UNITED STATES
|
SECURITIES AND EXCHANGE COMMISSION
|
WASHINGTON, D.C. 20549
|
_________________________
|
FORM 10-Q
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_________________________
|
☒
|
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)
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Item
|
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Page
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1.
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2.
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3.
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4.
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1.
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||
1A.
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||
2.
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||
3.
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||
4.
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||
5.
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||
6.
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||
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E-1
|
•
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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, and the potential loss, termination or renegotiation of customer contracts;
|
•
|
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 future revenues of Valence Health 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;
|
•
|
the increasing number of risk-sharing arrangements we enter into with our 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
|
|
||||
|
June 30,
|
December 31,
|
||||||
|
2017
|
|
2016
|
|
||||
ASSETS
|
|
|
|
|
||||
Current assets:
|
|
|
|
|
||||
Cash and cash equivalents
|
$
|
99,975
|
|
|
$
|
134,563
|
|
|
Restricted cash and restricted investments
|
10,258
|
|
|
34,416
|
|
|
||
Accounts receivable, net (amounts related to affiliates: 2017 - $4,204
;
2016 - $8,258)
|
45,804
|
|
|
40,635
|
|
|
||
Prepaid expenses and other current assets (amounts related to affiliates: 2017 -
$53;
2016 - $4,507)
|
12,556
|
|
|
11,011
|
|
|
||
Investments, at amortized cost
|
24,027
|
|
|
44,341
|
|
|
||
Total current assets
|
192,620
|
|
|
264,966
|
|
|
||
Restricted cash and restricted investments
|
11,861
|
|
|
6,000
|
|
|
||
Investments in and advances to affiliates
|
1,081
|
|
|
2,159
|
|
|
||
Property and equipment, net
|
40,194
|
|
|
31,179
|
|
|
||
Prepaid expenses and other non-current assets
|
9,483
|
|
|
10,043
|
|
|
||
Intangible assets, net
|
254,460
|
|
|
258,923
|
|
|
||
Goodwill
|
628,653
|
|
|
626,569
|
|
|
||
Total assets
|
$
|
1,138,352
|
|
|
$
|
1,199,839
|
|
|
|
|
|
|
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
||||
|
|
|
|
|
||||
Liabilities
|
|
|
|
|
||||
Current liabilities:
|
|
|
|
|
||||
Accounts payable (amounts related to affiliates: 2017 -
$7,814;
2016 - $13,480)
|
$
|
26,280
|
|
|
$
|
43,892
|
|
|
Accrued liabilities (amounts related to affiliates: 2017 -
$1,284;
2016 - $3,211)
|
25,919
|
|
|
29,160
|
|
|
||
Accrued compensation and employee benefits
|
21,787
|
|
|
38,408
|
|
|
||
Deferred revenue
|
27,774
|
|
|
20,481
|
|
|
||
Total current liabilities
|
101,760
|
|
|
131,941
|
|
|
||
Long-term debt, net of discount
|
120,935
|
|
|
120,283
|
|
|
||
Other long-term liabilities
|
10,024
|
|
|
14,655
|
|
|
||
Deferred tax liabilities, net
|
11,184
|
|
|
20,846
|
|
|
||
Total liabilities
|
243,903
|
|
|
287,725
|
|
|
||
|
|
|
|
|
||||
Commitments and Contingencies (See Note 9)
|
|
|
|
|
||||
|
|
|
|
|
||||
Shareholders' Equity (Deficit)
|
|
|
|
|
||||
Class A common stock - $0.01 par value; 750,000,000 shares authorized; 65,765,584 and 52,586,899
|
|
|
|
|
||||
shares issued and outstanding as of June 30, 2017, and December 31, 2016, respectively
|
658
|
|
|
506
|
|
|
||
Class B common stock - $0.01 par value; 100,000,000 shares authorized; 2,653,544 and 15,346,981
|
|
|
|
|
||||
shares issued and outstanding as of June 30, 2017, and December 31, 2016, respectively
|
27
|
|
|
153
|
|
|
||
Additional paid-in-capital
|
747,385
|
|
|
555,250
|
|
|
||
Retained earnings (accumulated deficit)
|
111,699
|
|
|
146,617
|
|
|
||
Total shareholders' equity (deficit) attributable to Evolent Health, Inc.
