Health Catalyst (HCAT) Q3 2026 Earnings Call Transcript

DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• Senior Vice President of Finance and Investor Relations - Stephanie St. Clair
• President and Chief Executive Officer - Simeon Kohl
• Chief Financial Officer - Jason Alger

TAKEAWAYS

• Total Revenue -- $56.3 million, exceeding the high end of the guided range of $55 million to $56 million driven by progress on bookings and implementations.
• Adjusted EBITDA -- $779,000, surpassing the guidance range of zero to $500,000 reflecting Project Nexus cost reductions tracking to plan.
• Technology Revenue -- $40.7 million, representing approximately 72% of total quarterly revenue following the divestiture of the Vitalware business.
• Professional Services Revenue -- $15.6 million, as revenue in this segment declined faster than delivery costs.
• Full Year 2026 Revenue Guidance -- $246 million to $249 million, representing a reaffirmation of the company's previously stated outlook.
• Full Year 2026 Adjusted EBITDA Guidance -- $18 million to $18.5 million, consistent with the full-year range provided in the prior quarter.
• Cash and Short-Term Investments -- $79 million, providing increased financial flexibility following the retirement of the company's credit facility and having no debt.
• Annual Bookings Target -- Expectation to exceed the high end of the $22 million to $26 million range for the year.
• Vitalware Divestiture Gain -- $65.9 million, serving as the primary driver for quarterly GAAP net income.
• Adjusted Technology Gross Margin -- 60.6%, which remained consistent with previous internal trends.
• Adjusted Professional Services Gross Margin -- 1.7%, impacted by declining services revenue and elevated medical claims costs.
• Internal Medical Claims Costs -- $1.6 million higher than management expectations, with the expense split between cost of revenue and operating expenses.
• Adjusted Operating Expenses -- $24.1 million, or 43% of total revenue, compared to $28.1 million in the prior year period.
• Non-GAAP Net Loss Per Share -- negative $0.03, based on a weighted average share count of 75.4 million.
• Embedded Product Adoption -- 86% of prescriptions completed within 24 hours for a client that went live in approximately 75 days.
• Contract Termination -- Ending of an interoperability relationship with a large health information exchange at the end of 2026 because the relationship was not profitable.
• Project Nexus Progress -- Savings are tracking to plan although partially offset by investments in the team and higher-than-anticipated benefit costs.
• Q4 Adjusted EBITDA Outlook -- Negative $1.8 million to negative $1.3 million, reflecting the first full quarter without Vitalware and seasonal medical claims expenses.
• GAAP Net Income -- $40.5 million, compared to a net loss of $22.2 million in the third quarter of the prior year.
• Loss on Extinguishment of Debt -- $9.5 million, recognized in connection with the voluntary repayment of all outstanding obligations under the Credit Agreement.

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RISKS

• Kohl stated, "Churn has been higher than we would like, and strengthening our ability to retain and grow existing client relationships is a top priority," regarding recent client losses.
• Alger noted, "The internal benefits costs related to medical claims were approximately $1.6 million greater than expectation across the business this quarter," creating a headwind for professional services margins.
• Alger warned that the company continues "to see migration-related churn pressure that is generally in line with the framework we previously disclosed," affecting reported revenue figures.

SUMMARY

Health Catalyst, Inc. (NASDAQ:HCAT) reported third quarter results that exceeded its previous financial guidance while completing a strategic divestiture of its Vitalware business and retiring its outstanding debt. Management indicated that the company is currently focused on its Project Nexus initiative to transform its operating model and simplify its technology portfolio. Under new leadership, the company has established four primary strategic priorities: improving client retention, aligning costs with current revenue, reducing organizational complexity, and driving more consistent execution. The company ended the quarter debt-free with a cash balance of approximately $79 million, which management stated provides increased flexibility to support future growth and modernization efforts.

• Management indicated that migration-related churn headwinds are expected to persist through the end of 2027 as the company transitions clients to its newer platforms.
• CEO Kohl stated, "We have an opportunity to bring those strengths together more effectively, making it easier for clients to understand the value we offer, adopt our solutions, and expand their relationships with us."
• The company is prioritizing durable, profitable revenue by terminating non-profitable relationships, including a specific interoperability contract ending in Dec. 2026.
• Kohl noted that the role of the company "is to meet clients where they are by continuing to support the technology they use today, including DOS, offering greater flexibility in how they deploy our solutions."
• Management is aligning professional services delivery costs with current contracts to address margin pressure in the second half of the year.
• The company recently expanded its board of directors with the additions of Steve Nelson and Tami Reller, who bring experience in healthcare delivery and business transformation.

