evh-20230119

Exhibit 99.1

COMBINED UNAUDITED FINANCIAL STATEMENTS

MAGELLAN SPECIALTY HEALTH

(A Business of Magellan Health, Inc.)

September 30, 2022

MAGELLAN SPECIALTY HEALTH

(A Business of Magellan Health, Inc.)

COMBINED FINANCIAL STATEMENTS

Contents


Combined Balance Sheets as of December 31, 2021 and September 30, 2022 (unaudited)			1
Combined Statements of Income (unaudited)			2
Consolidated Statements of Net Parent Investment (unaudited)			3
Combined Statements of Cash Flows (unaudited)			4
Notes to Combined Financial Statements (unaudited)			5


MAGELLAN SPECIALTY HEALTH (A Business of Magellan Health, Inc.) COMBINED BALANCE SHEETS
(In thousands)
	As Restated December 31, 2021				As Restated September 30, 2022 (Unaudited)
ASSETS
Current assets:
Cash	$	—			$	—
Accounts receivable, net	53,975				26,161
Due from affiliates, net (1)	—				19,418
Other current assets	990				486
Total current assets	54,965				46,065
Property and equipment, net	7,743				6,770
Other long-term assets	318				345
Goodwill	113,214				113,214
Other intangible assets, net	410				293
Total assets	$	176,650			$	166,687
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	2,279	$	792
Accrued liabilities	15,030				13,236
Total current liabilities	17,309				14,028
Deferred income taxes	1,203				753
Other long-term liabilities	281				343
Total liabilities	18,793				15,124
Net Parent investment	157,857				151,563
Total liabilities and equity	$	176,650			$	166,687

(1) Refer to Note 5 "Related Party Transactions" for further detail.

See accompanying notes to Combined Financial Statements.


MAGELLAN SPECIALTY HEALTH (A Business of Magellan Health, Inc.) COMBINED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
(In thousands)
	As Restated 2021		As Restated 2022
Net revenue:
Managed care and other (1)	$	162,685	$	194,363
Total net revenue	162,685		194,363
Costs and expenses:
Direct service costs and other operating expenses (2)	132,753		141,577
Depreciation and amortization	4,818		3,400
Interest expense for note payable to parent (1)	1,247		-
Total costs and expenses	138,818		144,977
Income before income taxes	23,867		49,386
Provision for income taxes	6,225		12,902
Net income	$	17,642	$	36,484

(1) Refer to Note 5 "Related Party Transactions" for further detail.

(2) Includes stock compensation expense of $972 and $586 for the nine months ended September 30, 2021 and 2022, respectively.

See accompanying notes to Combined Financial Statements.


MAGELLAN SPECIALTY HEALTH (A Business of Magellan Health, Inc.) COMBINED STATEMENTS OF NET PARENT INVESTMENT
(Unaudited)
(In thousands)
	As Restated Total
Balance at December 31, 2020	$	114,177
Stock compensation expense	972
Net income	17,642
Net transfers to Parent	(14,188)
Balance at September 30, 2021	$	118,603

Balance at December 31, 2021	$	157,857
Stock compensation expense	586
Net income	36,484
Net transfers to Parent	(43,364)
Balance at September 30, 2022	$	151,563

See accompanying notes to Combined Financial Statements.


MAGELLAN SPECIALTY HEALTH (A Business of Magellan Health, Inc.) COMBINED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
(In thousands)
	As Restated 2021		As Restated 2022
Cash flows from operating activities:
Net income	$	17,642	$	36,484
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	4,818		3,400
Non-cash stock compensation expense	972		586
Non-cash income tax provision	164		(450)
Changes in assets and liabilities, net of effects from acquisitions of businesses:
Accounts receivable, net	(4,600)		3,207
Due from affiliates, net (1)	—		4,694
Accounts payable and accrued liabilities	(1,706)		(2,786)
Other assets and liabilities	764		1,122
Net cash provided by operating activities	18,054		46,257
Cash flows from investing activities:
Capital expenditures	(3,866)		(2,893)
Net cash used in investing activities	(3,866)		(2,893)
Cash flows from financing activities:
Net transfers (to) from Parent	(14,188)		(43,364)
Net cash used in financing activities	(14,188)		(43,364)
Net increase (decrease) in cash	—		—
Cash at beginning of period	—		—
Cash at end of period	$	—	$	—

(1) Refer to Note 5 "Related Party Transactions" for further detail.

See accompanying notes to Combined Financial Statements.

MAGELLAN SPECIALTY HEALTH

(A business of Magellan Health, Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Nature of Operations

The accompanying combined carve-out financial statements include the historical accounts of Magellan Specialty Health (referred to as Specialty Health or the “Company”), part of the Healthcare segment of Magellan Health, Inc. ("Magellan" or the "Parent"). Magellan was acquired by, and became a wholly owned subsidiary of, Centene Corporation (“Centene”) effective as of January 4, 2022.

The Company is focused on delivering innovative specialty solutions for the fastest growing, most complex areas of healthcare. The Company develops innovative solutions that combine advanced analytics, agile technology and clinical excellence to drive better decision making and positively impact members' health outcomes. The Company provides its management services primarily through: (i) risk-based contractual arrangements or (ii) administrative services only (“ASO”) contractual arrangements. Additional information regarding the Company’s contractual arrangements is provided in “Revenue Recognition” below.

The Company’s customers include health plans for whom Magellan provides carve-out management services for areas of specialty healthcare including diagnostic imaging, musculoskeletal management, cardiac and physical medicine. These management services can be applied broadly across commercial, Medicaid and Medicare populations, or on a more targeted basis for our health plan customers.

The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements for the fiscal years ended December 31, 2020 and 2021. Footnote disclosures that would substantially duplicate the disclosures contained in the December 31, 2020 and 2021 audited financial statements have been omitted from these interim financial statements, where appropriate. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of the interim periods presented.

