Health Catalyst(HCAT) - 2025 Q2 - Quarterly Report

Part I. Financial Information This section presents the company's unaudited condensed consolidated financial statements, management's analysis, market risk disclosures, and internal controls Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, business combinations, revenue disaggregation, goodwill and intangible assets, debt, stock-based compensation, and recent restructuring activities Condensed Consolidated Balance Sheets The company's balance sheet shows a decrease in total assets from $858.9 million at Dec 31, 2024, to $616.2 million at June 30, 2025, primarily driven by a significant reduction in cash and short-term investments Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------- | :-------------- | :---------------- | :--------- | :--------- | | Total Assets | $616,180 | $858,929 | $(242,749) | (28.26)% | | Cash and cash equivalents | $50,712 | $249,645 | $(198,933) | (79.69)% | | Short-term investments | $46,626 | $142,355 | $(95,729) | (67.25)% | | Total Liabilities | $268,633 | $493,722 | $(225,089) | (45.59)% | | Current portion of long-term debt | $1,627 | $231,182 | $(229,555) | (99.29)% | | Total Stockholders' Equity | $347,547 | $365,207 | $(17,660) | (4.84)% | Condensed Consolidated Statements of Operations The company reported increased net losses for both the three and six months ended June 30, 2025, primarily due to a significant goodwill impairment charge of $28.8 million Statements of Operations Highlights (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Total Revenue | $80,721 | $75,902 | $4,819 | 6.35% | $160,134 | $150,625 | $9,509 | 6.31% | | Technology Revenue | $52,876 | $47,635 | $5,241 | 11.00% | $104,358 | $94,601 | $9,757 | 10.31% | | Professional Services Revenue | $27,845 | $28,267 | $(422) | (1.49)% | $55,776 | $56,024 | $(248) | (0.44)% | | Net Loss | $(40,978) | $(13,516) | $(27,462) | 203.18% | $(64,720) | $(34,103) | $(30,617) | 89.78% | | Goodwill Impairment | $28,769 | $0 | $28,769 | N/A | $28,769 | $0 | $28,769 | N/A | Condensed Consolidated Statements of Comprehensive Loss The company's comprehensive loss significantly increased for both the three and six months ended June 30, 2025, primarily driven by the higher net loss, partially offset by a positive foreign currency translation adjustment in 2025 Comprehensive Loss (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Comprehensive Loss | $(38,886) | $(13,554) | $(25,332) | 186.89% | $(61,653) | $(34,298) | $(27,355) | 79.76% | | Change in foreign currency translation adjustment | $2,096 | $0 | $2,096 | N/A | $3,145 | $(27) | $3,172 | N/A | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $365.2 million at December 31, 2024, to $347.5 million at June 30, 2025, primarily due to net loss and common stock repurchases Stockholders' Equity Highlights (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :------------------------------------ | :--------- | :--------- | | Balance as of December 31 | $365,207 | $366,919 | | Net loss | $(64,720) | $(34,103) | | Stock-based compensation | $16,406 | $20,236 | | Repurchase of common stock | $(5,000) | $0 | | Issuance of common stock related to acquisition | $31,584 | $2,584 | | Balance as of June 30 | $347,547 | $357,002 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, the company experienced a net decrease in cash and cash equivalents of $198.9 million, a significant shift from a $95.6 million increase in the prior year Cash Flow Summary (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change ($) | | :------------------------------------ | :--------- | :--------- | :--------- | | Net cash (used in) provided by operating activities | $(8,717) | $11,878 | $(20,595) | | Net cash provided by investing activities | $44,537 | $82,201 | $(37,664) | | Net cash (used in) provided by financing activities | $(234,811) | $1,561 | $(236,372) | | Net (decrease) increase in cash and cash equivalents | $(198,933) | $95,619 | $(294,552) | - Repayment of debt was a major use of cash in financing activities, totaling $230,814 thousand for the six months ended June 30, 2025[36] Notes to the Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's financial reporting, including its business model, accounting policies, and the impact of recent events Note 1. Description of Business and Summary of Significant Accounting Policies Health Catalyst provides data and analytics technology and services to healthcare organizations, operating in two segments: technology and professional services - Health Catalyst, Inc. is a leading provider of data and analytics technology and services to healthcare organizations, offering cloud-based data platforms, software analytics applications, and professional services expertise[40] - The company operates in two reportable segments: technology (data platform, analytics applications, support services) and professional services (analytics, implementation, strategic advisory, outsource, and improvement services)[45][209] - Technology revenue from cloud-based subscriptions is recognized ratably over the contract term (typically 3-5 years), while professional services revenue is generally recognized as the service is provided[49][50][53] - A goodwill impairment of $28.8 million was recorded during the three months ended June 30, 2025[78] Note 2. Business Combinations Health Catalyst completed several acquisitions in 2024 and 2025 to expand its offerings, including Upfront Healthcare Services for $80.0 million in January 2025 - On January 22, 2025, Health Catalyst acquired Upfront Healthcare Services for $80.0 million, comprising cash, common stock, and contingent consideration, with $52.9 million in goodwill allocated to the technology reporting unit[105][107] - In 2024, the company acquired Intraprise Health, LLC ($44.9 million consideration, $29.6 million goodwill), Lumeon Ltd. ($39.8 million consideration, $24.4 million goodwill), and Carevive Systems, Inc. ($22.1 million consideration, $15.6 million goodwill)[113][114][116][117][119][120] Unaudited Pro Forma Net Loss (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :--------- | :--------- | | Six Months Ended