Evolent Health, Inc.: Form 10-Q for the period ended Jun 30, 2025

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the Company’s financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, our interim consolidated financial statements and the accompanying notes to our interim consolidated financial statements presented in “Part I – Item 1. Financial Statements” of this Form 10-Q; our 2024 Form 10-K, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; and our current reports on Form 8-K filed in 2025.

INTRODUCTION

Business Overview

We are a market leader in connecting care for people with complex conditions like cancer, cardiovascular disease, and musculoskeletal diagnoses. We work on behalf of health plans and other risk-bearing entities and payers (our customers) to support physicians and other healthcare providers (our users) in providing high quality evidence-based care to their patients. We believe adherence to evidence-based clinical pathways supports better outcomes for patients, a better experience for physicians, and lower costs for the healthcare system overall.

Specialty care represents a significant and fast-growing portion of healthcare costs in the United States, driven in part by the pace of development of new therapies and treatments. To manage these increasing costs, some health plans and other risk-bearing entities historically deployed cost containment strategies that can limit access to care and operate in narrow silos (for example, prior authorization for radiological studies being considered independently from a comprehensive chemotherapy regimen). We believe Evolent can bring an integrated approach to a patient’s condition across multiple specialties, using technology to recommend our evidence-based clinical pathways in a way that provides rapid feedback to the provider, seeks to remove barriers to care, and aligns financial incentives with the best evidence.

We were an early innovator in value-based care, founded in 2011 by members of our management team, UPMC, an integrated delivery system based in Pittsburgh, Pennsylvania, and The Advisory Board Company.

All of our revenue is recognized in the United States and substantially all of our long-lived assets are located in the United States.

Recent Events

Industry Climate

During 2024, the medical claims costs in our Performance Suite grew at a significantly faster rate than historical norms, negatively impacting our financial results. This growth was driven in part by higher disease prevalence as well as higher cost per active patient. Based on commentary from other market participants, we believe these cost increases were industry-wide and not specific to Evolent. Our results for the first half of 2025 were also impacted by growth in medical claims cost that continued to grow faster than our historical averages, though slower than the previous quarters.

We are unable to predict how these broader dynamics will impact our business and results of operations in the future, but they could continue to impact our financial condition and results of operations and such future impacts could be material.

Regulatory Uncertainty

Subsequent to the end of the second quarter of 2025, on July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was enacted into law. The OBBBA amends U.S. tax law, including provisions related to research and development and interest expense. The Company is currently evaluating the impact of the OBBBA on its condensed consolidated financial statements.

Impact of Inflation

We experience pricing pressures in the form of competitive prices in addition to rising costs for certain inflation-sensitive operating expenses such as labor, employee benefits and facility leases. We do not believe these impacts were material to our revenues or net loss for the three and six months ended June 30, 2025, respectively. However, significant sustained inflation driven by the macroeconomic environment or other factors could negatively impact our margins, profitability and results of operations in future periods.

Exchange and Ares Transaction

On June 19, 2025, in connection with the Company’s entry into Amendment No. 5 to the First Lien Credit Agreement, the Company and EVH LLC entered into a Commitment Letter with Ares which provides the Company the Incremental Facility to retire its 2025 Notes on or before October 15, 2025 (the maturity date of the 2025 Notes) and for working capital, subject to certain conditions. The Company may draw on the Incremental Facility at its sole option, in an amount such that its balance of cash and cash equivalents after paying off the 2025 Convertible Notes is no more than $125.0 million, satisfying the company's working capital needs, business operations and to support recent acceleration in its organic new revenue bookings forecast for 2026 go-lives. In lieu of the Incremental Facility, the Company is considering other financing sources in an effort to optimize its capital structure, which to the extent obtained, would similarly provide sufficient financing for working capital needs, business operations and to support recent acceleration in organic growth in response to high market demand for the Company's services. The Incremental Facility includes both First Lien and Second Lien term loan tranches. If the Incremental Facility is entered, the interest rate for both existing term loans outstanding under the First Lien Credit Agreement and new loans under the Incremental Facility will be the relevant Adjusted Term SOFR Rate plus 6.00% until a compliance certificate is delivered for the fourth full quarter after draw, with step down tiers thereafter based on senior secured leverage. The Incremental Facility also provides for an exit fee payable upon the retirement of amounts up to amounts drawn on the Incremental Facility. After the payment of fees and expenses incurred in connection with the Commitment Letter, some of which were paid prior to any borrowing under the Incremental Facility, the Company will have sufficient liquidity for working capital and other general corporate purposes.

On August 7, 2025, the Company completed the exchange of its existing Series A Preferred Shares for a new second lien term loan facility on substantively similar economic terms to the existing Series A Preferred Shares, with no common stock conversion feature. See “Part II – Item 5. Other Information.”

Customers

The following table summarizes those partners who represented at least 10.0% of our consolidated revenue:

* Represents less than 10.0% of the respective balance.

Segment Reporting

We have one operating segment and one reportable segment as our CODM, who is our Chief Executive Officer, reviews financial information on a consolidated basis for purposes of evaluating financial performance and allocating resources.

Critical Accounting Policies and Estimates

Certain GAAP policies that significantly affect the determination of our financial position, results of operations and cash flows, are summarized below. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 2” in our 2024 Form 10-K for a complete summary of our significant accounting policies.

