Goodwill and Intangible Assets, Net

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

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 assets and liabilities are employed in and relate to the operations of our reporting units. Therefore, the equity carrying value and future cash flows must be estimated each time a goodwill impairment analysis is performed on a reporting unit. As a result, our assets, liabilities and cash flows are assigned to reporting units using reasonable and consistent allocation methodologies.

Our annual goodwill impairment review occurs on October 31 of each fiscal year. We evaluate qualitative factors that could cause us to believe the estimated fair value of each of our reporting units may be lower than the carrying value and trigger a quantitative

assessment, 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, revenues and earnings, (iv) a sustained decrease in share price and (v) other relevant entity-specific events including changes in management, strategy, partners, or litigation.

We did not identify any qualitative factors that would trigger a quantitative goodwill impairment test during the nine months ended September 30, 2023. We will perform our annual impairment test as of October 31, 2023.

2022 Goodwill Impairment Test

On October 31, 2022, the Company performed its annual goodwill impairment test for fiscal year 2022. As a result of BHG announcing its plan to exit its IFP line of business in 2023, thus negatively impacting the Company’s future revenues from such partner, the Company elected to forego the qualitative assessment and proceeded directly to the quantitative assessment of the goodwill impairment test for that specific reporting unit. In doing so, we estimated the fair value of the reporting unit by considering an income approach. In determining the estimated fair value using the income approach, we projected future cash flows based on management’s estimates and long-term plans and applied a discount rate based on the Company’s weighted average cost of capital. This analysis required us to make judgments about revenues, expenses, fixed asset and working capital requirements, capital market assumptions, cash flows and discount rates. The quantitative analysis of the Evolent Health Services reporting unit showed that the fair value exceeded the carrying value. Contracts with our customers may be cancelled or renegotiated and future revenue growth is dependent on winning new contracts. Further, the impairment analysis is particularly sensitive to changes in the projected revenue growth rates and expenses and the discount rate. Changes in these key assumptions such as a significant unfavorable change to our forecasted cash flows due to being unsuccessful in winning certain contracts or certain of our contracts being cancelled or renegotiated by our customers, could result in a revision of management’s estimates and could result in impairment charges in the future, which could be material to our results of operations. We will continue to monitor for such changes in facts or circumstances, which may be indicators of potential impairment triggers.

For the remaining reporting units, after assessing the totality of events and circumstances including the results of our previous valuations, no events occurred or circumstances changed during the period under consideration that would, more likely than not, reduce the fair value of any reporting unit below their carrying amount. Therefore, the Company concluded that the quantitative assessment was not required. For all reporting units, it was determined that as of October 31, 2022, no impairment of goodwill had occurred.

Change in Goodwill

The following table summarizes the changes in the carrying amount of goodwill, for the periods presented (in thousands):



Balance as of December 31, 2022(1)	$	722,774
Goodwill acquired(2)	395,164
Measurement period adjustment	(391)
Foreign currency translation	(4)
Balance as of September 30, 2023	$	1,117,543




Balance as of December 31, 2021(1)	$	426,297
Goodwill acquired(2)	296,597
Foreign currency translation	(104)
Balance as of September 30, 2022	$	722,790

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(1)Net of cumulative inception to date impairment of $575.5 million as of December 31, 2022 and 2021.

(2)Goodwill acquired from the addition of NIA in January 2023 and IPG in August 2022.

Intangible Assets, Net

Details of our intangible assets (in thousands, except weighted-average useful lives) are presented below:


	September 30, 2023							December 31, 2022
	Weighted- Average Remaining Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Corporate trade name	1.3	$	51,965	$	24,786	$	27,179	12.7	$	43,600	$	11,726	$	31,874
Customer relationships	14.7	810,119		127,473		682,646		15.8	465,019		92,760		372,259
Technology	3.0	162,522		97,817		64,705		2.7	111,822		80,255		31,567
Below market lease, net	0.0	1,218		1,218		—		0.3	1,218		1,151		67
Provider network contracts	0.6	18,192		15,054		3,138		1.3	18,851		11,834		7,017
Total intangible assets, net		$	1,044,016	$	266,348	$	777,668		$	640,510	$	197,726	$	442,784

Amortization expense related to intangible assets was $23.8 million and $68.9 million for the three and nine months ended September 30, 2023, respectively, and $9.5 million and $24.3 million for the three and nine months ended September 30, 2022, respectively.

Future estimated amortization of intangible assets (in thousands) as of September 30, 2023, is as follows:


2023	$	22,011
2024	87,242
2025	63,647
2026	63,299
2027	60,558
Thereafter	480,911
Total future amortization of intangible assets	$	777,668

As part of the organizational changes as a result of growth in our value-based specialty care business, we will sunset several corporate trade names and replace them with Evolent signifying our adoption and launch of a unified brand. As a result, we accelerated amortization such that all corporate trade names will be fully amortized by December 2024.

Intangible assets are reviewed for impairment if circumstances indicate the Company may not be able to recover the assets’ carrying value. We did not identify any circumstances during the three and nine months ended September 30, 2023, that would require an impairment test for our intangible assets.