HCAT - NASDAQ

Thank you for your continued patience. Your meeting will begin shortly. Press 0 and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. Welcome to the Health Catalyst, Inc. Fourth Quarter and Year-End 2025 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode. We kindly ask that you limit yourself to one question. If you have any follow-up, please re-enter the queue. We ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press 0. I would now like to turn the call over to Matt Hopper, Senior Vice President of Finance and Investor Relations. Good afternoon, and welcome to Health Catalyst, Inc.'s earnings conference call for the fourth quarter and full year 2025.

Which ended 12/31/2025. My name is Matt Hopper, Senior Vice President of Finance and Head of Investor Relations. With me on the call today are Ben Albert, our 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 as well as in our related Form 8-Ks furnished to the SEC, both of which are available on the Investor Relations section of our website at ir.healthcatalyst.com. As a reminder, today's call is being recorded, and a replay will be available following the conclusion of the call. During today's call, we will be making forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding our future growth, financial outlook for the first quarter and full year 2026, our ability to attract new clients and retain and expand our relationships with existing clients, market conditions, macroeconomic challenges, bookings, retention, operational priorities, strategic initiatives, growth strategies, the demand for, deployment, and development of our Ignite data and analytics platform and our applications, timing and status of Ignite migrations and associated churn and pressure from clients, the impact of restructurings, and the general anticipated performance of our business. These forward-looking statements are based on management's current views and expectations 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 statements or outlook. Actual results may materially differ. Please refer to the risk factors in our most recent Form 10-Q for 2025 filed with the SEC on 11/10/2025, and our Form 10-Ks for the full year 2025 that will be filed with the SEC. We will also refer to certain non-GAAP financial measures to provide additional information to investors. Non-GAAP financial information is presented for supplemental informational 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. A reconciliation of non-GAAP financial measures for the fourth quarter and full year 2025 and 2024 to their most comparable GAAP measures is provided in our press release. With that, I will turn the call over to Ben.