Goodwill

We recognize the excess of the purchase price plus the fair value of any non-controlling interests in the acquiree over the fair value of identifiable net assets acquired as goodwill. Goodwill is not amortized, but is reviewed at least annually for indications of impairment, with consideration given to financial performance and other relevant factors. We perform impairment tests of goodwill at a reporting unit level. We perform impairment tests between annual tests if an event occurs, or circumstances change, that we believe would more likely than not reduce the fair value of our reporting unit below its carrying amount.

Our goodwill impairment analysis first assesses qualitative factors to determine whether events or circumstances existed that would lead the Company to conclude it is more likely than not that the fair value of our reporting unit is below its carrying amount. Qualitative factors include macroeconomic, industry and market considerations, overall financial performance, industry, legal and other relevant events and factors affecting the reporting unit. Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring our reporting unit’s fair value.

If the Company determines that it is more likely than not that the fair value of our reporting unit is below the carrying amount, a quantitative goodwill assessment is required. In the quantitative evaluation, the fair value is determined and compared to the carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value and a charge is reported in goodwill impairment on our consolidated statements of operations and comprehensive income (loss). We use both a discounted cash flow analysis and market multiple analysis in order to estimate the fair value of our reporting unit. The discounted cash flow analysis relies on significant judgement and assumptions about expected future cash flows, weighted-average cost of capital, discount rates, expected long-term growth rates and operating margins. These assumptions are based on estimates of future revenue and earnings after considering such factors as general economic and market conditions which drive key assumptions of revenue growth rates, operating margins, capital expenditures and working capital requirements. The weighted average cost of capital is based on market-based factors/inputs but also considers the specific risk characteristics of the reporting unit’s cash flow forecast. A significant change to these estimates and assumptions could cause the estimated fair values of our reporting unit and intangible assets to decline and increase the risk of an impairment charge to earnings. Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

See “Part I - Item 1. Financial Statements - Note 8” in this Form 10-Q for more information related to the 2024 goodwill impairment test. As of June 30, 2025, Evolent assessed whether there were events or changes in circumstances that would more likely than not reduce the fair value of its goodwill below its carrying amount and require an additional impairment test. The Company determined there had been no such indicators. Therefore, it was unnecessary to perform an additional goodwill impairment assessment as of June 30, 2025.

Adoption of New Accounting Standards

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements, including those companies with a single operating segment. ASU 2023-07 is effective retrospectively for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. The Company adopted ASU 2023-07 for the year ended December 31, 2024. See “Part I - Item 1. Financial Statements - Note 20” in this Form 10-Q for more information related our segments.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate. The standard also requires that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) each disaggregated between domestic and foreign. The Company adopted ASU 2023-09 effective January 1, 2025. We do not expect this standard to have a material impact to our results of operations, cash flows or financial condition.

In November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”). ASU 2024-03 requires additional disclosure of specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 may be applied prospectively with the option for retrospective application for all prior periods presented. The Company is currently evaluating the impact of adopting this guidance on the Company’s current financial position, results of operations or financial statement disclosures.

In November 2024, the FASB issued ASU 2024-04, Debt with Conversion and Other Options (Subtopic 470-20) “Induced Conversions of Convertible Debt Instruments” to clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. Under the amendments, to account for a settlement of a convertible debt instrument as an induced conversion, an inducement offer is required to provide the debt holder with, at a minimum, the consideration (in form and amount) issuable under the conversion privileges provided in the terms of the instrument. An entity should assess whether this criterion is satisfied as of the date the inducement offer is accepted by the holder. If, when applying this criterion, the convertible debt instrument had been exchanged or modified (without being deemed substantially different) within the one-year period leading up to the offer acceptance date, an entity should compare the terms provided in the inducement offer with the terms that existed one year before the offer acceptance date. The amendments in this Update also clarify that the induced conversion guidance applies to a convertible debt instrument that is not currently convertible as long as it had a substantive conversion feature as of both its issuance date and the date the inducement offer is accepted. The amendments are effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The Company is examining the impact this pronouncement may have on the Company’s consolidated financial statements.

RESULTS OF OPERATIONS

Evolent Health, Inc. is a holding company and its principal asset is all of the Class A common units in Evolent Health LLC, which has owned all of our operating assets and substantially all of our business since inception. The financial results of Evolent Health LLC are consolidated in the financial statements of Evolent Health, Inc.

Key Components of our Results of Operations

Revenue

Our revenue contracts are typically multi-year arrangements with customers to provide solutions designed to lower the medical expenses of our partners and include our total cost of care management and specialty care management services solutions, provide comprehensive health plan operations and claims processing services, and also include transition or run-out services to customers.

Our performance obligation in these arrangements is to provide an integrated suite of services, including access to our platform that is customized to meet the specialized needs of our partners and providers. Generally, we will apply the series guidance to the performance obligation as we have determined that each time increment is distinct. We primarily utilize a variable fee structure for these services that typically includes a monthly payment that is calculated based on a specified per member per month rate, multiplied by the number of members that our partners are managing under a value-based care arrangement or a percentage of plan premiums. Our arrangements may also include other variable fees related to service level agreements, shared medical savings arrangements and other performance measures. Variable consideration is estimated using the most likely amount based on our historical experience and best judgment at the time.

We also deploy our services in capitation arrangements under our specialty care management solution and total cost of care solution, which we call the “Performance Suite.” Capitation arrangements under the Performance Suite may include performance-based arrangements and/or gainshare features. We occasionally use third parties to assist in satisfying our performance obligations. In order to determine whether we are the principal or agent in the arrangement, we review each third-party relationship on a contract-by- contract basis. As we integrate goods and services provided by third parties into our overall service, we control the services provided to the customer prior to its delivery. As such, we are the principal and we will recognize revenue on a gross basis. In certain cases, we act as an agent and do not control the services from third parties before it is delivered to the customer, thereby recognizing revenue on a net basis.

