What Health Catalyst (HCAT) Said on Its Q3 Earnings Call

Key Points

• Health Catalyst reported Q3 revenue of $56.3 million and adjusted EBITDA of $779,000, both above guidance. It reaffirmed its 2026 outlook and expects bookings to exceed the high end of its prior target.
• New CEO Simeon Kohl named client retention the top priority, acknowledging elevated churn that is expected to remain a headwind through 2027. The company is also focusing on aligning costs, simplifying operations, and improving execution.
• Adjusted gross margin declined to 44.3% from 52.6% a year earlier, pressured by services costs and higher medical claims. Health Catalyst expects a Q4 adjusted EBITDA loss of $1.3 million to $1.8 million, partly because it will no longer include Vitalware.

Health Catalyst NASDAQ: HCAT reported third-quarter revenue and adjusted EBITDA above its guidance ranges, but executives said client churn and cost pressures remain challenges as the healthcare technology company works to improve profitability.

Revenue was $56.3 million, above the company’s forecast of $55 million to $56 million. Adjusted EBITDA was $779,000, exceeding its guidance of break-even to $500,000. The results included one month of Vitalware operations before its divestiture closed on July 31, Chief Financial Officer Jason Alger said.

The company reaffirmed its full-year 2026 outlook for revenue of $246 million to $249 million and adjusted EBITDA of $18 million to $18.5 million. It also expects annual bookings to exceed the high end of its previous $22 million to $26 million target, although Alger said churn would offset that progress in reported figures.

Retention Tops New CEO’s Priorities

President and CEO Simeon Kohl, who joined Health Catalyst on September 14, said client retention is the company’s most immediate focus. He acknowledged that churn has been higher than management would like and said improving existing client relationships is essential to building sustainable growth.

“It is difficult to build sustainable, profitable growth when we are continually replacing lost revenue,” Kohl said. The company continues to expect it will be generally through migration-related churn headwinds by the end of 2027.

Kohl said Health Catalyst plans to continue supporting the technology clients use today, including DOS, while offering more flexibility in how they deploy its solutions. He also outlined three other priorities: aligning costs with current revenue, reducing operational and product complexity, and improving execution across teams.

Alger said the company is engaging clients well ahead of renewals to identify potential risks. He also said Health Catalyst is being selective about the revenue it pursues, citing an unprofitable interoperability relationship with a large health information exchange client that will terminate at the end of 2026.

Margins Pressured by Services Costs

Third-quarter technology revenue was $40.7 million, while professional services revenue was $15.6 million. Adjusted gross margin fell to 44.3% from 52.6% a year earlier.

Adjusted technology gross margin was 60.6%, while adjusted professional services gross margin was 1.7%. Alger said services revenue declined faster than delivery costs, and elevated employee medical claims added pressure. The company has begun aligning delivery costs with its current contracts, he said.

Across the business, internal benefits costs related to medical claims were about $1.6 million above expectations, with roughly half affecting cost of revenue and half affecting operating expenses. Adjusted operating expenses fell to $24.1 million from $28.1 million a year earlier, although they rose as a share of revenue to 43% from 37%.

Management said savings under Project Nexus, its operating-model restructuring initiative, were tracking to plan. Adjusted net loss was $0.03 per share for the quarter, based on a weighted average share count of 75.4 million.

Fourth-Quarter Loss Expected

Health Catalyst expects an adjusted EBITDA loss of $1.8 million to $1.3 million in the fourth quarter. Alger said the period will be the first full quarter without Vitalware and will reflect churn and seasonally higher medical claims costs. The full removal of Vitalware accounts for most of the expected sequential decline in adjusted EBITDA, he said.

The company ended the third quarter with approximately $79 million in cash, cash equivalents and short-term investments, and no debt. Alger expects cash to decline modestly in the fourth quarter, primarily because of vendor payment timing, including a large prepayment for hosting infrastructure, partly offset by client billings.

About Health Catalyst (NASDAQ:HCAT)

Health Catalyst, Inc is a healthcare technology company that provides data and analytics solutions to help healthcare organizations improve clinical outcomes, operational efficiency and financial performance. Its customers include hospitals, health systems, medical groups and other healthcare organizations seeking to integrate and analyze data from across their operations.

The company's offerings are built around its Health Catalyst Data Operating System, a cloud-based platform designed to combine information from electronic health records, financial systems and other sources.

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