Health Catalyst, Inc. Q3 FY2025 earnings call

• Dan Burton shared Q3 2025 financial results, noting total revenue of $76.3M and adjusted EBITDA of $12M, exceeding guidance. • Anticipated 2025 bookings: ~30 net new platform client additions, average booking size for net new platform clients in lower end of $300,000 to $700,000 range, dollar-based retention in low 90s. Reaffirmed full-year guidance for revenue ($310M) and adjusted EBITDA ($41M). • Ben Albert provided operational update, discussing leadership team strengthening, solutions delivering measurable results in cost control and operational efficiency (e.g., Temple University Health System and Entegris Health examples), progress on Ignite migration initiatives with ~two-thirds of DOS clients expected to migrate by end 2025, and client-centric approach to migration to improve retention. • Focus on disciplined capital allocation, no near-term acquisition plans, and prioritizing growth, profitability, and shareholder return from existing capabilities.

Technology segment recorded revenue of $52.1 million in 2025, representing 7% year-over-year growth. Professional services revenue for Q3 2025 was $24.3 million, a 12% decline compared to Q3 2024. Total revenue for 2025 was $76.3 million. Adjusted gross margin was 53%, an increase of approximately 50 basis points year-over-year. Technology segment's Q3 2025 adjusted gross margin was 68%, up ~330 basis points year-over-year. Professional services segment's Q3 2025 adjusted gross margin was 19%, up ~210 basis points year-over-year.

• Reaffirmed full-year 2025 guidance: revenue $310M and adjusted EBITDA $41M. • Q4 2025: technology revenue projected to slightly decline due to migration-related down-sell and churn, partially offset by application-related growth; professional services revenue expected to be down due to project-based revenue in Q3 and contractual restructuring; revenue mix shifting toward technology. • 2026: revenue performance expected to be a few points lower than 2025 driven by factors like low dollar-based retention, Ignite migration headwinds, and exiting less profitable TEMS relationships; adjusted EBITDA expected to improve due to strategic focus, cost management, and optimization efforts; focus on operating leverage and targeted investments.

• Macro-economic challenges including inflation, tariffs, interest rates. • Changes to government funding and payment programs negatively impacting end market and clients. • Ignite migration timeline impact on dollar-based retention. • Client budget pressures affecting deal sizes and sales cycle uncertainty.

Q: Jared Haas asked about the longer Ignite migration timeline and why clients might stay on legacy.

A: Ben Albert said clients want flexibility due to competing priorities, Dan Burton added clients preferring to stay on DOS for some items, and Jason Alliger noted gross margin progress continues despite migration changes.

Q: Jessica Tassan asked about tech revenue sequential decline.

A: Dan Burton said it's a mix of DOS to Ignite headwinds and app layer growth; Jason Alliger mentioned nonrecurring revenue in Q3 impacting Q4.

Q: Elizabeth Anderson asked about one-timers and pipeline.

A: Jason Alliger explained one-timers in professional services; Dan Burton discussed pipeline robustness and smaller deal sizes due to client budget pressures.

Q: Richard Close asked about revenue model change and AI.

A: Ben Albert said open to ROI discussions; Dan Burton and Ben Albert discussed AI solutions leveraging DOS or Ignite and client flexibility.

Q: Daniel Grosslight asked about revenue model change and tech.

A: Ben Albert said open to ROI conversations; Dan Burton discussed app layer growth and flexibility.

Q: David Larsen asked about Ignite vs DOS growth and TEMS.

A: Dan Burton and Ben Albert discussed Ignite as more efficient platform, and TEMS transition evaluation for profitability; Jason Alliger noted lap of ambulatory temps exit in June.

Q: Stan Berenstain asked about Ignite migration contracts and EBITDA glide path.

A: Dan Burton said most clients continue existing contracts; Jason Alliger noted Q4 EBITDA as guide but dynamic environment.

Q: Jeff Garro asked about EBITDA growth and market expansion.

A: Dan Burton and Ben Albert discussed strategic focus on cost management and ambulatory offerings; Jason Alliger mentioned Q4 earnings call for more detail.

Q: Gabby Ingoglia asked about EBITDA growth and app products.

A: Dan Burton and Ben Albert discussed Q3 EBITDA outperformance and focus on cost-constrained solutions like ambulatory intelligence; Jason Alliger noted early stage with Microsoft partnership.

Q: Richard Close asked about tech one-timers and Microsoft relationship.

A: Jason Alliger explained one-timers as contractual or delivery timing; Dan Burton discussed early stage of Microsoft partnership and Databricks partnership for mid-market.