Evolent Health (EVH) risk factors, FY2024 10-K

Risks Relating to Our Business and Strategy

1. 01We derive a significant portion of our revenues from our largest partners. The loss, termination or renegotiation of our relationship or contract with a significant partner, or multiple partners in the aggregate, could negatively impact our results
2. 02original partner contracts and consequently have and could negatively impact our revenues, financial results (including potential impairments), business and prospects
3. 03Our Performance Suite contracts involve risk sharing arrangements with partners, pursuant to which our revenues and profitability could be limited and negatively impacted
4. 04Our revenues and the growth of our business rely, in part, on the growth and success of our partners and certain revenues from our engagements, which are difficult to predict and are subject to factors outside of our control, including governmental funding reductions and other policy changes
5. 05Failure to accurately predict our exposure under performance-based contracts could result in a reduction in profitability for our Performance Suite
6. 06Failure by our customers to provide us with accurate and timely information could impact our profitability
7. 07We typically incur significant upfront costs in our partner relationships, and if we are unable to develop or grow these partner relationships over time, we are unlikely to recover these costs, and our operating results may suffer
8. 08If we do not continue to attract new partners and successfully capture new opportunities with new or existing partners, we may not achieve our financial projections, and our results of operations would be harmed
9. 09If we are unable to offer new and innovative products and services or our products and services fail to keep pace with advances in industry standards, technology and our partners’ needs, our partners may terminate or fail to renew their relationships with us and our revenue and results of operations may suffer
10. 10If we are not able to maintain and enhance our reputation and brand recognition, our business and results of operations will be harmed
11. 11If we lose key members of our management team or employees or are unable to attract and retain the employees we need, our compensation costs will increase and our business and operating results will be adversely affected
12. 12We have made and entered into, and may in the future make and enter into, acquisitions, investments, alliances and joint ventures, which may be difficult to integrate, divert management resources, result in unanticipated costs or dilute our stockholders
13. 13Any integration may be unpredictable, or subject to delays or changed circumstances, and we and any targets may not perform in accordance with our expectations
14. 14If we fail to effectively manage our growth and cost structure, our business and results of operations could be harmed
15. 15Exclusivity and right of first refusal clauses in some of our partner and founder contracts may prohibit us from partnering with certain other providers in the future, and as a result may limit our growth
16. 16Our offshore support and professional services may prove difficult to manage or may not allow us to realize our cost reduction goals

Risks Relating to Our Industry and Market

1. 17If the estimates and assumptions we use to determine the size of the target markets for our services are inaccurate, our future growth rate may be impacted and our business would be harmed
2. 18Consolidation in the health care industry could have a material adverse effect on our business, financial condition and results of operations
3. 19The market for our solutions is fragmented, competitive and characterized by rapidly evolving technology standards, customer needs and the frequent introduction of new products and services. Our competitors range from smaller niche companies to large, well-financed and technologically-sophisticated entities
4. 20Our offerings could be subject to audits by CMS and other governmental payers and whistleblower claims under the False Claims Act
5. 21The health care regulatory and political framework is uncertain and evolving
6. 22AI and replaced it with a new EO that directs Administration leaders to solicit stakeholder input and produce a new AI Action Plan in 2025 designed to promote AI innovation primarily. It may also begin to introduce some regulatory frameworks and guardrails

Risks Related to Data Protection Privacy, Cybersecurity, Intellectual Property and Technology

1. 23We are subject to data privacy and protection laws governing the collection, use, disclosure and security of health information, which may impose restrictions on the manner in which we access personal data and subject us to penalties if we are unable to fully comply with such laws
2. 24Department of Health and Human Services. Failure to comply with the HITECH Act could result in fines and penalties that could have a material adverse effect on us
3. 25Data loss or corruption due to failures or errors in our systems or service disruptions at our data centers may adversely affect our reputation and relationships with existing partners, which could have a negative impact on our business, financial condition and results of operations
4. 26Our business is subject to online security risks, and if we are unable to safeguard the security and privacy of confidential data, we may face significant liabilities and our reputation and business will be harmed
5. 27unauthorized manner to third parties, or our intellectual property rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide us with competitive advantages, which could result in costly redesign efforts, discontinuance of certain offerings or other competitive harm
6. 28If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected
7. 29Third parties may initiate legal proceedings alleging that we are infringing or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on our business, financial condition and results of operations
8. 30against such costs, the indemnifying party may be unable to uphold its contractual obligations. If we cannot or do not obtain a third-party license to the infringed technology on reasonable terms or at all, or obtain similar technology from another source, our revenue and earnings could be adversely impacted
9. 31If we are unable to protect the confidentiality of our trade secrets, know-how and other proprietary information, the value of our technology and products could be adversely affected
10. 32We depend on certain technologies that are licensed to us. We do not control the intellectual property rights covering these technologies and any loss of our rights to these technologies or the rights licensed to us could prevent us from developing and/or commercializing our products
11. 33We face risks associated with our use of artificial intelligence and machine learning models
12. 34Our use of “open-source” software could adversely affect our ability to offer our services and subject us to possible litigation
13. 35We rely on third-party vendors to host and maintain our technology platform
14. 36Any restrictions on our use of, or ability to license, data, or our failure to license data and integrate third-party technologies, could have a material adverse effect on our business, financial condition and results of operations