INDUSTRY GLOSSARY

• Adjusted EBITDA: A non-GAAP financial measure that excludes interest, taxes, depreciation, amortization, and other non-recurring or non-cash items such as stock-based compensation and gains on business sales.
• DOS (Data Operating System): The legacy enterprise data and analytics platform used by Health Catalyst clients.
• Health Information Exchange (HIE): A system that allows healthcare professionals and patients to appropriately access and securely share a patient’s vital medical information electronically.
• Ignite: The company's next-generation data platform designed to offer modernized analytical capabilities and deployment flexibility.
• Project Nexus: A strategic initiative focused on cost reduction, operational transformation, and repositioning the company's business model.
• Vitalware: A revenue cycle management business that Health Catalyst divested on July 31, 2026.

Full Conference Call Transcript

Operator: Welcome to the Health Catalyst third quarter 2026 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. To get to as many questions as time permits, we kindly ask that you limit yourself to one question. If you have any follow-up, please re-enter the queue.

So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Stephanie St. Clair, Senior Vice President of Finance and Investor Relations. Stephanie St. Clair SVP of Finance and Investor Relations. Good afternoon, and welcome to Health Catalyst earnings call for the third quarter of 2026. I am Stephanie St. Clair, Senior Vice President of Finance and Investor Relations. With me today are Simeon Kohl, our President and Chief Executive Officer, and Jason Alger, our Chief Financial Officer.

A complete disclosure of our results can be found in our press release issued today and our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website at ir.healthcatalyst.com. A replay of this call will be available afterwards. Stephanie St. Clair SVP of Finance and Investor Relations.

Today's call includes forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including about our financial outlook, expectations for the fourth quarter and full year 2026, client migrations and client retention, future growth and strategic priorities, our ability to strengthen our foundation, our ability to achieve profitable revenue growth and deliver returns to shareholders, our long-term opportunities, retention, bookings, the impact of the Vitalware divestiture, and the general anticipated performance of our business. These forward-looking statements reflect management's views as of today and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statement or outlook.

Actual results may materially differ. Please see the risk factors in our 2025 Form 10-K filed March 12, 2026, and our third quarter Form 10-Q filed today. We will also discuss non-GAAP measures. Stephanie St. Clair SVP of Finance and Investor Relations. Reconciliations to the most comparable GAAP measures are in our press release. Non-GAAP financial information is presented for supplemental purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.

We will provide forward-looking guidance for certain non-GAAP measures in this earnings call and are not providing forward-looking guidance for the most directly comparable GAAP guidance measures or reconciliations because some items are not within our control or cannot be reasonably forecasted. Simeon joined us as President and CEO on September 14th. With that, I'll turn the call over to him.

Simeon Kohl: Thank you, Stephanie, and good afternoon, everyone. Earlier this afternoon, we reported third quarter revenue of $56.3 million and adjusted EBITDA of $779,000, both above the high end of our guidance ranges of $55 million-$56 million and $0-$500,000 respectively. Given our performance year to date and with Project Nexus cost reductions on track, we are reaffirming our full year revenue and adjusted EBITDA outlook. As a reminder, Project Nexus is our strategic initiative designed to fundamentally transform our operating model and deliberately reposition our business.

Before turning the call over to Jason for details on our financial performance and outlook, I'd like to share my initial perspectives on Health Catalyst, what attracted me to this opportunity, and the priorities that will guide our decisions and actions. As Stephanie mentioned, I joined in mid-September, and over these first several weeks, I've spent considerable time connecting with our leaders, team members, clients, and many of you. Those conversations have reinforced many of the reasons I was excited to join Health Catalyst. Health Catalyst has deep healthcare expertise, longstanding client relationships, and proven measurable outcomes.

Our data and analytics technology, together with solutions in clinical quality, financial performance, interoperability, and consumer engagement, helps healthcare organizations connect complex data and turn it into actionable insights that address some of healthcare's most pressing challenges. Equally important, we have a team deeply committed to improving healthcare. Their expertise and dedication are fundamental strengths of this business and will be essential as we build on the results we currently deliver to clients. We also have a stronger financial foundation following the Vitalware divestiture and the retirement of our credit facility. We are debt-free with approximately $79 million in cash, giving us increased flexibility as we move forward. My view is straightforward.

I believe Health Catalyst has meaningful assets and a compelling long-term opportunity, and our immediate priority is to strengthen the foundation of the business. At the same time, there are areas where we can do better, and client retention is the most immediate focus. Churn has been higher than we would like, and strengthening our ability to retain and grow existing client relationships is a top priority. We are approaching it with urgency and a focus on sustained improvement. My experience at Performant gave me the opportunity to build and lead a healthcare business through considerable challenges and difficult decisions, which ultimately supported Performant's journey towards increased profitable growth.