Thank you, Matt. Thank you to everyone for joining us today. Before we discuss the quarter, I would like to briefly acknowledge the recent leadership transition at Health Catalyst, Inc. I stepped into the CEO role last month following Dan Burton's departure as CEO and from the Board of Directors. I want to thank Dan for his many years of service, mission-driven foundation he helped build, and his support during this transition. We are focused on the future and on positioning Health Catalyst, Inc. for long-term success. There are significant opportunities ahead, and I am confident in strengths that continue to differentiate this company. Our mission, our people, and our core capabilities provide a solid foundation delivering meaningful value to our clients and shareholders. My priority is to build on these strengths, address our challenges with clarity and discipline, and move the company forward with a renewed sense of focus and execution. In my time as President and COO, I conducted a comprehensive review of the business. I have spent 25 years in this industry, and I bring the benefit of an outsider's perspective combined with an insider's understanding of our operations. That dual vantage point gives me clarity on where we are strong and where we need to change. Not only do I see clear value creation opportunities ahead, I also see areas where we can operate with greater focus, rigor, and accountability. We have already moved quickly to tighten leadership focus and execution discipline, including appointing general managers to lead our interoperability and cybersecurity businesses and transitioning our Chief Commercial Officer role to a strong internal successor who is already driving sharper commercial alignment. We have also opened searches for both a Chief Operating Officer and a Chief Marketing Officer to strengthen operational rigor and to clarify and elevate our position within the market. At the same time, we are reviewing our cost structure to ensure we are strategically allocating capital with increased discipline, and we are focused on expanding technology bookings and margins while driving cash flow generation as outcomes of this work. We are taking a fresh approach to how we execute, and I am confident that these actions will put the company on a stronger long-term trajectory. First, our core value proposition is strong. Our clients continue to rely on Health Catalyst, Inc. to manage costs, improve clinical quality, and drive consumer growth. We have a track record of delivering measurable outcomes, and when we are focused and aligned, we can create real value for our clients. Second, the review made it clear that we need to be more focused and more consistent in how we execute. We have allowed too much complexity into our go-to-market motions, our packaging, and our implementation and migration work. This has at times created friction for our clients and slowed our ability to deliver value. We will address this by aligning the organization around a smaller set of priorities, improving clarity across teams, and holding ourselves accountable for predictable, measurable outcomes. Third, we have a clear opportunity to sharpen and simplify our commercial story. Our solutions resonate most when we articulate them through the lens of the problems clients are trying to solve. We have not been consistent in how we describe the full value we can deliver across cost efficiency, clinical quality, and consumer experience. We will tighten our positioning, simplify how we package and present our offerings, and implement a more predictable and focused go-to-market motion that highlights what makes Health Catalyst, Inc. so compelling. We are refocusing on what we do best, a back-to-basics approach. At our core, we are built to deliver measurable outcomes across cost efficiency, clinical improvement, and consumer experience. While the market often thinks of us primarily as a data platform business, our data platform infrastructure has always been a means to an end. The real value of Health Catalyst, Inc. is in the IP, deep healthcare expertise, and high-value applications we have built or acquired over 15 years, grounded in thousands of improvement projects and billions of dollars in validated impact. That is who we are, that is what we believe the market needs, and that is where we will focus our energy. Additionally, as AI continues to play a bigger role, we expect our valuable data assets and expertise will become an increasingly important driver of competitive differentiation. With these learnings as our foundation, our priorities going forward are clear. We will strengthen and simplify our commercial engines to drive technology ARR bookings. We will improve retention through more predictable migrations and clear client value realization. We will increase efficiency and reduce time to value by eliminating operational complexity and scaling work through automation and global resources. And we will better leverage our IP, combining our data foundation with the expertise, content, and AI-enabled solutions that allow us to solve some of healthcare's most pressing problems. These actions begin now, and they will guide how we operate and execute throughout the year. We have also heard a consistent message from our investors. They want our business to be easier to understand with clearer indicators of performance and a more streamlined narrative about what we do and how we create value. I agree with that feedback. As part of our renewed focus and discipline, we will simplify how we communicate our business model, our priorities, and our progress so that our direction is easier to track and evaluate. As part of this work, we are also evolving the way we measure and communicate performance. We will focus on providing a new set of bookings and retention metrics that are easier to understand, align directly with our execution, and clearly reflect how we operate the business. You will see us simplify our reporting, improve transparency, and reinforce accountability through clearer indicators of progress. So while I have already executed an initial comprehensive review as President and COO, as CEO our review of opportunities ahead will not stop, and I will continue to evaluate all aspects of the business to ensure we are focusing on maximizing returns for our investors. This includes a detailed review of our product portfolio, our investment mix, and our cost structure. We are assessing where we can simplify and where we should concentrate our resources. This is a shift in how we have operated. We are changing, and we will be more focused and disciplined in how we allocate capital and build long-term value. Given this work, and the significant impact some of it may have on our financial results going forward, we are not yet in position to provide annual guidance. Today, we are sharing first quarter revenue and adjusted EBITDA guidance only. We believe this is the prudent approach to ensure we are providing initial transparency, and as we continue our strategic and operational review, we plan to come back to the market with our full-year revenue and adjusted EBITDA guidance no later than our first quarter earnings call in May. With that, I will turn the call over to our Chief Financial Officer, Jason Alger, to walk through the financial results.