Due to the nature of our arrangements, certain estimates may be constrained if it is probable that a significant reversal of revenue will occur when the uncertainty is resolved. We recognize revenue from services over time using the time elapsed output method. Fixed consideration is recognized ratably over the contract term. In accordance with the series guidance, we allocate variable consideration to the period to which the fees relate.

Cost of Revenue (exclusive of depreciation and amortization)

Our cost of revenue includes direct expenses and shared resources that perform services in direct support of our partners. Costs consist primarily of claims expense, employee-related expenses (including compensation, benefits and stock-based compensation), expenses recorded as part of a Medicare shared savings program and other services, as well as other professional fees. In certain cases, our cost of revenue also includes claims and capitation payments to providers and payments for pharmaceutical treatments and other health care expenditures through performance-based arrangements.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist of employee-related expenses (including compensation, benefits and stock-based compensation) for selling and marketing, corporate development, finance, legal, human resources, corporate information technology, professional fees and other corporate expenses associated with these functional areas. Selling, general and administrative expenses also include transition services agreements (“TSA”) fees associated with our acquisitions, costs associated with our centralized infrastructure and research and development activities to support our network development capabilities, technology infrastructure, clinical program development and data analytics.

Depreciation and Amortization Expense

Depreciation and amortization expenses consist of the amortization of intangible assets associated with the step up in fair value of Evolent Health LLC’s assets and liabilities for the Offering Reorganization, amortization of intangible assets recorded as part of our various business combinations and asset acquisitions and depreciation of property and equipment, including internal-use software development costs.

Lives on Platform and PMPM Fees

Performance Suite Lives on Platform are calculated by summing monthly members covered for specialty care services for contracts not under ASO arrangements, plus members managed by Complex Care in capitation arrangements and divided by the number of months in the period. Specialty Technology and Services Suite Lives on Platform are calculated by summing monthly members covered for oncology, cardiology, musculoskeletal, advanced imaging and other diagnostics specialty care services for contracts under ASO arrangements divided by the number of months in the period. Administrative Services Lives on Platform are calculated by summing monthly members covered for administrative services implementation and core performance services divided by the number of months in the period. Cases are calculated by summing the number of individuals receiving services through our surgery management and advanced care planning programs in a given period. Members covered for more than one category are counted in each category.

Performance Suite Average PMPM fee is defined as revenue pertaining to our Performance Suite during the period reported divided by Performance Suite Lives on Platform for the period divided by the number of months in the period. Specialty Technology and Services Suite Average PMPM fee is defined as revenue pertaining to the Specialty Technology and Services Suite during the period reported divided by Specialty Technology and Services Suite Lives on Platform for the period divided by the number of months in the period. Administrative Services Average PMPM fee is defined as revenue pertaining to the Administrative Services during the period reported divided by the Administrative Services Lives on Platform for the period divided by the number of months in the period. Revenue per Case is calculated by the revenue pertaining to surgery management and advanced care planning programs divided by the number of cases for a given period.

Average Unique Members are calculated by summing members covered by our Performance Suite, Specialty Technology and Services Suite and Administrative Services. In cases where partners cross between multiple solutions, we only capture members from the solution with the maximum number of members.

Management uses Lives on Platform, PMPM fees, Cases, Revenue per Case and Average Unique Members because we believe that they provide insight into the unit economics of our services. We believe that these measures are also useful to investors because they allow further insight into the period over period operational performance.

Consolidated Results

(in thousands, except percentages)

Comparison of the Results For the Three Months Ended June 30, 2025 to 2024

Revenue

Total revenue decreased by $202.8 million, or 31.3%, to $444.3 million for the three months ended June 30, 2025, as compared to 2024. The decrease was primarily from contractual updates with certain customers in our Performance Suite, including (i) $130.4 million from transitioning a customer from Performance Suite to Specialty Technology and Services Suite and (ii) $82.7 million related to the narrowing of scope of certain Performance Suite customers. These reductions were offset in part by $16.0 million of growth in other Performance Suite and Specialty Technology and Services contracts, net of reductions in membership at certain of our health plan clients as a result of Medicaid redeterminations and certain customers exiting their Medicaid Advantage operations in certain markets, unrelated to Evolent.

The following table represents Evolent’s revenue disaggregated by line of business (in thousands):

The following table represents the Company’s Lives on Platform, Cases, PMPM fees and revenue per case for the three months ended June 30, 2025 and 2024 (Average Lives on Platform/Cases in thousands):

Cost of Revenue

Cost of revenue decreased by $196.4 million, or 36.3%, to $343.9 million for the three months ended June 30, 2025, as compared to 2024, principally as a result of the 31.3% decrease in our revenue compared to year ended June 30, 2024. The decrease included approximately $210.6 million of lower claims cost compared to the prior year period, which is primarily attributable to transitioning certain Performance Suite to Specialty and Technology Service Suite and narrowing of scope offset by $2.9 million from higher personnel costs compared to the prior year.

