EVH Q3 Deep Dive: Contract Wins and Industry Uncertainty Shape Outlook

Healthcare solutions company Evolent Health (NYSE:EVH) reported Q3 CY2025 results topping the market’s revenue expectations, but sales fell by 22.8% year on year to $479.5 million. On the other hand, next quarter’s revenue guidance of $467 million was less impressive, coming in 1.2% below analysts’ estimates. Its non-GAAP profit of $0.05 per share was 52.5% below analysts’ consensus estimates.

Is now the time to buy EVH? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Evolent Health’s third quarter saw a sharp revenue decline year over year, and the market responded negatively to the results. Management attributed the softness to ongoing membership reductions in the government exchange and Medicare Advantage markets, as well as higher medical utilization, particularly in cardiology, among exchange populations. CEO Seth Blackley acknowledged the challenging industry environment and emphasized that while “pipeline growth and new contract wins are robust,” shifting membership trends and exchange volatility weighed on performance.

Looking ahead, Evolent Health’s guidance reflects management’s uncertainty about the extent and timing of membership changes in the exchange and Medicare Advantage markets. The company highlighted the importance of upcoming federal policy decisions and the potential for shifting government subsidies to impact both revenue and margin outlooks. Blackley cautioned that, “our 2026 adjusted EBITDA outlook is more uncertain than usual for this point in the year,” and underlined that execution on new contracts and the impact of external policy changes will be critical to future growth.

Key Insights from Management’s Remarks

Management pointed to new contract wins, ongoing product enhancements, and capital allocation progress as key themes shaping the quarter, while also highlighting industry headwinds impacting the exchange population.

• Major contract wins: Evolent signed two significant new agreements, including a large Blue Cross plan for its oncology Performance Suite and a provider-sponsored health plan in the Southwest, together expected to add over $550 million in 2026 revenue at maturity.
• Enhanced contract structures: The company’s new and renewed Performance Suite deals now include risk corridors and retroactive adjustments for prevalence and case mix, designed to limit downside risk and provide more predictable margins, with management targeting a 10% mature margin for these contracts.
• AI-driven operational improvements: Evolent rolled out its AI-powered Copilot review tool within musculoskeletal workflows, aiming to auto-approve a higher percentage of authorization volume and lower operational costs over time.
• Divestiture and deleveraging: The planned sale of Evolent Care Partners is expected to close by year-end, with proceeds earmarked to pay down $100 million in debt, reducing annual interest costs and supporting a focus on lowering leverage.
• CFO transition: John Johnson will move into a Chief Strategy Officer role, and Mario Ramos, formerly of CVS Caremark, will become CFO, a change management believes will support the company’s next phase of growth and operational discipline.

Drivers of Future Performance

Evolent’s forward outlook hinges on the pace of new contract ramp-ups, membership trends in key government programs, and the evolving regulatory landscape.

• Membership and policy uncertainty: Management believes federal decisions on exchange subsidies and ongoing eligibility redeterminations will be the most significant variables affecting revenue and EBITDA in the next year. CFO John Johnson noted, “the primary variable is changes in our customers’ enrolled membership.”
• Margin predictability from new contracts: The new contract structures with risk corridors are expected to deliver more stable, though somewhat lower, margins over time. Blackley indicated that accepting “a reasonable mature margin target” in exchange for less volatility is a deliberate shift.
• AI and cost efficiencies: Evolent expects to realize around $20 million in annualized AI-driven cost reductions in 2026, though the ultimate benefit will depend on underlying membership trends and the pace of technology adoption across service lines.

Catalysts in Upcoming Quarters

Over the coming quarters, StockStory analysts will focus on (1) the pace at which new Performance Suite contracts ramp and contribute to revenue, (2) the evolution of membership in exchange and Medicare Advantage markets as policy decisions play out, and (3) evidence that AI-driven cost efficiencies and process improvements are translating into improved margins. The company’s ability to manage fixed costs and respond to shifts in government program eligibility will also be important signposts.

Evolent Health currently trades at $5.06, down from $6 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free for active Edge members).

High Quality Stocks for All Market Conditions

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.