Thanks, Ben. For the full year of 2025, we generated $311,100,000 in revenue and $41,400,000 of adjusted EBITDA. In the fourth quarter, we continued to demonstrate strong cost control and operating leverage even as we navigated a dynamic demand environment. From a growth standpoint, we finished the year with 32 net new logos, ahead of our target of 30 net new logos but below our initial expectation of 40 that we began the year with. These net new logos had an average ARR plus non-recurring revenue near the midpoint of the $300,000 to $700,000 range. Our TAC plus TEMS dollar-based retention closed the year at 90%. For the fourth quarter of 2025, total revenue was $74,700,000 compared to $79,600,000 in the prior-year period. Technology revenue was $51,900,000 and professional services revenue was $22,800,000. The year-over-year decline primarily reflects lower professional services revenue from reductions in our FTE service offerings and our exit of unprofitable pilot ambulatory TEMS arrangements. For the full year of 2025, as I mentioned, total revenue was $311,100,000, which represented 1% year-over-year growth. Technology revenue increased 7% year over year to $208,300,000, while professional services revenue declined 8% as we continue to prioritize margin improvement and resource efficiency. Adjusted gross margin for the fourth quarter was 53.5% compared to 46.6% in the prior-year period. For the full year of 2025, adjusted gross margin was 51.1%, driven by technology gross margin of 67.4% and professional services gross margin of 18.3%. These results reflect the benefit of restructuring actions implemented during the year, partially offset by migration-related cost headwinds. In the fourth quarter of 2025, adjusted operating expenses were $26,200,000, representing 35% of revenue, compared to $29,200,000, or 37% of revenue, in 2024. For the full year of 2025, adjusted operating expenses were $117,700,000, representing 38% of revenue, compared to $123,400,000, or 40% of revenue, for the full year of 2024. The year-over-year change reflects the continued impact of our restructuring actions, disciplined headcount management, and tighter control over discretionary spending. On a sequential basis, adjusted operating expenses declined by $2,000,000 compared to the third quarter of 2025, driven primarily by the full-quarter benefit of actions we initiated earlier in the year, including workforce optimization, professional services contract restructuring, and operating efficiency initiatives across the organization. From a GAAP expense standpoint, we would note that we did incur impairment charges on goodwill and intangible assets of $110,200,000 during 2025. These charges were primarily due to the decrease in our consolidated market cap and revisions to our forecast, and not a write-down of any specific acquisition. These charges were also the main driver in the change in GAAP net loss from $69,500,000 in 2024 to $178,000,000 in 2025. Adjusted EBITDA for the fourth quarter of 2025 was $13,800,000 compared to $7,900,000 in the prior year. For the full year of 2025, adjusted EBITDA was $41,400,000, representing 59% year-over-year growth. As we look ahead, we remain focused on driving operating leverage, aligning our cost structure with our revenue profile, and prioritizing investments that support future technology margin expansion and technology revenue growth. Our adjusted net income per share in the fourth quarter and full year of 2025 was $0.08 and $0.19, respectively. Weighted average number of shares used in calculating adjusted basic net income per share in the fourth quarter and full year of 2025 was approximately 71,000,000 and 69,900,000 shares, respectively. Turning to the balance sheet, we ended the year with approximately $96,000,000 of cash, cash equivalents, and short-term investments, and $161,000,000 of term loan debt outstanding. For Q1 2026, we currently expect total revenue of $68,000,000 to $70,000,000 and adjusted EBITDA of $7,000,000 to $8,000,000. As we enter 2026, we continue to manage the business with a focus on operational efficiency while balancing targeted investments to support disciplined growth and retention initiatives that we expect will benefit results in the future. We have invested in migration-related personnel and contractors and are adding R&D investments in AI and India. These investments may create near-term financial pressure; we believe they position the business for cost structure improvement in the second half of the year and beyond. Our Q1 2026 revenue is expected to decrease compared to Q4 2025 due to three primary drivers. First, we expect a reduction in TEMS-related revenue due to downselling and our further exit from certain lower-margin TEMS arrangements. This contributed approximately $2,000,000 of the decrease. Second, we continue to see pressure associated with the DOS to Ignite migration. We expect revenue to decline by about $1,500,000 in Q1 2026 compared to Q4 2025 related to data platform pressure. Third, we expect an approximately $1,500,000 decrease in non-recurring revenue in Q1 2026 compared to Q4 2025. This is primarily driven by timing of project completions or certain renewals. A reminder, project-based non-recurring revenue can fluctuate quarter to quarter. We have made substantial progress in migrating our DOS clients to Ignite, but as discussed on previous earnings calls, we still have work ahead. Across 2026 and 2027, we have been notified of roughly $12,500,000 in DOS-related ARR downsell and churn. In addition, we currently estimate $52,000,000 of DOS-related ARR that may be subject to negotiation in 2026 and 2027, of which $35,000,000 is estimated to be data platform infrastructure ARR. Data platform infrastructure—or the data warehouse and related infrastructure—is where we are seeing the highest degree of pressure. While we do expect some level of further churn of this ARR, as Ben mentioned, we are putting plans in place that are designed to retain a large part of this balance. After 2027, we would expect to generally be through the data platform infrastructure migration headwind. We have maintained strong application relationships with our clients even when data platform infrastructure downselling occurs and do not generally lose enterprise relationships entirely. We expect our success in maintaining application relationships to continue in the future. As we approach 2026, although full-year guidance is not being provided, we anticipate that several prevailing trends will persist. These include a sustained emphasis on technology-led bookings through a sharper commercial approach and an ongoing focus on improving technology ARR retention through operational excellence and differentiated applications. With that, I will turn the call back to Ben.