Approximately $1.1 million and $1.2 million of total cost of revenue was attributable to stock-based compensation expense for the three months ended June 30, 2025, and 2024 respectively. Cost of revenue represented 77.4% and 83.5% of total revenue for the three months ended June 30, 2025, and 2024 respectively. Our cost of revenue decreased as a percentage of our total revenue due to a shift in mix in our business towards higher margin product types. We anticipate continued growth in the cost of treatment for cancer and cardiovascular patients over time, which we expect to be offset by contractual protections within our Performance Suite and the impact of our clinical interventions.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased by $6.0 million, or 8.7%, to $75.2 million for the three months ended June 30, 2025, as compared to 2024. The increase was primarily driven by higher personnel costs of $7.5 million, offset by lower stock compensation of $0.9 million due to the achievement and change in projected achievement of certain performance measurements and lower lease expense of $2.1 million due to the termination of certain real estate leases.

Approximately $10.5 million and $11.5 million of total selling, general and administrative costs were attributable to stock-based compensation expense for the three months ended June 30, 2025, and 2024, respectively. Acquisition and severance costs accounted for approximately $0.8 million and $1.0 million of total selling, general and administrative expenses for the three months ended June 30, 2025 and 2024, respectively. Selling, general and administrative expenses represented 16.9% and 10.7% of total revenue for the three months ended June 30, 2025, as compared to 2024, respectively, driven primarily from contractual updates with certain customers in our Performance Suite.

Depreciation and Amortization Expenses

Depreciation and amortization expenses decreased $6.7 million, or 22.5%, to $23.1 million for the three months ended June 30, 2025, as compared to 2024 due primarily due to $5.5 million of accelerated amortization on our retired trade names during 2024 and $1.2 million of lower depreciation of internally developed software. Depreciation and amortization expenses include $13.4 million and $17.2 million for the three months ended June 30, 2025, as compared to 2024, of amortization expense on intangible assets such as corporate trade names, customer, relationships, provider network contracts and existing technology related to acquisitions and business combinations.

Change in Fair Value of Contingent Consideration

We recorded a loss on change in fair value of contingent consideration of $3.2 million for the three months ended June 30, 2025 primarily related to our Machinify earnout. See “Part I - Item 1. Financial Statements - Note 17” in this Form 10-Q for more information related to changes in the fair value of contingent consideration.

Comparison of the Results For the Six Months Ended June 30, 2025 to 2024

Revenue

Total revenue decreased $358.8 million, or 27.9%, to $928.0 million for the six months ended June 30, 2025, compared to the same period in 2024. The decrease was primarily from contractual updates with certain customers in our Performance Suite, including (i) $257.6 million from transitioning a customer from Performance Suite to Specialty Technology and Services Suite, (ii) $96.6 million related to the narrowing of scope of certain Performance Suite customers; and (iii) $7.8 million from lower gain share revenue. These reductions were offset in part by $25.7 million of growth in other Performance Suite and Specialty Technology and Services contracts, net of reductions in membership at certain of our health plan clients as a result of Medicaid redeterminations and certain customers exiting their Medicaid Advantage operations in certain markets, unrelated to Evolent.

The following table represents Evolent’s revenue disaggregated by line of business (in thousands):

The following table represents the Company’s Lives on Platform, Cases, Average PMPM fees, Revenue per Case and Average Unique Members (Average Lives on Platform/Cases in thousands):

Cost of Revenue

Cost of revenue decreased by $350.7 million, or (32.6)%, to $725.1 million for the six months ended June 30, 2025, as compared to 2024, principally as a result of the 27.9% decrease in our revenue compared to year ended June 30, 2024. The decrease included approximately $343.2 million of lower claims cost compared to the prior year period, which is primarily attributable to transitioning certain Performance Suite to Specialty and Technology Service Suite and narrowing of scope. Additionally, we experienced decreases of $0.7 million from lower personnel costs compared to the prior year.

Approximately $1.7 million and $2.2 million of total cost of revenue was attributable to stock-based compensation expense for the six months ended June 30, 2025, and 2024, respectively. Cost of revenue represented 78.1% and 83.6% of total revenue for the six months ended June 30, 2025, and 2024 respectively. Our cost of revenue decreased as a percentage of our total revenue due to a shift in mix in our business towards higher margin product types. We anticipate continued growth in the cost of treatment for cancer and cardiovascular patients over time, which we expect to be offset in part by contractual protections within our Performance Suite and the impact of our clinical interventions.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased by $5.3 million, or 3.6%, to $153.6 million for the six months ended June 30, 2025, as compared to 2024. The increase was primarily driven by higher personnel costs of $9.2 million and a $3.3 million increase in bad debt expense versus the prior period reflecting a return to normal collections timing, offset by lower stock compensation of $8.3 million due to the achievement and change in projected achievement of certain performance measurements.

Approximately $21.0 million and $29.2 million of total selling, general and administrative expenses were attributable to stock-based compensation expense for the six months ended June 30, 2025 and 2024, respectively. Acquisition and severance costs accounted for approximately $2.5 million and $1.3 million of total selling, general and administrative expenses for the six months ended June 30, 2025 and 2024, respectively. Selling, general and administrative expenses represented 16.6% and 11.5% of total revenue for the six months ended June 30, 2025, as compared to 2024, respectively, driven primarily from contractual updates with certain customers in our Performance Suite.

Depreciation and Amortization Expenses

Depreciation and amortization expenses decreased $12.2 million, or 20.5%, to $47.2 million for the six months ended June 30, 2025, as compared to 2024 primarily due to $11.2 million of accelerated amortization on our retired trade names for the six months ended June 30, 2025, offset by $0.4 million of higher amortization on provider network contracts. Depreciation and amortization expenses include $26.7 million and $34.5 million for the six months ended June 30, 2025 and 2024, respectively, of amortization expense on intangible assets such as corporate trade names, customer, relationships, provider network contracts and existing technology related to acquisitions and business combinations.

