10-Q: Health Catalyst Q3 2025: Net Loss Widens Amid Goodwill Impairment

Health Catalyst reports a widened net loss in Q3 2025, driven by a significant goodwill impairment charge and restructuring costs, despite technology revenue growth.

Summary

• Total revenue for the three months ended September 30, 2025, was $76.3 million, flat compared to $76.4 million in the same period of 2024.
• Total revenue for the nine months ended September 30, 2025, was $236.5 million, an increase of 4% from $227.0 million in the same period of 2024.
• Net loss for the three months ended September 30, 2025, widened to $22.2 million from $14.7 million in the prior year's quarter.
• Net loss for the nine months ended September 30, 2025, significantly increased to $86.9 million from $48.8 million in the same period of 2024.
• The increased year-to-date net loss is largely driven by a $28.8 million goodwill impairment recognized in the second quarter of 2025.
• The year-over-year increase in quarterly net loss is primarily due to $6.9 million of lease-related impairment charges and $4.8 million of restructuring costs.
• Adjusted EBITDA for the three months ended September 30, 2025, increased to $12.0 million from $7.3 million in the prior year's quarter.
• Adjusted EBITDA for the nine months ended September 30, 2025, increased to $27.6 million from $18.2 million in the same period of 2024.
• Technology revenue grew 7% in Q3 2025 to $52.1 million and 9% year-to-date to $156.4 million.
• Professional services revenue decreased 12% in Q3 2025 to $24.3 million and 4% year-to-date to $80.0 million.
• Total Adjusted Gross Margin improved to 53% in Q3 2025 from 48% in Q3 2024.

Sentiment

Score: 3

Explanation: The company reported a significantly widened net loss for both the quarter and year-to-date, primarily driven by a substantial goodwill impairment charge and ongoing restructuring costs. While Adjusted EBITDA improved and technology revenue grew, these positives are overshadowed by declining professional services revenue, significant cash reduction, and a challenging macroeconomic outlook. Management explicitly highlights elongated sales cycles, clients opting for price reductions during platform migration, and anticipated Dollar-Based Retention pressure into 2026. The overall financial performance is weak, and the future outlook indicates significant headwinds.

Positives

• Technology revenue increased by 7% in Q3 2025 to $52.1 million and 9% year-to-date to $156.4 million, driven by new/acquired clients, contractual escalators, and expanded support services.
• Adjusted EBITDA improved significantly, reaching $12.0 million in Q3 2025 (up from $7.3 million in Q3 2024) and $27.6 million year-to-date (up from $18.2 million in 2024).
• Total Adjusted Gross Margin improved to 53% in Q3 2025 from 48% in Q3 2024, primarily due to a mix shift towards higher-margin technology revenue and cost management efforts.
• Technology Adjusted Gross Margin increased from 65% in Q3 2024 to 68% in Q3 2025, benefiting from higher technology access fees and savings from recent reductions in force.
• Professional Services Adjusted Gross Margin increased from 17% in Q3 2024 to 19% in Q3 2025, due to higher utilization rates and cost management efforts.
• The January 2025 Restructuring Plan was completed by June 30, 2025.
• Repurchased and retired 1,103,601 shares of common stock for $5.0 million during the nine months ended September 30, 2025, with $24.8 million remaining authorization under the Share Repurchase Plan.

Negatives

• Net loss widened to $22.2 million in Q3 2025 from $14.7 million in Q3 2024, and to $86.9 million year-to-date from $48.8 million in 2024.
• A significant non-cash goodwill impairment charge of $28.8 million was recognized in Q2 2025.
• Professional services revenue decreased by 12% in Q3 2025 to $24.3 million and 4% year-to-date to $80.0 million, primarily due to the exit of pilot ambulatory operations Tech-enabled Managed Services (TEMS) and churn of FTE-based service arrangements.
• Lease-related impairment charges of $6.9 million were incurred in Q3 2025.
• Restructuring costs of $4.8 million were incurred in Q3 2025 as part of the August 2025 Restructuring Plan.
• Cash and cash equivalents decreased significantly from $249.6 million at December 31, 2024, to $40.3 million at September 30, 2025.
• Short-term investments decreased from $142.4 million at December 31, 2024, to $51.2 million at September 30, 2025.
• Interest and other (expense) income, net, decreased by $15.0 million year-to-date, primarily due to increased interest expense on debt and decreased interest income on investments.
• Elevated churn levels in technology revenue, primarily from the migration of DOS clients to Ignite.
• Adjusted Technology Gross Margin is expected to fluctuate and potentially decline in the near term due to additional costs associated with the ongoing transition of DOS clients to Health Catalyst Ignite and Ninja Universe deployment costs.
• Dollar-Based Retention is experiencing pressure in 2025 due to ongoing migration efforts, expected to continue into 2026.
• An increasing number of clients are opting for price reductions as part of the migration to Ignite, resulting in lower overall spend.