Risks Relating to Internal Control Over Financial Reporting and Other Financial Matters

1. 37If we identify material weaknesses in the future, we and our auditor may conclude that our internal control over financial reporting is not effective and we may be unable to produce timely and accurate financial statements, any of which could adversely impact our investors’ confidence and our stock price
2. 38A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis
3. 39We have experienced net losses in the past and we may not achieve profitability in the future
4. 40We have recorded a significant amount of goodwill, and we may never realize the full value of our intangible assets, causing us to record impairments that may negatively affect our results of operations

Risks Relating to Our Former Up-C Structure

1. 41We are required to pay certain of our pre-IPO investors for certain tax benefits we may claim in the future, and these amounts are expected to be material
2. 42We will not be reimbursed for any payments made under the TRA in the event that any tax benefits are disallowed
3. 43We may not be able to realize all or a portion of the tax benefits that resulted from the exchanges of Class B common units for our Class A common stock or from the utilization of NOLs previously held by Evolent Health Holdings and an affiliate of TPG and from payments made under the TRA
4. 44In certain cases, payments by us under the TRA may be accelerated or significantly exceed the tax benefits we realize in respect of the tax attributes subject to the TRA
5. 45The agreements between us and certain of our pre-IPO investors were made in the context of an affiliated relationship and may contain different terms than comparable agreements with unaffiliated third parties

Risks Relating to Indebtedness and our Series A Preferred Stock

1. 46We may need to obtain additional financing which may not be available or, if it is available, may result in a reduction in the ownership of our stockholders
2. 47The conditional conversion feature of the 2025 Notes and 2029 Notes, if triggered, may adversely affect our financial condition and operating results
3. 48Changes in the accounting treatment for convertible debt securities that may be settled in cash, such as the 2025 Notes and the 2029 Notes, could have a material effect on our reported financial results
4. 49We are exposed to interest rate risk under the Credit Agreement and the terms of our Series A Preferred Stock, which could cause the Company’s debt service obligations to increase significantly
5. 50We have $675.0 million of principal amount of indebtedness outstanding as of December 31, 2024. In addition, we have 175,000 shares of Series A Preferred Stock outstanding
6. 51Servicing our debt and paying dividends on our Series A Preferred Stock requires a significant amount of cash, and we may not have sufficient cash flow from our business to service our debt and make necessary capital expenditures
7. 52Restrictive covenants in our Credit Agreement and in the Investors Rights Agreement may interfere with our ability to access the revolving credit facility under the Credit Agreement, or to obtain new financing or to engage in other business activities

Risks Relating to Ownership of Our Class A Common Stock

1. 53We expect that our stock price will be volatile and may fluctuate or decline significantly
2. 54In connection with the consummation of the NIA acquisition, we issued 175,000 shares of Series A Preferred Stock to Ares (through one or more of its funds and managed accounts)
3. 55The market price of our Class A common stock could decline due to the large number of shares of Class A common stock issuable upon conversion of our convertible notes or the Series A Preferred Stock, or by sales or issuances of substantial amounts of our Class A common stock
4. 56Some provisions of Delaware law, our second amended and restated certificate of incorporation, as amended and our third amended and restated by-laws and certain of our contracts may deter third parties from acquiring us
5. 57We do not anticipate paying any cash dividends on our Class A common stock in the foreseeable future
6. 58We are and may become subject to litigation, proceedings, government inquiries, reviews, audits or investigations which could have a material adverse effect on our business, financial condition and results of operations
7. 59The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and make additional investments
8. 60Public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases have adversely affected, and could in the future, adversely affect our business and the business of our partners
9. 61The costs of compliance with sustainability or other environmental, social responsibility or governance laws, regulations, or policies, including investor and client-driven policies and standards, could adversely affect our business
10. 62Inflationary pressures, rising consumer costs and the current economic environment may have a negative effect on our margins, profitability and results of operations