Thanks, Jason. In closing, I want to thank our clients for their continued partnership and our team members for their commitment during a year of meaningful progress and transition. We are focused, disciplined, and aligned around the areas that matter most. We are committed to clear and understandable communication as we move forward. We look forward to updating you on our progress in the quarters ahead. Operator, we are now ready to take questions.

The floor is now open for questions. Thank you. Our first question is coming from Stan Berenshteyn with Wells Fargo. Your line is now open.

Hi. I guess, if it is one question, I would like to maybe ask about the comments you made around the strategic review in the prepared remarks. Does that include the possibility of selling the company? Thank you. Thanks, Dan, for the question. Appreciate it.

We are really focused on how we best position our company for long-term success. And so as we have done this strategic analysis, we are turning over every rock and looking at the company and looking at how we can best position the company for shareholder value. We see tremendous opportunity ahead in some of the things that we do related to helping better manage costs for our clients as they are really in a challenging market right now, helping drive that consumer experience. And, of course, the foundation for Health Catalyst, Inc. is the clinical quality work that we do. And the ability to do that all together in one is a really huge differentiator for us as an organization. So we are really doing this assessment to best position ourselves for success and align to create shareholder value.

So is that a yes or is that a no? Thank you.

Appreciate the question. We are just in an assessment mode. I have been one month into the role and really just driving value as we are after.

Thanks so much.

Thank you. We will go next to Richard Close with Canaccord Genuity. Your line is now open.

Yes. Thanks for the question. Jason, maybe if you could go over the transition impact, I guess, with respect to the first quarter and then I think you said $52,000,000 in terms of the data platform for the remainder of the year. It went by pretty quick, so if you could just go over that again and then maybe provide a little bit more detail on exactly what is going on there?

Yes. Yes, I would be happy to. Appreciate the question, Richard. So, yes, definitely wanted to provide a bit more commentary related to the DOS to Ignite migration that is taking place. I did mention the $52,000,000. That would be our DOS-related revenue, which would encompass both integrated applications as well as data platform infrastructure. Really of the two components there, it is the data platform infrastructure where we are seeing the highest degree of pressure related to this migration. This would be the hosting side of the DOS platform, and that is where we have $35,000,000 of data platform infrastructure ARR that we are working with our clients on plans to retain moving forward. And so that is where we do expect to see the pressure across 2026 and 2027.

And is it something where they are choosing another platform or competitor? Or what exactly, I guess, are you negotiating with them there on that?

Hi, Richard. It is Ben. Yes, at the data platform infrastructure level, there are cross-industry technology solutions that come in and can enable them depending on their strategy. They still need from us in that when they do that is the expertise and the IP and the applications that we provide on top of that. So it is all part of our strategy to meet them where they are depending on what they are going to do from a data platform infrastructure approach.

Thanks.

Thank you. And we will go next to Jeff Garro with Stephens. Your line is now open.

I want to follow up on the demand environment and ask what you learned in Q4 around bookings and specifically booking size and scope, deal length—or, sorry, the sales cycle length—and app attach rates for deals that landed in Q4? And if you could help translate that into expectations for bookings, or just demand generally, in 2026, that would be helpful as well. Thanks.