June 30 | $(69,014) | $(40,759) | Note 3. Revenue Total revenue for the three months ended June 30, 2025, was $80.7 million (6% increase YoY), with technology revenue growing 11% and professional services revenue slightly decreasing Revenue Disaggregation (in thousands) | Revenue Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Recurring technology | $52,876 | $47,635 | $5,241 | 11.00% | $104,358 | $94,601 | $9,757 | 10.31% | | Professional services | $27,845 | $28,267 | $(422) | (1.49)% | $55,776 | $56,024 | $(248) | (0.44)% | | Total revenue | $80,721 | $75,902 | $4,819 | 6.35% | $160,134 | $150,625 | $9,509 | 6.31% | - Revenue from clients in the United States accounted for 96.4% and 96.2% of total revenue for the three and six months ended June 30, 2025, respectively[123] Note 4. Goodwill and Intangible Assets The company recorded a non-cash goodwill impairment charge of $28.8 million for the three and six months ended June 30, 2025, due to declines in stock price and market capitalization - A non-cash goodwill impairment charge of $28.8 million was recorded for the three and six months ended June 30, 2025, triggered by declines in stock price, market capitalization, and a downward revision of future revenue forecasts[124][126] Goodwill Carrying Amount by Reporting Unit (in thousands) | Reporting Unit | December 31, 2024 | June 30, 2025 | | :--------------- | :---------------- | :-------------- | | Technology | $253,090 | $286,095 | | Professional Services | $6,669 | $0 | | Total | $259,759 | $286,095 | Intangible Assets, Net (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Total intangible assets, net | $98,346 | $86,052 | - Amortization expense of acquired intangible assets was $9.0 million and $17.8 million for the three and six months ended June 30, 2025, respectively, up from $7.5 million and $14.8 million in the prior year periods[128] Note 5. Property and Equipment Net property and equipment increased to $33.4 million at June 30, 2025, from $29.4 million at December 31, 2024, primarily due to increased capitalized internal-use software costs Property and Equipment, Net (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Property and equipment, net | $33,399 | $29,394 | | Capitalized internal-use software costs | $56,867 | $46,143 | Depreciation Expense (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :--------- | :--------- | | 3 Months Ended June 30 | $3,600 | $3,100 | | 6 Months Ended June 30 | $7,200 | $6,400 | - Capitalized internal-use software costs for the six months ended June 30, 2025, were $10.7 million, up from $6.4 million in the prior year[132] Note 6. Short-term Investments Short-term investments decreased significantly from $142.4 million at December 31, 2024, to $46.6 million at June 30, 2025, primarily consisting of U.S. treasury notes and commercial paper Short-term Investments (Fair Value, in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Short-term investments | $46,626 | $142,355 | - As of June 30, 2025, short-term investments primarily consisted of U.S. treasury notes ($34.6 million) and commercial paper ($12.1 million), all due within one year[134] - The company did not have any material realized gains or losses on investments during the three and six months ended June 30, 2025 and 2024[133] Note 7. Fair Value of Financial Instruments As of June 30, 2025, financial instruments measured at fair value totaled $90.3 million, primarily Level 1 money market funds and U.S. Treasury notes, with convertible senior notes fully settled Fair Value of Financial Instruments (June 30, 2025, in thousands) | Instrument | Level 1 | Level 2 | Level 3 | Total | | :-------------------------- | :-------- | :-------- | :-------- | :-------- | | Money market funds | $44,371 | — | — | $44,371 | | U.S. Treasury notes | $34,554 | — | — | $34,554 | | Commercial paper | — | $13,557 | — | $13,557 | | Contingent consideration liabilities | — | — | $(2,145) | $(2,145) | | Total | $78,925 | $13,557 | $(2,145) | $90,337 | - Contingent consideration liabilities, categorized as Level 3, decreased by $5.2 million due to a change in fair value, resulting in a balance of $2.1 million as of June 30, 2025[143] - The 2.50% convertible senior notes due 2025 were fully settled in cash on April 14, 2025[138] Note 8. Accrued Liabilities Accrued liabilities decreased from $26.3 million at December 31, 2024, to $17.4 million at June 30, 2025, primarily due to reductions in accrued compensation and interest payable Accrued Liabilities (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Accrued compensation and benefit expenses | $5,916 | $11,655 | | Interest payable | $3,474 | $4,803 | | Restructuring liabilities | $70 | — | | Other accrued liabilities | $7,907 | $9,882 | | Total accrued liabilities | $17,367 | $26,340 | Note 9. Leases The company's operating lease expense was $787 thousand (Q2 2025) and $1.6 million (H1 2025), partially offset by sublease income, with no impairment charges in H1 2025 Lease Expense (Income) (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease expense | $787 | $666 | $1,556 | $1,294 | | Sublease income | $(519) | $(339) | $(1,019) | $(654) | | Total | $432 | $358 | $856 | $704 | - No impairment charges related to leases were recognized during the six months ended June 30, 2025, compared to $2.2 million in the prior year period[147] Note 10. Debt Total debt principal outstanding decreased significantly from $392.4 million at December 31, 2024, to $161.6 million at June 30, 2025, primarily due to the full repayment of $230.0 million in convertible senior notes Debt Composition (in thousands) | Debt Type | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Variable interest rate term loan maturing 2029 | $161,574 | $162,388 | | 2.50% convertible senior notes due 2025 | — | $230,000 | | Total Principal Outstanding | $161,574 | $392,388 | - The $230.0 million aggregate principal amount of 2.50% Convertible Senior Notes due 2025 was fully repaid in cash on April 14, 2025[161] Interest Expense (in thousands) | Period | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Interest Expense | $5,787 | $1,833 | $13,103 | $3,662 | - The variable