Health Catalyst, Inc. (HCAT)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements, the accompanying notes, and other financial information included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results could differ materially from those forward-looking statements below. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections titled “Risk Factors” and “Special Note Regarding Forward-looking Statements.”

Overview

We are a leading provider of data and analytics technology and services to healthcare organizations. Our Solution comprises our cloud-based data platforms, software analytics applications, and professional services expertise. Our clients, which are primarily healthcare providers, use our Solution to manage their data, derive analytical insights to operate their organization, and produce measurable clinical, financial, and operational improvements. We envision a future where all healthcare decisions are data-informed.

Highlights from the three and six months ended June 30, 2026 and 2025 included:

•We recognized total revenue of $70.5 million and $80.7 million for the three months ended June 30, 2026 and 2025, respectively, and $141.2 million and $160.1 million for the six months ended June 30, 2026 and 2025, respectively. The decrease in revenue was primarily due to our exit of certain lower margin TEMS arrangements and churn related to the migration from DOS to Ignite.

•We incurred net losses of $40.5 million and $41.0 million for the three months ended June 30, 2026 and 2025, respectively, and $151.6 million and $64.7 million for the six months ended June 30, 2026 and 2025, respectively. The increased net losses in the six months ended June 30, 2026 compared to the six months ended June 30, 2025 are largely driven by $122.5 million in goodwill impairment in 2026, which was primarily due to overall declines in our stock price and market capitalization, as well as the Vitalware held for sale accounting, which required an impairment analysis of the goodwill allocated to the retained technology reporting unit.

•Our Adjusted EBITDA was $9.9 million and $9.3 million for the three months ended June 30, 2026 and 2025, respectively, and $19.1 million and $15.6 million for the six months ended June 30, 2026 and 2025, respectively. See the section titled “Key Financial Measures—Reconciliation of Non-GAAP Financial Measures” below for more information about Adjusted EBITDA, including the limitations of such measure and a reconciliation to net loss, the most directly comparable measure calculated in accordance with GAAP.

See the section titled “Key Factors Affecting Our Performance” for more information about important opportunities and challenges related to our business.

Macroeconomic Environment and Strategic Operating Plan

Ongoing macroeconomic challenges (including high levels of inflation, high interest rates, uncertainty with tariffs, cuts in Medicaid and research funding, and regional or global conflicts (including the conflicts in the Middle East)) and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally. These factors have disrupted the normal operations of many businesses, including our business. These factors have also placed the national healthcare system under significant operational and budgetary strain. The extent and duration of the impacts from these factors is uncertain, and we expect that continued impacts will continue to have a negative effect upon our clients, business and results of operations, and financial condition.

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The health system end market, in particular, has experienced meaningful financial strain over the past several years. We are encouraged that, in general, the operating margins of our health system end market improved in recent years. However, the implications of many policy developments around Medicaid and research funding reductions, as well as implications of the evolving tariff landscape have had and continue to have a negative impact on our business. On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (the OBBBA) into law, which is projected to reduce federal Medicaid spending by nearly $1 trillion over 10 years and will create additional financial strain for many of our clients and prospective clients. As a result, certain sales cycles have elongated and some opportunities, such as opportunities in Life Sciences, have pushed, which negatively impacted our 2025 bookings achievement and our expectations for revenue in 2026.

We continue to anticipate that a higher proportion of our gross bookings will come from our existing client base as compared to historical levels. This expectation is driven by our belief that many existing clients that have already realized a strong financial return on investment (ROI), and are aligned on a long-term partnership framework, will be more receptive to expansion conversations, as compared to discussions with prospective clients. We have collected data internally that shows we are more than twice as effective at selling into organizations where we have an existing relationship compared to those where there is no prior relationship, which gives us additional confidence in our ability to drive cross-selling within our broad client base. We benefit from a highly recurring revenue model, in which greater than 90% of our revenue is recurring in nature, and a high level of technology revenue predictability. Client contracts often include built-in, contractual technology revenue escalators and often include locked in terms for three to five years.

