719) |  |  | $ | (332,373) |
Foreign | 3,978 |  |  | 2,918 |  |  | 1,833 |
Loss from continuing operations before income taxes | $ | (62,077) |  |  | $ | (29,801) |  |  | $ | (330,540) |
Components of income tax expense (benefit) (in thousands) consist of the following:
| For the Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Current |  |  |  |  |
Federal | $ | (875) |  |  | $ | (1,469) |  |  | $ | (2,305) |
State and local | 1,788 |  |  | 1,449 |  |  | 200 |
Foreign | 1,318 |  |  | 1,027 |  |  | 721 |
Total current tax expense (benefit) | 2,231 |  |  | 1,007 |  |  | (1,384) |
Deferred |  |  |  |  |
Federal | 5,055 |  |  | (5,866) |  |  | (38,258) |
State and local | (2,790) |  |  | (4,021) |  |  | (9,565) |
Foreign | 92 |  |  | (493) |  |  | (303) |
Total deferred tax expense (benefit) | 2,357 |  |  | (10,380) |  |  | (48,126) |
Change in valuation allowance | (47,964) |  |  | 9,856 |  |  | 47,142 |
Total tax expense (benefit) | $ | (43,376) |  |  | $ | 483 |  |  | $ | (2,368) |
A reconciliation of the U.S. statutory tax rate to our effective tax rate is presented below:
| For the Year Ended December 31,
| 2022 |  | 2021 |  | 2020
U.S. statutory tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
U.S. state income taxes, net of U.S. federal tax benefit | (0.6) | % |  | 1.9 | % |  | 2.9 | %
Foreign earnings at other than U.S. rates | (0.8) | % |  | 0.3 | % |  | — | %
Change in valuation allowance | 77.3 | % |  | (33.1) | % |  | (14.3) | %
Benefit of net operating loss carryback provision | — | % |  | — | % |  | 1.1 | %
Non-deductible goodwill impairment | — | % |  | — | % |  | (11.5) | %
Non-deductible excess compensation | (27.8) | % |  | (10.1) | % |  | (0.3) | %
Excess tax benefits (shortfalls) on stock-based compensation | 12.2 | % |  | 8.1 | % |  | (0.3) | %
Convertible debt extinguishment | (3.4) | % |  | (1.5) | % |  | — | %
Change in uncertain tax positions | (1.1) | % |  | 0.2 | % |  | — | %
Nondeductible transaction costs | (1.7) | % |  | — | % |  | — | %
Change in state rate | 5.2 | % |  | 6.8 | % |  | 1.3 | %
Return to provision | (1.1) | % |  | 6.6 | % |  | (0.8) | %
Change in indefinite reinvestment assertion for domestic subsidiaries | — | % |  | — | % |  | 1.0 | %
Tax sharing settlement | — | % |  | (1.1) | % |  | — | %
Tax receivable agreement | (9.1) | % |  | — | % |  | — | %
Other, net | (0.2) | % |  | (0.7) | % |  | 0.6 | %
Effective tax rate | 69.9 | % |  | (1.6) | % |  | 0.7 | %
Deferred tax balances reflect the impact of temporary differences between the carrying amount of assets and liabilities and their tax basis and are stated at the tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. Significant components of the Company’s deferred tax assets and liabilities (in thousands) were as follows:
| As of December 31,
| 2022 |  | 2021
Deferred Tax Assets |  |  |
Start-up and organizational costs | $ | 84 |  |  | $ | 103 |
Goodwill | 12,281 |  |  | 18,774 |
Operating lease liabilities | 16,362 |  |  | 15,968 |
Accrued expenses | 9,326 |  |  | 10,345 |
Stock based compensation | 1,263 |  |  | 8,714 |
Net operating loss carryforwards | 131,317 |  |  | 130,242 |
Federal and state research tax credits | 1,828 |  |  | 1,828 |
Fixed assets | 393 |  |  | 480 |
Interest deduction limitation | 7,089 |  |  | 7,795 |
Outside basis differences | 650 |  |  | 1,972 |
Other | 6,677 |  |  | 9,236 |
Subtotal | 187,270 |  |  | 205,457 |
Valuation allowance | (70,790) |  |  | (101,345) |
Total deferred tax assets | 116,480 |  |  | 104,112 |
Deferred Tax Liabilities |  |  |
Internally developed software costs | 11,173 |  |  | 12,501 |
Intangible assets | 89,784 |  |  | 48,677 |
Right-of-use assets - Operating | 12,696 |  |  | 12,284 |
Contract fulfillment costs | 4,501 |  |  | 8,317 |
Convertible debt | — |  |  | 17,604 |
Other | 2,136 |  |  | 5,387 |
Total deferred tax liabilities | 120,290 |  |  | 104,770 |
Net deferred tax assets (liabilities) | $ | (3,810) |  |  | $ | (658) |
Changes in our valuation allowance (in thousands) were as follows:
| For the Year Ended December 31,
| 2022 |  | 2021
Balance at beginning-of-year | $ | 101,345 |  |  | $ | 89,723 |
Charged (credited) to costs and expenses | (47,964) |  |  | 9,856 |
Charged to other accounts (1) | 17,409 |  |  | 1,766 |
Balance at end-of-year | $ | 70,790 |  |  | $ | 101,345 |
______________ (1)Amounts charged to other accounts includes $17.3 million charged to shareholders’ equity and $0.1 million charged to discontinued operations for the year ended December 31, 2022 and $1.8 million charged to discontinued operations for the year ended December 31, 2021. For the year ended December 31, 2022, the effective tax rate was 69.9% and the corresponding tax benefit recorded was $43.4 million. The Company and its U.S. subsidiaries continue to record a valuation allowance against its net deferred tax assets, with the exception of indefinite lived components. The income tax benefit recorded by the company in 2022 primarily relates to the $46.8 million reduction in the valuation allowance resulting from deferred tax liabilities established as part of the IPG acquisition accounting, partially offset by state and foreign taxes. For the year ended December 31, 2021, the effective tax rate was (1.6)% and the corresponding tax expense recorded was $0.5 million. The income tax expense recorded by the Company in 2021 primarily relates to foreign taxes and the impact of the valuation allowance recorded against the Company’s net deferred tax assets, with the exception of indefinite lived components and those expected to reverse outside of the net operating loss carryover period. For the year ended December 31, 2020, the effective tax rate was 0.7% and the corresponding tax benefit recorded was $2.4 million. The income tax benefit recorded by the Company in 2020 primarily relates to the impacts from the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On