Health Catalyst, Inc. (NASDAQ:HCAT) Q1 2026 Earnings Call Transcript

Health Catalyst, Inc. (NASDAQ:HCAT) Q1 2026 Earnings Call Transcript May 11, 2026

Health Catalyst, Inc. beats earnings expectations. Reported EPS is $0.02, expectations were $0.01.

Operator: Welcome to the Health Catalyst First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Stephanie St. Clair, Senior Vice President of Finance and Investor Relations.

Stephanie St Clair: Good afternoon, and welcome to Health Catalyst’s earnings call for the first quarter of 2026, which ended March 31, 2026. My name is Stephanie Sinclair, Finance and Investor Relations Senior Vice President. With me on the call today are Ben Albert, our Chief Executive Officer; and Jason Alger, our Chief Financial Officer. A complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website at ir.healthcatalyst.com. As a reminder, today’s call is being recorded, and a replay will be available following the conclusion of the call. During today’s call, we will make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Regarding our future growth, financial outlook for the second quarter and full year 2026 market conditions, AI initiatives, bookings, retention, operational priorities, strategic and restructuring initiatives, client migrations and the general anticipated performance of our business. These forward-looking statements are based on management’s current views and expectations as of today and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. Actual results may materially differ. Please refer to the risk factors in our most recent Form 10-K for the full year 2025 filed with the SEC on March 12, 2026, and our Form 10-Q for the first quarter of 2026 filed today.

We will also refer to certain non-GAAP financial measures to provide additional information to investors. Non-GAAP financial information is presented for supplemental purposes only and for limitations as an analytical tool and should not be considered in isolation or a substitute for financial information presented in accordance with GAAP. A reconciliation of our non-GAAP financial measures to their most comparable GAAP measures is provided in our press release. We will provide forward-looking guidance for certain non-GAAP financial measures in this earnings call and are not providing forward-looking guidance for the most directly comparable GAAP measures and therefore, have not provided reconciliations because they are items that may impact the comparable GAAP measures that are not within our control or cannot be really forecasted.

With that, I’ll turn the call over to Ben.

Benjamin Albert: Thank you, Stephanie, and thank you to everyone for joining us today. We are pleased to report a strong first quarter with solid bookings and results that exceeded expectations on both revenue and adjusted EBITDA. We ended the quarter in a strong cash position and combined with the cost saves from streamlining our operations. We are making progress as we position the company for durable and efficient growth. We are also introducing a new performance metric that we believe provides a clear benchmark of success and issuing full year guidance as promised. . Jason will detail our performance and outlook in his remarks. But first, I’d like to spend a few minutes sharing learnings from our initial assessment and the actions we’ve taken and will continue to take with urgency to transform the company’s operating model simplify our organizational structure and align resources around our highest conviction technology opportunities.

Over the last few months, we have begun examining every dimension of the business. from our cost structure and our product portfolio to our go-to-market approach, organizational design, leadership, technology infrastructure and how we deliver value to clients. This review has reinforced the strength of our foundation and the need to operate differently. One of the most significant findings from that review was the direct connection between our previous migration strategy and the revenue pressure we are managing this year. Setting a rigid time line for migration efforts over the last 2 years has created a churn dynamic, which is heavily impacted in 2026. It is the area we’ve addressed most aggressively prioritizing client success and retention to build a more durable revenue base.

As we shared in our March earnings call, we stopped managing the migration as a one-size-fits-all program and conducted a line-by-line review of every remaining client. We developed a tailored plan for each client specific situation and have strengthened the teams dedicated to taking clients through this process, including options where clients stay on us for an extended period of time. The initial review is now complete and gives us a new level of visibility into a path forward. As we look at our business holistically, we believe that Health Catalyst has exceptional core assets including 18 years of proprietary health care improvement data, deep client relationships, proven outcomes and a team that genuinely cares about improving health care.