Sure. Thanks. In Q4, we did a strategic assessment to look at how our applications and solutions best resonate in the market, and it came back clear that the market is in great need of the ability to better manage their costs, to drive clinical quality, and to engage and attract new consumers to their organizations. That is because they are under more pressure than ever. I mean, profitability pockets are—there are—the payer mix is changing with more Medicare patients coming in, the commercial payments rising at the rate. They really have to be focused on how they are managing their labor costs and their clinical costs. They have to be focused on not eroding clinical quality as they are doing that, and they have to win on the consumer side. So we see activity in those areas, in particular on the cost and labor side, and continually the clinical quality side. So that is where we see the greatest impact and opportunity, and that is representative in the funnel as well.

Thank you. Our next question comes from Elizabeth Anderson with Evercore. Your line is now open.

Hey, guys. Good afternoon, and thank you so much for the question. I think you talked a little bit about your sharper commercial alignment going forward. Can you talk about when you are going out and you are talking to clients, where do you see it as your sort of right to win with the current portfolio that you have? Thanks.

I will just expand on the prior question because I think that is really where we are strong. The market is in real need of better managing their costs and driving clinical quality. And when you are managing costs, you cannot do that at the expense of your clinical quality in healthcare. And I think the market—this is really early for the market because the cost pressures they are under are growing and are very significant. And so as our right to win, as we have 15 years in this industry, we have done thousands of projects. We have tremendous content and intellectual property to enable our AI, to help guide our clients through change management, to navigate these really rough waters. So the challenge for us is we have not done a good job of telling that story. We are bringing in a Chief Marketing Officer. We have done the strategic assessment. We are turning over every rock. We are talking to our clients. We are talking to partners. We are talking to industry leaders. And the reality is this is a huge need, and it is something that is going to grow, we believe, going forward. And so that is where we are leaning in, and that is where you are going to see our story evolve over time so the market really understands what Health Catalyst, Inc. is all about.

Got it. Thank you very much.

Thank you. We will go next to David Larsen with BTIG. Your line is now open.

Hi. This is Jenny Shen on for Dave. Thanks for taking my question. I think you highlighted how despite some of the retention declining to sub-100% levels, you generally maintain and retain most of your clients, especially your enterprise ones. Can you kind of just give us a split? Is it like 50/50 between customers actually rolling off completely or just downselling—just getting a dynamic between the difference between roll-offs and downsells? Thank you.

Yeah. I appreciate that, Jenny. It is definitely a much lower percentage than you mentioned. We do not generally lose enterprise relationships. So where we are seeing the pressure, like I mentioned in the prepared remarks, is on the data platform infrastructure side, and that is where we could see downselling related to that. But, typically, from an application relationship standpoint, including those integrated applications, we generally see that clients are electing to keep those applications for the future.

Great. Thank you.

Thanks.

Our next question comes from Jessica Tassan with Piper Sandler. Your line is now open.

Hi, guys. Thanks for taking the question and nice to meet you, Ben. I was hoping maybe—you know, appreciate the comments on cost and clinical quality as being sources of pipeline strength, but I guess what specifically are the names of the Health Catalyst, Inc. apps that fit into those categories and what do they do? And then can you just talk about how the data platform disintermediation could potentially dilute the value of the applications or at least, you know, commoditize the applications layer and what you are doing to protect against that possibility. Thank you.

Jessica, nice to meet you as well. As we break down our applications across those three categories that we talk about, we have applications that deal with cost intelligence, which would really focus more on some of the clinical services and some of the supply chain work they are doing within the organization to make them most efficient in terms of the procedures that they are doing and being as effective as possible. But when they are making the choices, making sure that clinical quality stays high or even grows. Looking at the labor side, we have something called Power Labor that also fits within the labor within the cost management side of the equation, and the ability to do both at once for an organization is incredibly powerful as well. As you look at the clinical side, there are applications around measures. There are applications that are supporting ambulatory. In today’s world, if you do not have a great ambulatory strategy, it is going to be very challenging to execute and grow with your access. So that blends into the consumer side where we have tremendous consumer intelligence applications as well. So we could spend a lot more time on each of those, and I would be happy to talk about those at length, but there are applications that support each bucket going forward. And I want to just reiterate one thing though: the benefit is, of course, we can go deep on any one of those applications. So this goes back to meet you where you are. If someone has a challenge and they are using a lot of visiting nurse labor that can be incredibly expensive, or not staffing their OR times effectively or efficiently—things like that—we can really help them become more efficient, but again, all with that clinical foundation. As an organization, how are you making these changes? How are you solving these problems while not disrupting your clinical quality? In fact, you are improving your clinical quality, and that is just the core of Health Catalyst, Inc.