interest rate term loan bears interest at SOFR plus 6.5% per year and has a final maturity date of July 16, 2029[154] Note 11. Stockholders' Equity As of June 30, 2025, the company had 70.4 million common shares outstanding, with $5.0 million in share repurchases during the first half of 2025 Common Stock Outstanding | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Shares outstanding | 70,373,625 | 64,043,799 | - During the six months ended June 30, 2025, the company repurchased and retired 1,103,601 shares of common stock for $5.0 million under its Share Repurchase Plan, leaving $24.8 million of authorization remaining[164] - No dividends have been declared or paid on common stock through June 30, 2025[163] Note 12. Net Loss Per Share Basic and diluted net loss per share for the three months ended June 30, 2025, was $(0.59), reflecting the increased net loss, with potentially dilutive securities excluded Net Loss Per Share (Basic and Diluted) | Period | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss per share | $(0.59) | $(0.23) | $(0.94) | $(0.58) | - Stock options, restricted stock units, performance-based restricted stock units, convertible senior notes, employee stock purchase plan, and restricted shares were excluded from diluted net loss per share calculation as their effect was anti-dilutive due to net losses[166] Note 13. Stock-Based Compensation Total stock-based compensation expense decreased to $8.3 million (Q2 2025) and $15.9 million (H1 2025), primarily driven by lower RSU and restricted shares expense Total Stock-Based Compensation Expense (in thousands) | Period | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total stock-based compensation | $8,323 | $8,966 | $15,866 | $19,804 | - During the six months ended June 30, 2025, 3,396,364 RSUs and 2,407,823 PRSUs were granted[173][182] - As of June 30, 2025, unrecognized stock-based compensation expense was $33.4 million for RSUs (weighted-average period of 2.2 years) and $7.7 million for PRSUs (weighted-average period of 1.1 years)[174][183] Note 14. Income Taxes The company reported an income tax provision of $81 thousand (Q2 2025) and $296 thousand (H1 2025), with an estimated effective tax rate of (0.2)% and (0.5)% respectively Income Tax Provision (in thousands) | Period | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax provision | $81 | $70 | $296 | $183 | - The estimated effective tax rate for the six months ended June 30, 2025 and 2024, was (0.2)% and (0.5)%, respectively, primarily due to a full valuation allowance on net deferred tax assets[194][195] - The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, is anticipated to partially defer income tax payments in future years but not materially impact the effective tax rate[197] Note 15. Commitments and Contingencies The company is involved in routine legal proceedings not expected to have a material adverse effect, and no charges were recorded for loss contingencies - The company is involved in routine legal proceedings that are not expected to have a material adverse effect on its business, financial condition, results of operations, or liquidity[199] - No charges were recorded for loss contingencies during the three and six months ended June 30, 2025 and 2024[199] Note 16. Contract Balances and Performance Obligations Unbilled accounts receivable decreased to $8.7 million at June 30, 2025, while total deferred revenue increased to $67.3 million, with $252.3 million of revenue expected from unsatisfied obligations Contract Balances (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Unbilled accounts receivable | $8,700 | $11,800 | | Total deferred revenue | $67,300 | $53,500 | - The company expects to recognize $252.3 million of revenue on unsatisfied performance obligations as of June 30, 2025, with approximately 70% recognized over the next 24 months[202] Note 17. Related Parties The company recognized $4.5 million (Q2 2025) and $8.9 million (H1 2025) in revenue from Carle Health, a client with a board member on the company's board Revenue from Related Party (Carle Health, in thousands) | Period | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $4,500 | $4,100 | $8,900 | $8,200 | - As of June 30, 2025, receivables from Carle Health were $0.1 million and deferred revenue was $1.0 million[203] Note 18. Segments The company operates in two segments: Technology and Professional Services, with Technology Adjusted Gross Profit increasing and Professional Services Adjusted Gross Profit decreasing Adjusted Gross Profit by Segment (in thousands) | Segment | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Technology | $34,852 | $32,063 | $2,789 | 8.70% | $69,463 | $64,223 | $5,240 | 8.16% | | Professional Services | $5,112 | $5,740 | $(628) | (10.94)% | $9,549 | $11,899 | $(2,350) | (19.75)% | | Total | $39,964 | $37,803 | $2,161 | 5.72% | $79,012 | $76,122 | $2,890 | 3.79% | Note 19. Restructuring Costs The January 2025 Restructuring Plan involved a global workforce reduction, incurring $3.9 million in severance costs, primarily allocated to R&D and professional services - The January 2025 Restructuring Plan involved a global workforce reduction to optimize cost structure and focus investments in key priority areas[212] January 2025 Restructuring Plan Costs (Six Months Ended June 30, 2025, in thousands) | Financial Statement Line Item | Total Severance and Other Team Member Costs | | :------------------------------------ | :------------------------------------------ | | Technology | $401 | | Professional services | $1,142 | | Sales and marketing | $352 | | Research and development | $1,908 | | General and administrative | $136 | | Total | $3,939 | - Restructuring liabilities related to the January 2025 plan were $70 thousand as of June 30, 2025, with the plan substantially complete[214][215] Note 20. Subsequent Events The August 2025 Restructuring Plan will reduce the global workforce by approximately 9% in Q3 2025, with expected charges of at least $4.5 million, and the OBBBA was signed into law - The August 2025 Restructuring Plan, authorized on August 5, 2025, will reduce the global workforce by approximately 9% in Q3 