|
859,769
|
|
|
702,526
|
|
|
||
Non-controlling interests
|
34,680
|
|
|
209,588
|
|
|
||
Total shareholders' equity (deficit)
|
894,449
|
|
|
912,114
|
|
|
||
Total liabilities and shareholders' equity (deficit)
|
$
|
1,138,352
|
|
|
$
|
1,199,839
|
|
|
|
For the Three
|
|
For the Six
|
||||||||||||
|
Months Ended
|
|
Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Revenue
|
|
|
|
|
|
|
|
||||||||
Transformation
(1)
|
$
|
5,361
|
|
|
$
|
10,388
|
|
|
$
|
15,596
|
|
|
$
|
18,502
|
|
Platform and operations
(1)
|
101,710
|
|
|
46,130
|
|
|
197,714
|
|
|
87,465
|
|
||||
Total revenue
|
107,071
|
|
|
56,518
|
|
|
213,310
|
|
|
105,967
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Expenses
|
|
|
|
|
|
|
|
||||||||
Cost of revenue (exclusive of depreciation and amortization
|
|
|
|
|
|
|
|
||||||||
expenses presented separately below)
(1)
|
67,994
|
|
|
32,779
|
|
|
135,523
|
|
|
61,390
|
|
||||
Selling, general and administrative expenses
(1)
|
51,090
|
|
|
32,756
|
|
|
104,641
|
|
|
64,702
|
|
||||
Depreciation and amortization expenses
|
6,904
|
|
|
3,612
|
|
|
13,519
|
|
|
6,983
|
|
||||
Goodwill impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
160,600
|
|
||||
Loss on change in fair value of contingent consideration
|
200
|
|
|
—
|
|
|
200
|
|
|
—
|
|
||||
Total operating expenses
|
126,188
|
|
|
69,147
|
|
|
253,883
|
|
|
293,675
|
|
||||
Operating income (loss)
|
(19,117
|
)
|
|
(12,629
|
)
|
|
(40,573
|
)
|
|
(187,708
|
)
|
||||
Interest income
|
218
|
|
|
272
|
|
|
403
|
|
|
551
|
|
||||
Interest expense
|
(947
|
)
|
|
—
|
|
|
(1,901
|
)
|
|
—
|
|
||||
Income (loss) from affiliates
|
(555
|
)
|
|
(14
|
)
|
|
(1,077
|
)
|
|
(14
|
)
|
||||
Other income (expense), net
|
3
|
|
|
1
|
|
|
5
|
|
|
2
|
|
||||
Income (loss) before income taxes and non-controlling interests
|
(20,398
|
)
|
|
(12,370
|
)
|
|
(43,143
|
)
|
|
(187,169
|
)
|
||||
Provision (benefit) for income taxes
|
(700
|
)
|
|
(371
|
)
|
|
(295
|
)
|
|
(1,359
|
)
|
||||
Net income (loss)
|
(19,698
|
)
|
|
(11,999
|
)
|
|
(42,848
|
)
|
|
(185,810
|
)
|
||||
Net income (loss) attributable to non-controlling interests
|
(2,793
|
)
|
|
(3,612
|
)
|
|
(7,930
|
)
|
|
(54,683
|
)
|
||||
Net income (loss) attributable to Evolent Health, Inc.
|
$
|
(16,905
|
)
|
|
$
|
(8,387
|
)
|
|
$
|
(34,918
|
)
|
|
$
|
(131,127
|
)
|
|
|
|
|
|
|
|
|
||||||||
Earnings (Loss) Available for Common Shareholders
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
(16,905
|
)
|
|
$
|
(8,387
|
)
|
|
$
|
(34,918
|
)
|
|
$
|
(131,127
|
)
|
Diluted
|
(16,905
|
)
|
|
(8,387
|
)
|
|
(34,918
|
)
|
|
(131,127
|
)
|
||||
|
|
|
|
|
|
|
|
||||||||
Earnings (Loss) per Common Share
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
(0.28
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(3.09
|
)
|
Diluted
|
(0.28
|
)
|
|
(0.20
|
)
|
|
(0.62
|
)
|
|
(3.09
|
)
|
||||
|
|
|
|
|
|
|
|
||||||||
Weighted-Average Common Shares Outstanding
|
|
|
|
|
|
|
|
||||||||
Basic
|
59,478
|
|
|
42,594
|
|
|
56,057
|
|
|
42,390
|
|
||||
Diluted
|
59,478
|
|
|
42,594
|
|
|
56,057
|
|
|
42,390
|
|
|
For the Six
|
||||||
|
Months Ended
|
||||||
|
June 30,
|
||||||
|
2017
|
|
2016
|
||||
Cash Flows from Operating Activities
|
|
|
|
||||
Net income (loss)
|
$
|
(42,848
|
)
|
|
$
|
(185,810
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
||||
Loss on change in fair value of contingent consideration
|
200
|
|
|
—
|
|
||
Impact of lease termination
|
(496
|
)
|
|
—
|
|
||
Loss from affiliates
|
1,077
|
|
|
14
|
|
||
Depreciation and amortization expenses
|
13,519
|
|
|
6,983
|
|
||
Goodwill impairment
|
—
|
|
|
160,600
|
|
||
Stock-based compensation expense
|
10,464
|
|
|
9,045
|
|
||
Deferred tax provision (benefit)
|
(280
|
)
|
|
(1,360
|
)
|
||
Amortization of deferred financing costs
|
456
|
|
|
—
|
|
||
Accretion of bond premium (discount)
|
105
|
|
|
—
|
|
||
Other
|
291
|
|
|
276
|
|
||
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
||||
Accounts receivables, net
|
(5,247
|
)
|
|
(9,956
|
)
|
||
Prepaid expenses and other current assets
|
(1,412
|
)
|
|
(429
|
)
|
||
Accounts payable, net of change in restricted cash and restricted investments
|
(2,514
|
)
|
|
(2,975
|
)
|
||
Accrued liabilities
|
(3,621
|
)
|
|
2,524
|
|
||
Accrued compensation and employee benefits
|
(16,630
|
)
|
|
(4,934
|
)
|
||
Deferred revenue
|
6,719
|
|
|
4,013
|
|
||
Other long-term liabilities
|
(4,495
|
)
|
|
91
|
|
||
Net cash provided by (used in) operating activities