However, these assets were hampered by a fragmented and cumbersome business structure that created friction and lack focus for clients and teammates. While this accumulated complexity will take time to unwind and will create short-term revenue pressure, we are focused and confident in our plan of action. Ultimately, we believe this short-term impact is necessary to achieve more profitable growth long term. Importantly, we are building a leadership team that is equipped and eager to execute this plan. We’ve added significant experience across nearly every function, bringing in operators with vision, executional discipline and a track record of results. We also recently promoted our new Chief Marketing Officer, who is already transforming our messaging, product positioning, and how to take our solutions to market, and our new Chief Growth Officer, who is bringing her excitement and data-driven leadership to our growth function.

At the Board level, we’ve also made significant changes. We recently welcomed Steve Nelson, who currently serves as the President of Aetna and brings deep health care expertise and public company leadership experience. He previously served as Chief Executive Officer of UnitedHealthcare, Gen Med and Duly Health in Care building and scaling delivery models where health outcomes, provider experience, cost discipline, clinical performance and consumer engagement operated as a single integrated strategy. Out of our 7 current Board members, he is 1 of 4 Board members who have joined us in the last year, including a new Chair. The Board refresh brings fresh perspective outside expertise and strategic insight. Moving forward, our focus is being a technology business that wins in the market, operating with efficiency and discipline and investing in our AI intelligence that differentiates our solutions.

Two weeks ago, we announced a comprehensive operational and business restructuring we’re calling Project NEXUS. Is a strategic initiative designed to fundamentally transform our operating model, improve our cost structure and advance each of these priorities. This initiative is expected to generate annual run rate cost savings of approximately $30 million and accelerate the progress we’ve already made to integrate our core functions and consolidate our operations under 1 company with 1 commercial approach, 1 client-facing team and 1 set of standards. On the engineering side, we piloted a new development model, utilizing highly efficient pods and proprietary AI development agents. In initial pilots, development teams increased story points delivered by as much as 100% per developer, allowing us to simultaneously reshape our cost structure and accelerate product innovation.

Finally, we are introducing total bookings as a simplified operating metric. We consider investor feedback carefully and believe it is one of the most direct indicators of whether our commercial engine is working. Combined with our guidance and continue to focus on adjusted technology gross margin and cash generation, we believe our metrics will give you a clear and consistent framework to track the success of this transformation. Now let me tell you how the work we are doing positions us for the opportunity ahead and why I took this job. Health care is at the inflection point. The financial pressure on health systems, voting margins, shifting payer mix, rising labor costs is structural, not cyclical. In this environment, organizations are looking for more than incrementally better tools.

They are looking for a partner who can help them reduce costs, improve clinical quality and grow consumer relationships while delivering meaningful outcomes. That is the market we are built for and AI strengthens our ability circuit. Health care data infrastructure has increasingly commoditized. Durable advantage lies in the intelligence built on top of it. And our advantage, on something no one else has, our wealth improvement data, the link between an intervention, its cost and its measured outcome. — years and thousands of improvement engagements later, our proprietary data set compounds, building our competitive advantage. A new entrant cannot manufacture this data set retrospectively. These engagements include an evidence base that tells us what reduces cost, improves clinical quality and grow consumer engagement and then can be calibrated to each systems case mix cost structure, workforce, and starting point.

The result is a prescriptive road map that identifies opportunities sized in dollars and interventions ranked by Impac sequenced foundations are in place before the harder work begins. That is the foundation of our AI strategy. We are building a growing suite of genetic AI models across cost management, clinical quality, consumer experience and ambulatory growth embedded in our domain-specific application. These improvement agents will confine multiple layers of machine learning models and LLMs to service the right opportunities for each health system, quantify the impact and guide execution. We are building a moat by combining our depth of improvement data with purpose-built AI agents at scale. Both that once required months of consulting services and manual effort is being embedded in our technology solutions, and recalculate daily as conditions change, improving with every outcome delivered.

I want to add something more personal. I believe that a thriving health system is foundational. As essential as education as central to the fabric of the community as any institution have. For the communities they serve, health systems provide care, they provide employment and they provide resilience. When they struggle, communities feel it in ways that go far beyond health care. That reality is under threat today, and many communities do not yet see it coming. Health Catalyst exists to help health systems sustain and strengthen that role. Our improvement data is the foundation and AI will allow us to make that expertise efficient scalable and accessible to every system that needs it. That is the company we are building. In conclusion, we asked for time and we used it to conduct a thorough assessment of the business.