As previously described, within our professional services segment, a subset of clients have reduced the number of FTEs engaged in their initiatives, while in the technology segment, we have experienced down-sell and churn particularly related to the migration from DOS to Ignite. As of May 11, 2026, we had been notified of $12.5 million of DOS-to-Ignite migration downsell and churn, and estimated approximately $52 million of potentially at risk ARR across 2026 and 2027. We are focused on trying to retain this at risk ARR though dedicated account plans tailored to each client’s needs. Even among clients who have given notice on the infrastructure layer, we expect a number of clients will continue to use our application solutions going forward even after transitioning to their own infrastructure. As we referenced in the past, we expect to be generally through churn pressure associated with the DOS to Ignite migration by the end of 2027.

We believe healthcare is at an inflection point, due to financial pressure on health systems, including eroding margins, shifting payor mix, and rising labor costs. In this environment, we believe healthcare providers are seeking a partner who can help them reduce costs, improve clinical quality, and grow consumer relationships, while delivering meaningful outcomes. Healthcare data infrastructure has increasingly commoditized. We believe durable advantage lives in the intelligence built on top of it, and that our advantage rests on our improvement data and content, as well as our expertise, including healthcare-specific and change management expertise.

We aim to continue to manage the business with a focus on operating efficiency, while balancing targeted investments to support disciplined growth and retention initiatives that we expect will benefit future results. Moving forward our focus is building a technology business that wins in the market, operating with efficiency and discipline, and investing in our AI-enabled intelligence that differentiates our solutions. In April 2026, we announced Project Nexus, a strategic initiative designed to fundamentally transform our operating model and advance each of these priorities. The Vitalware Transaction (as defined below), which is part of Project Nexus, provided us with the ability to fully repay all obligations under our Credit Agreement and we believe gives us flexibility to make targeted investments in our core business. While these investments have created near-term pressure on our net loss and Adjusted EBITDA, we believe they better position the business.

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We are focused on margin expansion as part of our transformation to streamline operations and optimize our cost structure, including engaging an advisor to help us assess revenue and cost optimization opportunities. Our priorities going forward will include strengthening and simplifying our commercial engine to drive technology ARR bookings, working to improve retention through more predictable migrations and clearer client value realization, and increasing efficiency and reducing time to value by eliminating operational complexity and scaling work through automation and global resources. We also plan to better leverage our intellectual property, combining our data foundation with the expertise, content, and AI-enabled solutions that differentiates our solutions to allow us to solve healthcare's most pressing problems. We will continue to refine this strategic operating plan.

Vitalware Transaction and Debt Repayment

On July 31, 2026 (the Vitalware Closing Date), we completed the previously announced disposition of all of the equity interests of Vitalware, LLC, through which we conducted our Vitalware business (the Vitalware Business), to Med-Metrix, LLC (Med-Metrix) (the Vitalware Transaction). On the Vitalware Closing Date, we received from Med-Metrix the payment of an aggregate base purchase price of $147 million, subject to customary adjustments for cash, indebtedness, net working capital and transaction expenses. Concurrently with the closing of the Vitalware Transaction, on the Vitalware Closing Date, we used the net cash proceeds received from the Vitalware Transaction, together with cash on hand, to voluntarily repay in full all outstanding obligations under a Credit Agreement, dated as of July 16, 2024, among Health Catalyst, as the borrower, the several lenders party thereto, and Silver Point Finance, LLC, as administrative agent for the lenders (as modified, amended, restated, amended and restated, or supplemented from time to time prior to the Vitalware Closing Date, the Credit Agreement), which resulted in the termination of the Credit Agreement and the simultaneous release in full of all liens thereunder.

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Key Financial Measures

We regularly review a number of measures, including the following key financial measures, to manage our business and evaluate our operating performance compared to that of other companies in our industry:

We monitor the key measures set forth in the preceding table to help us evaluate trends, establish budge

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Overview

We are a leading provider of data and analytics technology and services to healthcare organizations. Our Solution comprises our cloud-based data platform, applications, and expertise. Our clients, which are primarily healthcare providers, use our Solution to manage their data, derive analytical insights to operate their organization, and produce measurable clinical, financial, and operational improvements. We envision a future where all healthcare decisions are data-informed.