Risks

• Operating in a highly competitive industry with large, well-financed competitors (e.g., Epic Systems, Oracle Health, Optum Analytics, IBM).
• Inability to successfully execute growth initiatives, business strategies, or cost reduction and restructuring initiatives, including client migration to Health Catalyst Ignite causing disruptions, lower revenue, or non-renewals.
• Macroeconomic challenges (high inflation, high interest rates, tariffs, cuts in Medicaid and research funding, market volatility) adversely affecting client spending and sales cycles.
• Failure to innovate and provide useful services, leading to loss of competitiveness and potential revenue decline.
• Client dissatisfaction with the company's Solution (cloud-based data platform, software analytics applications, and expertise).
• Existing clients not continuing or renewing contracts, renewing at lower fee levels, or declining to purchase additional technology and services.
• Information technology system failures, cyberattacks, or deficiencies in cybersecurity.
• Actual or perceived failures to comply with applicable data protection, privacy, and security laws (e.g., HIPAA, CCPA, GDPR).
• Dependence on the ability to source data from third parties, with risks of blocked access or increased fees.
• Fluctuations in results of operations, potentially failing to meet the expectations of securities analysts or investors.
• The term loan facility exposes the company to interest rate risks and contains restrictive covenants that may limit business operations or growth.
• The Solution failing to provide accurate and timely information, or being associated with faulty clinical decisions or treatment, could lead to litigation and liability.
• Reliance on third-party providers, including Microsoft Azure, for computing infrastructure and other technology-related services, with risks of disruption.
• Reliance on Internet infrastructure, bandwidth providers, data center providers, and internal systems, with risks of failure or interruption.
• Failure by clients to obtain proper permissions and waivers for data use, potentially limiting or preventing the company's use of data.
• Increasing reliance on AI and machine learning technologies may expose the company to significant risks, including development and deployment challenges, regulatory uncertainties, and potential third-party claims.
• Changes in the healthcare industry affecting the demand for the Solution, causing contract terminations, or negatively impacting future contract negotiations.
• Long and unpredictable sales cycles, requiring considerable investment of time and expense.
• Deriving a significant portion of revenue from a limited number of largest clients, where loss, termination, or renegotiation of any contract could negatively impact results.
• Inability to implement and maintain effective internal controls over financial reporting.
• Acquisitions of other companies or technologies could divert management's attention, result in dilution to stockholders, disrupt operations, or be difficult to integrate successfully.
• Intense competition for highly skilled employees, potentially impacting the ability to attract and retain talent needed for continued growth.
• Dependence on the senior management team, with the loss of key executives or an inability to attract and retain highly skilled employees potentially adversely affecting the business.
• Inability to maintain corporate culture as the company grows.
• Inability to grow at historical rates or at all, even if key metrics may indicate growth.
• Estimates of market opportunity and forecasts of market growth may prove to be inaccurate.
• Failure to protect intellectual property rights could impair the ability to protect proprietary technology and brand.
• Being sued by third parties for alleged infringement of their proprietary rights or misappropriation of intellectual property.
• Business could be adversely impacted by changes in laws and regulations related to the Internet or changes in access to the Internet generally.
• The Solution utilizes open-source software, and any failure to comply with the terms of one or more of these open-source licenses could adversely affect the business.
• Employment of third-party licensed software and software components, where inability to maintain licenses or errors could limit functionality and increase costs.
• Taxing authorities successfully asserting that the company should have collected or in the future should collect sales and use, value-added, or similar transactional taxes.
• Unanticipated changes in the effective tax rate and additional tax liabilities, including as a result of international operations or implementation of new tax rules.
• Ability to use net operating losses (NOLs) to offset future taxable income may be subject to certain limitations.
• Comprehensive tax reform legislation (e.g., OBBBA) could adversely affect the business and financial condition.
• Economic uncertainties or downturns in the general economy or the industries in which clients operate could disproportionately affect demand for the Solution.
• Investors' expectations of performance relating to environmental, social, and governance (ESG) factors may impose additional costs and expose the company to new risks.

Future Outlook

The company anticipates continued negative impacts from macroeconomic challenges, including policy developments around Medicaid and research funding reductions, which are expected to create additional financial strain for clients and prospective clients. Sales cycles are expected to lengthen, and some opportunities, particularly in Life Sciences, have been pushed, negatively impacting year-to-date bookings and expectations for revenue in the fourth quarter of 2025. The aggregated average total ARR and non-recurring revenue for net new Platform Clients is trending towards the lower end of the $300,000 to $700,000 range, a trend anticipated to continue in the near term. A higher proportion of gross bookings is expected from the existing client base. The migration of DOS clients to Health Catalyst Ignite is expected to result in lower overall client spend due to price reductions and will cause Dollar-Based Retention pressure in 2025 and into 2026. Adjusted Technology Gross Margin is expected to fluctuate and potentially decline in the near term due to additional costs associated with the ongoing transition of DOS clients to Health Catalyst Ignite and Ninja Universe deployment costs. Total Adjusted Gross Margin is expected to fluctuate in the near term but improve over the long term due to a mix shift towards technology revenue and anticipated improvements in both segments.