Restatement of Previously Issued Combined Financial Statements

Subsequent to the issuance of the combined financial statements as of and for the interim period ended September 30, 2022, we identified an error in the application of ASC Topic 606, Revenue Recognition, related to principal accounting (gross accounting) versus agent accounting (net accounting) for risk-based contractual arrangements as well as the classification of certain assets and liabilities that were subject to offset. It was determined that we should have applied net accounting to the risk-based contractual arrangements, so the variable consideration is based on the premiums related to the contracts less the costs to provide such services, where our previously issued combined financial statements accounted for the transactions on a gross accounting basis. Additionally, due to the right of offset terms in certain contracts, certain assets and liabilities should have been netted against each other. These errors overstated managed care and other revenues and cost of care, along with the associated subtotals, in our previously issued combined statements of income. These errors also overstated accounts receivable, net, medical claims payable, and other medical liabilities, along with the associated subtotals, in our previously issued combined balance sheets. The correction of these errors also indirectly impacted other accounts, including accrued liabilities, deferred income taxes, and net Parent investment, in our previously issued combined balance sheets, combined statement of net Parent investment, and combined statements of cash flows or disclosures, as presented in the table below.

We evaluated the effect of the error corrections detailed in the tables below on the previously issued combined financial statements, both individually and in the aggregate, in accordance with the guidance in ASC Topic 250, Accounting Changes and Error Corrections, and concluded that the effect of such errors was material to the previously issued combined financial statements as of and for the nine months ended September 30, 2022. These corrections do not relate to or have any impact on the Company's income before income taxes and net income, which are unchanged from the previously issued combined financial statements.

The Company has also made other corrections to the previously issued combined financial statements related to reclassifications between depreciation and amortization expense and direct service costs and other operating expenses in the amount of $1.1 million and $1.5 million for the nine months ended September 30, 2021 and 2022, respectively. The tables below reflect the line items of the Company’s combined financial statements that were impacted by the errors as well as these other corrections.


Combined Balance Sheets
(In thousands)	December 31, 2021						September 30, 2022
	As Originally Reported		Adjustments		As Restated		As Originally Reported		Adjustments		As Restated
Assets
Accounts receivable, net	$	133,653	$	(79,678)	$	53,975	$	59,794	$	(33,633)	$	26,161
Due from affiliates, net	—		—		—		19,624		(206)		19,418
Total Current Assets	134,643		(79,678)		54,965		79,904		(33,839)		46,065
Total Assets	256,328		(79,678)		176,650		200,526		(33,839)		166,687

Liabilities and Equity
Accrued liabilities	13,718		1,312		15,030		13,006		230		13,236
Medical claims payable	51,752		(51,752)		—		31,955		(31,955)		—
Other medical liabilities	29,238		(29,238)		—		2,114		(2,114)		—
Total Current Liabilities	96,987		(79,678)		17,309		47,867		(33,839)		14,028
Deferred income taxes	8		1,195		1,203		425		328		753
Total Liabilities	97,276		(78,483)		18,793		48,635		(33,511)		15,124
Net Parent investment	159,052		(1,195)		157,857		151,891		(328)		151,563
Total Liabilities and Equity	256,328		(79,678)		176,650		200,526		(33,839)		166,687


Combined Statement of Income
(In thousands)	For the Nine Months Ended September 30, 2021						For the Nine Months Ended September 30, 2022
	As Originally Reported		Adjustments		As Restated		As Originally Reported		Adjustments		As Restated
Managed care and other	$	501,831	$	(339,146)	$	162,685	$	300,614	$	(106,251)	$	194,363
Total net revenue	501,831		(339,146)		162,685		300,614		(106,251)		194,363

Cost of care	339,146		(339,146)		—		106,251		(106,251)		—
Direct service costs and other operating expenses	131,669		1,084		132,753		140,075		1,502		141,577
Depreciation and amortization	5,902		(1,084)		4,818		4,902		(1,502)		3,400
Total costs and expenses	477,964		(339,146)		138,818		251,228		(106,251)		144,977


Combined Statements of Net Parent Investment
(In thousands)	For the Nine Months Ended September 30, 2021 and 2022
	As Originally Reported		Adjustments		As Restated
Balance at December 31, 2020	$	114,701	$	(524)	$	114,177
Net transfers to Parent	(13,693)		(495)		(14,188)
Balance at September 30, 2021	$	119,622	$	(1,019)	$	118,603

Balance at December 31, 2021	$	159,052	$	(1,195)	$	157,857
Net transfers to Parent	(44,231)		867		(43,364)
Balance at September 30, 2022	$	151,891	$	(328)	$	151,563


Combined Statements of Cash Flows
(In thousands)	For the Nine Months Ended September 30, 2021						For the Nine Months Ended September 30, 2022
	As Originally Reported		Adjustments		As Restated		As Originally Reported		Adjustments		As Restated
Cash flows from operating activities:
Depreciation and amortization	$	5,902	$	(1,084)	$	4,818	$	4,902	$	(1,502)	$	3,400
Non-cash income tax provision	(330)		494		164		417		(867)		(450)
Changes in assets and liabilities, net of effects from acquisitions of businesses:
Accounts receivable, net	(25,196)		20,596		(4,600)		9,918		(6,711)		3,207
Due from affiliates, net	—		—		—		4,983		(289)		4,694
Accounts payable and accrued liabilities	(6,508)		4,802		(1,706)		(1,704)		(1,082)		(2,786)
Medical claims payable and other medical liabilities	25,398		(25,398)		—		(8,082)		8,082		—
Other assets and liabilities	(321)		1,085		764		(380)		1,502		1,122
Net cash provided by operating activities	17,559		495		18,054		47,124		(867)		46,257

Cash flows from financing activities:
Net transfers (to) from Parent	(13,693)		(495)		(14,188)		(44,231)		867		(43,364)
Net cash used in financing activities	(13,693)		(495)		(14,188)		(44,231)		867		(43,364)

The accompanying applicable notes to the combined financial statements have been updated to reflect the restatement, as well as other corrections, as of December 31, 2021 and September 30, 2022 and for the interim period ended September 30, 2021 and 2022.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Combined Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") from the consolidated financial statements and accounting records of Magellan using the historical results of operations and historical cost basis of the assets and liabilities of Magellan that comprise Specialty Health. As of January 4, 2022, due to the acquisition of Magellan by Centene both Magellan and Specialty Health are wholly owned subsidiaries of Centene. The operations comprising Specialty Health are in various legal entities, owned 100% by the Parent, in which Specialty Health has no direct ownership relationship. References in these Combined Financial Statements to subsidiaries of Magellan Specialty Health refers to legal entities that are primarily engaged in operating activities that are dedicated to the business of Specialty Health. The Company’s business is primarily composed of all of the business of National Imaging Associates, Inc. (“NIA”), as well as the specialty risk business written by Magellan Providers of Texas, Inc. (“MPT”) and Magellan Life Insurance Company (“MLIC”). Effective January 1, 2022, the risk business written by MPT and MLIC converted to non-risk. This non-risk business is written by NIA as of January 1, 2022. The financial statements have been derived from Magellan's historical accounting records and are presented on a carve-out basis.