Health Catalyst was founded in 2008 by healthcare analytics industry pioneers. Our founders and team developed the initial version of our Solution, consisting of an early version of our data platform, select analytics accelerators, and professional services expertise. From the beginning, our Solution has been focused on enabling our mission: to be the catalyst for massive, measurable, data-informed healthcare improvement. As of December 31, 2025, we employ more than 1,200 team members.

Highlights from the years ended December 31, 2025, 2024, and 2023 include:

•For the years ended December 31, 2025, 2024, and 2023, our total revenue was $311.1 million, $306.6 million, and $295.9 million, respectively. The growth in revenue was primarily due to revenue from new clients, including acquired relationships.

•For the years ended December 31, 2025, 2024, and 2023, we incurred net losses of $178.0 million, $69.5 million, and $118.1 million, respectively. The increased net loss in 2025 compared to 2024 is largely driven by $105.4 million of goodwill impairment, which is primarily due to overall declines in our stock price and market capitalization.

•For the years ended December 31, 2025, 2024, and 2023, our Adjusted EBITDA was $41.4 million, $26.1 million, and $11.0 million, respectively. See the section titled “Financial Measures and Key Business Metrics—Reconciliation of Non-GAAP Financial Measures” below for more information about Adjusted EBITDA, including the limitations of such measure and a reconciliation to net loss, the most directly comparable measure calculated in accordance with GAAP.

See the section titled “Key Factors Affecting Our Performance” for more information about important opportunities and challenges related to our business.

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Macroeconomic Environment and Strategic Operating Plan

Recent macroeconomic challenges (including high levels of inflation, high interest rates, uncertainty with tariffs, cuts in Medicaid and research funding, and regional or global conflicts (including the conflicts in the Middle East)) and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally. These factors have disrupted the normal operations of many businesses, including our business. These factors have also placed the national healthcare system under significant operational and budgetary strain. The extent and duration of the impacts from these factors is uncertain, and we expect that continued impacts will continue to have a negative effect upon our clients, business and results of operations, and financial condition.

The health system end market, in particular, has experienced meaningful financial strain over the last few years. We were encouraged that, in general, the operating margins of our health system end market improved in 2024 and 2025 relative to 2022 and 2023. However, the implications of many policy developments around Medicaid and research funding reductions, as well as implications of the evolving tariff landscape have had and continue to have a negative impact on our business.

On July 4, 2025, President Trump signed the OBBBA into law, which is projected to reduce federal Medicaid spending by nearly $1 trillion over 10 years and will create additional financial strain for many of our clients and prospective clients. As a result, certain sales cycles have elongated and some opportunities, such as opportunities in Life Sciences, have pushed, which negatively impacted our 2025 bookings achievement and our expectations for revenue in 2026.

We continue to anticipate that a higher proportion of our gross bookings will come from our existing client base as compared to historical levels, inclusive of upsells to both our Platform Client base, as well as upsells to our over 1,000 App Clients. This expectation is driven by our belief that many existing clients that have already realized a strong financial return on investment (ROI), and are aligned on a long-term partnership framework, will be more receptive to expansion conversations, as compared to discussions with prospective clients. We have collected data internally that shows we are more than twice as effective at selling into organizations where we have an existing relationship compared to those where there is no prior relationship, which gives us additional confidence in our ability to drive cross-selling within our broad client base.

We benefit from a highly recurring revenue model, in which greater than 90% of our revenue is recurring in nature, and a high level of technology revenue predictability, especially within our Platform Clients whose contracts, when sold as a bundle with our analytics applications, often have built-in, contractual technology revenue escalators and are often locked in for three to five years.

As previously described, within our professional services segment, a subset of clients have reduced the number of FTEs engaged in their initiatives, while in the technology segment, we have experienced churn related to the migration from DOS to Ignite. We have observed that clients have a few options as part of this migration. These options include expanding their relationship and spend by purchasing additional applications and services; experiencing immediate savings while maintaining similar functionality through a price reduction as part of the migration; maintaining existing spend and realizing improvement in operations and functionality from the enhanced capabilities of Ignite; or exercising flexibility to stay on DOS or parts of DOS in the near-to-medium term. Over the course of the next few years, we anticipate our clients will continue to fall along the spectrum of these options; however, in recent months and in the near-term, an increasing number of clients are opting for, and we anticipate many will opt for, a price reduction as part of the migration to Ignite resulting in lower overall spend.