Loss on Lease Termination

During the year ended December 31, 2024, the Company terminated its Chicago, IL lease effective October 31, 2024. We recorded an additional $1.9 million loss on lease termination related to negotiated termination payments and real estate commissions for the six months ended June 30, 2025.

Change in Fair Value of Contingent Consideration

We recorded a loss on change in fair value of contingent consideration of $2.9 million for the six months ended June 30, 2025, related to our Machinify earnout. We recorded $8.9 million for the six months ended June 30, 2024 related to the liabilities acquired as a result of the acquisitions of NIA in January 2023. See “Part I - Item 1. Financial Statements - Note 17” in this Form 10-Q for more information related to changes in the fair value of contingent consideration.

Discussion of Non-Operating Results

Interest Expense

Our interest expense for the six months ended June 30, 2025 and 2024 is primarily attributable to our First Lien Credit Agreement with Ares as well as the 2025 Notes and 2029 Notes. We recorded interest expense (including amortization of deferred financing costs) of approximately $11.6 million and $22.0 million for the three and six months ended June 30, 2025, respectively, and $6.0 million and $12.0 million for the three and six months ended June 30, 2024, respectively. The increase in interest expense for the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 is driven primarily by interest incurred Ares Term Loan Facility borrowings in January 2025 and Ares Revolving Facility in December 2024. See “Part I - Item 1. Financial Statements - Note 9” in this Form 10-Q for more information related to interest expense by debt issuance.

Extinguishment of Series A Preferred Stock

On June 19, 2025, the Company entered into Amendment No. 5 which provided, in part, that failure to consummate the Exchange of our Series A Preferred Stock for new Second Lien Term Loans in certain circumstances will constitute an event of default under the First Lien Credit Agreement. Amendment No. 5 was accounted for as an extinguishment and reissuance of the Series A Preferred Stock. The Series A Preferred Stock post-amendment was recorded at fair value, including a $9.0 million charge to extinguishment of Series A Preferred Stock on the consolidated statement of operations and comprehensive income (loss) and the remainder as a deemed dividend.

Loss on Option Exercise

During the three months ended June 30, 2025, we completed the purchase of a portion of one of our equity method investments that we did not own from our joint venture partner for the price of $51.5 million. The purchase price was fixed based on a previously negotiated put/call structure. The loss of $52.5 million represents the difference between the purchase price under the put option and the estimated fair value of the interests acquired. The joint venture was primarily focused on a portfolio of oncology clinics, a member navigation platform and practice alignment arm. The oncology clinics in the joint venture were shut down or otherwise disposed of prior to the payment of the put option, and the joint venture will have no continuing operations.

Provision for (Benefit from) Income Taxes

An income tax provision (benefit) of $(0.8) million and $0.6 million for the three and six months ended June 30, 2025, respectively, and $(0.2) million and $0.3 million for the three and six months ended June 30, 2024, respectively, which resulted in effective tax rates of 4.0% and (0.8)% for the three and six months ended June 30, 2025, respectively, and (17.5)% and (2.1)% for the three and six months ended June 30, 2024, respectively. The income tax expense (benefit) recorded during the three and six months ended June 30, 2025, primarily relates to non-deductible expenses and state and foreign taxes. The income tax expense recorded during the three and six months ended June 30, 2024, primarily relates to state and foreign taxes.

Dividends and Accretion of Series A Preferred Stock

We pay quarterly regular cash dividends on the Series A Preferred Stock at a rate per annum equal to Adjusted Term SOFR (as defined in the Certificate of Designation) plus 6.00%. In addition, we accrete deferred financing costs and the redemption value in excess of par value in additional paid-in-capital on the consolidated balance sheets. The Company paid dividends and recorded accretion of deferred issuance costs and redemption value related to the Series A Preferred Stock as presented below (in thousands):

The increase in accretion of redemption value in excess of par excluding extinguishment of Series A Preferred Stock was driven by the extinguishment and reissuance of our Series A Preferred Stock as a result of Amendment No. 5. The Series A Preferred Stock post-amendment is recorded at fair value.

The Series A Preferred Stock was exchanged into the Second Lien Term Loans on August 7, 2025. Refer to the discussions in “Part I - Item 1. Financial Statements - Note 23. Subsequent Events” for additional information on the Exchange and the related termination of the Investors Rights Agreement and Registration Rights Agreement.

REVIEW OF CONSOLIDATED FINANCIAL CONDITION

Liquidity and Capital Resources

The Company reported net loss attributable to common shareholders of Evolent Health, Inc. of $123.3 million and $31.6 million for the six months ended June 30, 2025 and 2024, respectively. As of June 30, 2025, the Company had $151.0 million of cash and cash equivalents and $27.0 million in restricted cash.

We believe our current cash and cash equivalents and undrawn Revolving Facility will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months as of the date the financial statements were issued. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities and the timing and extent of our spending to support our investment efforts and expansion into other markets. We may also seek to invest in, or acquire complementary businesses, applications or technologies, which may require us to seek sources of financing.

Cash Flows

The following summary of cash flows (in thousands) has been derived from our financial statements included in “Part I - Item 1. Financial Statements - Consolidated Statements of Cash Flows”:

Operating Activities

Cash flows from operating activities primarily represent inflows and outflows associated with our operations. Primary activities include net loss from operations adjusted for non-cash transactions, working capital changes and changes in other assets and liabilities.

