Health Catalyst, Inc.
For the period ended Mar 31, 2025. Filed May 9, 2025.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 9, 2025
HCAT$1.46-2.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-11-07.
0001636422-24-000152
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-09.
0001636422-25-000069
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 177 previous paragraphs and 148 current paragraphs.
56 unchanged; 65 reworded; 24 added; 46 removed; 10 previous and 3 current paragraphs rearranged.
Tables are not compared: 30 previous and 19 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (24)
Current report
The health system end market, in particular, has experienced meaningful financial strain over the last few years, in which it has realized significant increases in labor and supply costs without a commensurate increase in revenue, leading to a deterioration in operating margins across many of our clients and prospective clients. We are encouraged that, in general, the operating margins of our health system end market improved in 2024 and the first few months of 2025 relative to 2022 and 2023. If this trend with the end-markets continues, we expect it to be a tailwind in the medium-to-long-term, however, we are also continuing to monitor the implications of any policy developments around potential Medicaid and research funding reductions, as well as implications of the evolving tariff landscape.
Current report
In recent quarters, we have been encouraged by incremental improvements, including in the three month period ended March 31, 2025, and we are encouraged to see improving and stabilizing operating margins for clients and prospective clients in our health system end market. With respect to other near-term implications of the challenging macroeconomic environment, 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 900 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.
Current report
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, a subset of modular clients and smaller Platform Clients have lowered their application and analytics spend. We will continue to monitor migrations from DOS to Ignite, and 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 the same functionality through a price reduction as part of the migration; or maintaining existing spend and realizing improvement in operations and functionality from the enhanced capabilities of Ignite. Over the course of the next few years, we anticipate our clients will continue to fall along the spectrum of these three options.
Current report
(2)Restructuring costs include severance and other team member costs from workforce reductions. For additional detail, refer to Note 19-Restructuring Costs in our condensed consolidated financial statements.
Current report
•Impact of challenging macroeconomic environment, including high inflation, high interest rates, uncertainty with tariffs, actual or potential changes in the Medicaid and research funding environment, the tight labor market or the market volatility and measures taken in response thereto. Recent macroeconomic challenges (including the high levels of inflation, high interest rates, uncertainty with tariffs, actual or potential changes in the Medicaid and research funding environment, or market volatility and measures taken in response thereto) and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally, leading to an economic downturn and increased market volatility. These challenges have also disrupted the normal operations of many businesses, including ours. Our health system end market recently experienced meaningful financial strain from significant inflation. In particular, the health system end market experienced increases in labor and supply costs without a commensurate increase in revenue, leading to significant margin pressure. We are encouraged that, in general, the operating margins of our health system end market improved in 2024 and the first few months of 2025 relative to 2022 and 2023. If this trend with the end-markets continues, we expect it to be a tailwind in the medium-to-long-term. We are also continuing to monitor the implications of any policy developments around potential Medicaid and research funding reductions, as well as implications of the evolving tariff landscape. These uncertainties in our end market could cause potential delays in client decisions.
Current report
•Migration to Health Catalyst Ignite. We are in the process of migrating our Platform Clients from our DOS platform to Health Catalyst Ignite. These transitions have and will continue to result in higher cost of technology revenue, which will negatively impact Adjusted Technology Gross Margin. We anticipate the large majority of the Ignite migration will be completed by mid-2026. Over time we anticipate that the migration to Health Catalyst Ignite will benefit Adjusted Technology Gross Margin.
Current report
Upfront Healthcare, Inc.
Current report
On January 22, 2025, we acquired Upfront Healthcare Services, Inc. (Upfront), a next-generation patient engagement platform provider. We accounted for the acquisition of Upfront as a business combination. The acquisition consideration transferred was $80.0 million and was comprised of net cash consideration of $41.1 million, shares of our common stock with an aggregate acquisition-date fair value of $31.6 million, and contingent consideration based on certain earn-out performance targets for Upfront during an earn-out period ending on December 31, 2026, with an acquisition-date fair value of $7.3 million, that, if achieved, would be paid 62.5% in common stock and 37.5% in cash. Certain Upfront shareholders also received shares of our common stock subject to revesting that are accounted for as post-acquisition stock-based compensation. The purchase resulted in Health Catalyst acquiring 100% ownership in Upfront.
Current report
Intraprise Health, LLC.
Current report
On November 8, 2024, we acquired Intraprise Health, LLC. (Intraprise), a leading provider of data and analytics technology and services to healthcare organizations. We accounted for the acquisition of Intraprise as a business combination. The acquisition consideration transferred was$44.9 million and was comprised of net cash consideration of $25.4 million and shares of our common stock with an aggregate acquisition-date fair value of $19.5 million. The purchase resulted in Health Catalyst acquiring 100% ownership in Intraprise.
Current report
Lumeon Ltd.
Current report
Carevive Systems, Inc.
Current report
Interest and other (expense) income, net
Current report
Income tax provision
Current report
Total revenue was $79.4 million for the three months ended March 31, 2025, compared to $74.7 million for the three months ended March 31, 2024, an increase of $4.7 million, or 6%.