Along the way, we made deliberate choices about where to invest, how to differentiate, and how to create sustainable value for clients and shareholders. The circumstances here are different, but many of those same principles apply, and they inform my four priorities. The first is retention. We must do more to preserve our client relationships and the revenue they represent. That starts with gaining a better understanding of what clients need, addressing where we fall short, and continuing to deliver value as their needs evolve. Health systems have invested heavily in technology, and many, understandably, want to get more from those investments without adding complexity.

Our role is to meet clients where they are by continuing to support the technology they use today, including DOS, offering greater flexibility in how they deploy our solutions, and aligning our modernization efforts with their priorities. Ultimately, we want clients to choose Health Catalyst for the value we deliver, with technology and deployment options that work best for them. We are focused on building stronger relationships with our clients, staying close to their priorities, and working across the organization to deliver the value they expect from us. Retention is foundational to everything else we want to accomplish. It is difficult to build sustainable, profitable growth when we are continually replacing lost revenue.

As we have said before, we expect to be generally through the migration-related churn headwinds by the end of 2027. Second, greater cost alignment. We intend to grow Health Catalyst, and our focus is on building durable, profitable revenue that creates lasting value for our clients and attractive returns for our shareholders. That requires aligning our cost base with the revenue we can support today and investing with discipline in opportunities for future growth. We are sharpening our understanding of the economics across the business to identify where we generate attractive returns, where performance needs to improve, and where investment can create the most value.

That insight will guide how we allocate resources, improve efficiency, and strengthen our financial foundation to support future growth. We will act with both urgency and care. Third, less complexity. We have become more complex than we need to be, and we are focused on simplifying how we operate and how we present our capabilities to clients and prospects. Over the years, Health Catalyst has developed and acquired a broad portfolio of technology, data, and healthcare expertise. We have an opportunity to bring those strengths together more effectively, making it easier for clients to understand the value we offer, adopt our solutions, and expand their relationships with us.

As healthcare organizations work to improve clinical outcomes, lower costs, and deliver a better consumer experience, I believe our combined capabilities position us well to help them achieve those goals. Our immediate opportunity is to make better use of what we already have by simplifying how we present our solutions, improving integration across the portfolio, and helping clients realize more value from our capabilities. Making our solutions easier to deploy alongside clients' existing technology can also reduce barriers to adoption and broaden our market. Fourth, more consistent execution. We have talented people throughout Health Catalyst, and we need to translate that talent into more consistent results.

That requires clear priorities, shared accountability, stronger coordination across functions, and reliable information to guide our decisions. We are establishing a more disciplined operating cadence and bringing our product, engineering, and client-facing teams into closer alignment so we can execute as one Health Catalyst. Stepping back, these priorities reinforce one another. Stronger retention can make our revenue more predictable and durable. Greater cost alignment can strengthen profitability and our ability to invest in products that meet clients' evolving needs. A simpler, more integrated approach can help clients get more value from our partnership, and more consistent execution helps to drive a more reliable, high-quality delivery.

Together, we believe these priorities lay the foundation for a more profitable, predictable business positioned for sustainable growth. We're also realistic about where we stand today and the work required to improve our performance. We see opportunities to strengthen the economics of the business, improve commercial effectiveness, and unlock more value from the capabilities we already have. We're making disciplined decisions grounded in those opportunities, with growth and investment tied to where we believe we can create clear client value and generate attractive returns. I also want to be clear about what you should expect from me and our leadership team: transparency about our progress and our challenges, discipline in how we invest, and accountability for the commitments we make.

Financial results will ultimately be the most important measure of our success, and we want to give you better visibility into what drives them. We're evaluating a focused set of measures to help you assess our progress, and we'll share more as that work advances. We also benefit from a board with deep experience in healthcare delivery, technology, and business transformation, further strengthened by the recent additions of Steve Nelson and Tami Reller. I appreciate the perspective and active engagement of our entire board as we move these priorities forward. Let me close with this. I'm still early in my tenure, and we have important decisions ahead.

We won't have every answer immediately, and meaningful improvement will require sustained execution, but I'm encouraged by our combination of healthcare expertise, technology and data assets, and trusted relationships with organizations tackling the most difficult challenges in healthcare. Our responsibility is to bring those strengths together with greater discipline and accountability, and to earn your confidence through results. With that, I'll turn the call over to Jason.