|
(44,712
|
)
|
|
(21,918
|
)
|
||
|
|
|
|
||||
Cash Flows from Investing Activities
|
|
|
|
||||
Cash paid for asset acquisition or business combination
|
(3,241
|
)
|
|
(14,500
|
)
|
||
Maturities and sales of investments
|
20,210
|
|
|
2,100
|
|
||
Purchases of property and equipment
|
(12,430
|
)
|
|
(7,260
|
)
|
||
Change in restricted cash and restricted investments
|
3,200
|
|
|
1,194
|
|
||
Net cash provided by (used in) investing activities
|
7,739
|
|
|
(18,466
|
)
|
||
|
|
|
|
||||
Cash Flows from Financing Activities
|
|
|
|
||||
Proceeds from stock option exercises
|
3,560
|
|
|
114
|
|
||
Taxes withheld and paid for vesting of restricted stock units
|
(1,175
|
)
|
|
(318
|
)
|
||
Net cash provided by (used in) financing activities
|
2,385
|
|
|
(204
|
)
|
||
|
|
|
|
||||
Net increase (decrease) in cash and cash equivalents
|
(34,588
|
)
|
|
(40,588
|
)
|
||
Cash and cash equivalents as of beginning-of-period
|
134,563
|
|
|
145,726
|
|
||
Cash and cash equivalents as of end-of-period
|
$
|
99,975
|
|
|
$
|
105,138
|
|
Supplemental Disclosure of Non-cash Investing and Financing Activities
|
|
|
|
||||
Accrued property and equipment purchases
|
$
|
291
|
|
|
$
|
98
|
|
Class A common stock issued in connection with business combinations
|
—
|
|
|
10,534
|
|
||
Measurement period adjustments related to business combinations
|
2,078
|
|
|
—
|
|
||
Change in accrued financing costs related to 2021 Notes
|
196
|
|
|
—
|
|
||
|
|
|
|
||||
Effects of the 2017 Secondary Offerings
|
|
|
|
||||
Decrease in non-controlling interests as a result of Class B Exchanges
|
168,883
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,464
|
|
|
—
|
|
|
—
|
|
|
10,464
|
|
||||||
Exercise of stock options
|
690
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
3,533
|
|
|
—
|
|
|
—
|
|
|
3,560
|
|
||||||
Restricted stock units vested, net of shares withheld for taxes
|
105
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
(1,177
|
)
|
|
—
|
|
|
—
|
|
|
(1,175
|
)
|
||||||
Shares retired upon release from Valence Health escrow
|
(310
|
)
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
911
|
|
|
—
|
|
|
—
|
|
|
908
|
|
||||||
Exchange of Class B common stock
|
12,693
|
|
|
126
|
|
|
(12,693
|
)
|
|
(126
|
)
|
|
168,883
|
|
|
—
|
|
|
(168,883
|
)
|
|
—
|
|
||||||
Tax impact of Class B common stock exchange
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,426
|
|
|
—
|
|
|
—
|
|
|
11,426
|
|
||||||
Reclassification of non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,905
|
)
|
|
—
|
|
|
1,905
|
|
|
—
|
|
||||||
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34,918
|
)
|
|
(7,930
|
)
|
|
(42,848
|
)
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance as of June 30, 2017
|
65,765
|
|
|
$
|
658
|
|
|
2,654
|
|
|
$
|
27
|
|
|
$
|
747,385
|
|
|
$
|
111,699
|
|
|
$
|
34,680
|
|
|
$
|
894,449
|
|
|
As of
|
|
|
As of
|
|
||||
|
June 30,
|
|
December 31,
|
||||||
|
2017
|
|
|
2016
|
|
||||
Collateral for letters of credit
|
|
|
|
|
|
||||
for facility leases
(1)
|
$
|
3,928
|
|
|
|
$
|
4,852
|
|
|
Collateral with financial institutions
(2)
|
8,150
|
|
|
|
4,950
|
|
|
||
Pharmacy benefit management
|
|
|
|
|
|
||||
and claims processing services
(3)
|
8,618
|
|
|
|
30,555
|
|
|
||
Other
|
1,423
|
|
|
|
59
|
|
|
||
Total restricted cash
|
|
|
|
|
|
||||
and restricted investments
|
22,119
|
|
|
|
40,416
|
|
|
||
|
|
|
|
|
|
||||
Non-current restricted investments
(2)
|
8,150
|
|
|
|
4,950
|
|
|
||
Non-current restricted cash
(1)
|
3,711
|
|
|
|
1,050
|
|
|
||
Total non-current restricted cash
|
|
|
|
|
|
||||
and restricted investments
|
11,861
|
|
|
|
6,000
|
|
|
||
Current restricted cash
|
|
|
|
|
|
||||
and restricted investments
|
$
|
10,258
|
|
|
|
$
|
34,416
|
|
|
|
|
|
|
Measurement
|
|
|
||||||||
|
As Previously
|
Period
|
|
|
||||||||||
|
Determined
|
Adjustments
|
As Revised
|
|
||||||||||
Purchase consideration:
|
|
|
|
|
|
|
|
|
||||||
Fair value of Class A common stock issued
|
|
$
|
9,864
|
|
|
|
$
|
—
|
|
|
|
$
|
9,864
|
|
Cash for settlement of software license
|
|
7,000
|
|
|
|
—
|
|
|
|
7,000
|
|
|||
Cash
|
|
17,481
|
|
|
|
—
|
|
|
|
17,481
|
|
|||
Total consideration
|
|
$
|
34,345
|
|
|
|
|
|
|
$
|
34,345
|
|
||
|
|
|
|
|
|
|
|
|
||||||
Tangible assets acquired:
|
|
|
|
|
|
|
|
|
||||||
Receivables
|
|
$
|
624
|
|
|
|
$
|
(78
|
)
|
|
|
$
|
546
|
|
Prepaid expenses and other current assets
|
|
272
|
|
|
|
—
|
|
|
|
272
|
|
|||
Property and equipment
|
|
1,065
