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, and exceeding guidance of approximately $10.5 million [17] - Adjusted gross margin increased to 53%, up approximately 510 basis points year-over-year [17] - Cash, cash equivalents, and short-term investments decreased to $92 million from $392 million at year-end 2024 [17] 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][17] - 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] Company Strategy and Development Direction - The company is focused on solutions with proven ROI and is committed to delivering meaningful results while maintaining a strong pipeline [8][10] - The leadership team has been strengthened to support long-term vision and improve performance, with recent key appointments [10] - The company is prioritizing areas that will sustain technology gross margin expansion and enhance R&D efficiency [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 taking a measured approach to setting expectations and will continue to provide updates as the market evolves [14] - Management remains optimistic about the potential for growth in 2026, focusing on cost management and operational efficiency [40][72] Other Important Information - The company is not anticipating pursuing additional acquisitions in the near to medium term, focusing instead on driving growth and profitability from existing capabilities [15] - The Ignite migration initiatives are on track, 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 some clients prefer to stay on DOS due to its current value and flexibility, which has been positively received [26][28] 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 the growth in the apps layer, with a mix of moving parts 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 they expect a robust pipeline to support growth, potentially returning to positive growth by mid-2026 [37][39] Question: How are margins expected to trend into 2026? - Management expressed confidence in EBITDA growth, with Q4 serving as a useful guide for 2026, while acknowledging some one-time items affecting Q4 results [78] Question: What areas are being considered for targeted market expansion? - Management highlighted specific use case areas in cost management and ambulatory offerings where client demand is strong, indicating a focus on leveraging new technologies and AI capabilities [83]