Management Comments

• Operating margins of the health system end market improved in 2024 and year-to-date 2025 relative to 2022 and 2023.
• Policy developments around Medicaid and research funding reductions, as well as implications of the evolving tariff landscape, continue to negatively impact the business.
• Sales cycles have elongated and some opportunities, such as in Life Sciences, have been pushed, negatively impacting year-to-date bookings and Q4 2025 revenue expectations.
• A higher proportion of gross bookings is anticipated to come from the existing client base compared to historical levels, including upsells to both Platform and App Clients.
• An increasing number of clients are opting for price reductions as part of the migration to Ignite, resulting in lower overall spend.
• The company is responding to the challenging macroeconomic environment with a strategic operating plan that proactively tailors solutions to align with urgent needs for cost management and operational improvement.
• The timeline and approach for Ignite migrations have been adjusted to be more client-centric, recognizing that some organizations prefer to remain on DOS for the near-to-medium term, which is expected to improve client experience and Dollar-Based Retention.

Industry Context

The healthcare industry is undergoing significant structural changes, moving towards value-based care models. Health systems are experiencing financial strain from macroeconomic challenges, including inflation and potential Medicaid funding cuts (e.g., OBBBA reducing federal Medicaid spending by nearly $1 trillion over 10 years). This environment is driving demand for cost management and operational efficiency solutions, which Health Catalyst aims to address with its strategic operating plan. The market for healthcare data analytics is highly competitive, with established EHR vendors and large tech companies posing significant competition. The adoption of AI and machine learning technologies is a growing trend, but also introduces new regulatory and ethical challenges.

Corporate Governance

Legal Proceedings

• The company is involved in legal proceedings from time to time that arise in the normal course of business, but management does not expect them to have a material adverse effect.
• No charges were recorded during the three and nine months ended September 30, 2025 and 2024 related to legal proceedings.

Related Party Transactions

• Revenue from Carle Health (a client with an executive on the board) was $4.4 million in Q3 2025 (vs. $4.2 million in Q3 2024) and $13.3 million year-to-date 2025 (vs. $12.4 million in YTD 2024).
• Receivables from Carle Health were $0.8 million as of September 30, 2025 (vs. $2.2 million at December 31, 2024).
• Deferred revenue with Carle Health was $0.5 million as of September 30, 2025 (vs. $0.1 million at December 31, 2024).
• Revenue arrangements exist with clients that are also investors, but none hold significant ownership.

Stakeholder Impact

• Shareholders face dilution risk from future equity issuances, potential stock price volatility due to financial performance, macroeconomic factors, and analyst expectations. A share repurchase plan is in place with $24.8 million remaining authorization.
• Employees (Team Members) are impacted by multiple restructuring plans (2023, January 2025, August 2025) involving global workforce reductions (10%, 4%, 9% respectively), leading to potential reduced morale, difficulty hiring, and unintended attrition.
• Customers (Clients) are facing financial strain from macroeconomic challenges and Medicaid funding cuts, leading to elongated sales cycles, price reduction demands during platform migration, and potential churn.
• Creditors are exposed to interest rate risks from the term loan facility and restrictive covenants.

Next Steps

• Continue to refine the strategic operating plan to align with client needs for cost management and operational improvement.
• Continue investments in research and development, including enhancing Health Catalyst Ignite capabilities.
• Complete two-thirds of DOS client migrations to Health Catalyst Ignite by the end of 2025, including the vast majority of modular DOS migrations.
• Make meaningful progress on Ignite migrations by the end of the first half of 2026.
• Expect additional restructuring costs of at least $0.5 million in Q4 2025 as part of the August 2025 Restructuring Plan.
• Evaluate the provisions of ASU 2023-09 (Improvements to Income Tax Disclosures) and expect to adopt for the year ending December 31, 2025.
• Evaluate the provisions of ASU 2024-03 (Income Statement Expense Disaggregation) and expect additional disclosures upon adoption for fiscal years beginning after December 15, 2026.
• Evaluate the provisions of ASU 2025-06 (Internal-Use Software) and expect additional disclosures upon adoption for fiscal years beginning after December 15, 2027.

Key Dates

Recommendation

The company reported a significantly widened net loss for both the quarter and year-to-date, primarily driven by a substantial goodwill impairment charge and ongoing restructuring costs. While technology revenue showed growth and Adjusted EBITDA improved, these positives are overshadowed by declining professional services revenue, significant cash reduction, and a challenging macroeconomic outlook. Management explicitly notes elongated sales cycles, clients opting for price reductions during platform migration, and anticipated Dollar-Based Retention pressure into 2026. The company's reliance on acquisitions for growth, coupled with integration challenges and potential dilution, adds further risk. Given the widening losses, significant cash reduction, and explicit negative forward-looking statements regarding client spending and retention, a seasoned investor would likely recommend selling the stock due to deteriorating fundamentals and a challenging near-term outlook.

Keywords

Healthcare Technology, Data Analytics, Cloud Platform, Health Catalyst Ignite, Patient Engagement, Professional Services, Healthcare IT, SEC Filing, 10-Q, Financial Results, Goodwill Impairment, Restructuring, Adjusted EBITDA, Revenue Growth, Healthcare Providers, Digital Health, Corporate Governance, Risk Management