Health Catalyst, Inc. Q2 FY2026 earnings call

• Strategic Transformation (Project Nexus) & Divestiture: Closed the divestiture of non-core business VitalWare to MedMetrics for $147 million in total cash consideration, with $145.5 million in net proceeds after transaction costs. All divestiture proceeds plus existing on-hand cash were used to fully repay ~$160 million in credit facility debt, eliminating $19 million in annual GAAP interest expense and leaving the company with zero debt and a strong cash position. The divestiture is part of the multi-year Project Nexus strategic initiative to simplify the business, focus on core high-conviction technology opportunities, and reposition the operating model. Project Nexus cost savings are tracking to plan, with full quarterly run-rate savings expected to be realized in H2 2026, and net full-year savings expected to land at the lower end of the original $3 million-$4 million target after intentional team retention investments.
• Core Business Focus: The company is prioritizing investment in its core healthcare intelligence products that pair analytics and domain expertise with improvement services to help pressured health systems deliver sustainable operational and clinical improvement. Current investments are focused on new products, the proprietary intelligence layer, AI-driven automation, the Ignite interoperability platform, and client migration from the legacy DOS platform to Ignite.
• Financial Performance: Q2 2026 total revenue exceeded the high end of the guided range of $68 million-$70 million. Adjusted gross margin was 51% (up from 50% year-over-year), adjusted operating expenses were $25.9 million (37% of revenue, down from 38% year-over-year), and adjusted EBITDA was $9.9 million, hitting the high end of the guided range of $9 million-$10 million. Ended Q2 with ~$103.4 million in cash, cash equivalents and short-term investments; pro forma after divestiture and debt repayment, cash position is ~$82 million with zero debt.
• Migration Status: There is no material change to prior migration guidance. The company continues to experience significant churn pressure from the DOS to Ignite migration, with some churn and associated services revenue declines pulled forward into H2 2026. The company expects to fully resolve migration-related revenue headwinds by the end of 2027.

In Q2 2026, Health Catalyst reported total revenue of $70.5 million, split between two core segments: 1) Technology segment: revenue of $48.8 million, accounting for 69.2% of total Q2 revenue; adjusted gross margin of 63% (down from 66% year-over-year, due to migration and pre-revenue deployment costs). 2) Professional Services segment: revenue of $21.7 million, accounting for 30.8% of total Q2 revenue; adjusted gross margin of 22% (up from 18% year-over-year). Prior to its July 31, 2026 divestiture, VitalWare (the divested RCM segment) contributed $11.4 million in adjusted EBITDA in the first half of 2026 as a higher-margin business, and 5 months of its 2026 revenue is removed from full-year guidance post-divestiture.

• Full year 2026 guidance has been updated post-VitalWare divestiture: total revenue is now expected to be $246 million-$249 million, and adjusted EBITDA is expected to be $18 million-$18.5 million. The guidance update is almost entirely driven by the removal of 5 months of VitalWare revenue and adjusted EBITDA, which was a higher margin business.
• Q3 2026 guidance: total revenue of $55 million-$56 million, adjusted EBITDA of break-even to $500,000.
• Full year 2026 margin guidance: overall adjusted gross margin is expected to be below 50% (down from prior expectations due to the removal of higher-margin VitalWare). Adjusted technology gross margin is expected to finish in the low 60% (slightly below pre-divestiture guidance), and adjusted professional services gross margin is expected to finish in the low to mid-teens (in line with prior guidance). Over the long term, overall adjusted gross margin is expected to trend higher as revenue mix shifts to higher-margin technology products.
• Annual professional services revenue is now expected to exit 2026 at the lower end of the prior guidance range, closer to $55 million, as clients bring some managed services work back in-house.
• Full year 2026 bookings guidance is maintained at $22 million-$26 million, which includes VitalWare bookings through the July 31 transaction close date.
• Stock-based compensation is expected to be down significantly year-over-year in absolute terms, and will equal mid single digits percentage of full-year revenue, in line with prior guidance.

• Ongoing client churn and ARR downsell related to the DOS to Ignite platform migration remains a significant headwind, with ~$12.5 million of already notified churn and $52 million of additional at-risk ARR (of which the company expects to retain only $22 million), and continued significant pressure in this area. Some migration-related churn and associated services revenue loss has been pulled forward, creating pressure on H2 2026 results.
• Near-term margin pressure comes from incremental migration costs, including over-allocated migration resources, duplicate hosting costs for parallel legacy and new environments, and historical data loading costs, which will persist until migrations are completed by end-2027.
• The RCM market (VitalWare's core market) has become increasingly competitive, and would have required significant incremental investment to grow, which would have pressured EBITDA, debt covenants, and core business investment capacity.
• The company is in the early stages of a multi-year transformation, and actual results may differ materially from forward-looking expectations as the business repositioning is ongoing.

Q: Can you confirm that excluding the VitalWare divestiture, the original full-year guidance would have been maintained? / A: The entire downward revision to guidance is the direct result of removing VitalWare's revenue and adjusted EBITDA contribution from full-year 2026 guidance. The remaining downward impact on adjusted EBITDA comes from the deliberate additional investments the company is making in core product development and team member retention for the transformation.

Q: Having completed the VitalWare divestiture after multiple acquisitions over the past several years, does Health Catalyst plan to pursue additional divestitures? / A: Management's current focus is entirely on executing the ongoing transformation, validating the company's highest-conviction core market opportunities, and backing those prioritized bets after retiring all debt and refocusing the business. No additional divestitures are being prioritized or discussed at this stage.