We are acting on what we found. We are transforming the company’s operating model by simplifying our organizational structure and aligning resources around our highest conviction technology opportunities. We have increased visibility into the [indiscernible] migration impact, and we expect that the majority of that revenue pressure will be absorbed in 2026. These changes to our operating model position us to enter 2027 with a more efficient organization and a commercial engine that will be aligned to where we believe we will win. With that, I’ll turn it over to Jason.

Jason Alger: Thanks, Ben. I want to start by putting the Q1 results in context. Ben described the transformation we are undertaking and the framework we are using to measure it. The financials this quarter reflect the very early stages of that work. We exceeded our guidance on both revenue and adjusted EBITDA. We are reporting strong Q1 bookings, which gives us confidence our commercial simplification work is gaining traction, and our cost discipline continues to show up in the numbers. Let me walk through the details. For the first quarter of 2026, total revenue was $70.8 million, exceeding the high end of our guided range of $68 million to $70 million. Technology revenue was $49.5 million, and professional services revenue was $21.3 million.

On the top line, I would point to a few things. Our revenue trajectory is beginning to show some of the revenue pressure that Ben discussed that was partially offset by milestone delivery-based revenue and new client revenue. Professional services revenue continues to decline as expected, as we shift toward a more technology-led model, which is by design. Adjusted gross margin for the first quarter was 51.5%, compared to 49.2% in the prior year period. Adjusted technology gross margin was 55.3%, and adjusted professional services gross margin was 19.4%. Adjusted technology gross margin reflects duplicate hosting costs as we migrate clients to ignite and heavy data loading costs associated with HIE client deployments before revenue can be recognized.

We are laser focused on margin expansion as part of the transformation to streamline delivery and optimize our cost structure. We expect that the operational changes that Ben described, which include certain head count and non-headcount changes that impact cost of revenue will begin to show up in Q2 results and will become more evident in the second half of 2026. Adjusted operating expenses in Q1 were $27.3 million, representing 39% of revenue compared to $32.8 million or 41% of revenue in Q1 2025. We have been disciplined about cost management while protecting investments in areas that directly support the transformation. Adjusted EBITDA for the first quarter was $9.1 million exceeding the high end of our guided range of $7 million to $8 million compared to $6.3 million in Q1 2025.

Adjusted net income per share was $0.02, with a weighted average share count of $72.6 million. Turning to the balance sheet. We ended the quarter with approximately $108.8 million of cash, cash equivalents and short-term investments. As Ben noted, cash generation is a central focus. This Q1 cash, cash equivalents and short-term investments value reflects a $13.1 million increase compared to December 31, 2025. Although we don’t anticipate this level of cash generation every quarter, we are managing liquidity carefully, and we expect the restructuring actions we are taking will meaningfully improve our ability to generate cash. Let me walk to the math of Project Nexus because I think it is important for investors to see how these actions connect to the financial trajectory we are targeting.

We expect total second quarter restructuring charges of approximately $4 million, this program spans workforce actions, infrastructure consolidation, and go-to-market realignment. We expect the majority of these charges to be incurred in Q2 with the restructuring substantially complete by year-end. Project Nexus is expected to generate annualized run rate savings of approximately $30 million, inclusive of direct savings of approximately $22 million from the 9% reduction in head count and reductions in non-headcount spend, such as infrastructure, subscriptions and contractors and indirect savings of approximately $8 million from the closing of open head count and cancellation of other previously planned expenses. It is important to note that these savings are annualized, so not all of the benefit will be seen in 2026.

As we think about 2026, we expect our quarterly adjusted operating expenses to decrease by $3 million to $4 million compared to Q1. We also expect our quarterly adjusted cost of revenue to decrease by $1 million to $2 million. These quarterly impacts will start to take effect in Q2 and will ramp throughout the year. We are making meaningful structural changes to how this company operates and what it costs to run. Today, we are providing full year 2026 guidance. I want to walk through not just the numbers, but how we expect the year to unfold because the shape of the year matters as much as the totals. For full year 2026, we currently expect total revenue of $260 million to $265 million, adjusted EBITDA of $30 million to $33 million. For Q2 2026, we currently expect total revenue of $68 million to $70 million, adjusted EBITDA of $9 million to $10 million.