2025, primarily in R&D and sales and marketing, with expected charges of at least $4.5 million[221] - The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, including tax reform and significant Medicaid funding reductions, with its impact on future financial results currently under evaluation[223] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook, covering business overview, macroeconomic impact, key metrics, and operating results Overview Health Catalyst provides data and analytics technology and services to healthcare organizations, with total revenue increasing by 6% but net losses widening due to a $28.8 million goodwill impairment - Health Catalyst is a leading provider of data and analytics technology and services to healthcare organizations, focused on enabling data-informed healthcare decisions[225] Financial Highlights (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Revenue | $80,721 | $75,902 | $160,134 | $150,625 | | Net Loss | $(40,978) | $(13,516) | $(64,720) | $(34,103) | | Adjusted EBITDA | $9,344 | $7,522 | $15,623 | $10,899 | - The increased net losses in 2025 were largely driven by a $28.8 million goodwill impairment charge[229] Macroeconomic Environment and Strategic Operating Plan Ongoing macroeconomic challenges continue to strain the healthcare market, leading to elongated sales cycles and lower new Platform Client bookings, prompting a strategic operating plan focused on high ROI offerings - Macroeconomic challenges (high inflation, interest rates, Medicaid/research funding cuts, OBBBA) continue to adversely affect the healthcare market, leading to elongated sales cycles and lower new Platform Client bookings[227][230] - An increasing number of clients are opting for price reductions during migration to Health Catalyst Ignite, resulting in lower overall spend[233] - The strategic operating plan emphasizes offerings with competitive differentiation and measurable ROI, driving cross-selling within the existing client base, and continued R&D investment in Health Catalyst Ignite[231][234] - Over 90% of the company's revenue is recurring, with high predictability in technology revenue, especially from Platform Clients with contractual escalators[232] Key Financial Metrics The company monitors GAAP measures like total revenue, gross profit, and net loss, alongside non-GAAP measures such as Adjusted Gross Profit and Adjusted EBITDA, to evaluate performance Key Financial Metrics (in thousands, except percentages) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | GAAP Financial Measures: | | | | | | Total revenue | $80,721 | $75,902 | $160,134 | $150,625 | | Gross profit | $30,333 | $28,806 | $58,992 | $58,127 | | Gross margin | 38 % | 38 % | 37 % | 39 % | | Net loss | $(40,978) | $(13,516) | $(64,720) | $(34,103) | | Non-GAAP Financial Measures: | | | | | | Adjusted Gross Profit | $39,964 | $37,803 | $79,012 | $76,122 | | Adjusted Gross Margin | 50 % | 50 % | 49 % | 51 % | | Adjusted EBITDA | $9,344 | $7,522 | $15,623 | $10,899 | Reconciliation of Non-GAAP Financial Measures (Adjusted Gross Profit and Adjusted Gross Margin) Adjusted Gross Profit and Adjusted Gross Margin are non-GAAP measures used to evaluate operating performance by excluding non-cash expenses and certain non-recurring costs Adjusted Gross Profit by Segment (3 Months Ended June 30, in thousands) | Segment | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :--------- | :--------- | :--------- | :--------- | | Technology | $34,852 | $32,063 | $2,789 | 8.70% | | Professional Services | $5,112 | $5,740 | $(628) | (10.94)% | | Total | $39,964 | $37,803 | $2,161 | 5.72% | Adjusted Gross Margin by Segment (3 Months Ended June 30) | Segment | 2025 | 2024 | Change (pp) | | :-------------------- | :--- | :--- | :---------- | | Technology | 66 % | 67 % | (1) | | Professional Services | 18 % | 20 % | (2) | | Total | 50 % | 50 % | 0 | Adjusted Gross Profit by Segment (6 Months Ended June 30, in thousands) | Segment | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :--------- | :--------- | :--------- | :--------- | | Technology | $69,463 | $64,223 | $5,240 | 8.16% | | Professional Services | $9,549 | $11,899 | $(2,350) | (19.75)% | | Total | $79,012 | $76,122 | $2,890 | 3.79% | Adjusted Gross Margin by Segment (6 Months Ended June 30) | Segment | 2025 | 2024 | Change (pp) | | :-------------------- | :--- | :--- | :---------- | | Technology | 67 % | 68 % | (1) | | Professional Services | 17 % | 21 % | (4) | | Total | 49 % | 51 % | (2) | - Adjusted Technology Gross Margin decreased due to costs associated with transitioning clients to Azure-hosted environments, migrating to Health Catalyst Ignite, and Ninja Universe deployment costs[244][253] - Adjusted Professional Services Gross Margin decreased due to lower utilization rates, timing of certain one-time revenue items, and increased costs related to pilot ambulatory operations TEMS[246][255] Adjusted EBITDA Adjusted EBITDA improved year-over-year, reaching $9.3 million for Q2 2025 and $15.6 million for H1 2025, attributed to revenue growth and cost reduction initiatives Adjusted EBITDA (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :--------- | :--------- | :--------- | :--------- | | 3 Months Ended June 30 | $9,344 | $7,522 | $1,822 | 24.22% | | 6 Months Ended June 30 | $15,623 | $10,899 | $4,724 | 43.34% | - Adjusted EBITDA improved year-over-year as a result of revenue growth and cost reduction initiatives, as well as the timing of some non-headcount expenses[258] - Reconciliation adjustments for Adjusted EBITDA include interest and other (income) expense, income tax provision, depreciation and amortization, stock-based compensation, acquisition-related costs, restructuring costs, goodwill impairment, and non-recurring lease-related charges[260] Key Factors Affecting Our Performance Key factors influencing performance include the challenging macroeconomic environment, the ability to add new clients and expand existing relationships, and the impact of acquisitions and revenue mix - Macroeconomic challenges (high inflation, interest rates, tariffs, cuts in Medicaid and research funding, tight labor market) continue to adversely