Thank you. And we will take our next question from Sarah James with Cantor Fitzgerald. Your line is now open.

Thank you. How should we think about the durability of margins if revenue stays under pressure for another few quarters? And can you help us frame the orders of magnitude of the levers that are under your control for 2026?

Yes. Appreciate the question. As we think about gross margins moving forward, there is pressure associated with the DOS to Ignite migration from a technology margin standpoint. That would mostly be the duplicate hosting costs, the duplicate cost structure that we do put in place. We are working to optimize there and remove those costs as quickly as possible, but that does have an impact on Q1 2026. And then from a professional services adjusted gross margin standpoint, we do see pressure associated with the migration personnel that we are adding to assist with the migration. That is to move these migrations as quickly as possible as well. But that is a near-term impact that is impacting Q1 2026 as well. Once we are through the migration, we do expect these to be costs that would be removed from our books moving forward. But we will see the impact in 2026 and a bit of that impact as well as we move into 2027 and continue the migration initiative.

Got it. And just to take a step back on that, does that mean that 2026 would be your transition year, returning to growth in 2027? Or is there still a path to positive year-over-year growth for 2026?

Yes, still evaluating. We are not in a position to guide, and we will be providing the 2026 guide on our next earnings call at the latest, but we are not in a position to comment on the 2027 growth expectation at this point.

Got it. Thanks.

Thank you. We will go next to Daniel Grosslight with Citigroup. Your line is now open.

Jason, I want to go back to the comments you made around the $12,500,000 of DOS-related ARR churn impacting 2026 and 2027 and then that additional $52,000,000 at risk. Can you kind of just break down for us how much of that combined $65,000,000 that is at risk will impact 2026, and the quarterly cadence of those impacts? And then of the $52,000,000 of ARR subject to negotiation now, what is the realistic success rate you are targeting for these negotiations?

Yes. Appreciate the question, Daniel. As we look at the $12,500,000—starting there—that is DOS-related ARR where we have been notified that the client is looking to downsell or churn related to that. We expect about 75% of that to impact 2026 at different points throughout 2026. More of that will come on probably around midyear and going into the later half of 2026. And around the $52,000,000, that would be DOS-related ARR, which does include the integrated applications and the data as well. And that is where the $35,000,000 would be the piece associated with the data infrastructure. We are working with those clients on negotiation, on migrating those clients to Ignite, and we do expect to continue to see pressure associated with the migration, and that is where we do expect to see some downselling related to the data infrastructure, but would expect to be able to retain those application relationships with the clients. So we are working on a plan with the individual clients, but we will provide more on that, Daniel, as we provide our full-year 2026 guide.

Okay. Thank you. Thanks.

Thank you. And we will go next to Richard Close with Canaccord Genuity. Your line is now open.

Yes, thanks for the follow-up. I am just curious on any of the acquisitions that you have done since being a public company. I know VitalWare has been a pretty strong contributor, but can you talk about any of the other acquisitions that you have really seen decent growth in that app layer? And which ones—I guess this has been asked—but which ones really fit into these three priorities now?

Thanks, Richard. This is all part of the assessment in terms of how these applications align to the priorities as we head forward and where we can drive the most shareholder value, the most client value, and the most growth for the organization. Ultimately, we are all about driving measurable improvement, and that measurable improvement comes in those three areas that we talk about. So most of our applications align to those areas, and we see opportunities across, and so we just have to figure out through this assessment which ones are going to create the most value for us going forward. We are super excited to do that, and we will be able to come back with much more clarity no later than our next earnings call when we provide guidance and with a little more thoughts on that assessment.

Okay. Thank you.

Thank you.

At this time, there are no further questions in queue. I will now turn the meeting back to Ben Albert for any additional or closing remarks.

Thank you, everyone. We really appreciate you joining today. We look forward to the next call where we will be able to provide guidance and more results from this assessment. Thank you.