Our full year revenue guidance reflects the weight of short-term revenue pressure related to the previous migration strategy as what the TAMs and professional services-related revenue reductions and the assessment that Ben described. The churn that we are working through today is largely the result of prior decisions that force clients into an accelerated decision point on the migration before we had the right retention program and client-facing structure in place. On our previous earnings call, we shared certain data points related to the DAS to ignite migration, including the $12.5 million of ARR notified downselling churn and approximately $52 million of potentially at-risk ARR. Following the client by client review, we anticipate retaining at least $22 million of the previously identified $52 million of at-risk ARR, this leaves approximately $30 million of at-risk ARR, which we are focused on retaining through dedicated account plans tailored to each client’s needs.

The current expected impact will be approximately $20 million in 2026 and $10 million in 2027. For simplicity, we’ve provided this detail in a chart in our earnings release. We would note that a number of clients will continue to use our application solutions going forward even after transitioning to their own infrastructure. As we previously noted, the migration impact is temporary we expect to be generally through the strength of the migration at the end of 2027. This does not mean every migration is complete as we are extending the availability of DAS, but it means we will transition each client when the time is right on what products make sense. Additionally, the changes we have put in place are helping us to build a more durable revenue base exiting 2027.

As we prioritize a mix shift to higher-margin technology revenue, we continue to work with clients on the right services approach. In certain cases, it makes sense for clients to in-source team members, which aligns with our technology-led strategy and improves our margin profile. Our best estimate today is that exiting 2026, our Services segment will be between $55 million and $65 million in revenue annually. Our Q1 bookings were strong, and our pipeline supports moderate bookings in Q2 and positive bookings momentum in the second half. Over the course of 2026, we expect $22 million to $26 million in new bookings, which includes all ARR and non-recurring revenue. We use new bookings as an operating metric and define it further in our Form 10-Q filed today.

We will report results for this new metric on an annual basis, we aim to turn bookings into revenue promptly for the advantage of our clients and our business. From an adjusted gross margin standpoint, we expect adjusted technology gross margin to fluctuate modestly quarter-to-quarter and to finish the year in the mid-60s. Technology margin expansion is a key focus area of our business moving forward, but it will take time to realize improvement in our financials given duplicate costs from the Ignite migrations and heavy data loading costs associated with HIE client deployments. We anticipate that our adjusted professional services gross margin will decline over the course of the year, as we continue to work through the migrations with a full year margin expectation in the mid- to low teens.

We are targeting adjusted EBITDA that reflects changes to the operating model taking hold. This is the financial case for why the short-term Microson related revenue pain is worth it. We believe our new structure will allow us to lean into high-priority opportunities and realize improving leverage and growth returns. We are managing this business for durable value creation and believe the actions we are taking in 2026 are laying the foundation for that. With that, I’ll turn the call back to Ben.

Benjamin Albert: Thanks, Jason. In closing, I want to thank our clients for their continued partnership and our team members for their commitment during this period of progress and transition. We are energized by the transformation underway and our Board and management team are fully aligned on driving shareholder value. We have a clear plan and are executing with urgency and discipline. We remain confident in the direction of the business and in our ability to create long-term value for our clients and shareholders. Operator, we are now ready to take questions.

Q&A Session

Operator: [Operator Instructions] Our first question is coming from Stan Berenshteyn with Wells Fargo.

Stanislav Berenshteyn: On the prepared remarks, you mentioned a bigger focus on the technology business. Are there any value-added services that are still part of this vision or is the expectation here that services is going to shrink as a mix of total revenue?

Benjamin Albert: Thank you for the question. The expectation is that services will shrink as we go forward in terms of as a percentage of revenue as we invest in technology-driven opportunities for the company overall. But we certainly see — and we’ll continue to see areas of opportunity for our services in the business and area of example as a chart abstraction. And while we might infuse more AI into the process of our charter abstraction work, we will still have wraparound services to support that because our intention is to meet our clients where they are. And sometimes, that will require utilizing some services in the business. But we will see a mix shift. As we go forward, especially with the AI strategy we’re unfolding and how we’re really taking advantage of the highest technology opportunities the business has.