The Company has historically operated as part of Magellan and not as a stand-alone company and has no separate legal status or existence, this structure has continued subsequent to the acquisition by Centene. Consequently, stand-alone financial statements have not historically been prepared by Specialty Health. The accompanying Combined Financial Statements have been prepared from Magellan’s historical consolidated financial statements and accounting records and are presented on a stand-alone basis as if the Company’s operations had been conducted independently from Magellan. All intercompany accounts within Specialty Health have been eliminated within these statements. As a result of Magellan’s acquisition by Centene on January 4, 2022, all of the Company’s service contracts with Centene represent related party business starting in 2022. Refer to Note 5 “Related Party Transactions” for further detail.

The Combined Statements of Income include revenues and costs directly attributable to Specialty Health as well as an allocation of expenses related to functions and services provided by our Parent. The functions and services provided by Magellan has not changed with the acquisition of Magellan by Centene. No additional costs from Centene’s corporate functions have been allocated. The allocation methodologies have been described within the notes to the combined financial statements where appropriate. These methodologies were primarily based on cost centers specific to the Company's operations, as well as direct labor costs incurred by Specialty Health compared to Magellan, and the Company's proportionate share of Magellan's full-time employees. These allocated costs are primarily related to corporate administrative expenses, and other corporate support services. The allocated costs are deemed to be settled by Specialty Health to the Parent in the period in which the expense was recorded in the Combined Statements of Income. The Combined Statements of Cash Flows present these allocated Parent functional costs as cash flows from operating activities. Due to the inherent limitation of allocations, there can be no assurance that allocated costs represent arm’s length transactions.

Current and deferred income taxes and related tax expense have been determined based on the stand-alone results of the Company by applying Accounting Standards Codification No. 740, Income Taxes (“ASC 740”), to Specialty Health’s operations as if it was a separate taxpayer (i.e. following the Separate Return Methodology).

The Combined Balance Sheets include all assets and liabilities that are attributable to the Specialty Health business. Assets and liabilities in shared entities were included in the stand-alone financial statements to the extent the asset is primarily used by Specialty Health. If Specialty Health is not the primary user of the asset, it was excluded entirely from the Combined Financial Statements. Any such items which exist in other entities, whether shared or otherwise, are outside of the control of Specialty Health and have been excluded from the Combined Financial Statements. Our Parent’s third-party debt and the related interest have not been allocated to us for any of the periods presented because our Parent’s borrowings are primarily for corporate cash purposes and are not directly attributable to the Company. In addition, the Company did not guarantee the debt nor is the Company jointly and severally liable for Parent's debt.

The Company utilizes the Parent’s centralized processes and systems for cash management, payroll, purchasing, and distribution. Accordingly, cash, related party debt and related party interest have been attributed to Specialty Health in the Combined Financial Statements only to the extent such items have been legal entitled to the Company. The net results of these cash transactions between the Company and the Parent are reflected within net Parent investment in the accompanying combined balance sheets. In addition, net Parent investment represents the Parent’s interest in the recorded net assets of Specialty Health and represents the cumulative net investment by the Parent in Specialty Health through the dates presented, inclusive of cumulative operating results.

The financial information included herein may not necessarily reflect the combined financial position, results of operations, changes in net Parent investment and cash flows of Specialty Health in the future or what they would have been had the Company been a separate, stand-alone entity during the periods presented.

Basis of Combination

The Combined Financial Statements are presented on a stand-alone basis and include the financial position, statements of income and cash flows of Specialty Health. All significant intercompany accounts and transactions within Specialty Health have been eliminated in the accompanying Combined Financial Statements. All intercompany balance receivables and payables between our Parent and Specialty Health are considered settled through net transfers to Parent. As a result of Magellan’s acquisition by Centene, in 2022 Centene completed purchase accounting for Magellan. This purchase accounting resulted in adjustments to goodwill and intangible assets for the Company. Centene elected to not push the adjusted goodwill and intangible asset balances from purchase accounting down to the Company, thus the accompanying financial statements do not reflect such activity.

Net Parent Investment

Specialty Health's equity on the Combined Balance Sheets represents our Parent’s historical net investment in the Company and is presented as "net Parent investment" in lieu of stockholders' equity given Specialty Health has no direct ownership relationship in the various entities comprising its operations. The Combined Statements of net Parent investment include corporate allocations, net cash transfers and other property transfers between our Parent and the Company. All transactions reflected in net Parent investment in the accompanying Combined Balance Sheets have been considered cash receipts and payments for purposes of the Combined Statements of Cash Flows and are reflected as financing activities in the accompanying Combined Statements of Cash Flows.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company can include, among other things, valuation of intangible assets, medical claims payable, other medical liabilities, stock compensation assumptions, tax contingencies and legal liabilities. In addition, the Company also makes estimates in relation to revenue recognition under Accounting Standard Codification 606 (“ASC 606”) which are explained in more detail in “Revenue Recognition” below. Actual results could differ from those estimates.

Revenue Recognition

All of the Company’s revenues are derived from business in North America. The following tables disaggregate our revenue for the nine months ended September 30, 2021 and 2022 by major service line, type of customer and timing of revenue recognition (in thousands):


	2021		2022
Major Service Lines
Risk-based	$	60,034	$	28,228
ASO	102,651		166,135
Total net revenue	$	162,685	$	194,363

Type of Customer
Government	$	—	$	—
Non-government	162,685		194,363
Total net revenue	$	162,685	$	194,363

Timing of Revenue Recognition
Transferred at a point in time	$	—	$	—
Transferred over time	162,685		194,363
Total net revenue	$	162,685	$	194,363

Per Member Per Month (“PMPM”) Revenue. The Company provides its management services primarily through: (i) risk-based contractual arrangements, where the Company assumes all or a substantial portion of the responsibility for the cost of providing treatment services in exchange for a fixed PMPM capitation payment, or (ii) ASO contractual arrangements, where the Company provides services such as utilization review, but does not assume full responsibility for the cost of the treatment services, in exchange for an administrative fee and, in some instances, shared savings. The risk-based contracts have provisions that include “profit share.” Under a contract with profit share provisions, if the cost to provide the care is below certain specified levels, the Company will “share” the cost savings with the customer at the percentages set forth in the contract. In addition, certain contracts include provisions to provide the Company additional funding if the cost of care is above the specified levels. Based on right to offset terms in certain contracts, the Company reflected accounts receivable net of the accrued liabilities related to the cost of the treatment services and profit share liability by customer. If the customer was in a payable position the net liability was included within accrued liabilities.