|
|
|
|
—
|
|
|
|
1,065
|
|
|||
Other non-current assets
|
|
9
|
|
|
|
—
|
|
|
|
9
|
|
|||
|
|
|
|
|
|
|
|
|
||||||
Identifiable intangible assets acquired:
|
|
|
|
|
|
|
|
|
||||||
Customer relationships
|
|
7,000
|
|
|
|
—
|
|
|
|
7,000
|
|
|||
Technology
|
|
2,500
|
|
|
|
—
|
|
|
|
2,500
|
|
|||
|
|
|
|
|
|
|
|
|
||||||
Liabilities assumed:
|
|
|
|
|
|
|
|
|
||||||
Accounts payable
|
|
429
|
|
|
|
—
|
|
|
|
429
|
|
|||
Accrued liabilities
|
|
1,204
|
|
|
|
205
|
|
|
|
1,409
|
|
|||
Accrued compensation and employee benefits
|
|
605
|
|
|
|
—
|
|
|
|
605
|
|
|||
Deferred revenue
|
|
44
|
|
|
|
—
|
|
|
|
44
|
|
|||
|
|
|
|
|
|
|
|
|
||||||
Goodwill
|
|
25,157
|
|
|
|
283
|
|
|
|
25,440
|
|
|||
Net assets acquired
|
|
$
|
34,345
|
|
|
|
|
|
|
$
|
34,345
|
|
|
|
|
|
Measurement
|
|
|
||||||||
|
As Previously
|
Period
|
|
|
||||||||||
|
Determined
|
Adjustments
|
As Revised
|
|
||||||||||
Purchase consideration:
|
|
|
|
|
|
|
|
|
||||||
Fair value of Class A common stock issued
|
|
$
|
159,614
|
|
|
|
$
|
911
|
|
|
|
$
|
160,525
|
|
Fair value of contingent consideration
|
|
2,620
|
|
|
|
—
|
|
|
|
2,620
|
|
|||
Cash
|
|
54,799
|
|
|
|
—
|
|
|
|
54,799
|
|
|||
Total consideration
|
|
$
|
217,033
|
|
|
|
|
|
|
$
|
217,944
|
|
||
|
|
|
|
|
|
|
|
|
||||||
Tangible assets acquired:
|
|
|
|
|
|
|
|
|
||||||
Restricted cash
|
|
$
|
1,829
|
|
|
|
$
|
—
|
|
|
|
$
|
1,829
|
|
Accounts Receivable
|
|
8,587
|
|
|
|
(129
|
)
|
|
|
8,458
|
|
|||
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
|
|
|
|
(126
|
)
|
|
|
4,197
|
|
|||
|
|
|
|
|
|
|
|
|
||||||
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
|
|
|
|
1,806
|
|
|
|
143,515
|
|
|||
Net assets acquired
|
|
$
|
217,033
|
|
|
|
|
|
|
$
|
217,944
|
|
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 the
six
months ended
June 30, 2016
, and reclassify said amounts to the
six
months ended
June 30, 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
six
months ended
June 30, 2016
; and
|
•
|
record rent expense related to Passport prepaid lease beginning January 1, 2015.
|
|
For the Three
|
For the Six
|
||||||||
|
Months Ended
|
Months Ended
|
||||||||
|
|
June 30,
|
|
|
June 30,
|
|
||||
|
|
2016
|
|
|
2016
|
|
||||
Revenue
|
|
$
|
88,971
|
|
|
|
$
|
170,297
|
|
|
Net income (loss)
|
|
(11,616
|
)
|
|
|
(189,236
|
)
|
|
||
Net income (loss) attributable
|
|
|
|
|
|
|
||||
to non-controlling interests
|
|
(3,005
|
)
|
|
|
(49,012
|
)
|
|
||
Net income (loss) attributable
|
|
|
|
|
|
|
||||
to Evolent Health, Inc.
|
|
(8,611
|
)
|
|
|
(140,224
|
)
|
|
||
|
|
|
|
|
|
|
||||
Net income (loss) available to
|
|
|
|
|
|
|
||||
common shareholders:
|
|
|
|
|
|
|
||||
Basic
|
|
(0.17
|
)
|
|
|
(2.80
|
)
|
|
||
Diluted
|
|
(0.17
|
)
|
|
|
(2.80
|
)
|
|
|
As of June 30, 2017
|
||||||||||||||
|
|
|
Gross
|
|
Gross
|
|
|
||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||
|
Costs
|
|
Gains
|
|
Losses
|
|
Value
|
||||||||
U.S. Treasury bills
|
$
|
24,027
|
|
|
$
|
114
|
|
|
$
|
16
|
|
|
$
|
24,125
|
|
|
|
|
|
|
|
|
|
||||||||
|
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 June 30, 2017
|
|
As of December 31, 2016
|
||||||||||||||
|
Amortized
|
Fair
|
|
|
Amortized
|
Fair
|
|
||||||||||
|
Costs
|
|
Value
|
|
|
Costs
|
|
Value
|
|
||||||||
Due in one year or less
|
$
|
24,027
|
|
|
$
|
24,125
|
|
|
|
$
|
44,341
|
|
|
$
|
44,503
|
|
|
|
Number of
|
Fair
|
|
Unrealized
|
|||||||
|
Securities
|
|
Value
|
|
Losses
|
|
|||||
U.S. Treasury bills
|
1
|
|
|
$
|
4,002
|
|
|
$
|
1
|
|
|
|
As of
|
|
As of
|
|
||||
|
June 30,
|
December 31,
|
||||||
|
2017
|
|
2016
|
|
||||
Computer hardware
|
$
|
5,026
|
|
|
$
|
4,474
|
|
|
Furniture and equipment
|
2,448
|
|
|
2,448
|
|
|
||
Internal-use software development costs
|
33,466
|
|
|
21,385
|
|
|
||
Leasehold improvements
|
8,199
|
|
|
8,108
|
|
|
||
Total property and equipment
|
49,139
|
|
|
36,415
|
|
|
||
Accumulated depreciation and amortization
|
(8,945
|
)
|
|
(5,236
|
)
|
|
||
Total property and equipment, net
|
$
|
40,194
|
|
|
$
|
31,179
|
|
|
|
For the Six
|
|
|
|
||||||
|
|
Months
|
|
|
For the Year
|
|
||||
|
|
Ended
|
|
|
Ended
|
|
||||
|
|
June 30,
|
|
December 31,
|
||||||
|
|
2017
|
|
|
2016
|
|
||||
Balance as of beginning-of-period
|
|
$
|
626,569
|
|
|
|
$
|
608,903
|
|
|
Goodwill Acquired
(1)
|
|
—
|
|
|
|
178,266
|
|
|
||
Measurement period adjustments
(2)
|
|
2,084
|
|
|
|
—
|
|
|
||
Goodwill Impairment
|
|
—
|
|
|
|
(160,600
|
)
|
|
||
Balance as of end-of-period
|
|
$
|
628,653