Operator: We’ll now move on to jp John Pinney with Canaccord Genuity.

Richard Close: [indiscernible] Richard Close. I guess I just wanted to get greater detail on — you said like the shift like the shift from DOS to ignite as kind of a sticking point is trying to force that shift on to people. I guess like what is the hesitation of people shifting? Is it just like the flux that it would create during that shift? Is there something about us that they want to stick with that Ignite doesn’t have?

Benjamin Albert: Thanks for the question. There are a couple of things we can answer that with. But DAS provides a lot of value to our clients and our clients have invested a lot in DAS over time. And taking on that transition to a new platform, whether it be Ignite or other is just a lot of work and it requires a tremendous amount of effort. And they get tremendous value from DAS today. So for many clients, they’re excited to stay on DAS. And over time, they may move over to Ignite. And we want to just be able to meet them where they are and support them through that transition as we go forward. So DAS does provide a lot of value, and I think that’s what we’re seeing. Now as it relates to the second part of the question, the data platform level has been commoditized a bit.

And the value really is in the intelligence that sits on top of the data platform. And we’ve got this 18 years proprietary improvement data that sits on top of the data platform, and this is on top of Ignite, of course. That we’re enabling these AI capabilities off of across these 3 really critical areas of helping our clients manage cost helping them improve the consumer engagement and growth from the ambulatory side of the business and also driving clinical quality. As we invest in AI and use that improvement layer that sits on top of the data platform, we will see more and more take advantage of what Ignite has to offer.

Operator: Thank you. We’ll move on now to Jeff Garro with Stephens.

Jeffrey Garro: Yes. I want to ask about feedback so far on Ignite Intelligence. Curious, what are you hearing from customers in terms of kind of overall budgeting for AI and then feedback on your offering versus efforts or investigations they might have into building it themselves or buying from someone else?

Unknown Executive: Sure. Thanks, Jeff. The the feedback has been really, really positive as it relates to the initial rollout of our AI capabilities, particularly on the cost management side of the equation, which is very early innings there. And the feedback has been excellent, and we continue to invest more and more in that work to unearth these capabilities that we can provide. And as we talk about what differentiates us and how it really drives measurable improvement for our clients. That’s really all about that 18 years of proprietary intelligence that we have on top of the data. That improvement data is what we call it, and 18 years of projects, thousands of projects to help improve our clients across their — how they better manage their costs, how they better manage their labor, how better manage their clinical quality and how they better manage their consumer experience.

We have that data, and we can enable our clients to utilize that in our AI agents that really will make our solutions much more robust and help them manage the changes going forward. And there’s a lot of excitement, and we believe that will be a huge component of our future growth.

Operator: We will now move on to Jessica Tassan with Piper Sandler.

Jessica Tassan: I appreciate you reinstating the guide. So kind of a multipart question. Are you able to disclose how many DOS and Ignite customers you have today? And what is the average ARR for DOS customers in ’26 versus Ignite customers in ’26 and then just when you say data infrastructure is commoditized, I guess, when did that occur? Who are the competitors on the data infrastructure side — and how much of the DOS or IGNITE ARR would you ascribe to data infrastructure versus the intelligence layer.

Unknown Executive: Jeff, really appreciate the question. I mean what we have provided in the prepared remarks as well as in the earnings release document. Its full detail around what we expect from a downsell and churn perspective. We don’t have a logo count that we’ll be disclosing at this point in time. But we’ll keep we’ll keep everyone apprised of how we’re projecting there. It does continue to still be less common for an enterprise client to exit entirely. What we are saying is that clients are generally continuing even if we do see that down sell or churn on the data infrastructure side, we are continuing to maintain those application relationships with us.

Benjamin Albert: And I would just add to the fact you mentioned when did the data platform become commoditized. I think as we’ve talked on prior calls and indicated that the folks like Databricks coming in and Snowflake and cross-industry tech vendors who are working to really enable that data platform layer, but they lack the intelligence that sits on top. So we’re building the infrastructure layer to support these organizations, and that’s happening at times. We can still do the whole thing for clients who need that. But ultimately, what we do now is we have that intelligence layer that can sit on top of that data platform. So that Ignite Intelligence can enable our clients and future clients with a much greater improvement opportunity through the intelligence we provide.