Almost all of the Specialty Health revenue is paid on a PMPM basis and is inclusive of revenue from the Company’s risk-based contracts and ASO contracts for services provided to its customers. PMPM contracts generally have a term of one year or longer. All managed care contracts have a single performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members for the duration of the contract. The transaction price for risk-based contracts or ASO contracts is entirely variable as it primarily includes PMPM fees associated with unspecified membership that fluctuates throughout the contract. In certain contracts, PMPM fees also include adjustments for things such as performance incentives, performance guarantees and risk shares.

The Company generally estimates the transaction price using an expected value methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue in the month in which members are entitled to service. The remaining transaction price is recognized over the contract period (or portion of the series to which it specifically relates) based upon estimated membership as a measure of progress.

The performance obligation on an activity-based contract is to stand ready to provide the activity or services purchased by the customer. The performance obligation represents a series for the duration of the arrangement. The PMPM rate is fixed per the contract; however, the level of activity is variable. A majority of the Company’s transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue when the portion of the series for which it relates has been provided.

In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. The majority of the Company’s contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less; (ii) the right to invoice practical expedient; and (iii) variable consideration related to unsatisfied performance obligations that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of that variable consideration relate specifically to our efforts to transfer the distinct service, or to a specific outcome from transferring the distinct service. For the Company’s contracts that pertain to these exemptions: (i) the remaining performance obligations primarily relate to the provision of managed healthcare services to the customers’ membership; (ii) the estimated remaining duration of these performance obligations ranges from the remainder of the current calendar year to three years; and (iii) variable consideration for these contracts as determined in accordance with the methodology above associated with unspecified membership that fluctuates throughout the contract.

Accounts Receivable and Contract Assets

Accounts receivable and contract assets consisted of the following (in thousands):


	January 1, 2022		September 30, 2022
Accounts receivable	$	50,898	$	42,861
Contract assets	3,028		2,704

In the nine months ended September 30, 2022, accounts receivable, which are included in accounts receivable and due from affiliates on the combined balance sheets, decreased by ($8.0) million, mainly due to customer settlements received for prior years and terminated contracts. In the nine months ended September 30, 2022, contract assets, which are included in accounts receivable and other current assets on the combined balance sheets, decreased by ($0.3) million, mainly due to timing of settlement of shared savings with customers.

The Company’s accounts receivable consists of amounts due from customers throughout the United States. Collateral is generally not required. A majority of the Company’s contracts have payment terms in the month of service, or within a few months thereafter. The timing of payments from customers from time to time generates contract assets or contract liabilities, however these amounts are immaterial.

The Company’s accounts receivable is net of an allowance for credit losses. The estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management elected to disaggregate trade receivables into business segments due to risk characteristics unique to each platform given the individual lines of business and market. Pooling was further disaggregated based on either geography or product type.

The Company leveraged historical write offs over a defined lookback period in deriving a historical loss rate. The expected credit loss model further considers current conditions and reasonable and supportable forecasts through the use of an adjustment for current and projected macroeconomic factors. Management identified appropriate macroeconomic indicators based on tangible correlation to historical losses, giving consideration to the location and risks associated with the Company’s customers.

Significant Customers

Customers exceeding ten percent of the combined Company’s net revenues

There was one customer that generated in excess of ten percent of net revenues for the nine months ended September 30, 2021 and 2022 (in thousands)


Customer	Term Date	2021	2022
Centene(1)	December 31, 2024	$66,428	$106,899

(1) This customer’s contract switched from a risk-based contractual arrangement to a ASO contractual arrangement effective January 1, 2022. Effective January 4, 2022, this is related party revenue. Refer to Note 5 “Related Party Transactions” for further detail.

3. Income Tax

Income Tax Expense

The Company’s effective tax rate from continuing operations was an expense of 26.1 percent for both the nine-month periods ended September 30, 2021 and 2022.

Based on the stand-alone approach used to determine the deferred income taxes, the Company has no net operating losses to reduce federal, state, or local taxable income in 2022 and subsequent years.

Uncertain Tax Positions

Magellan continually performs a comprehensive review of its tax positions and accrues amounts for tax contingencies related to uncertain tax positions. Based upon these reviews, no uncertain tax positions were related to the Company and no uncertain tax positions were identified on a stand-alone basis.

4. Commitments and Contingencies

Regulatory Issues

The managed healthcare industry is subject to numerous laws and regulations. The subjects of such laws and regulations cover, but are not limited to, matters such as licensure, accreditation, government healthcare program participation requirements, information privacy and security, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Over the past several years, government activity has increased with respect to investigations and/or allegations concerning possible violations of fraud and abuse and false claims statutes and/or regulations by healthcare organizations and insurers. Entities that are found to have violated these laws and regulations may be excluded from participating in government healthcare programs, subjected to fines or penalties or required to repay amounts received from the government for previously billed patient services. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.

In addition, regulators of certain of the Company’s subsidiaries may exercise certain discretionary rights under regulations including increasing their supervision of such entities, requiring additional restricted cash or other security or seizing or otherwise taking control of the assets and operations of such subsidiaries.

Legal

The Company’s operating activities entail significant risks of liability. From time to time, the Company is subject to various actions and claims arising from the acts or omissions of its employees, network providers or other parties. In the normal course of business, the Company receives reports relating to deaths and other serious incidents involving patients whose care is being managed by the Company. Such incidents occasionally give rise to malpractice, professional negligence and other related actions and claims against the Company or its

network providers. Many of these actions and claims received by the Company seek substantial damages and therefore require the Company to incur significant fees and costs related to their defense.

The Company is also subject to or party to certain class actions and other litigation and claims relating to its operations or business practices, including network provider reimbursement, employment practices and privacy and data protection. The Company has recorded reserves that, in the opinion of management, are adequate to cover litigation, claims or assessments that have been or may be asserted against the Company, and for which the outcome is probable and reasonably estimable. Management believes that the resolution of such litigation and claims will not have a material adverse effect on the Company’s financial condition or results of operations; however, there can be no assurance in this regard.

5. Related Party Transactions

Historically, the Company has been managed and operated in the normal course of business consistent with other affiliates of the Parent. Accordingly, certain shared costs have been allocated to Specialty Health and reflected as expenses in the Combined Financial Statements. Management considers the allocation methodologies used to be reasonable and appropriate reflections of the historical Parent expenses attributable to Specialty Health for purposes of the stand-alone financial statements. However, the expenses reflected in the Combined Financial Statements may not be indicative of the actual expenses that would have been incurred during the periods presented if Specialty Health historically operated as a separate, stand-alone entity. In addition, the expenses reflected in the Combined Financial Statements may not be indicative of related expenses that will be incurred in the future by Specialty Health.

As a result of Magellan’s acquisition by Centene as of January 4, 2022, all of the Company’s service contracts with affiliate entities of Centene represent related party business starting in 2022. On the accompanying September 30, 2022 combined balance sheet, all related party balances have been reflected as a net due from affiliates of $19.4 million. At December 31, 2021, since Centene was not a related party the Centene balance of $24.6 million was disclosed within accounts receivable, net. The related party net revenue from the Company’s service contracts with Centene for the nine months ended September 30, 2022 were $106.9 million. The comparable balances for the nine months ended September 30, 2021 were $66.4 million.

Centralized Treasury

Treasury activities, including activities related to the Company, are centralized by the Parent such that net cash collections and disbursements are generally distributed to the Parent and reflected as net Parent investment. Settlement of Specialty Health's transactions with the Parent are considered to be financing transactions, which are presented as Net Transfers to Parent in the accompanying combined statements of cash flows.

General Corporate Overhead / Costs

The combined statements of income include costs related to employees within shared services centers that were fully dedicated to the Company based on identification of cost centers specific to the Company’s operations. These costs are primarily related to administrative and other corporate support services. The combined balance sheets include the accruals of $14.2 million and $13.6 million at December 31, 2021 and September 30, 2022, respectively, related to the costs of such employees, which are included in accounts payable, accrued liabilities and other long-term liabilities.

Additionally, certain of Magellan’s corporate overhead costs were allocated to the Company using Magellan’s allocation methodologies described in Note 2 “Summary of Significant Accounting Policies.” A portion of these allocated costs include expenses related to employees that were not considered to be fully dedicated to the Company. As these corporate overhead expenses are considered intercompany transactions, the allocated costs are deemed to be settled when incurred and are included in the net Parent investment on the combined balance sheets.

The total costs associated with these charges, including the costs of both the fully dedicated employees through shared services centers and the allocated costs from Magellan to the Company described above, were of

$126.1 million and $133.7 million for the nine months ended September 30, 2021 and 2022, respectively, which are included in the direct service costs and other operating expenses on the combined statements of income.

Note Payable

In 2013, the Company executed a $150.0 million intercompany note agreement with a subsidiary of the Parent (the “Note”). The Note bore interest at a rate of the Prime Rate plus 1.5 percent. At December 31, 2019 the Note balance was $40.0 million. In the year ended December 31, 2020, the Company repaid $5.0 million of the Note. In December 2021, the Note was assigned by the Parent to the Company, effectively resulting in the cancellation of the Note agreement through a non-cash transaction.

6. Subsequent Events

On November 17, 2022, Magellan Health, Inc. and Magellan Healthcare, Inc. executed a definitive agreement to sell Magellan’s Specialty Health business to Evolent Health, Inc. (“Evolent”) (collectively the “Sale”). Given MPT and MLIC no longer have any specialty business, the only legal entities included in the Sale are NIA and its non-dissolved subsidiaries. The Sale closed on January 20, 2023, resulting in NIA becoming a wholly owned subsidiary of Evolent. In addition to the Sale, Evolent and Centene are expanding Centene’s relationship with NIA, now a part of Evolent, and extending NIA’s contracts with Centene through 2027.

The Company has evaluated events of which it is aware occurring after September 30, 2022 through October 11, 2023, the date the financial statements were available to be issued. The Company did not have any material recognizable subsequent events during this period other than the item described above.

Exhibit 99.2

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following restated unaudited pro forma combined financial statements (“pro forma financial statements”) have been prepared based on the historical consolidated financial statements of Evolent Health, Inc. (“Evolent”, “we”, “the Company”) to give effect to the following transaction (the “Transaction”):

On November 17, 2022, Evolent and Evolent Health LLC (“EVH LLC” and, together with Evolent, the “Evolent Entities”), entered into a Stock and Asset Purchase Agreement (the “Purchase Agreement”) with Magellan Health, Inc. (“Magellan Parent”) and Magellan Healthcare, Inc. (“Magellan” and together with Magellan Parent (and all applicable subsidiaries), the “Magellan Entities”), pursuant to which, subject to the satisfaction or waiver of certain conditions, EVH LLC agreed to (i) acquire all of the outstanding shares of capital stock of National Imaging Associates, Inc., a wholly-owned subsidiary of Magellan, and (ii) acquire certain assets held by Magellan Parent and/or certain of its subsidiaries that are used in the Magellan Specialty Health Division (collectively, “Magellan Specialty Health”).

Pursuant to the terms of and as set forth in the Purchase Agreement, the Evolent Entities paid $387.8 million of cash consideration (inclusive of certain post-closing adjustments) and issued 8,474,576 shares of Evolent’s Class A common stock (“Class A Shares”), fair valued at $261.3 million as of January 20, 2023 (the “Transaction Consideration”). The Transaction Consideration is subject to certain post-Closing adjustments and deductions related to, among other things, net working capital, cash and indebtedness of Magellan Specialty Health.

In addition to the Transaction Consideration, Magellan Parent shall be eligible to receive, subject to the satisfaction of certain metrics set forth in the Purchase Agreement, including those related to the achievement of certain operating results during calendar year 2023 (the “Earnout Period”), or upon the occurrence of certain events, additional consideration of up to $150.0 million payable in cash and Class A Shares valued at a price equal to the volume weighted average closing price of such Class A Shares on the New York Stock Exchange for 20 trading days ending on the trading day that is immediately prior to two (2) business days prior to the date such payment is required to be made pursuant to the Purchase Agreement (the “Earnout Consideration”). Subject to the conditions applicable thereto, up to 50% of the Earnout Consideration may be paid in Class A Shares; provided, however, the Evolent Entities may, in their discretion, increase the portion of the Earnout Consideration payable in cash and correspondingly decrease the portion of the Earnout Consideration payable in Class A Shares.

Ares Capital Management LLC and Ares Capital Corporation have provided Evolent with secured debt financing in the form of (i) additional commitments under the Company’s existing asset-based revolving credit facility in an aggregate principal amount equal to $25.0 million, and (ii) additional commitments under the existing initial term loan facility in an aggregate principal amount equal to $240.0 million (clauses (i) and (ii), the “Acquisition Facilities”), and certain amendments to the Company’s existing credit agreement have been made. Additionally, Ares has purchased from Evolent an aggregate $175.0 million initial liquidation preference of a newly issued, perpetual series of Evolent’s convertible Series A Preferred Stock. The purchase price of the convertible Series A Preferred Stock was equal to 96% of its initial liquidation preference. Each holder of convertible Series A Preferred Stock will have the right, at its option, to convert its shares of convertible Series A Preferred Stock into Class A Shares at an initial conversion price per share of $40.00 of current liquidation preference per share, subject to customary anti-dilution adjustments. The proceeds of borrowings under the Acquisition Facilities and from the sale of the Series A Preferred Stock will be used to fund the Transaction Consideration.

Evolent’s Current Report filed on Form 8-K with the Securities and Exchange Commission (the “SEC”) on January 23, 2023 (the “Original Form 8-K”), financial statements of the acquired business and pro forma financial information related to the acquisition as required by Items 9.01(a) and 9.01(b) of Form 8-K were filed with the Original Form 8-K.

The previously filed pro forma financial statements for the nine months ended September 30, 2022 filed in the Original Form 8-K are being amended and refiled in this Amendment No. 2 on Form 8-K/A in order to provide restated pro forma financial information of the Company for the nine months ended September 30, 2022, to replace

the pro forma financial information of the Company for the nine months ended September 30, 2022, included as part of Exhibit 99.3 to the Original Form 8-K.

The unaudited pro forma combined statements of operations for the nine months ended September 30, 2022 give effect to the Transaction as if it had been completed on January 1, 2021. The unaudited pro forma combined balance sheet as of September 30, 2022, gives effect as if the Transaction had been completed on September 30, 2022.

The pro forma financial statements are provided for illustrative purposes only and are not intended to represent what Evolent’s financial position or results of operations would have been had the Transaction been consummated on the assumed dates, nor do they purport to project the future operating results or the financial position of the combined company following the transaction. The actual financial position and results of operations of Evolent after consummation of the Transaction may differ significantly from the pro forma amounts reflected herein due to a variety of factors. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the pro forma financial statements. In Evolent’s opinion, all adjustments that are necessary to present fairly the pro forma information have been made. The pro forma financial statements do not include any pro forma adjustments to reflect certain expected financial benefits of the Transaction, such as cost synergies or revenue synergies, or the anticipated costs to achieve those benefits.

The pro forma financial statements should be read in conjunction with the following:

1) Evolent’s unaudited consolidated financial statements and related notes included in Evolent’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2022

2) Historical unaudited combined financial statements and related notes of Magellan Specialty Health, as restated, as of and for the nine months ended September 30, 2022 included as Exhibit 99.1 to Evolent’s current report on Form 8-K/A to which these unaudited pro forma combined financial statements are attached.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

AS OF SEPTEMBER 30, 2022

(In thousands)


	Evolent Health, Inc.		Magellan Specialty Health (As Restated)		Transaction Accounting Adjustments		Notes	Pro Forma Combined
ASSETS
Current assets:
Cash and cash equivalents	$	156,756	$	—	$	35,364	(a)	$	192,120
Restricted cash and restricted investments	25,057		—		—			25,057
Accounts receivable, net	187,633		45,579		(19,418)		(b)	213,794
Prepaid expenses and other current assets	24,328		486		(348)		(c)	24,466
Total current assets	393,774		46,065		15,598			455,437

Restricted cash and restricted investments	13,005		—		—			13,005
Investments in equity method investees	5,222		—		—			5,222
Property and equipment, net	94,645		6,770		(6,770)		(d)	94,645
Right-of-use assets – operating	50,696		—		—			50,696
Prepaid expenses and other noncurrent assets	3,064		345		(332)		(c)	3,077
Contract cost assets	24,588		—		—			24,588
Intangible assets, net	451,398		293		403,707		(e)	855,398
Goodwill	722,790		113,214		277,671		(f)	1,113,675
Total assets	$	1,759,182	$	166,687	$	689,874		$	2,615,743
LIABILITIES
Accounts payable	$	61,863	$	792	$	5,533	(g)	$	68,188
Accrued liabilities	132,238		172		—			132,410
Operating lease liability – current	7,053		—		—			7,053
Accrued compensation and employee benefits	37,646		12,738		(12,738)		(c)	37,646
Deferred revenue	7,524		326		—			7,850
Reserve for claims and performance - based arrangements	135,698		—		—			135,698
Total current liabilities	382,022		14,028		(7,205)			388,845

Long-term debt, net of discount	412,444		—		255,187		(h)	667,631
Other long-term liabilities	4,260		343		66,600		(i)	71,203
Tax receivable agreement liability	42,870		—		70,271		(j)	113,141
Operating lease liabilities	57,840		—		—			57,840
Deferred tax liabilities	3,608		753		18,680		(j) (k)	23,041
Total liabilities	903,044		15,124		403,533			1,321,701


Mezzanine Equity - Series A Preferred Stock	—		—		168,000		(l)	168,000

SHAREHOLDERS' EQUITY
Class A common stock	1,012		—		85		(m)	1,097
Additional paid-in-capital	1,472,098		151,563		109,623		(m) (n)	1,733,284
Accumulated other comprehensive loss	(1,044)		—		—			(1,044)
Retained earnings (accumulated deficit)	(594,805)				8,633		(g) (j)	(586,172)
Treasury stock	(21,123)		—		—			(21,123)
Total shareholders' equity	856,138		151,563		118,341			1,126,042
Total liabilities, mezzanine equity and shareholders' equity	$	1,759,182	$	166,687	$	689,874		$	2,615,743

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

(In thousands, except for per share amounts)


	Evolent Health, Inc.		Magellan Specialty Health (As Restated)		Transaction Accounting Adjustments		Notes	Pro Forma Combined
Revenue	$	969,581	$	194,363	$	—		$	1,163,944

Expenses
Cost of revenue	736,061		99,582		—			835,643
Selling, general and administrative expenses	186,408		41,995		—			228,403
Depreciation and amortization expenses	47,414		3,400		24,535		(d) (o)	75,349
Change in fair value of contingent consideration	(5,822)		—		—			(5,822)
Total operating expenses	964,061		144,977		24,535			1,133,573
Operating income (loss)	5,520		49,386		(24,535)			30,371
Interest income	765		—		—			765
Interest expense	(9,143)		—		(40,548)		(p)	(49,691)
Gain form equity method investees	3,940		—		—			3,940
Change in tax receivable agreement liability	(42,870)		—		42,870		(j)	—
Loss on repayment of debt	(10,192)		—		—			(10,192)
Other expense, net	130		—		—			130
Income (loss) from continuing operations before income taxes	(51,850)		49,386		(22,213)			(24,677)
Provision (benefit) for income taxes	(44,498)		12,902		30,194		(q)	(1,402)
Income (loss) from continuing operations	(7,352)		36,484		(52,407)			(23,275)
Dividends and accretion of Series A Preferred Stock	—		—		(23,918)		(r)	(23,918)
Net income (loss) attributable to common shareholders of Evolent Health, Inc.	$	(7,352)	$	36,484	$	(76,325)		$	(47,193)
Loss per common share

Basic and diluted loss per share attributable to common shareholders (t)	$	(0.08)						$	(0.47)
Weighted-Average common shares outstanding
Basic and diluted (t)	91,643				8,475		(s)	100,118

NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying pro forma financial statements were prepared in accordance with Article 11 of Regulation S-X, as amended, including pursuant to SEC Final Rule, Amendments to Financial Disclosures about Acquired and Disposed Businesses, release number 33-10786 dated May 20, 2020 (“Article 11”), using the acquisition method of accounting under U.S. GAAP. Transaction accounting adjustments have been made to show the effects of the Transaction on the combined historical financial statements of Evolent and Magellan Specialty Health. A reclassification adjustment has been made to the historical presentation of Magellan Specialty to conform to the financial statement presentation of Evolent Health, Inc for the unaudited pro forma condensed combined financial information as noted below. Refer to Note 3 – Reclassification of Magellan Specialty Health’s Combined Statements of Income for further details on the reclassification adjustment.

Note 2. Acquisition of Magellan Specialty Health

On January 20, 2023, Evolent and Evolent Health LLC (“EVH LLC” and, together with Evolent, the “Evolent Entities”), completed its acquisition of National Imaging Associated Inc. (“NIA”), including all of the issued and outstanding shares of capital stock of NIA as well as certain assets held by Magellan Health, Inc. (“Magellan Parent”) and certain of its subsidiaries that were used in the Magellan Specialty Health Division.

Pursuant to the terms of and as set forth in the Purchase Agreement, the Evolent Entities paid $387.8 million as cash consideration (inclusive of certain post-closing adjustments) and issued 8,474,576 shares Evolent’s Class A common stock (“Class A Shares”), fair valued at $261.3 million as of January 20, 2023.

Ares Capital Management LLC and Ares Capital Corporation have committed, subject to certain conditions, to provide Evolent with secured debt financing in the form of Acquisition Facilities, and certain amendments to the Company’s existing credit agreement will be made. Additionally, Evolent entered into a preferred stock financing commitment letter with Ares where Ares has committed, subject to certain conditions to purchase from Evolent an aggregate $175.0 million initial liquidation preference of a newly issued, perpetual series of Evolent’s convertible Series A Preferred Stock. The purchase price of the convertible Series A Preferred Stock will be equal to 96% of its initial liquidation preference. Each holder of convertible Series A Preferred Stock will have the right, at its option, to convert its shares of Series A Preferred Stock into Class A Shares at an initial conversion price per share of $40.00 of current liquidation preference per share, subject to customary anti-dilution adjustments. The proceeds of borrowings and Series A Preferred Stock will be used to fund the Transaction Consideration.

Note 3. Reclassification of Magellan Specialty Health’s Combined Statements of Income

Reclassification adjustments were made to Magellan Specialty Health's combined balance sheet as of September 31, 2022 and combined statement of income for the nine months ended September 30, 2022, to conform the classification and presentation of the Company’s consolidated balance sheets and consolidated statement of operations. Such adjustments include (i) a reclassification adjustment of $42.0 million of direct services costs and other operating expenses into selling, general and administrative expenses on the unaudited pro forma combined statement of operations’, (ii) a $19.4 million reclassification of due from affiliates into accounts receivable, net on

the unaudited pro forma combined balance sheet and (iii) a $13.1 million reclassification of accrued liabilities into accrued compensation and employee benefits and deferred revenue on the unaudited pro forma combined balance sheet.

Note 4. Pro Forma Adjustments

Adjustments included in the column labeled “Transaction Accounting Adjustments” in the pro forma balance sheet is as follows:

(a) Reflects the $168.0 million of proceeds from issue of Series A Preferred Stock, net of issuance costs and $255.2 million of incremental long term debt, net of issuance costs which are partially offset by the $387.8 million of cash paid to the Magellan Entities for the acquisition of Magellan Specialty Health.

(b) Removal of accounts receivable from Magellan Specialty Health which was settled prior to closing of the transaction.

(c) Adjustment for amounts that did not meet the definition of assets or liabilities for Evolent to be recognized on the balance sheet.

(d) Reflects the removal of capitalized software, which has been replaced by a developed technology intangible, and write off of property and equipment totaling $6.8 million. The combined depreciation expense removed for both capitalized software and property and equipment was $3.3 million.

(e) Reflects the removal of historical intangible assets and addition of identifiable intangible assets based on management’s fair valuation. Estimated useful lives are based on the time periods during which the intangibles are expected to result in substantial incremental cash flows. The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):


Category	Estimated life in years	Fair value (in thousands)
Customer relationships	15	$	345,100
Technology	5	50,700
Corporate trade name	2	8,200
Total identifiable intangible assets		$	404,000

(f) To record the preliminary fair value of goodwill resulting from the excess of consideration paid over the valuation of the net assets acquired as if the acquisition occurred as of September 30, 2022. The amount of goodwill recognized in purchase price accounting as of the acquisition closing date differs from amount shown here due to changes in certain current asset and liability balances. Goodwill resulting from the acquisition is not amortized and will be assessed for impairment at least annually.

(g) Represents nonrecurring transaction costs of $5.5 million incurred after September 30, 2022.

(h) Reflects the net proceeds of $255.2 million from incremental term loan facility and revolving facility of $240.0 million and $25.0 million, respectively, net of debt issuance costs of $9.8 million. These incremental loans were treated as a modification to the existing loans.