Cash flows used in operating activities of $25.8 million for the six months ended June 30, 2025 were driven primarily by $67.5 million in payments to clients for reconciliations of performance suite contracts from prior years; these contracts have since been restructured. This was included in an overall reduction in reserve for claims and performance-based arrangements of $131.5 million due to the timing of claims payments, offset in part by decreases in accounts receivable of $55.9 million from timing of our partner and vendor payments and an increase in accrued compensation and benefits of $4.5 million due to the timing of 2024 bonus payments and severance of $1.8 million.

Cash flows provided by operating activities of $26.3 million for the six months ended June 30, 2024 were affected by decreases in accounts receivable from timing of our partner and vendor payments including higher cash receipts from certain performance-based customers as well as an increase of $8.9 million from contingent consideration, which was more than offset by payment for claims and performance-based arrangements of $86.5 million. Of the total $88.8 million in NIA contingent consideration paid in the period, $22.2 million represented a change in fair value of NIA contingent consideration in excess of the initial fair value at the acquisition date through payment date, and is therefore included in cash flows provided by operating activities

Investing Activities

Cash flows used in investing activities of $73.6 million for the six months ended June 30, 2025 were primarily attributable to cash paid for asset acquisitions and business combinations of $56.0 million and investments in internal-use software and purchases of property and equipment of $17.4 million .

Cash flows used in investing activities of $23.3 million for the six months ended June 30, 2024 were primarily attributable to a purchase of investments for $4.9 million and $12.5 million of investments in internal-use software and purchases of property and equipment.

Financing Activities

Cash flows provided by financing activities of $98.9 million for the six months ended June 30, 2025 were primarily related to $221.0 million of borrowings under our Term Loan Facility, offset, in part by $62.5 million of repayments under our Revolving Facility, $44.8 million related to changes in working capital balances related to claims processing and $9.2 million of preferred dividends paid on our Series A Preferred Stock.

Cash flows used in financing activities of $88.5 million for the six months ended June 30, 2024, were primarily related to $6.1 million

of restricted cash inflows from working capital related to claims processing offset, in part by $10.1 million of preferred dividends paid

on our Series A Preferred Stock and $14.7 million from withholding taxes paid on of vested restricted stock units that were net settled.

Additional cash used in financing activities included $66.6 million, the portion of the NIA contingent consideration representing the

fair value at the acquisition date.

Contractual and Other Obligations

We believe that the amount of cash and cash equivalents on hand and cash flows from operations, plus borrowings under our credit facilities and if necessary, additional funding through other forms of financing, will be adequate for us to execute our business strategy and meet anticipated requirements for lease obligations, capital expenditures working capital and debt service for the next twelve months and in the long-term. Our estimated known contractual and other obligations (in thousands) as of June 30, 2025, were as follows (including as discussed in the narrative below):

(1) During the year ended December 31, 2024, the Company terminated its Chicago, IL lease and recognized the impact in its operating lease liability - current and operating lease liability - noncurrent on its consolidated balance sheet. The remaining termination payments will be $8.0 million in 2025 and $12.9 million in 2026, respectively.

(2) Refer to the discussion in “Part I - Item 1. Financial Statements - Note 9” for additional information on payment dates for our convertible notes interest.

(3) Represents the fair value of earn-out consideration primarily related to the Machinify transaction. See “Part I - Item 1. Financial Statements - Note 17” for further details of the Company’s contingent consideration obligations.

During the six months ended June 30, 2025, the Company borrowed $200.0 million under its Term Loan Facility. As of June 30, 2025, there was $200.0 million and $62.5 million outstanding under the Company’s Term Loan Facility and Revolving Facility, respectively, all of which is subject to interest rates based on the SOFR. The interest rate for all Loans will be calculated, at the option of the borrowers, (a) in the case of the Revolving Facility, at either the Adjusted Term SOFR plus 4.00%, or the base rate plus 3.00% and (b) in the case of the Term Loan Facility, at either the Adjusted Term SOFR plus 5.50% or the base rate plus 4.50%, subject to step downs based on a total secured leverage ratio. The Company used the funds borrowed under its Committed Facilities for general corporate purposes, including working capital and management of future liabilities, potentially including the Company’s 2025 Notes.

In addition, as of June 30, 2025, we had 175,000 shares of the Series A Preferred Stock outstanding, which were exchanged for second lien term loans on August 7, 2025. Regular dividends on the Series A Preferred Stock were paid quarterly in cash in arrears at a rate per annum equal to Adjusted Term SOFR (as defined in the Certificate of Designation) plus 6.00%.

The Company holds ownership interests in joint ventures and other entities which are accounted for under the equity method. Our joint ventures and other investments may include put or call features under which we could be contractually required to purchase interests from our joint venture partner at an exercise price determined in reference to a multiple of the dollar amount of our joint venture partner’s total capital contributions, the performance of the joint venture, and other factors. During the three months ended June 30, 2025, we completed the purchase of a portion of one of our equity method investments that we did not own from our joint venture partner for the price of $51.5 million. The purchase price was fixed based on a previously negotiated put/call structure. See “Part I - Item 1. Financial Statements - Note 16” for further details of the Company’s loss on option exercise.

Accounts Receivable, Net

Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. During the six months ended June 30, 2025, accounts receivable, net, decreased primarily due to the timing of cash receipts from certain customers.