Current report
Cost of professional services revenue was $25.6 million for the three months ended March 31, 2025, compared to $23.2 million for the three months ended March 31, 2024, an increase of $2.4 million, or 10%. This increase was primarily due to a $2.0 million increase in salary and related personnel cost, including stock-based compensation, and a $0.8 million increase in salary and related personnel cost related to the 2025 Restructuring Plan, partially offset by a $0.4 million decrease in contractor and outside service provider fees.
Current report
Sales and marketing expenses were $14.7 million for the three months ended March 31, 2025, compared to $19.1 million for the three months ended March 31, 2024, a decrease of $4.3 million, or 23%. The decrease was primarily due to a $1.8 million decrease in stock-based compensation, a $1.6 million decrease in contractor and outside service provider fees related to a change in the timing of our HAS event, and a $1.6 million decrease in our provision for expected credit losses compared to the three months ended March 31, 2024, partially offset by a $1.1 million increase in salary and related personnel costs.
Current report
Research and development expenses were $15.2 million for the three months ended March 31, 2025, compared to $14.9 million for the three months ended March 31, 2024, an increase of $0.3 million, or 2%. The increase was primarily due to a $1.2 million increase in severance costs related to the 2025 Restructuring Plan and $0.8 million increase in contractor and outside service provider fees, partially offset by a $1.3 million decrease in salary and related personnel costs related to our restructuring activities related to the 2025 Restructuring Plan and a $0.7 million decrease in stock-based compensation,
Current report
Depreciation and amortization expenses were $12.3 million for the three months ended March 31, 2025, compared to $10.5 million for the three months ended March 31, 2024, an increase of $1.8 million, or 17%. This increase was primarily due to an increase in intangible assets related to our business combinations.
Current report
Interest and other (expense) income, net
Current report
Income tax provision
Current report
We perform a goodwill impairment analysis annually as of October 31, or more often if events or circumstances indicate that it is more-likely-than-not that the fair value of a reporting unit is below its carrying value. During the three months ended March 31, 2025, we observed overall declines in the Company’s stock price which led to our conclusion that a triggering event had occurred and therefore we performed a quantitative test for the two reporting units.
Current report
The fair value of the reporting units were based upon weightings of the income approach and a market-based approach. The income approach utilizes a discounted cash flow analysis. The market-based approach utilizes comparable public company information, key valuation multiples, and considers a market control premium associated with cost synergies and other cash flow benefits that arise from obtaining control over a reporting unit, and guideline transactions, when applicable. The significant assumptions used in these approaches include revenue growth rates, profit margins, projected future cash flows and discount rates under the income approach as well as valuation multiples derived from comparable public trading companies under the market approach.
Current report
Based on our interim impairment test of goodwill, it was determined that the fair values of the Technology and the Professional Services reporting units were in excess of their respective carrying values as of and during the three months ended March 31, 2025. The fair value of the Technology and Professional Services reporting units exceeded their respective carrying values by approximately 10% and 13%, respectively. If our stock price continues to decline or other adverse events occur, the goodwill of these reporting units may be at risk of impairment.
Removed paragraphs (46)
Previous report
The health system end market, in particular, has experienced meaningful financial strain over the last couple of years, in which it has realized significant increases in labor and supply costs without a commensurate increase in revenue, leading to a deterioration in operating margins across many of our clients and prospective clients. We saw a decrease in pipeline demand in 2023 relative to the period prior due to the onset of these macroeconomic factors in 2022, as well as some elevated realized and anticipated down-sell and churn levels, primarily for the parts of our Solution that do not offer near-term, financial return on investment (ROI), such as our clinically-focused technology offerings and our more traditional consulting Professional Services.
Previous report
In recent quarters, we have been encouraged to have seen incremental improvements, including in the nine month period ending September 30, 2024, and we are encouraged to see improving and stabilizing operating margins for clients and prospective clients in our health system end market. With respect to other near-term implications of the macroeconomic environment, we anticipate improvement in our 2024 bookings metrics relative to 2022 and 2023 for both net new DOS Subscription Client additions and Dollar-based Retention Rate. As it relates to Dollar-based Retention Rate, we expect execution on bookings in the fourth quarter of 2024, including Tech-enabled Managed Services (TEMS) bookings, to have a meaningful impact on our Dollar-based Retention Rate for the 2024 year. We also anticipate that a higher proportion of our net bookings will occur in the fourth quarter of 2024 as compared to our historical average.
Previous report
Through September 30, 2024, our year-to-date net new DOS Subscription Client additions had a lower average starting annual recurring revenue (ARR) as compared to historical levels. We currently expect our aggregated average subscription revenue and non-recurring revenue for all net new DOS Subscription Clients signed in the year ended December 31, 2024 (net new 2024 DOS Subscription Clients) will be between $400,000 and $1,000,000, driven primarily by momentum in modular additions from Health Catalyst Ignite, such as Healthcare.AI and Ninja Universe, Health Catalyst Ignite’s interoperability platform, which has resulted in subscription revenue that is significantly lower than subscription revenue derived from a contract that includes access to all of the DOS platform components and analytic applications. Our modular pricing, which can be lower than our historical averages, has enabled a higher volume of opportunities. This average dollar range is comprised of net new 2024 DOS Subscription Clients with (i) average revenue in the expected average range or significantly above the expected average range noted above, driven by the size of the client organization and the bundle of technology and services included in their subscription and (ii) average revenue meaningfully below the low-end of the expected range noted above, driven by sales of stand-alone Health Catalyst Ignite module components, which provided greater deal certainty in a more challenging macroeconomic environment, and which we believe will provide an opportunity to expand our relationship with these DOS Subscription Clients in the future, including through cross-selling efforts.
