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Health Catalyst, Inc. (HCAT)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $80.7M, up 6% YoY and above both company guidance ($80.5M) and S&P Global consensus ($80.6M); adjusted EBITDA was $9.3M (+24% YoY), also above guidance ($8M) and consensus EPS, as the company reported adjusted net income per share of $0.04 vs consensus primary EPS of $0.0365 *.
  • Management cut FY 2025 revenue guidance to ~$310M from ~$335M, but maintained FY adjusted EBITDA at ~$41M, citing multi-year end-market headwinds from Medicaid and research funding cuts; Q3 guidance was set at ~$75M revenue and ~$10.5M adjusted EBITDA .
  • Mix shift continues toward higher-margin Application Technology: Technology revenue grew 11% YoY, while Professional Services declined 1% YoY; restructuring (impacting ~9% of workforce) and contract changes aim to lift margins and profitability .
  • CEO Dan Burton announced plans to retire by June 30, 2026; near-term catalysts include profitability focus (run-rate adjusted EBITDA ~$60M by Q4 2025) and continued Ignite migration/cross-sell momentum offset by Medicaid/research cuts and reduced net-new platform client targets .

What Went Well and What Went Wrong

What Went Well

  • Outperformance vs guidance and consensus: Q2 revenue of $80.7M and adjusted EBITDA of $9.3M beat quarterly guidance on both metrics; adjusted net income per share was $0.04, above S&P primary EPS consensus of $0.0365 *.
  • Technology segment strength: Technology revenue grew 11% YoY to $52.9M; adjusted technology gross margin was 66% and total adjusted gross margin was 50%, highlighting continued mix improvement toward higher-margin applications .
  • Profitability focus and visibility: Q3 adjusted EBITDA guided to ~$10.5M and FY 2025 to ~$41M; management pointed to run-rate adjusted EBITDA of ~$60M by Q4 2025 (~20% margin) driven by restructuring, contract updates, and application mix .

Quotes:

  • “I am pleased by our strong financial results, including total revenue of $80.7 million and Adjusted EBITDA of $9.3 million, with these results beating our quarterly guidance on each metric.” — CEO Dan Burton .
  • “We anticipate this restructuring plan and our updates to client contracts will improve Adj. EBITDA by over $40 Million on an annualized basis.” .
  • “We are maintaining our adjusted EBITDA guidance of $41,000,000 for 2025… run-rate annualized Adj EBITDA of $60M (~20% margin) in Q4 2025.” .

What Went Wrong

  • Revenue guidance cut: FY 2025 revenue lowered to ~$310M from ~$335M as clients “pocket” Ignite savings, reduced expansions, proactive services contract restructuring, delays in Carevive life sciences, and smaller net-new bookings amid Medicaid/research funding cuts .
  • GAAP loss driven by impairment: Net loss widened to $(41.0)M, including a $28.8M goodwill impairment following indicators and quantitative impairment tests for Technology and Professional Services reporting units .
  • Services headwinds: Professional Services revenue declined 1% YoY; management expects Services revenue to be slightly down in 2025 and likely 2026 as unprofitable contracts are exited/restructured (e.g., ambulatory TEMS pilots) .

Financial Results

MetricQ2 2024Q1 2025Q2 2025Q2 2025 Consensus (S&P)*
Revenue ($USD Millions)$75.902 $79.413 $80.721 $80.585*
GAAP Gross Margin (%)38% 36% 38% —
Net Loss ($USD Millions)$(13.516) $(23.742) $(40.978) —
Adjusted EBITDA ($USD Millions)$7.522 $6.279 $9.344 —
Adjusted Gross Margin (%)50% 49% 50% —
Adjusted Net Income per Share ($)$0.12 $0.01 $0.04 Primary EPS: $0.0365*

Segment revenue breakdown:

SegmentQ2 2024 ($USD Millions)Q1 2025 ($USD Millions)Q2 2025 ($USD Millions)
Technology$47.635 $51.482 $52.876
Professional Services$28.267 $27.931 $27.845
Total$75.902 $79.413 $80.721

KPIs and notable items:

KPI / ItemQ2 2024Q1 2025Q2 2025
Adjusted Technology Gross Margin (%)67% 67% 66%
Adjusted Professional Services Gross Margin (%)20% 16% 18%
Goodwill Impairment ($USD Millions)——$28.769
Weighted Avg. Shares (Basic/Diluted)59.304M 68.552M 69.626M