We have been notified of approximately $12.5 million in DOS-related ARR down-sell and churn that will negatively impact our 2026 and 2027 technology revenue. In addition, we currently estimate up to approximately $52 million in DOS-related ARR that may be subject to negotiation in 2026 and 2027 as part of the DOS to Ignite migration; of which, up to approximately $35 million is estimated to be data platform infrastructure ARR. Data platform infrastructure, or the data warehouse and related infrastructure, is where we are seeing the highest degree of pressure. While we expect further churn of this ARR beyond the $12.5 million, we are putting plans in place that are designed to retain a portion of the estimated $52 million of DOS-related ARR. After 2027, we expect to generally be through the data platform infrastructure migration headwind. We have maintained strong application relationships with our clients, even when data platform infrastructure down-selling occurs, and we expect this success to continue.

We are responding to the challenging macroeconomic environment with a strategic operating plan that proactively tailors our solutions to align with and support the urgent needs for cost efficiency, clinical improvement, and consumer experience. We are helping clients achieve tangible savings and enhanced operational efficiency, positioning our organization as a valuable partner during this critical period. We believe this focus will enable us to move forward in a position of continued competitive and financial strength.

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We will continue to manage the business with a focus on operating efficiency, while balancing targeted investments to support disciplined growth and retention initiatives that we expect will benefit future results. We have invested in migration personnel and contractors and have added investments in India as we continue to scale our development team. While these investments may create near-term pressure on our Adjusted EBITDA, we believe they position the business for improved consistency and stronger financial performance in the second half of 2026 and beyond.

Our priorities going forward will include strengthening and simplifying our commercial engine to drive technology ARR bookings, improving retention through more predictable migrations and clearer client value realization, and increasing efficiency and reducing time to value by eliminating operational complexity and scaling work through automation and global resources. We also plan to better leverage our intellectual property, combining our data foundation with the expertise, content, and AI-enabled solutions that allow us to solve healthcare's most pressing problems.

We will continue to refine this strategic operating plan and are continuing to make investments in research and development, including the continued enhancement of the capabilities within Health Catalyst Ignite, in order to maintain our position as a provider of a market-leading data platform and applications over the long term.

Our Business Model

We offer our Solution to a variety of healthcare organizations, primarily in the United States, including academic medical centers, integrated delivery networks, community hospitals, large physician practices, ACOs, health information exchanges, health insurers, and other risk-bearing entities among others. We categorize our client count into two primary categories: Platform Clients and App Clients. As discussed further in “Key Business Metrics and Non-GAAP Financial Measures” below, as of January 1, 2025, we shifted from what we formerly called DOS Subscription Clients to Platform Clients, and what we formerly referred to as other clients to App Clients, which include all other clients that are not Platform Clients. Platform Clients are defined as: (i) all Platform Clients as of December 31, 2024 under our historical definition (formerly referred to as DOS Subscription Clients, which we also referred to as Platform Subscription Clients), and (ii) as of January 1, 2025, any technology client that signs contracts with at least $100,000 of incremental total ARR and non-recurring revenue in a given calendar year, inclusive of clients that come through acquisition if we first begin recognizing revenue for the client post-acquisition and that total ARR and non-recurring revenue exceeds $100,000 in that calendar year, so long as such client maintains an active subscription as of the end of the period. See “Key Business Metrics and Non-GAAP Financial Measures” below for more information about our Platform Clients. App Clients generally include technology clients and other clients from historical acquisitions and typically operate under subscription contracts. As of December 31, 2025, 2024, and 2023, we had 162, 130, and 109 Platform Clients, respectively. As of December 31, 2025, we served over 1,000 App Clients compared to over 900 other clients as of December 31, 2024. The increase in other clients from December 31, 2024 to App Clients as of December 31, 2025 was primarily due to the 2025 Upfront acquisition.

We derive substantially all of our revenue through subscriptions for use of our technology and professional services on a recurring basis. In 2025, greater than 90% of our total revenue was recurring in nature. Clients pay for our technology primarily on a subscription basis for our entire technology suite or for pieces of our technology (e.g., Platform-only or modular portions of the Platfo

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