Restricted Cash

Restricted cash of $27.0 million is carried at cost and includes cash held on behalf of other entities for pharmacy and claims management services of $11.0 million, collateral for letters of credit required as security deposits for facility leases of $0.3 million, amounts held with financial institutions for risk-sharing arrangements of $15.6 million as of June 30, 2025. See “Part I - Item 1. Financial Statements - Note 2” for further details of the Company’s restricted cash balances.

Uses of Capital

Our principal uses of cash are in the operation and expansion of our business, payment of interest and other amounts payable in connection with financings, including on our convertible debt and secured borrowings and payment of preferred dividends. The Company does not anticipate paying a cash dividend on our Class A common stock in the foreseeable future.

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.

Interest Rate Risk

As of June 30, 2025, the Company had cash and cash equivalents and restricted cash of $178.0 million, which consisted of bank deposits with FDIC participating banks of $176.1 million and bank deposits in international banks of $1.9 million.

Changes in interest rates affect the interest earned on our cash and cash equivalents (including restricted cash). We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

During the six months ended June 30, 2025, the Company borrowed $200.0 million under its Term Loan Facility. As of June 30, 2025, there was $200.0 million and $62.5 million outstanding under the Company’s Term Loan Facility and Revolving Facility, respectively, all of which are subject to interest rates based on the SOFR. In addition, as of June 30, 2025, we have $175.0 million of Series A Preferred Stock outstanding, which are floating rate instruments based on the SOFR and subject to fluctuations in interest rates. In the case of (a) the revolving loan, interest is calculated at either the Adjusted Term SOFR (as defined in the Certificate of Designation) plus 4.00%, or the base rate plus 3.00%, (b) the Series A Preferred Stock, dividends are to be paid quarterly in cash in arrears at a rate per annum equal to Adjusted Term SOFR (as defined in the Certificate of Designation) plus 6.00% and (c) the 2024-A Delayed Draw Term Loan and 2024-B Delayed Draw Term Loan, interest is calculated at either the Adjusted Term SOFR plus 5.50% or the base rate plus 4.50%. For every 1% increase in SOFR, the Company would record additional interest expense of $2.63 million per annum and preferred dividends of $1.75 million per annum.

On August 7, 2025, the Company completed the exchange of its existing Series A Preferred Shares for a new second lien term loan facility on substantively similar economic terms to the existing Series A Preferred Shares. See “Part II, Item 5. Other Information” for additional disclosures surrounding the exchanges of our Series A Preferred Shares.

As of June 30, 2025, we had $575.0 million of aggregate principal amount of convertible notes outstanding, which are fixed rate instruments and not subject to fluctuations in interest rates.

Refer to the discussion in “Part I - Item 1. Financial Statements - Note 9” for additional information on our long-term debt.

Foreign Currency Exchange Risk

We have de minimis foreign currency risks related to our operating expenses denominated in currencies other than the U.S. dollar, primarily the Indian Rupee and the Philippine Peso. In general, we are a net payer of currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may, in the future, negatively affect our operating results as expressed in U.S. dollars. At this time, we have not entered into, but in the future, we may enter into, derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the effect hedging activities would have on our results of operations.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of June 30, 2025, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting

Management has designed its internal controls over financial reporting under the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). There were no changes in our internal control over financial reporting during the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Internal Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Although inherent limitations of internal controls will continue to be present, proper segregation of duties controls and a whistle blower hotline are in place across the organization to minimize these limitations.

Our significant business risks are described in Part I, Item 1A. “Risk Factors” to our 2024 Form 10-K. The below risks related to our indebtedness previously included in our 2024 Form 10-K have been updated to reflect the Exchange (as defined below) and our entry into the Second Lien Credit Agreement. See Item 5 for additional discussion regarding these transactions. The risks and uncertainties we describe are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business or operations. Any adverse effect on our business, financial condition or operating results could result in a decline in the value of our securities and the loss of all or part of your investment.

Risks Relating to Indebtedness

We 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.

We may need to raise additional funds in order to:

• finance unanticipated working capital requirements;
• develop or enhance our technological infrastructure and our existing solutions;
• fund strategic relationships, including joint ventures and co-investments, including the exercise by our joint venture partners of any put features;
• fund additional implementation engagements;
• acquire complementary businesses, technologies, products or services; or
• refinance and/or payoff existing debt.

Additional financing may not be available on terms favorable to us, or at all. If adequate funds are unavailable or are unavailable on acceptable terms, our ability to fund our expansion strategy, take advantage of unanticipated opportunities, develop or enhance technology or services or otherwise respond to competitive pressures could be significantly limited. If we raise additional funds by issuing equity or convertible debt securities, the ownership of our then-existing stockholders may be reduced, and holders of these securities may have rights, preferences or privileges senior to those of our then-existing stockholders. In addition, any indebtedness we incur and restrictive covenants contained in the agreements related thereto could:

• 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.

The occurrence of any one of these events could cause a significant decrease in our liquidity and impair our ability to pay amounts due on any indebtedness and could have a material adverse effect on our business, financial condition and results of operations.

The conditional conversion feature of the 2025 Notes and 2029 Notes, if triggered, may adversely affect our financial condition and operating results.

In October 2018, the Company issued $172.5 million aggregate principal amount of its 1.50% Convertible Senior Notes due 2025 (the “2025 Notes”), and in December 2023, the Company issued $402.5 million aggregate principal amount of its 3.50% Convertible

Senior Notes due 2029 (the “2029 Notes”). In the event the conditional conversion feature of the 2025 Notes or 2029 Notes is triggered, holders of such notes will be entitled to convert such notes during specified periods at their option. If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2029 Notes, as applicable, as a current rather than long-term liability, which would result in a material reduction of our net working capital.