Jason Alger: Thank you, Simeon. As Simeon noted, third quarter revenue and adjusted EBITDA both came in above the high end of our guided ranges. One item to keep in mind, third quarter results include one full month of Vitalware in July, before the divestiture closed on July 31st. Let me walk through the details on the third quarter. Total revenue was $56.3 million against our guided range of $55 million-$56 million. Technology revenue was $40.7 million, and professional services revenue was $15.6 million. We continue to make progress on bookings, with a focus on converting those wins into revenue as quickly as possible. Clients achieve value sooner when implementations move fast, and we benefit from quicker revenue recognition.

One client went live on our embedded product in about 75 days after signing, and they reported that 86% of prescriptions are now completed within 24 hours, with call volume down 8% in the most recent week. Adjusted gross margin was 44.3% compared to 52.6% in the prior year period. Adjusted technology gross margin was 60.6%, consistent with the trend we discussed last quarter. Adjusted professional services gross margin was 1.7% because services revenue declined faster than our delivery costs, and elevated internal benefits costs related to medical claims created an additional headwind. We anticipated the professional services margin pressure in the second half and have begun aligning delivery costs with our current contracts.

Adjusted operating expenses were $24.1 million, or 43% of revenue, compared to $28.1 million, or 37% of revenue in the prior year period. Project Nexus savings are tracking to plan, but investments in our team and higher-than-anticipated internal benefits costs offset part of the year-over-year reduction. The internal benefits costs related to medical claims were approximately $1.6 million greater than expectation across the business this quarter, with about half in cost of revenue and half in operating expenses. Adjusted EBITDA was $779,000, above our guided range of break-even to $500,000. Adjusted net loss per share was negative $0.03 on a weighted average share count of 75.4 million.

We ended the quarter with approximately $79 million in cash equivalents, and short-term investments, and no debt. We expect cash to decline modestly in the fourth quarter, mainly from the timing of vendor payments, including a large prepayment for hosting infrastructure, partly offset by client billings that typically benefit the fourth and first quarters. Turning to guidance, we are reaffirming our full year 2026 revenue and adjusted EBITDA outlook. We expect total revenue of $246 million-$249 million, and adjusted EBITDA of $18 million-$18.5 million. That implies an adjusted EBITDA loss in the fourth quarter of negative $1.8 million to negative $1.3 million, consistent with the full year range we provided last quarter.

The fourth quarter is our first full quarter without Vitalware, and it reflects the churn dynamics we discussed this year and seasonally higher medical claims expense. The full removal of Vitalware in Q4 versus one month in Q3 drives the majority of the adjusted EBITDA decrease quarter-over-quarter. For the full year, we continue to expect overall adjusted gross margin below 50%, with adjusted technology gross margin in the low 60s and adjusted professional services gross margin in the low to mid-teens. As we said last quarter, we continue to see migration-related churn pressure that is generally in line with the framework we previously disclosed.

We are listening closely to clients and focusing on the outcomes they need, rather than the infrastructure decisions they face. We are engaging well ahead of renewal to identify and address potential risks. We believe continued innovation in our technology, designed around how clients operate, is the most durable way to strengthen those relationships. We continue to see new bookings and expansion within our existing client base, and we now expect to exceed the high end of our $22 million-$26 million bookings target for the year. The churn pressure offsets that positive bookings result in our reported figures. Consistent with our focus on durable, profitable revenue, we are being deliberate about the revenue we pursue.

For example, an interoperability relationship with a large health information exchange client that was not profitable terminates at the end of 2026. These decisions aren't taken lightly, but they're necessary in focusing on durable, profitable relationships. We're managing the business with urgency and cash discipline, with close scrutiny of every dollar we spend. We know confidence is earned through execution, and we're focused on delivering. With that, operator, we'll open the call for questions.

Operator: Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we kindly ask that you limit yourself to one question and that you pick up your handset when posing your question to provide optimal sound quality. Thank you. And once again, if you do have a question, you may press star one on your telephone keypad. At this time, I'm showing no questions in queue. I will now turn the meeting back to Simeon Kohl for additional or closing remarks.

Simeon Kohl: Thank you, operator. With no question, before we close here, I just want to thank our team members for their Herculean efforts and certainly our clients and shareholders for their continued support. There's no doubt a lot of work ahead of us, but I believe we're taking the right steps to build a much stronger Health Catalyst for the future. Thanks all for joining us today, and we look forward to sharing our progress on the next Q4 call.

Operator: Thank you. This concludes today's Health Catalyst third quarter 2026 earnings conference call. Please disconnect your line at this time and have a wonderful day.

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