Health Catalyst(US:HCAT)2025-11-10 23:02Financial Data and Key Metrics Changes - Total revenue for Q3 2025 was $76.3 million, flat year-over-year, exceeding guidance [7][15] - Adjusted EBITDA for Q3 2025 was $12 million, up 64% compared to Q3 2024, exceeding guidance of approximately $10.5 million [17] - Adjusted gross margin increased to 53%, up approximately 510 basis points year-over-year [16] Business Line Data and Key Metrics Changes - Technology segment revenue was $52.1 million, representing a 7% year-over-year growth driven by recurring revenue from new and acquired clients [7][15] - Professional services revenue for Q3 2025 was $24.3 million, a 12% decline compared to Q3 2024, primarily due to exiting less profitable contracts [15][16] - Adjusted technology gross margin was 68%, an increase of approximately 330 basis points year-over-year [16] Market Data and Key Metrics Changes - The company anticipates approximately 30 net new platform client additions for 2025, with dollar-based retention expected to be in the low 90% [8][14] - The market remains dynamic, with ongoing financial and workforce pressures impacting client operations [10][14] Company Strategy and Development Direction - The company is focused on solutions with proven ROI, aiming to maintain a strong pipeline while managing costs and making targeted investments [8][14] - Recent leadership appointments aim to support long-term vision and improve performance, reflecting a commitment to building an agile organization [10] - The company plans to balance growth, revenue mix, and free cash flow progression while prioritizing existing capabilities and recently acquired assets [15][21] Management's Comments on Operating Environment and Future Outlook - Management expects revenue performance in 2026 to be a few points lower than in 2025, driven by dollar-based retention pressures and lower net new client counts [14] - The company is optimistic about improving adjusted EBITDA in 2026, reflecting ongoing strategic focus and cost management [14][21] - Management emphasizes the importance of meeting clients where they are, providing flexibility in migration timelines to enhance client experience and retention [12][28] Other Important Information - The company is committed to realizing a strong return on acquisition investments and does not anticipate pursuing additional acquisitions in the near to medium term [15] - The company is making progress on Ignite migration initiatives, with approximately two-thirds of DOS clients expected to migrate by the end of 2025 [11][12] Q&A Session Summary Question: What is driving the longer timeline for Ignite migration? - Management noted that clients desire to stay on DOS longer due to its current value, and flexibility is being provided to meet client needs [26][27] Question: How does the sequential decline in tech revenue relate to dollar-based retention? - Management explained that the decline is influenced by DOS to Ignite headwinds and growth in the apps layer, with a mix of factors affecting revenue [32][33] Question: What is the value of one-time revenues and the outlook for positive revenue growth? - Management indicated that one-time revenues are becoming more common in professional services, and the pipeline remains robust, with expectations for growth in mid-2026 [37][38] Question: How are competing priorities affecting client decisions? - Management acknowledged that clients are focused on data quality and may prefer to leverage existing capabilities before migrating to Ignite [52][53] Question: What are the growth rates for Ignite versus DOS customers? - Management highlighted a shift in approach to provide flexibility for clients on DOS, allowing for growth opportunities in the apps layer [64][66]