March 27, 2020, in response to the COVID-19 pandemic, the CARES Act, was signed into law. The CARES Act allowed NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years for the recovery of previously paid federal income taxes. The Company recorded an income tax benefit related to carrying back New Century Health’s 2018 NOL as part of a federal income tax refund claim for taxes it paid on income in 2013 and 2014. The remaining income tax provisions included in the CARES Act, did not have a significant impact on the Company. As of December 31, 2022, the Company had $186.9 million of federal and $301.8 million of state NOL carryforwards available to offset future taxable income that begin to expire in 2032 and 2023, respectively, and $295.5 million federal and $245.0 million of state NOLs with an indefinite carryforward period, subject to a utilization limit of 80% of taxable income in any given year. However, as it is more likely than not that such tax benefit will not be realized based on our evaluation, we have established a valuation allowance against those NOLs. Furthermore, Internal Revenue Code Section 382 imposes limitations on the utilization of NOLs in the event of certain changes in ownership of the Company, which may have occurred or could occur in the future. This could result in an annual limit on the Company’s ability to utilize NOLs and could cause U.S. federal and state income taxes to be due sooner than if no such limitations applied. As of December 31, 2022, the Company had $2.1 million and $0.3 million of research and development credits for federal and state income tax purposes, respectively, which could expire unutilized beginning in 2037 and 2028, respectively. The Company has established a partial valuation allowance against those credits. On August 16, 2022, the President signed into law the Inflation Reduction Act of 2022 which contained provisions effective January 1, 2023, including a 15% corporate minimum tax and a 1% excise tax on stock buybacks, both of which we expect to be immaterial to our financial results, financial position and cash flows. Changes in our unrecognized tax benefits (in thousands) were as follows:
| For the Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Balance at beginning-of-year | $ | 609 |  |  | $ | 678 |  |  | $ | 753 |
Gross increases - tax positions in prior period | 616 |  |  | — |  |  | — |
Gross increases - tax positions in current period | 399 |  |  | — |  |  | — |
Lapse of statute of limitations | — |  |  | (69) |  |  | (75) |
Balance at end-of-year | $ | 1,624 |  |  | $ | 609 |  |  | $ | 678 |
We are subject to taxation in various jurisdictions in the U.S., India and the Philippines. Tax years 2011 and all subsequent periods remain subject to examination by the U.S. federal and state taxing jurisdictions due to the availability of NOL carryforwards. Included in the balance of unrecognized tax benefits as of December 31, 2022, are $0.6 million of tax benefits that, if recognized, would not affect the overall effective tax rate, due to the offsetting impact on the Company’s valuation allowance. The Company has recognized $0.3 million of interest and penalties related to uncertain tax positions as a component of income tax expense for the year ended December 31, 2022. The Company recognized no interest and penalties related to uncertain tax positions for the year ended December 31, 2021. The Company has accrued interest and penalties related to uncertain tax positions of $0.4 million and $0.0 million as of December 31, 2022 and 2021, respectively. The Company had recognized $1.6 million of uncertain tax positions as of December 31, 2022, and $0.6 million as of December 31, 2021. The Company and its subsidiaries are not currently subject to income tax audits in any U.S. state or local jurisdiction, or any foreign jurisdiction, for any tax year. Tax Receivables Agreement Pursuant to the Offering Reorganization, Class B Exchanges increased our tax basis in our share of Evolent Health LLC’s tangible and intangible assets. These increases in tax basis increase our depreciation and amortization deductions and create other tax benefits and, therefore, may reduce the amount of tax that we would otherwise be required to pay in the future. In addition, certain NOLs of Evolent Health Holdings (and of an affiliate of TPG) are available to us as a result of the Offering Reorganization. In connection with the Offering Reorganization, we entered into the TRA with the holders of Class B common units. The agreement requires us to pay to such holders 85% of the cash savings, if any, in U.S. federal, state and local, and foreign income tax (as applicable) we realize as a result of any deductions attributable to the increase in tax basis following the Class B Exchanges or deductions attributable to imputed interest or future increases in tax basis following payments made under the TRA. Additionally, pursuant to the same agreement we will pay the former stockholders of Evolent Health Holdings 85% of the amount of the cash savings, if any, in U.S. federal, state and local, and foreign income tax that we realize as a result of the utilization of the NOLs of Evolent Health Holdings (and the affiliate of TPG) attributable to periods prior to the Offering Reorganization, approximately $79.3 million, as well as deductions attributable to imputed interest on any payments made under the agreement. The Company has recorded a partial TRA liability of $46.0 million as of December 31, 2022. We will benefit from the remaining 15% of any realized cash savings. The TRA was effective upon the completion of the Offering Reorganization and will remain in effect until all such tax benefits have been used or expired, or until the agreement is terminated. See Note 11 for additional discussion of the implications of the TRA.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration