Evolent Health (EVH)

Healthcare solutions company Evolent Health (NYSE:EVH) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 24.4% year on year to $483.6 million. Revenue guidance for the full year exceeded analysts’ estimates, but next quarter’s guidance of $455 million was less impressive, coming in 9.4% below expectations. Its non-GAAP profit of $0.06 per share was 37.7% below analysts’ consensus estimates.

Company Overview

Founded in 2011 to transform how healthcare is delivered to patients with complex needs, Evolent Health (NYSE:EVH) provides specialty care management services and technology solutions that help health plans and providers deliver better care for patients with complex conditions.

The healthcare technology industry focuses on delivering software, data analytics, and workflow solutions to hospitals, clinics, and other care facilities. These companies enable providers to streamline operations, optimize patient outcomes, and transition to value-based care models. They boast subscription-based revenues or long-term contracts, providing financial stability and growth potential. However, they face challenges such as lengthy sales cycles, significant upfront investment in technology development, and reliance on providers’ adoption of new tools, which can be hindered by budget constraints or resistance to change. Over the next few years, the sector is poised for growth as providers increasingly prioritize digital transformation and efficiency in response to rising healthcare costs and patient demand for seamless care. Tailwinds include the growing adoption of AI-driven tools for patient engagement and operational improvements, government incentives for digitization, and the expansion of telehealth and remote patient monitoring. However, headwinds such as tightening hospital budgets, cybersecurity threats, and the fragmented nature of healthcare systems could slow adoption.

Evolent Health competes with other healthcare management and technology companies such as Optum (part of UnitedHealth Group, NYSE:UNH), Signify Health (acquired by CVS Health, NYSE:CVS), and Evernorth (part of Cigna Group, NYSE:CI), as well as specialized care management firms like Magellan Health and AIM Specialty Health.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $2.40 billion in revenue over the past 12 months, Evolent Health lacks scale in an industry where it matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Evolent Health grew its sales at an excellent 22.5% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Evolent Health’s annualized revenue growth of 27.2% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

We can better understand the company’s revenue dynamics by analyzing its number of average lives on platform, which reached 77,079 in the latest quarter. Over the last two years, Evolent Health’s average lives on platform averaged 134% year-on-year growth. Because this number is better than its revenue growth, we can see the company’s average selling price decreased.

This quarter, Evolent Health’s revenue fell by 24.4% year on year to $483.6 million but beat Wall Street’s estimates by 4.9%. Company management is currently guiding for a 29.7% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 8.8% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges.

Although Evolent Health broke even this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 5% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

On the plus side, Evolent Health’s operating margin rose by 26.9 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its past improvements as the company’s margin was relatively unchanged on two-year basis.

This quarter, Evolent Health generated a negative 0.3% operating margin. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Evolent Health’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q1, Evolent Health reported EPS at $0.06, down from $0.34 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Evolent Health’s full-year EPS of $0.38 to grow 46.3%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Evolent Health broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, an encouraging sign is that Evolent Health’s margin expanded by 7.4 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Evolent Health broke even from a free cash flow perspective in Q1. This cash profitability was in line with the comparable period last year but below its five-year average. In a silo, this isn’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Evolent Health’s five-year average ROIC was negative 9.2%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Evolent Health’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

Evolent Health reported $261.6 million of cash and $870.1 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $143.2 million of EBITDA over the last 12 months, we view Evolent Health’s 4.2× net-debt-to-EBITDA ratio as safe. We also see its $6.62 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Evolent Health beat analysts’ revenue expectations this quarter. We were also glad its full-year revenue guidance slightly exceeded Wall Street’s estimates. On the other hand, its revenue guidance for next quarter missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock remained flat at $10.72 immediately following the results.

Updated: May 15, 2025 at 11:46 PM EDT

Before making an investment decision, investors should account for Evolent Health’s business fundamentals and valuation in addition to what happened in the latest quarter.

Evolent Health isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was impressive over the last five years, it’s expected to deteriorate over the next 12 months and its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s growth in average lives on platform was surging, the downside is its operating margins are low compared to other healthcare companies.

Evolent Health’s P/E ratio based on the next 12 months is 15.9x. Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $15.31 on the company (compared to the current share price of $8.82).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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