affect client decisions and business results[265] - Future growth depends on the ability to attract new clients, expand relationships with existing clients through new product offerings (e.g., PowerCosting, PowerLabor), and successfully migrate clients to Health Catalyst Ignite[265][266] - Recent acquisitions (Medicity, Able Health, Healthfinch, Vitalware, Twistle, KPI Ninja, ARMUS, ERS, Carevive, Lumeon, Intraprise, Upfront) impact overall growth rates and operating costs due to integration and varying revenue profiles[265] - Changes in the revenue mix between higher-margin technology offerings and lower-margin professional services significantly impact future gross margin and Adjusted Gross Margin[266] Recent Acquisitions Health Catalyst recently acquired Upfront Healthcare Services for $80.0 million, Intraprise Health for $44.9 million, Lumeon Ltd. for $39.8 million, and Carevive Systems, Inc. for $22.1 million - Acquired Upfront Healthcare Services on January 22, 2025, for $80.0 million (cash, common stock, contingent consideration) to enhance patient engagement[267] - Acquired Intraprise Health, LLC on November 8, 2024, for $44.9 million (cash, common stock) for data and analytics technology and security services[268] - Acquired Lumeon Ltd. on August 1, 2024, for $39.8 million (cash, common stock, contingent consideration) for automated care orchestration[269] - Acquired Carevive Systems, Inc. on May 24, 2024, for $22.1 million (cash, common stock, contingent consideration) for oncology-focused health technology[270] Components of Our Results of Operations Revenue is primarily from technology subscriptions (65% of total H1 2025) and professional services, with operating expenses influenced by growth investments, restructuring, and acquisition-related costs - For the six months ended June 30, 2025, technology revenue represented 65% of total revenue, and professional services revenue represented 35%[271] - Near-term technology revenue growth is expected to be negatively impacted by policy developments around Medicaid and research funding reductions[271] - Cost of technology revenue is expected to fluctuate and potentially increase in the near term due to additional costs associated with transitioning clients to Microsoft Azure and migrating to Health Catalyst Ignite[276] - Operating expenses (Sales and marketing, Research and development, General and administrative) are influenced by investments in growth, restructuring activities (2023 and January 2025 plans), and acquisition-related costs[278][279][280] - A goodwill impairment charge of $28.8 million was recognized during the three months ended June 30, 2025[282] - A full valuation allowance is provided for net deferred tax assets, and the One Big Beautiful Bill Act (OBBBA) is anticipated to partially defer income tax payments in future years[284][286] Discussion of the Three Months Ended June 30, 2025 and 2024 Total revenue increased 6% to $80.7 million, driven by 11% growth in technology revenue, but a $28.8 million goodwill impairment led to a significant operating loss Revenue Performance (3 Months Ended June 30, in thousands) | Revenue Type | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :--------- | :--------- | :--------- | :--------- | | Technology | $52,876 | $47,635 | $5,241 | 11 % | | Professional services | $27,845 | $28,267 | $(422) | (1)% | | Total revenue | $80,721 | $75,902 | $4,819 | 6 % | - Cost of technology revenue, excluding depreciation and amortization, increased by $2.3 million (14%) to $18.4 million, primarily due to increased cloud computing and hosting costs[297] - General and administrative expenses decreased by $6.1 million (42%) to $8.3 million, mainly due to a $5.2 million decrease in the fair value of contingent consideration liabilities[303] - A non-cash goodwill impairment charge of $28.8 million was recorded[306] - Interest and other (expense) income, net, decreased by $6.2 million (261%) to $(3.8) million, driven by increased interest expense from the credit agreement and decreased interest income[307] Discussion of the Six Months Ended June 30, 2025 and 2024 Total revenue increased 6% to $160.1 million, with technology revenue up 10%, while operating expenses decreased due to restructuring and lower contingent consideration fair value, despite a $28.8 million goodwill impairment Revenue Performance (6 Months Ended June 30, in thousands) | Revenue Type | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :--------- | :--------- | :--------- | :--------- | | Technology | $104,358 | $94,601 | $9,757 | 10 % | | Professional services | $55,776 | $56,024 | $(248) | — % | | Total revenue | $160,134 | $150,625 | $9,509 | 6 % | - Cost of technology revenue, excluding depreciation and amortization, increased by $4.5 million (14%) to $35.9 million, primarily due to increased cloud computing and hosting costs[312] - General and administrative expenses decreased by $6.5 million (22%) to $22.4 million, mainly due to a $5.2 million decrease in the fair value of contingent consideration liabilities and a $2.2 million decrease in lease-related impairment charges[318] - A non-cash goodwill impairment charge of $28.8 million was recorded[321] - Interest and other (expense) income, net, decreased by $11.9 million (252%) to $(7.2) million, due to increased interest expense from the credit agreement and decreased interest income[322] Liquidity and Capital Resources As of June 30, 2025, the company had $97.3 million in cash, cash equivalents, and short-term investments, with the $230.0 million convertible senior notes fully repaid using proceeds from a new term loan facility - As of June 30, 2025, cash, cash equivalents, and short-term investments totaled $97.3 million[324] - The $230.0 million convertible senior notes were fully repaid in cash on April 14, 2025[333] - A new $225.0 million term loan facility (Credit Agreement) was entered into on July 16, 2024, with $161.6 million outstanding as of June 30, 2025[327][328][149] - The Share Repurchase Plan has $24.8 million remaining authorization as of June 30, 2025, after repurchasing $5.0 million in H1 2025[331][332] Cash Flow Summary (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :------------------------------------ | :--------- | :--------- | | Net cash (used in) provided by operating activities | $(8,717) | $11,878 | | Net cash (used in) provided by financing activities | $(234,811) | $1,561 | Off-Balance Sheet Arrangements As of June 30, 2025, the company had no relationships with unconsolidated organizations or financial partnerships for off-balance sheet arrangements - The company did not have any off-balance sheet arrangements as of June 30, 2025[341] Critical Accounting Policies and Estimates The company's financial statements rely on estimates and assumptions, particularly for revenue recognition, impairment assessments, and deferred taxes, with a $28.8 million goodwill impairment recorded in Q2 2025 - Critical accounting policies and estimates include revenue recognition, expected credit losses, useful lives of property and equipment, impairment assessments of goodwill and intangible assets, fair value of financial instruments, deferred tax assets, and stock-based compensation[44][342] - A $28.8 million non-cash goodwill impairment charge was recorded during the three months ended June 30, 2025, due to declines in market capitalization and a downward revision of future revenue forecasts[346][348] - The company actively monitors the impact of inflationary pressures, market volatility, and the challenging macroeconomic environment on its estimates[343] Contractual Obligations and Commitments There have been no material changes to the contractual obligations as disclosed in the Annual Report on Form 10-K filed on February 26, 2025 - No material changes to contractual obligations since the Annual Report on Form 10-K filed on February 26, 2025[349] Recent Accounting Pronouncements Information regarding recently issued accounting pronouncements is provided in Note 1 to the condensed consolidated financial statements - Information regarding recently issued accounting pronouncements is provided in Note 1 to the condensed consolidated financial statements[350] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks primarily from interest rate fluctuations, with potential future exposure to foreign currency exchange and inflation, and does not engage in speculative investments - The primary market risk exposure is from fluctuations in interest rates, with potential future exposure to foreign currency exchange and inflation[351] - The company does not make investments for trading or speculative purposes[352][353] Interest rate risk The company holds $97.3 million in cash, cash equivalents, and short-term investments, which are subject to interest rate risk, but a hypothetical 100 basis point change would not materially impact their value - As of June 30, 2025, cash, cash equivalents, and short-term investments totaled $97.3 million[352] - A hypothetical 100 basis point change in interest rates would not have a material impact on the value of the company's cash equivalents, investment portfolio, or the fair value of its outstanding debt[354][357] - The term loans under the Credit Agreement bear interest at a floating rate equal to SOFR plus 6.5% per year[355] Foreign currency exchange risk The company's international operations are relatively small, limiting foreign currency exposure primarily to the British Pound, Indian Rupee, and Singapore Dollar, with no hedging program currently in place - Foreign currency exposure is limited due to the relatively small size of international operations, primarily involving the British Pound, Indian Rupee, and Singapore Dollar[359] - International sales contracts are generally denominated in U.S. dollars, while international operating expenses are often in local currencies[360] - The company has not instituted a hedging program but is considering the costs and benefits of initiating one as international operations expand[359] Inflation risk High inflation has adversely affected the healthcare industry, increasing labor and supply costs for clients, and future inflation could negatively impact the company's ability to offset higher costs - The recent high inflationary environment has adversely affected the healthcare industry, leading to increased labor and supply costs for health systems without commensurate revenue increases, causing significant margin pressure[361][362] - Future inflation could negatively impact clients and the company's ability to fully offset higher costs by increasing fees for its Solution, which could harm its business, results of operations, or financial condition[362] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025, with no material changes in internal control - Management, with the participation of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, and concluded they were effective at the reasonable assurance level[364] - There was no change in internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[365] Evaluation of disclosure controls and procedures The CEO and CFO evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, and concluded they were effective at the reasonable assurance level - The registrant's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2025[364] Changes in internal control over financial reporting No material changes in internal control over financial reporting occurred during the period covered by this report - No material changes in internal control over financial reporting occurred during the period covered by this Quarterly Report on Form 10-Q[365] Inherent limitations on effectiveness of controls Management acknowledges that control systems provide reasonable, not absolute, assurance and have inherent limitations, such as faulty judgment, human error, and circumvention - Disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable, not absolute, assurance[366] - Inherent limitations include faulty judgment, human error, circumvention by individual acts or collusion, and management override[366] Part II. Other Information This section details legal proceedings, comprehensive risk factors, equity sales, other disclosures, and official report exhibits and signatures Item 1. Legal Proceedings The company is involved in