|
|
|
|
$
|
626,569
|
|
|
|
|
As of June 30, 2017
|
||||||||||||
|
|
Weighted-
|
|
|
||||||||||
|
|
Average
|
|
Gross
|
|
|
|
Net
|
||||||
|
Remaining
|
Carrying
|
Accumulated
|
Carrying
|
||||||||||
|
Useful Life
|
Amount
|
Amortization
|
Value
|
||||||||||
Corporate trade name
|
|
17.9
|
|
$
|
19,000
|
|
|
$
|
1,979
|
|
|
$
|
17,021
|
|
Customer relationships
|
|
21.0
|
|
203,500
|
|
|
13,665
|
|
|
189,835
|
|
|||
Technology
|
|
4.7
|
|
55,823
|
|
|
12,046
|
|
|
43,777
|
|
|||
Below market lease, net
|
|
8.7
|
|
4,197
|
|
|
370
|
|
|
3,827
|
|
|||
Total
|
|
|
|
$
|
282,520
|
|
|
$
|
28,060
|
|
|
$
|
254,460
|
|
|
|
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
|
|
||||
|
June 30,
|
|
December 31,
|
||||||
|
2017
|
|
|
2016
|
|
||||
Carrying value
|
$
|
120,935
|
|
|
|
$
|
120,283
|
|
|
Unamortized discount
|
4,065
|
|
|
|
4,717
|
|
|
||
Principal amount
|
$
|
125,000
|
|
|
|
$
|
125,000
|
|
|
Remaining amortization period (years)
|
4.4
|
|
|
|
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 Six
|
|
|
|
||||||
|
|
Months
|
|
|
For the Year
|
|
||||
|
|
Ended
|
|
|
Ended
|
|
||||
|
|
June 30,
|
|
December 31,
|
||||||
|
|
2017
|
|
|
2016
|
|
||||
Accrual as of beginning-of-period
|
|
$
|
6,100
|
|
|
|
$
|
—
|
|
|
Abandonment expense
|
|
—
|
|
|
|
6,460
|
|
|
||
Impact of lease termination
|
|
(496
|
)
|
|
|
—
|
|
|
||
Abandonment amortization
|
|
(765
|
)
|
|
|
(360
|
)
|
|
||
Accrual as of end-of-period
|
|
$
|
4,839
|
|
|
|
$
|
6,100
|
|
|
|
As of
|
|
|
As of
|
|
||
|
June 30,
|
|
December 31,
|
||||
|
2017
|
|
|
2016
|
|
||
Customer B
|
12.5
|
%
|
|
|
*
|
|
|
Customer C
|
17.8
|
%
|
|
|
*
|
|
|
Customer E
|
11.6
|
%
|
|
|
14.3
|
%
|
|
|
For the Three
|
|
For the Six
|
||||||||
|
Months Ended
|
|
Months Ended
|
||||||||
|
June 30,
|
|
June 30,
|
||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
Customer A
|
19.2
|
%
|
|
17.1
|
%
|
|
18.2
|
%
|
|
15.1
|
%
|
Customer B
|
10.7
|
%
|
|
16.2
|
%
|
|
*
|
|
|
17.2
|
%
|
Customer C
|
10.4
|
%
|
|
*
|
|
|
10.8
|
%
|
|
*
|
|
Customer D
|
*
|
|
|
15.5
|
%
|
|
*
|
|
|
14.9
|
%
|
|
For the Three
|
|
For the Six
|
||||||||||||
|
Months Ended
|
|
Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Net income (loss)
|
$
|
(19,698
|
)
|
|
$
|
(11,999
|
)
|
|
$
|
(42,848
|
)
|
|
$
|
(185,810
|
)
|
Less:
|
|
|
|
|
|
|
|
||||||||
Net income (loss) attributable to non-controlling interests
|
(2,793
|
)
|
|
(3,612
|
)
|
|
(7,930
|
)
|
|
(54,683
|
)
|
||||
Net income (loss) available for common shareholders
(1) (2)
|
$
|
(16,905
|
)
|
|
$
|
(8,387
|
)
|
|
$
|
(34,918
|
)
|
|
$
|
(131,127
|
)
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average common shares outstanding
(2) (3)
|
59,478
|
|
|
42,594
|
|
|
56,057
|
|
|
42,390
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Earnings (Loss) per Common Share
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
(0.28
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(3.09
|
)
|
Diluted
|
(0.28
|
)
|
|
(0.20
|
)
|
|
(0.62
|
)
|
|
(3.09
|
)
|
(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
|
|
For the Six
|
||||||||
|
Months Ended
|
|
Months Ended
|
||||||||
|
June 30,
|
|
June 30,
|
||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
Exchangeable Class B common stock
|
8,677
|
|
|
17,525
|
|
|
11,994
|
|
|
17,525
|
|
Restricted stock units ("RSUs")
|
607
|
|
|
158
|
|
|
546
|
|
|
85
|
|
Stock options and performance-based stock options
|
3,201
|
|
|
1,353
|
|
|
3,059
|
|
|
904
|
|
Convertible senior notes
|
5,201
|
|
|
—
|
|
|
5,201
|
|
|
—
|
|
Total
|
17,686
|
|
|
19,036
|
|
|
20,800
|
|
|
18,514
|
|
|
For the Three
|
|
For the Six
|
||||||||||||
|
Months Ended
|
|
Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Award Type
|
|
|
|
|
|
|
|
||||||||
Stock options
|
$
|
4,108
|
|
|
$
|
3,921
|
|
|
$
|
8,161
|
|
|
$
|
7,740
|
|
Performance-based stock options
|
112
|
|
|
123
|
|
|
222
|
|
|
148
|
|
||||
RSUs
|
1,140
|
|
|
665
|
|
|
2,081
|
|
|
1,157
|
|
||||
Total
|
$
|
5,360
|
|
|
$
|
4,709
|
|
|
$
|
10,464
|
|
|
$
|
9,045
|
|
|
|
|
|
|
|
|
|
||||||||
Line Item
|
|
|
|
|
|
|
|
||||||||
Cost of revenue
|
$
|
391
|
|
|
$
|
406
|
|
|
$
|
742
|
|
|
$
|
850
|
|
Selling, general and
|
|
|
|
|
|
|
|
||||||||
administrative expenses
|
4,969
|
|
|
4,303
|
|
|
9,722
|
|
|
8,195
|
|
||||
Total
|
$
|
5,360
|
|
|
$
|
4,709
|
|
|
$
|
10,464
|
|
|
$
|
9,045
|
|
|
For the Three
|
|
For the Six
|
||||||||
|
Months Ended
|
|
Months Ended
|
||||||||
|
June 30,
|
|
June 30,
|
