Health Catalyst, Inc. Q2 FY2025 earnings call

Dan Burton noted that Q2 2025 revenue of $80.7 million and adjusted EBITDA of $9.3 million outperformed guidance. The Technology segment saw an 11% year-over-year revenue growth. The company revised the full-year 2025 revenue guidance to $310 million due to the impact of Medicaid and research funding cuts but maintained the adjusted EBITDA guidance of $41 million for 2025. Key factors for the revenue revision include existing platform clients pocketing Ignite migration savings, focus on client contract profitability, delays in the Carevive business within the life sciences end market, and lower average booking sizes for new platform clients. Dan LeSueur provided an update on Ignite migrations, stating steady progress with Ignite being more modular and cost-efficient. The company implemented a restructuring plan to streamline the organization, affecting approximately 9% of the workforce, and this is expected to improve profitability. Jason Alger discussed financial details, including Q2 revenue of $80.7 million, adjusted EBITDA of $9.3 million, and provided guidance for Q3 and full-year 2025.

In the second quarter of 2025, Health Catalyst's total revenue amounted to $80.7 million. The Technology segment recorded revenue of $52.9 million for the quarter, representing an 11% year-over-year growth. Professional services revenue for Q2 2025 was $27.8 million, which was a 1% decline compared to Q2 2024. The total adjusted gross margin in Q2 2025 was 50%. The Technology segment's adjusted technology gross margin was 66%, and the Professional Services segment's adjusted professional services gross margin was 18%.

The company revised the full-year 2025 revenue guidance to $310 million but kept the adjusted EBITDA guidance at $41 million. For Q3 2025, adjusted EBITDA is expected to be approximately $10.5 million. For the full year 2025, total revenue is anticipated to be around $310 million and adjusted EBITDA around $41 million. It is expected that adjusted operating expenses will be lower as a percentage of revenue in 2025 compared to 2024, and further operating leverage will be realized in 2026 through shifting the R&D team to India and widespread use of AI.

The company faces risks from macroeconomic challenges such as Medicaid and research funding cuts, which negatively impact the end market. Client budget pressures lead existing platform clients to pocket Ignite migration savings, creating near-term revenue headwinds. Uncertainty regarding the impact of Medicaid cuts, which may not be resolved in the short term, and potential delays in client contracts and bookings due to funding cuts.

Q: On your Life Science business, can you give us a bit more color on how that business is doing? And what level of investment do you think you need for that business to grow?

A: Dan Burton stated that there are delays in some late-stage opportunities related to the Carevive business in the life sciences space due to research funding cuts. The offering is differentiated, and while there are delays, the company is hopeful of closing those opportunities, with delays potentially subsiding as the life sciences industry adjusts to the new normal.

Q: Going back to John's question, it seems like some of the challenges you laid out are really not going to be resolved anytime soon. And we may even see an increase in uncertainty particularly in Medicaid which those cuts really don't come into effect until a couple of years or so. So as we look to growth in '26 and '27, I was hoping you could provide a little bit more detail on how we should think about your growth algorithm...

A: Dan Burton mentioned that the macro headwinds are likely multiyear, with Medicaid cuts being larger and taking effect sooner than anticipated. Factors such as the new client building block, existing client dollar-based retention, and in-year growth contribute to growth. The Technology segment's app revenue growth and the removal of the platform migration headwind in mid-2026 are also relevant to growth projections.

Q: I wanted to dig in on the net new platform clients guide. Can you help us think about the contribution to that between some of your app layer client wins versus external client wins?

A: Dan Burton said that approximately 2/3 of net new platform clients come from the existing client base, highlighting the strength of the cross-sell motion. The company revised the net new client goal for 2025 to 30 due to funding cuts, acknowledging the impact of Medicaid and research funding cuts on the new client pipeline despite recent momentum in Q3.