Note: S&P Global consensus values are marked with an asterisk and sourced from S&P Global data*.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total RevenueFY 2025~$335M ~$310M Lowered
Adjusted EBITDAFY 2025~$41M ~$41M Maintained
Total RevenueQ3 2025—~$75M New
Adjusted EBITDAQ3 2025—~$10.5M New
Adjusted Gross Margin (Total)Q3 2025 QoQFlat to slightly down (prior commentary) Up a few points QoQ Raised
Adjusted Tech Gross MarginQ3 2025 QoQFlat to slightly down Up 1–2 points QoQ Raised
Adjusted Prof. Services Gross MarginQ3 2025 QoQ~Flat to slightly down Up 1–2 points QoQ; ~20% in Q4 Raised
Adjusted OpExQ3 2025 vs Q2 2025Down $1–$2M Down $1–$2M Maintained
Dollar-Based Retention (Tech+TEMS)FY 2025~103% Low-90s Lowered
Net New Platform ClientsFY 2025~40 ~30 Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
AI/technology initiativesIgnite migration pacing; Azure marketplace; Databricks partnership and mid-market Spark launch; app-led ROI focus Continued Ignite migrations; applications mix shift; AI tooling to streamline migrations; >20% LTM app revenue growth; app GM >80%, EBITDA ~30% Strengthening applications; tech-first profitability
Medicaid/research fundingFlagged uncertainty; delays in HIE and life sciences bookings Explicit headwind; clients pocket Ignite savings; reduced expansions; Carevive delays; smaller net-new bookings; multi-year outlook Headwinds intensify
Product performanceTechnology rev +10% YoY; Services challenged; Ignite advantages (lower cost/modularity) Technology rev +11% YoY; Services -1% YoY; Applications driving growth and margins Mix shifts to high-margin apps
Restructuring/OpExQ1 RIF; operating leverage plans; India-first R&D New restructuring (~9% workforce); annualized >$40M Adj. EBITDA improvement; adjusted OpEx down $1–$2M QoQ Accelerating cost actions
Capital allocation/targetsRepurchased ~$5M stock (Mar 2025); paid off convertibles (Apr 2025); removed M&A near/mid-term Removed 2028 targets; focus on share repurchases and debt reduction; run-rate adjusted EBITDA ~$60M by Q4 Profitability and cash returns focus
GovernanceBoard changes (Q4 2024); leadership roles updates CEO retirement planned 6/30/2026; new director Justin Spencer (Audit) Transition planning

Management Commentary

  • “Funding cuts are likely a multi-year headwind… cause HCAT 2025 Revenue reduction from four factors: [clients] pocketing Ignite savings… fewer and smaller expansions… proactive focus on restructuring services contracts… Carevive life sciences delays… lower next-year bookings for net new platform client contracts.” .
  • “We anticipate this restructuring plan and our updates to client contracts will improve Adj. EBITDA by over $40 Million on an annualized basis.” .
  • “Despite a meaningful reduction in revenue expectations, we are on track to deliver ~$41M of 2025 Adj. EBITDA… run-rate annualized Adj EBITDA of $60M (~20% margin) in Q4 2025.” .
  • “We estimate that our applications produced a gross margin of over 80% and an estimated adjusted EBITDA margin of 30% during the twelve months ended 06/30/2025.” .
  • “We have added a total of 22 new platform clients year to date… we are reducing our expectations for net new platform clients to 30 for 2025.” .

Q&A Highlights

  • End-market dynamics: Analysts probed the severity/timing of Medicaid cuts versus hospital equities; management emphasized not-for-profit and academic client exposure and conservatism causing preemptive pullbacks; revenue impacts expected to be multi-year .
  • 2026 trajectory: Management suggested low-single-digit to negative growth on top line in 2026 is possible, with platform migration headwinds dissipating mid-2026 and applications continuing double-digit growth; Services likely slightly down in 2025–2026 .
  • Net-new platform clients: ~2/3 sourced from existing app clients, reflecting stronger cross-sell motion; implementation cycles a few months; bookings delays in Q2 tied to funding uncertainty .
  • Margin and OpEx: Tech and Services adjusted gross margin expected up QoQ in Q3; adjusted OpEx down $1–$2M QoQ; stock-based comp targeted to mid/high single digits of revenue in 2026 .
  • HIE implementations: Complexity and expanding scope pushed some revenue recognition into H2; life sciences deals delayed by research funding cuts .

Estimates Context

  • S&P Global consensus for Q2 2025: Revenue $80.585M*, Primary EPS $0.0365*; actual revenue $80.721M and adjusted net income per share $0.04, constituting modest beats on both *.
  • Q1 2025: Revenue $79.161M* vs actual $79.413M; Primary EPS $0.0023* vs adjusted net income per share $0.01; again modest beats *.
  • Implication: Despite a lowered FY revenue outlook, near-term profitability and adjusted EPS trajectories are stronger than consensus, likely necessitating upward revisions to adjusted EBITDA/EPS and margin assumptions while revenue estimates shift lower*.

Note: S&P Global consensus values are marked with an asterisk and sourced from S&P Global data*.

Key Takeaways for Investors

  • The quarter was operationally solid with beats on revenue and adjusted EBITDA, but the strategic reset lowers FY revenue on macro headwinds; profitability remains the central focus .
  • Mix shift toward Application Technology (higher margins) and contract restructuring should drive margin expansion through H2 2025 and into 2026; watch adjusted gross margin and adjusted EBITDA progression .
  • Expect near-term estimate revisions: revenue down, adjusted EBITDA/EPS up, reflecting reshaped P&L profile; Q3 guide suggests sequential margin improvement even with lower revenue* .
  • Execution risks: HIE implementation complexity, multi-year Medicaid/research funding pressure, and reduced net-new platform client targets (30 vs 40) temper growth visibility .
  • Catalysts: Continued application cross-sell, Q3 margin uptick, evidence of run-rate ~$60M adjusted EBITDA by Q4, and governance clarity around CEO transition and new board expertise .
  • Medium-term thesis: High-margin applications and Ignite’s modularity enable profitable growth despite macro; platform migration headwinds should abate mid-2026, improving technology growth contribution .
  • Tactical positioning: Bias toward monitoring profitability KPIs and cash generation (share repurchases, debt reduction) over near-term top-line growth until funding environment stabilizes .

*Values retrieved from S&P Global.