||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
Stock options
|
10,215
|
|
|
42,870
|
|
|
877,064
|
|
|
900,000
|
|
Performance-based stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
267,770
|
|
RSUs
|
36,536
|
|
|
27,618
|
|
|
424,133
|
|
|
413,331
|
|
|
For the Three
|
|
For the Six
|
||||||||||||
|
Months Ended
|
|
Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Non-controlling interests as of beginning-of-period
|
$
|
146,269
|
|
|
$
|
234,028
|
|
|
$
|
209,588
|
|
|
$
|
285,238
|
|
Cumulative-effect adjustment from adoption of new accounting principle
|
—
|
|
|
—
|
|
|
—
|
|
|
(139
|
)
|
||||
Decrease in non-controlling interests as a result of Class B Exchanges
|
(109,298
|
)
|
|
—
|
|
|
(168,883
|
)
|
|
—
|
|
||||
Reclassification of non-controlling interests
|
502
|
|
|
—
|
|
|
1,905
|
|
|
—
|
|
||||
Net income (loss) attributable to non-controlling interests
|
(2,793
|
)
|
|
(3,612
|
)
|
|
(7,930
|
)
|
|
(54,683
|
)
|
||||
Non-controlling interests as of end-of-period
|
$
|
34,680
|
|
|
$
|
230,416
|
|
|
$
|
34,680
|
|
|
$
|
230,416
|
|
•
|
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 June 30, 2017
|
||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents
(1)
|
$
|
68,653
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
68,653
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities
|
|
|
|
|
|
|
|
||||||||
Contingent consideration
(2)
|
—
|
|
|
—
|
|
|
8,500
|
|
|
8,500
|
|
|
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
|
|
For the Six
|
||||||||||||
|
Months Ended
|
|
Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Balance as of beginning-of-period
|
$
|
8,300
|
|
|
$
|
7,750
|
|
|
$
|
8,300
|
|
|
$
|
—
|
|
Additions
|
—
|
|
|
—
|
|
|
—
|
|
|
7,750
|
|
||||
Realized and unrealized (gains) losses, net
|
200
|
|
|
—
|
|
|
200
|
|
|
—
|
|
||||
Balance as of end-of-period
|
$
|
8,500
|
|
|
$
|
7,750
|
|
|
$
|
8,500
|
|
|
$
|
7,750
|
|
|
As of June 30, 2017
|
|
|||||||||
|
Fair
|
|
Valuation
|
|
Significant
|
|
Assumption or
|
|
|||
|
Value
|
|
Technique
|
|
Unobservable Inputs
|
|
Input Ranges
|
|
|||
Contingent consideration
(1)
|
$
|
8,500
|
|
|
Real options approach
|
|
Risk-adjusted recurring revenue CAGR
|
|
92.5
|
%
|
(2)
|
|
|
|
|
|
Discount rate/time value
|
|
2.7% - 4.0%
|
|
|
|
As of December 31, 2016
|
|
|||||||||
|
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
|
|
|
|
For the Six
|
|
|
|
|
||||||||||||||||||
|
Months Ended
|
|
Change Over
|
|
Months Ended
|
|
Change Over
|
||||||||||||||||||||
|
June 30,
|
|
Prior Period
|
|
June 30,
|
|
Prior Period
|
||||||||||||||||||||
(in thousands)
|
2017
|
|
2016
|
|
$
|
|
%
|
|
2017
|
|
2016
|
|
$
|
|
%
|
||||||||||||
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Transformation
|
$
|
5,361
|
|
|
$
|
10,388
|
|
|
$
|
(5,027
|
)
|
|
(48.4)%
|
|
$
|
15,596
|
|
|
$
|
18,502
|
|
|
$
|
(2,906
|
)
|
|
(15.7)%
|
Platform and operations
|
101,710
|
|
|
46,130
|
|
|
55,580
|
|
|
120.5%
|
|
197,714
|
|
|
87,465
|
|
|
110,249
|
|
|
126.0%
|
||||||
Total revenue
|
107,071
|
|
|
56,518
|
|
|
50,553
|
|
|
89.4%
|
|
213,310
|
|
|
105,967
|
|
|
107,343
|
|
|
101.3%
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Cost of revenue (exclusive of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
expenses presented separately below)
|
67,994
|
|
|
32,779
|
|
|
35,215
|
|
|
107.4%
|
|
135,523
|
|
|
61,390
|
|
|
74,133
|
|
|
120.8%
|
||||||
Selling, general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
administrative expenses
|
51,090
|
|
|
32,756
|
|
|
18,334
|
|
|
56.0%
|
|
104,641
|
|
|
64,702
|
|
|
39,939
|
|
|
61.7%
|
||||||
Depreciation and amortization expenses
|
6,904
|
|
|
3,612
|
|
|
3,292
|
|
|
91.1%
|
|
13,519
|
|
|
6,983
|
|
|
6,536
|
|
|
93.6%
|
||||||
Goodwill impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
—%
|
|
—
|
|
|
160,600
|
|
|
(160,600
|
)
|
|
—%
|
||||||
Loss on change in fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
of contingent consideration
|
200
|
|
|
—
|
|
|
200
|
|
|
—%
|
|
200
|
|
|
—
|
|
|
200
|
|
|
—%
|
||||||
Total operating expenses
|
126,188
|
|
|
69,147
|
|
|
57,041
|
|
|
82.5%
|
|
253,883
|
|
|
293,675
|
|
|
(39,792
|
)
|
|
(13.5)%
|
||||||
Operating income (loss)
|
$
|
(19,117
|
)
|
|
$
|
(12,629
|
)
|
|
$
|
(6,488
|
)
|
|
(51.4)%
|
|
$
|
(40,573
|
)
|
|
$
|
(187,708
|
)
|
|
$
|
147,135
|
|
|
78.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Transformation revenue as
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