We may not have the ability to raise the funds necessary to settle conversions of our notes in cash, to repurchase our notes for cash upon a fundamental change or to pay the redemption price for any notes we redeem, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the notes.

Holders of our notes have the right to require us to repurchase all or a portion of their notes upon the occurrence of a fundamental change (as defined in the indentures governing the notes) at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion of the notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional shares), we would be required to settle a portion or all of our conversion obligation through the payment of cash. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of notes surrendered therefore or notes that are being redeemed or converted.

In addition, our ability to repurchase the notes or to pay cash upon redemptions or conversions of the notes may be limited by law, by regulatory authority, or by other agreements governing our future indebtedness. Our failure to repurchase notes at a time when the repurchase is required by the applicable indenture or to pay any cash payable on future conversions of the notes as required by the applicable indenture would constitute a default under the applicable indenture. A default under either of the indentures or the occurrence of a fundamental change itself could also lead to a default under agreements governing our existing and future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes or make cash payments upon conversions thereof.

Changes 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.

In August 2020, the Financial Accounting Standards Board published an Accounting Standards Update (“ASU 2020-06”), which amends the accounting standards for convertible debt instruments that may be settled entirely or partially in cash upon conversion. ASU 2020-06 eliminates requirements to separately account for liability and equity components of such convertible debt instruments and eliminates the ability to use the treasury stock method for calculating diluted earnings per share for convertible instruments whose principal amount may be settled using shares. Instead, ASU 2020-06 requires (i) the entire amount of the security to be presented as a liability on the balance sheet and (ii) application of the “if-converted” method for calculating diluted earnings per share. Under the “if-converted” method, diluted earnings per share will generally be calculated assuming that the 2025 Notes and the 2029 Notes were converted solely into shares of Class A common stock at the beginning of the reporting period, unless the result would be anti-dilutive, which could adversely affect our diluted earnings per share. However, if the principal amount of the convertible debt security being converted is required to be paid in cash and only the excess is permitted to be settled in shares, the if-converted method will produce a similar result as the “treasury stock” method prior to the adoption of ASU 2020-06 for such convertible debt security. Because we will be permitted to settle conversions of the notes in cash, shares of common stock, or a combination thereof, the “if-converted” method for calculating diluted earnings per share is expected to be required with respect to the 2025 Notes and 2029 Notes. Further amendments to these accounting standards may require us to reflect the notes in a manner that adversely affects our reported diluted earnings per share.

We are exposed to interest rate risk under the Credit Agreements, which could cause the Company’s debt service obligations to increase significantly.

We are exposed to market risk from changes in interest rates. Interest under all Credit Facilities under our Credit Agreements is based on the Secured Overnight Funding Rate (“SOFR”), a floating rate, subject to a minimum rate. The Federal Reserve has raised, and may in the future further raise, interest rates to combat the effects of recent high inflation. Any further increase in the SOFR will increase the Company’s debt service obligations, which could have a negative impact on the Company’s cash flow, financial position or operating results, including cash available for servicing the Company’s indebtedness, or result in increased borrowing costs in the future.

We have significant debt and other obligations, which could adversely affect our financial health and our ability to obtain financing in the future, and to react to changes in our business.

We have $675.0 million of principal amount of indebtedness outstanding as of June 30, 2025. This significant amount of debt, preferred stock and other cash needs could have important consequences to us, including:

• requiring a substantial portion of our cash flow from operations to make payments on this debt, thereby limiting the cash we have available to fund future growth opportunities, such as capital expenditures and acquisitions;
• restrictive covenants in our debt arrangements s, which could limit our operations and borrowing;
• increasing our vulnerability to general adverse economic and industry conditions and limiting our flexibility in planning for, or reacting to, changes in our business and industry, due to the need to use our cash to service our outstanding debt ;
• placing us at a competitive disadvantage relative to our competitors that are not as highly leveraged and that may therefore be more able to invest in their business or use their available cash to pursue other opportunities, including acquisitions; and
• limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise.

Servicing our debt 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.

Our ability to make scheduled payments of the principal of, to pay interest or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive to our stockholders. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our obligations and have a material adverse effect on our results of operations and financial condition.

Restrictive covenants in our Credit Agreements may interfere with our ability to access our revolving credit facilities, or to obtain new financing or to engage in other business activities.

Our Credit Agreements impose significant operating and financial restrictions on us. These restrictions limit our ability and/or the ability of certain of our subsidiaries to, among other things:

• incur or guarantee additional debt;
• incur certain liens;
• merge or consolidate;
• transfer or sell assets;
• make certain investments;
• pay dividends and make other distributions on, or redeem or repurchase, capital stock; and
• enter into transactions with affiliates.

In addition, pursuant to our Credit Agreements, we are required to comply with certain financial covenants consisting of a minimum liquidity test, and a total secured leverage test. As a result of these restrictions, we will be limited as to how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that the Company will be able to maintain compliance with these covenants in the future and, if it fails to do so, that it will be able to obtain waivers from the lenders and/or amend the covenants. The Company’s failure to comply with the restrictive covenants described above as well as the terms of any future indebtedness could result in an event of default, which, if not cured or waived, could result in it being required to repay these borrowings before their due date and the lenders would be entitled to foreclose on collateral. If the Company is forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected. In addition, we may be unable to access future borrowings under our revolving facility if we are unable to satisfy the applicable conditions precedent.