routine legal proceedings that are not considered significant and are not expected to have a material adverse effect on its business, financial condition, results of operations, or liquidity - The company is party to routine legal proceedings that are not significant and are not expected to have a material adverse effect on its business, financial condition, results of operations, or liquidity[368] Item 1A. Risk Factors The company faces a wide array of risks, including intense competition, macroeconomic challenges, difficulties in executing growth and restructuring initiatives, and critical data and intellectual property risks - The company operates in a highly competitive healthcare industry, facing large, well-financed competitors and requiring continuous innovation[370][371] - Macroeconomic challenges (high inflation, interest rates, tariffs, Medicaid/research funding cuts) significantly impact client spending, lengthen sales cycles, and pose risks to financial condition[376][378] - Risks include the inability to successfully execute growth initiatives, manage organizational changes, realize benefits from restructuring plans, and maintain client satisfaction and effective professional services[379][381][382][383][395] - Data and intellectual property risks involve reliance on third-party data, vulnerability to cyberattacks, compliance with open-source software licenses, and potential infringement claims[442][444][449][466][474] - Increasing reliance on AI and machine learning technologies exposes the company to development challenges, regulatory uncertainties, potential for false outputs, and third-party claims[409][410][414] - Significant indebtedness from the Term Loan Facility creates interest rate risks and restrictive covenants, potentially limiting financial flexibility and increasing default risk[511][514][515] - The company has a history of net losses, expects future losses, and its stock price is subject to high volatility, making investment risky[518][520] Risks Related to Our Business and Industry The company faces intense competition, changes in the healthcare industry, macroeconomic challenges, and risks in executing growth and restructuring initiatives, all impacting its business and financial condition - The market for healthcare solutions is intensely competitive, with competition from industry-agnostic analytics companies, EHR companies (e.g., Epic Systems, Oracle Health), point solution vendors, and internal healthcare analytics, often with greater resources[370][371] - Changes in the healthcare industry, such as reduced governmental funding, cuts to government research funding, and client/vendor consolidation, could reduce demand for the Solution and negatively impact contract negotiations[374][375] - Macroeconomic challenges (high inflation, high interest rates, Medicaid/research funding cuts, tight labor market) continue to adversely affect client spending, lengthen sales cycles, and harm business, results of operations, and financial condition[376][378] - Risks in executing growth initiatives, business strategies, and cost reduction/restructuring initiatives (e.g., migration to Health Catalyst Ignite, 2023/January 2025/August 2025 Restructuring Plans) include disruptions, higher costs, and unintended attrition[379][381][382] - Failure to provide effective professional services and high-quality client support, long and unpredictable sales cycles, and potential software defects could damage reputation, lead to claims, and harm business operations[383][384][386][390] - Maintaining and enhancing brand recognition and continuously innovating to provide useful services are critical for competitiveness; failure to do so could lead to loss of clients and revenue[391][393] - Operating results have fluctuated and may continue to fluctuate significantly due to factors like market acceptance, new application introductions, sales cycles, revenue mix, client financial condition, and macroeconomic challenges, making future performance unpredictable[399][400] Risks Related to Data and Intellectual Property The company faces risks from client data permissions, IT system failures, cyberattacks, reliance on third-party data and infrastructure, open-source software compliance, and intellectual property protection and infringement claims - Failure by clients to obtain proper permissions and waivers for data use could result in claims against the company or limit its ability to use data, harming its business[442][443] - Information technology system failures, cyberattacks, or deficiencies in cybersecurity could lead to loss or inappropriate use of information, litigation, reputational damage, and regulatory fines[444][446][447] - The Solution's dependence on sourcing data from third parties and reliance on third-party computing infrastructure (e.g., Microsoft Azure) exposes the company to risks of data access blockage, increased fees, and service disruptions[449][452][454] - Use of open-source software and third-party licensed software carries risks of compliance breaches, potential public release of proprietary code, and functionality limitations or increased costs if licenses cannot be maintained[466][468] - Failure to protect intellectual property rights (patents, trademarks, trade secrets) could impair the ability to protect proprietary technology and brand, while litigation to enforce or defend these rights is costly and distracting[469][472][477] - The company may be sued by third parties for alleged infringement of their proprietary rights or misappropriation of intellectual property, potentially leading to substantial damages, royalty payments, or operational restrictions[474][477] Risks Related to Governmental Regulation The company faces extensive and evolving healthcare and data privacy regulations, including HIPAA and GDPR, new AI technology regulations, and potential FDA oversight of medical software - Actual or perceived failures to comply with health information privacy and security laws (e.g., HIPAA) and state data protection laws (e.g., CCPA) could adversely affect business, results of operations, and financial condition through penalties and reputational