a % of total revenue
|
5.0
|
%
|
|
18.4
|
%
|
|
|
|
|
|
7.3
|
%
|
|
17.5
|
%
|
|
|
|
|
||||||||
Platform and operations revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
as a % of total revenue
|
95.0
|
%
|
|
81.6
|
%
|
|
|
|
|
|
92.7
|
%
|
|
82.5
|
%
|
|
|
|
|
||||||||
Cost of revenue as a %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
of total revenue
|
63.5
|
%
|
|
58.0
|
%
|
|
|
|
|
|
63.5
|
%
|
|
57.9
|
%
|
|
|
|
|
||||||||
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
expenses as a % of total revenue
|
47.7
|
%
|
|
58.0
|
%
|
|
|
|
|
|
49.1
|
%
|
|
61.1
|
%
|
|
|
|
|
|
For the Six
|
||||||
|
Months Ended
|
||||||
|
June 30,
|
||||||
|
2017
|
|
2016
|
||||
Net cash provided by (used in) operating activities
|
$
|
(44,712
|
)
|
|
$
|
(21,918
|
)
|
Net cash provided by (used in) investing activities
|
7,739
|
|
|
(18,466
|
)
|
||
Net cash provided by (used in) financing activities
|
2,385
|
|
|
(204
|
)
|
|
Less
|
|
|
|
|
|
More
|
|
|
||||||||||
|
Than
|
|
1 to 3
|
|
3 to 5
|
|
Than
|
|
|
||||||||||
|
1 Year
|
|
Years
|
|
Years
|
|
5 Years
|
|
Total
|
||||||||||
Operating leases for facilities
|
$
|
12,540
|
|
|
$
|
14,284
|
|
|
$
|
7,096
|
|
|
$
|
14,662
|
|
|
$
|
48,582
|
|
Purchase obligations
|
2,611
|
|
|
881
|
|
|
—
|
|
|
—
|
|
|
3,492
|
|
|||||
2021 Notes interest payments
|
2,496
|
|
|
4,992
|
|
|
3,774
|
|
|
—
|
|
|
11,262
|
|
|||||
2021 Notes principal repayment
|
—
|
|
|
—
|
|
|
125,000
|
|
|
—
|
|
|
125,000
|
|
|||||
Total
|
$
|
17,647
|
|
|
$
|
20,157
|
|
|
$
|
135,870
|
|
|
$
|
14,662
|
|
|
$
|
188,336
|
|
•
|
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 ag
reement. 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;
|
•
|
during 2016 we hired an associate director of revenue;
|
•
|
during 2017 we hire
d an associate director of accounting and a senior director of tax;
|
•
|
from December 31, 2014, to June 30, 2017, our finance and accounting headcount increased from 9 to over 30.
|
•
|
expanded finance and accounting staff, including additional senior resources, to allow for the reallocation of responsibilities across our accounting department based on potential risk and complexity of transactions and/or tasks to be reviewed;
|
•
|
strengthened our review procedures and controls 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.
|
•
|
difficulty integrating the purchased operations, products or technologies;
|
•
|
substantial unanticipated integration costs, delays and challenges that may arise in integration;
|
•
|
assimilation of the acquired businesses, which may divert significant management attention and financial resources from our other operations and could disrupt our ongoing business;
|
•
|
the loss of key customers who are in turn subject to risks and financial dislocation in their businesses;
|
•
|
the loss of key employees, particularly those of the acquired operations;
|
•
|
difficulty retaining or developing the acquired business’ customers;
|
•
|
adverse effects on our existing business relationships with customers, suppliers, other partners, standing with regulators;
|
•
|
challenges related to the integration and operation of businesses that operate in new geographic areas and new markets or lines of business;
|
•
|
failure to realize the potential cost savings or other financial benefits or the strategic benefits of the acquisitions, including failure to consummate any proposed or contemplated transaction; and
|
•
|
liabilities, including acquired litigation, and expenses from the acquired businesses for contractual disputes with customers and other third parties, infringement of intellectual property rights, data privacy violations or other claims and failure to obtain indemnification for such liabilities or claims, and distraction of our personnel in connection with any related proceedings.
|
•
|
The Health Insurance Portability and Accountability Act, or HIPAA, expanded protection of the privacy and security of personal health information and required the adoption of standards for the exchange of electronic health information. Among the standards that the Department of Health and Human Services has adopted pursuant to HIPAA are standards for electronic transactions and code sets, unique identifiers for providers, employers, health plans and individuals, security, electronic signatures, privacy and enforcement. Failure to comply with HIPAA could result in fines and penalties that could have a material adverse effect on us.
