Health Catalyst Earnings Call: Growth Amid Challenges

Health Catalyst ((HCAT)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call for Health Catalyst painted a mixed picture, with positive strides in profitability and revenue growth in the applications segment, yet significant challenges due to Medicaid and research funding cuts. These cuts have led to revised revenue guidance and a reduction in client retention and new bookings. Despite these macroeconomic headwinds, the company remains focused on profitability and enhancing shareholder value.

Outperformance in Revenue and Adjusted EBITDA

Health Catalyst reported a Q2 2025 revenue of $80.7 million and an adjusted EBITDA of $9.3 million, both surpassing their guidance. The Technology segment saw a year-over-year revenue growth of 11%, showcasing the company’s strong performance in this area.

Strong Application Revenue Growth

The applications segment experienced a robust revenue growth of over 20% year-over-year. This segment also boasted an estimated gross margin of over 80% and an adjusted EBITDA margin of 30%, highlighting its profitability.

Restructuring and Profitability Focus

Health Catalyst is undergoing restructuring efforts and client contract changes aimed at improving profitability by over $40 million annually. The company expects its adjusted EBITDA margin to approach 20% by Q4 2025.

Positive Technology Revenue Mix Shift

A favorable shift in revenue mix towards technology and applications is enabling Health Catalyst to achieve higher gross margins and profitability, aligning with their strategic goals.

CEO Commitment to Shareholder Value

CEO Dan Burton has demonstrated his commitment to shareholder value by announcing a reduction in his compensation for 2026, emphasizing the company’s focus on profitability.

Revised Downward Revenue Guidance

The company revised its full-year 2025 revenue guidance to $310 million, primarily due to a $1 trillion Medicaid cut and reductions in research funding, which have significantly impacted client budgets and revenue growth.

Medicaid and Research Funding Cuts

The substantial cuts in Medicaid and research funding have posed significant challenges, affecting client budgets and leading to a reduction in revenue growth for Health Catalyst.

Reduced Dollar-Based Retention

Due to client budget pressures and migration cost savings, Health Catalyst expects its dollar-based retention for 2025 to be in the low 90s, reflecting the financial constraints faced by its clients.

Delayed Life Sciences Opportunities

Research funding cuts have delayed opportunities in the life sciences sector, impacting revenue from the Carevive business and presenting challenges to growth in this area.

Lower New Platform Client Bookings

The company has adjusted its expectations for new platform client bookings, reducing the target to 30 net new clients for 2025, with lower average booking sizes.

Forward-Looking Guidance

Health Catalyst provided detailed guidance during the earnings call, maintaining their adjusted EBITDA guidance at $41 million despite revising their full-year 2025 revenue guidance downward to $310 million. They anticipate a shift towards more technology revenue, particularly in applications, to drive profitability. The company projects Q3 2025 revenue of approximately $75 million and an adjusted EBITDA of $10.5 million, with an annualized run rate of $60 million in adjusted EBITDA going into 2026. They aim to expand adjusted EBITDA margins beyond 20% as part of their ongoing focus on profitability improvement.

In summary, Health Catalyst’s earnings call highlighted a dual narrative of strong application revenue growth and profitability focus, juxtaposed against significant challenges from Medicaid and research funding cuts. The company remains committed to enhancing shareholder value and profitability, with strategic restructuring and a focus on technology revenue mix shifts. Despite the headwinds, Health Catalyst is positioning itself for future growth and improved financial performance.