Operator: We’ll now move on to Eden Conniff with Stifel.

Unknown Analyst: I have a 2-parter. First, in the $30 million of anticipated churn in downsell, is that entirely the data infrastructure layer and then secondly, thanks for providing the bookings metrics. How quickly are you expecting those to then convert to revenue?

Jason Alger: I appreciate the question. Yes, related to the $30 million in anticipated churn or downsell, I would say it’s heavily focused on the data infrastructure side. it’s not 100% data infrastructure. We are seeing some of that churn come out of the application side as well, but primarily focused more on data infrastructure. And then to the to the second part of that question. I’m sorry. Could you repeat that second part, Adan? apologize?

Unknown Analyst: Yes. Just in terms of the bookings you guys provided, how are you thinking about those then converting to revenue in terms of the time frame we should see them peer?

Jason Alger: Got it. Yes, I appreciate you repeating Yes. So we would expect bookings to convert into revenue. Typically, it takes about 3 to 6 months for those bookings to convert into revenue. It really does depend on the project or on the technology that we’re deploying, but that would be most common would be 3 or 6 months.

Operator: Thank you. We’ll move on to Daniel Grosslight with Citi.

Daniel Grosslight: This is what we saw to Daniel. I know you mentioned earlier in the call that your pipeline supports moderate bookings in 2Q and positive momentum. — this positive momentum represent like a change in behavior among the tetra clients relative to your initial expectations? Or could you characterize those payer overall study and there’s still a little bit addicting the market?

Benjamin Albert: I think it can be attributed to just our approach. I mean we recently added a new Head of Marketing. We’ve got a new Chief Growth Officer. And we’re really focused on how we are taking our platform and our capabilities to market and how we’re messaging those solutions in markets. So people understand exactly what it is that we do as an organization. Health systems are still making purchases today. But the bar is definitely higher. The ROI threshold is higher. They don’t want just 1 solution. They want a partner who can provide multiple solutions like we can across cost intelligence labor intelligence or clinical intelligence, consumer intelligence. And so when you can come to them with a message of how well we understand you is 18 years in health care with tremendous improvement data that sits on top of it and then the ability to convert that data into meaningful outcomes and measurable improvement for them across multiple areas of their business.

That capability is truly unique and differentiated in the market. And we do anticipate that driving the back half of the year.

Operator: [Operator Instructions] We’ll move next to Ryan Daniels with William Blair. .

Ryan Daniels: One for you. I just wanted to dig into the dots related ARR churn and potential buy down. Can you talk a little bit more about the $52 million? What actually delineates the $22 million you anticipate to retain versus the $30 million? What are the characteristics defining your ability to retain some of that ARR versus the potential risk? And then what are you guys doing to mitigate that risk going forward? Or is it just likely gone at this point given some of the conversion structure is already in place? .

Jason Alger: Thanks for the question. We are working hard to retain as much of that as we can. And as we did our assessment over the last really few months. We went line by line against every dose to ignite migration account and put a plan together to support them. And so we’re not going to lose them all. Some will downsell as opposed to full churn, obviously. But ultimately, we do have an approach, and we are hopeful to make some inroads there. We just want to make sure we’re communicating clearly we’re building credibility and making sure that we’re setting the right expectations in the market. But we do have a plan to go and try and retain as much of that revenue as we can through those account by account approaches.

Operator: Thank you. There are no further questions at this time. I’m happy to turn the floor back over to Ben Albert for additional or closing remarks.

Benjamin Albert: I’d like to thank everybody for joining us today. I think we’re super excited about what health catalyst can become as we go forward. We’re very focused right now on the fundamentals, the launch of Project Nexus to transform our operating model and drive our company forward. We’re investing in the areas that we believe will drive growth for our organization. We’re trying to provide as much transparency as we possibly can. So you can all really understand where our business is and where our business is going. And we recognize that our performance hasn’t been where we want it and that we’re going to be judged by the performance that we create here, and we’re very focused on executing against that. So thank you all very much for joining us today. Appreciate it. .

Operator: This concludes today’s Health Catalyst First Quarter 2026 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.