North America Equity Research 21 February 2020 Equity Ratings and Price Targets Mkt CapRatingPrice Target CompanyTicker mn Price CurPrevCurEnd Date PrevEnd Date Evolent HealthEVH US793 3211 64Nn c12 00Dec 209 00n c Health CatalystHCAT US1 148 1331 46OWn c50 00Dec 20n cn c LivongoLVGO US2 678 5728 35OWn c43 00Dec 20n cn c AllscriptsMDRX US1 604 578 73Nn c10 00Dec 2012 00n c ProgynyPGNY US2 935 1733 67OWn c35 00Dec 2030 00n c PhreesiaPHR US144 0233 61OWn c33 00Dec 20n cn c HealthEquityHQY US5 366 1486 88OWn c90 00Dec 2075 00n c Source Company data Bloomberg J P Morgan estimates n c no change All prices as of 20 Feb 20 Healthcare IT 4Q19 Preview Focus Points for the Prints 2 LVGO blessed Street numbers on its 3Q call for 276M equating to 63 YoY growth 3 MDRX pre announced 4Q guidance in January we think it s now mathematically difficult for them to hold onto the upper end of 3 5 6 LT organic growth guidance 4 Evolent guided to 20 services growth in 2020 based on the Passport contract decision now a 2021 factor How conservative have our companies historically been when guiding to the year ahead We took a look back at the past 5 years to see how our companies have guided relative to the Street consensus estimates and whether or not they actually hit those targets Interestingly Allscripts initial guidance while not always in line with the Street has been a good indicator of actual performance Evolent s revenue guidance has always captured the Street right at the midpoint and HealthEquity s guidance has proven very conservative as they have exceeded the high end of the EPS range by 16 on average MDRX Over the past 5 years MDRX s year ahead EPS guidance bracketed the Street 3 out of 5 times missed 2 times but the midpoint was an average 5 below the Street consensus estimate Full year actual results over that time have come in within the initial guidance range each of those years EVH Over the past 4 years EVH has provided year ahead revenue guidance with the midpoint right in line the Street consensus estimate and the full year actual results have come in an average 10 above the initial midpoint noting some contribution from inorganic growth over that time HQY Over the past 5 years HQY s year ahead EPS guidance bracketed the Street 2 out of 5 times missed 2 times and was 2 North America Equity Research 21 February 2020 Anne E Samuel 1 212 622 4163 anne e samuel above once but the midpoint was an average 1 below the Street consensus estimate HQY s guidance has proven conservative as full year actual results over that time have come in well above the initial guidance range each of those years averaging 16 above the high end of the EPS range PGNY While we don t have much history with PGNY we took a look back at WebMD s historical earnings guidance to see if we could assess management s level of conservatism as both CEO Schlanger and CFO Anevski were previously with that company From the years ending 2014 2016 while they were there earnings guidance captured the Street estimate 2 out of 3 years exceeded once and actual annual earnings results exceeded the high end of initial guidance by 11 on average Evolent Health EVH N Tuesday Feb 25 AMC At our conference in January Evolent spoke to expectations for 2020 organic services revenue growth of 20 to a minimum of 820M This was the result of Passport s contract being extended through 2020 as they await a final decision on the Medicaid contract award expected in April The stock has appreciated 76 since trough levels of 6 49 when the Passport RFP initially fell through vs SPX 9 however Street revenue estimates at 930M do not yet fully reflect the improved outlook We are raising our 2020 estimates to align with the guide now modeling 20 organic services growth with flattish premiums revenue resulting in 16 total 2020 revenue growth to 975M We are also raising our 2020 EBITDA estimate to 42M assuming the company s prior target for a 40 50M annual 2H19 run rate remains a forward looking target despite 4Q investments as we expect the strong revenue growth should provide leverage in the model Based on our revised estimates we are also raising our price target to 12 Breaking down our 4Q estimates we model revenue of 232M vs the Street at 234M in line with guidance of 227 5 239 5M and representing growth of 20 y y and embedding services growth of 16 Our EBITDA estimate for the quarter is 10M representing an increase of 45 3 y y vs the Street at 9 5 in line with guidance of 8 11M Looking back at prior quarterly performance EVH has exceeded consensus revenue in 11 of the past 12 quarters Of the past 12 earnings releases EVH shares have traded up on the day of the earnings release 9 times and down on 3 We will look for commentary on the call around margin expansion opportunities particularly now that revenue growth is accelerating to a 20 rate any updates on the Passport process as we get closer to an April decision and any commentary on the demand environment or impact from the electi