(i) Reflects the adjustment to record a $66.6 million liability related to the fair value of the earn-out amount of contingent consideration that will be paid to the Magellan Entities if the acquired business meets the specified targets. The fair value of the earn-out is based on a range of estimated probability of revenue scenarios. The fair value of the earn-out was determined using an option pricing method and specifically a Monte Carlo simulation analysis under the income approach.

(j) Reflects the adjustment to the amount that the Company must pay to certain investors with whom it entered into the Tax Receivables Agreement (the “TRA”). The TRA provides for the payment by the Company to these investors of 85% of the amount of the tax benefits, if any, that the Company is deemed to realize because of increases in tax basis related to exchanges of Class B common units as well as tax benefits attributable to the future utilization of pre-IPO NOLs. The Company removed its valuation allowance of $65.3 million as a result of deferred tax liabilities established as part of the acquisition. In connection with the valuation allowance removal, the Company has recorded an additional TRA liability of $70.3 million (making a total TRA liability to $113.1 million) as of September 30, 2022. The additional liability gave rise to additional future tax-deducted goodwill, which reduced deferred tax liabilities by $19.1 million. This resulted in a net adjustment to retained earnings of $14.2 million (decrease in deferred tax liabilities of $84.4 million, offset by recognition of $70.3 million of TRA liability). For purposes of presentation in the pro forma income statement, the change in TRA of $42.9 million was removed for the nine months ending September 30, 2022 and the full $113.1 million change was recorded for the year ended December 31, 2021 pro forma file as Amendment No. 1 on Form 8K/A.

(k) Represents an adjustment to deferred tax liabilities of $103.1 million for the tax effects of recognizing the preliminary purchase price allocation reflected herein (calculated at an estimated statutory rate of 26%). These adjustments are based on estimates of the fair value of Magellan Specialty Health's assets to be acquired, liabilities to be assumed, and the related purchase price allocations. These estimates are subject to further review by Evolent's management, which may result in material adjustments to deferred taxes with an offsetting adjustment to goodwill.

(l) Reflects the impact of $175.0 million from issuance of Series A Preferred Stock, offset in part by 4% issuance costs of $7.0 million. The Series A Preferred Stock has a liquidation preference over the Company’s common shares, with an aggregate initial liquidation preference of $175.0 million. The Series A Preferred Stock are classified as temporary equity.

(m) Reflects the issuance of new common stock of $261.3 million (8,474,576 Class A Shares at a closing issuance price of $30.83) with par value of $0.01.

(n) Reflects the elimination of Magellan Specialty Health’s historical equity balance of $151.6 million.

(o) To remove historical amortization of the intangible assets and the recording of the pro forma amortization expense related to the identifiable intangible assets resulting from a fair valuation as if the acquisition occurred on January 1, 2021, based on preliminary estimates of the fair values of such assets and their useful lives.


	For the Nine Months Ended September 30, 2022
Removal of historical amortization expense	$	(117)
Pro forma amortization expense	27,935
Pro forma adjustment for amortization expense	$	27,818

(p) To remove historical interest expense on debt and its related amortization of deferred financing costs and recording of the pro forma interest expense and amortization of related debt issuance costs.


	For the Nine Months Ended September 30, 2022
Removal of historical interest expense	$	(2,926)
Pro forma interest expense	41,747
Pro forma adjustment	38,821

Removal of historical amortization of deferred financing costs	(145)
Pro forma amortization of deferred financing costs	1,872
Pro forma adjustment	1,727
Total pro forma adjustment	$	40,548

Interest expense was calculated to be 11.5% (Adjusted Term SOFR Rate of 5.3% on September 25, 2023 plus 6.2%) and 9.5% (Adjusted Term SOFR Rate of 4.6% on September 25, 2023 plus 4.2%) for the term loan and revolver loan, respectively. Assuming an increase in interest rates on the existing and incremental long term debt of 1/8%, pro forma interest would increase by $0.5 million for the nine months ended September 30, 2022.

(q) Reflects an estimated income tax impact of the pro forma adjustments from the acquisition at a forecasted blended statutory tax rate of 26%. The pro forma income tax adjustments included in the pro forma statements of operations reflect the income tax effects of the transaction accounting adjustments presented, in addition to adjustments related to the release of Evolent's valuation allowance of $47.1 million. As a result of Evolent's release of the valuation allowance, income tax expense was calculated as 26% of its loss, excluding permanent items. Because the tax rates used for these pro forma financial statements are an estimate, the blended rate will likely vary from the actual effective rate in periods subsequent to completion of the acquisition.

(r) Reflects an estimated dividend and accretion on the Company's $175.0 million of Series A Preferred Stock sold to Ares Capital Corporation. The dividends on Series A Preferred Stock were calculated to be 11.5% (Adjusted Term SOFR Rate of 5.3% on September 25, 2023 plus 6.2%). Accretion was calculated based on the redemption feature of 150% of the liquidation preference using the effective interest rate over a period of six years.

(s) The pro forma adjustments on Evolent common stock and basic and diluted earnings per share are summarized below:


	For the Nine Months Ended September 30, 2022
Numerator
Basic and diluted combined pro forma net loss attributable to common shareholders of Evolent Health, Inc.	$	(47,193)
Denominator
Historical basic and diluted weighted average Evolent shares outstanding	91,643
Shares of Evolent common stock issued	8,475
Pro forma basic and diluted weighted average Evolent shares outstanding	100,118
Pro forma basic and diluted loss per share attributable to common shareholders of Evolent Health, Inc.	$	(0.47)


Delaware		001-37415						32-0454912
(State or other jurisdiction of incorporation or organization)		Commission File Number:						(I.R.S. Employer Identification No.)

800 N. Glebe Road	,	Suite 500	,	Arlington	,	Virginia	,	22203
(Address of principal executive offices)(zip code)


Exhibit No.						Description
99.1						Restated unaudited financial statements of Magellan Specialty Health as of September 30, 2022 and December 31, 2021 and for each of the nine months ended September 30, 2022 and 2021.
99.2						Restated unaudited pro forma condensed combined financial information of the Company as of and for the nine months ended September 30, 2022 .
104						The cover page from this Current Report on Form 8-K, formatted as Inline XBRL.


EVOLENT HEALTH, INC.

By:			/s/ Jonathan Weinberg
Name:			Jonathan Weinberg
Title:			General Counsel and Secretary