Evolent Health (EVH)

Healthcare solutions company Evolent Health (NYSE:EVH) announced better-than-expected revenue in Q1 CY2025, 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 33% 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 $2.4 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.

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Evolent Health’s sales grew at an excellent 22.5% compounded annual growth rate over the last five years. 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 dig further into the company’s revenue dynamics by analyzing its number of average lives on platform, which reached 77.08 million in the latest quarter. Over the last two years, Evolent Health’s average lives on platform averaged 148% 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 10.2% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.

Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.

Evolent Health was profitable over the last five years but held back by its large cost base. Its average adjusted operating margin of 4.8% was weak for a healthcare business.

On the plus side, Evolent Health’s adjusted operating margin rose by 1.5 percentage points over the last five years, as its sales growth gave it operating leverage. Zooming into its more recent performance, however, we can see the company’s margin has decreased by 1.4 percentage points on a two-year basis. If Evolent Health wants to pass our bar, it must prove it can expand its profitability consistently.

In Q1, Evolent Health generated an adjusted operating margin profit margin of 5.4%, down 1.1 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

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 $0.21 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 $0.27 to grow 107%.

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. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

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 9.6%, 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 $246.5 million of cash and $698.3 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 3.2× net-debt-to-EBITDA ratio as safe. We also see its $24.84 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 EPS missed and its revenue guidance for next quarter fell slightly short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $8.48 immediately following the results.

Updated: June 14, 2025 at 11:41 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

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 14.9x. Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $15.08 on the company (compared to the current share price of $8.27).

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.