damage[478][479][481] - Compliance with international data privacy protection laws (e.g., GDPR, UK GDPR) imposes increased obligations and risks, including potential fines and scrutiny of data transfers[481][482][483] - The rapidly evolving regulatory framework for AI Technologies, including new federal, state, and foreign laws, could limit the company's ability to use AI, increase operating expenses, and harm its business[484][485][486] - Arrangements with clinicians and other healthcare professionals may be found to constitute improper rendering of professional medical services or fee splitting under state laws, adversely impacting business[494][495] - The FDA may modify its enforcement policies, potentially subjecting the company's medical software products to extensive regulatory requirements, increasing costs and harming business[496][497][498] - The company may be subject to additional government regulations, including antitrust laws, the Foreign Corrupt Practices Act (FCPA), and economic sanctions, with non-compliance leading to fines or restrictions[501][504] Risks Related to Tax Regulation The company faces risks from potential assertions by taxing authorities regarding sales and use taxes, unanticipated changes in effective tax rates, and limitations on the use of net operating losses - Taxing authorities may successfully assert that the company should have collected sales and use, value-added, or similar transactional taxes, leading to tax assessments, penalties, and interest[502] - Unanticipated changes in the effective tax rate and additional tax liabilities can arise from changes in the mix of earnings/losses in different jurisdictions, new tax rules (e.g., Tax Act, CARES Act), and differing interpretations by taxing authorities[503][505] - The ability to use net operating losses (NOLs) to offset future taxable income may be subject to limitations due to ownership changes (Section 382 of the Code) or regulatory changes, potentially increasing future tax liability[506][507][508] - Comprehensive tax reform legislation, such as the Tax Cuts and Jobs Act of 2017, has significantly changed corporate taxation, including limitations on NOL deductions and required capitalization of R&D expenditures, which could adversely affect the business[509][510] Risks Related to Our Indebtedness The company's $225 million Term Loan Facility exposes it to interest rate risks and restrictive covenants, potentially hindering operational and financial flexibility and increasing default risk - The company's indebtedness, including the Term Loan Facility (up to $225 million, with $161.6 million outstanding as of June 30, 2025), could make it vulnerable to adverse economic conditions and prevent it from fulfilling debt obligations[511][149] - Failure to generate sufficient cash flow to satisfy debt obligations could lead to default, acceleration of amounts owed, and foreclosure on collateral, materially adversely affecting the business[513] - The Credit Agreement contains restrictive covenants that limit the company's ability to incur debt, grant liens, make investments, and pay dividends, which may restrict operational and financial flexibility[514] - The Term Loan Facility's floating interest rate (SOFR plus 6.5% per year) exposes the company to interest rate risks, impacting cash flows and results of operations[515] Risks Related to Ownership of Our Common Stock The company has a limited operating history, expects future losses, and its common stock is subject to high volatility, with future equity issuances diluting existing stockholders - The company's limited operating history, particularly with recent acquisitions, makes it difficult to effectively assess or forecast future prospects and increases investment risk[516][517] - The company has experienced significant net losses since inception ($69.5 million in 2024, $118.1 million in 2023) and expects to incur losses in the future, potentially requiring additional capital[518][519] - The market price of common stock may be volatile and decline regardless of operating performance, influenced by factors such as financial fluctuations, economic conditions, and analyst expectations[520] - The Share Repurchase Plan, with $24.8 million remaining authorization as of June 30, 2025, may not be fully consummated or enhance stockholder value, and repurchases could affect stock price[523][524] - Future issuances of additional capital stock in connection with financings, acquisitions, or stock incentive plans will dilute all other stockholders and may cause the per-share value of common stock to decline[527][528] - The requirements of being a public company strain resources, divert management's attention, increase legal/accounting compliance costs, and raise the risk of litigation[529][532] - The company does not intend to pay dividends on its common stock, meaning the ability of common stockholders to achieve a return on investment will depend solely on appreciation in the stock price[534] Risks Related to Our Charter and Bylaws Provisions in the company's charter documents and Delaware law could make an acquisition more difficult and limit stockholders' ability to change the board or management, including exclusive forum provisions - Provisions in the amended and restated certificate of incorporation and bylaws, such as a classified board, super-majority voting for amendments, and restrictions on stockholder actions, could delay or prevent a change of control or changes in management[539] - Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by imposing restrictions on mergers and business combinations with holders of 15% or more of common stock[537] - Exclusive forum provisions in the bylaws designate Delaware state or federal courts for certain litigation and federal district courts for Securities Act claims, which could limit stockholders' ability to obtain a favorable judicial forum[538][540] General Risks Changes in GAAP can cause financial fluctuations and impact reporting. Economic downturns can disproportionately affect demand for the company's Solution and negatively impact results. Increasing investor focus on environmental, social, and gover