|
•
|
The Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, enacted as part of the American Recovery and Reinvestment Act of 2009, also known as the “Stimulus Bill,” effective February 22, 2010, set forth health information security breach notification requirements and increased penalties for violation of HIPAA. The HITECH Act requires individual notification for all breaches, media notification of breaches for over 500 individuals and at least annual reporting of all breaches to the Department of Health and Human Services. The HITECH Act also replaced the prior penalty system of one tier of penalties of $100 per violation and an annual maximum of $25,000 with a four-tier system of sanctions for breaches. Penalties now range from the original $100 per violation and an annual maximum of $25,000 for the first tier to a minimum of $50,000 per violation and an annual maximum of $1.5 million for the fourth tier. Failure to comply with the HITECH Act could result in fines and penalties that could have a material adverse effect on us.
|
•
|
Numerous other federal and state laws may apply that restrict the use and protect the privacy and security of individually identifiable information, as well as employee personal information. These include state medical privacy laws, state social security number protection laws and federal and state consumer protection laws. These various laws in many cases are not preempted by HIPAA and may be subject to varying interpretations by the courts and government agencies, creating complex compliance issues for us and our partners and potentially exposing us to additional expense, adverse publicity and liability, any of which could adversely affect our business.
|
•
|
Federal and state consumer protection laws are increasingly being applied by the FTC and states’ attorneys general to regulate the collection, use, storage and disclosure of personal or individually identifiable information, through websites or otherwise, and to regulate the presentation of website content.
|
•
|
the scope of rights granted under the license agreement and other interpretation-related issues;
|
•
|
whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement;
|
•
|
our obligations with respect to the use of the licensed technology in relation to our services and technologies, and which activities satisfy those obligations;
|
•
|
whether our activities are in compliance with the restrictions placed upon our rights to use the licensed technology by our licensors; and
|
•
|
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners.
|
•
|
damage from fire, power loss and other natural disasters;
|
•
|
telecommunications failures;
|
•
|
software and hardware errors, failures and crashes;
|
•
|
security breaches, computer viruses and similar disruptive problems; and
|
•
|
other potential interruptions.
|
•
|
finance unanticipated working capital requirements;
|
•
|
develop or enhance our technological infrastructure and our existing products and services;
|
•
|
fund strategic relationships, including joint ventures and co-investments;
|
•
|
fund additional implementation engagements;
|
•
|
respond to competitive pressures; and
|
•
|
acquire complementary businesses, technologies, products or services.
|
•
|
make it difficult for us to satisfy our obligations, including interest payments on any debt obligations;
|
•
|
limit our ability to obtain additional financing to operate our business;
|
•
|
require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing our ability to use our cash flow to fund capital expenditures and working capital and other general operational requirements;
|
•
|
limit our flexibility to plan for and react to changes in our business and the health care industry;
|
•
|
place us at a competitive disadvantage relative to our competitors;
|
•
|
limit our ability to pursue acquisitions; and
|
•
|
increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business or the economy.
|
•
|
economic and political conditions or events;
|
•
|
market conditions in the broader stock market in general, or in our industry in particular;
|
•
|
actual or anticipated fluctuations in our quarterly financial reports and results of operations;
|
•
|
our ability to satisfy our ongoing capital needs and unanticipated cash requirements;
|
•
|
indebtedness incurred in the future;
|
•
|
introduction of new products and services by us or our competitors;
|
•
|
issuance of new or changed securities analysts’ reports or recommendations;
|
•
|
sales of large blocks of our stock;
|
•
|
additions or departures of key personnel;
|
•
|
regulatory developments; and
|
•
|
litigation and governmental investigations.
|
•
|
divides our board of directors into three staggered classes of directors that are each elected to three-year terms;
|
•
|
prohibits stockholder action by written consent;
|
•
|
authorizes the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares of capital stock, making a takeover more difficult and expensive;
|
•
|
prohibits cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
|
•
|
provides that special meetings of the stockholders may be called only by or at the direction of the board of directors, the chairman of our board or the chief executive officer;
|
•
|
requires advance notice to be given by stockholders for any stockholder proposals or director nominees;
|
•
|
requires the affirmative vote of holders of at least 75% of the voting power of our outstanding shares of stock to amend certain provisions of our second amended and restated certificate of incorporation and any provision of our second amended and restated by-laws; and
|
•
|
requires the affirmative vote of holders of at least 75% of the voting power of our outstanding shares of stock to remove directors and only for cause.
|
By:
|
/s/ Nicholas McGrane
|
|
Name:
|
Nicholas McGrane
|
|
Title:
|
Chief Financial Officer
|
|
|
|
|
By:
|
/s/ Lydia Stone
|
|
Name:
|
Lydia Stone
|
|
Title:
|
Chief Accounting Officer and Controller
|
If to the Company:
|
Evolent Health, Inc.
|
If to you:
|
To your address as most recently supplied to the Company and set forth in the Company’s records
|
EVOLENT HEALTH, INC.
|
|
By:
|
|
Name:
|
|
Title:
|
|
|
|
|
|
By:
|
|
Name:
|
|
|
|
|
|
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:
|
August 7, 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;
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4.
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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:
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a.
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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;
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b.
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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;
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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
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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
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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.
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Dated:
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August 7, 2017
|
/s/ Nicholas McGrane
|
|
|
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Name: Nicholas McGrane
|
|
|
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Title: Chief Financial Officer
|
|
1.
|
The Quarterly Report on Form 10-Q of the Company for the quarter ended
June 30, 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:
|
August 7, 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
June 30, 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:
|
August 7, 2017
|
/s/ Nicholas McGrane
|
|
|
|
Name: Nicholas McGrane
|
|
|
|
Title: Chief Financial Officer
|
|