Previous report
We have introduced Health Catalyst Ignite, our next-generation data and analytics platform, which benefits from significant scalability and modularity. We expect to migrate existing DOS Subscription Clients to this new platform over the next approximately two years. Over the medium-term, we expect the migration to Health Catalyst Ignite to result in a technology gross margin tailwind; however, we expect a near-term headwind as clients are being migrated. We anticipate new DOS Subscription Clients in 2024 and beyond will be deployed directly onto Health Catalyst Ignite. Furthermore, given the modularity of Health Catalyst Ignite and migrations to its platform, we now primarily refer to DOS Subscription Clients as Platform Subscription Clients. Our Health Catalyst Ignite platform provides advantages related to elastic compute and modularity and allows us to offer a flexible menu of options for clients to benefit from these improved efficiencies. These options include expanding their relationship and spend by purchasing additional applications and features; immediate savings while maintaining the same functionality through a price reduction as part of the migration; or maintaining existing spend and realizing improvement in operations and functionality from the enhanced capabilities of Health Catalyst Ignite.
Previous report
Given the improved bookings performance of our TEMS offering in recent years, a higher proportion of our bookings in 2023 came from our professional services offering relative to 2022, as health systems looked for solutions to effectively address their near-term expense challenges. While this change in bookings mix will lead to lower professional services gross margin and Adjusted Professional Services Gross Margin and Total Adjusted Gross Margin in future years, we expect that we will achieve improvements in net loss and Adjusted EBITDA as a result of the minimal incremental operating expense required to support our TEMS growth. We continue to anticipate that our adjusted operating expenses as a percentage of revenue will trend lower, largely due to our restructuring efforts and meaningful continued operating leverage.
Previous report
In the fourth quarter of 2023, our board of directors approved workforce reductions as part of a restructuring plan intended to optimize our cost structure and focus our investment of resources in key priority areas to align with strategic changes (2023 Restructuring Plan). These reductions enabled significant improvement in our Adjusted Professional Services Gross Margin in the first three quarters of 2024 compared to the fourth quarter of 2023. However we still expect Adjusted Professional Services Gross Margin to fluctuate on a quarterly basis due to changes in the mix of services we provide, the amount of operational overhead required to deliver our services, and clients delaying or reducing services due to a potentially uncertain and challenging macroeconomic environment.
Previous report
Specifically, in the near term, we expect our mix of services to include more TEMS, which have minimal initial services gross margins that gradually increase over time as we drive efficiencies in service delivery through the use of our technology. As part of our TEMS contracts, we often re-badge existing health system team members within the applicable functional area as Health Catalyst team members. We often provide a client with a near-term discount relative to their existing costs for the scope of the TEMS opportunity, and we drive incremental gross margin over time by leveraging our technology and know-how to make processes more efficient and reduce the client’s labor costs. While there will be a headwind to gross margin from these TEMS in the near term, we believe this model will benefit our mid and long-term Adjusted EBITDA and profitability targets due to improved direct margin on these services over time, our ability to drive operating leverage with lower relative incremental operating expense investment required, and the fact that these contracts typically result in long-term technology subscription contract renewals or expansions.
Previous report
Total gross margin increased from 36% for the nine months ended September 30, 2023 to 38% for the nine months ended September 30, 2024. Total Adjusted Gross Margin remained constant at 50% for the nine months ended September 30, 2023 and 2024. We expect total Adjusted Gross Margin to fluctuate and decline in the near term, primarily due to anticipated growth in professional services, including TEMS.
Previous report
(2)Litigation costs include costs related to litigation that are outside the ordinary course of our business. For additional details, refer to Note 15 in our condensed consolidated financial statements.
Previous report
(3)Restructuring costs include severance and other team member costs from workforce reductions. For additional details, refer to Note 19 in our condensed consolidated financial statements.
Previous report
•Impact of challenging macroeconomic environment, including high inflation and high interest rates, and the tight labor market. Recent macroeconomic challenges (including the high levels of inflation and high interest rates) and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally, leading to an economic downturn and increased market volatility. They have also disrupted the normal operations of many businesses, including ours. Our health system end market is currently experiencing meaningful financial strain from significant inflation. In particular, they are experiencing increases in labor and supply costs without a commensurate increase in revenue, leading to significant margin pressure. This margin pressure could continue to decrease healthcare industry spending, adversely affect demand for our technology and services, cause one or more of our clients to file for bankruptcy protection or go out of business, cause one or more of our clients to fail to renew, terminate, or renegotiate their contracts, impact expected spending from new clients, negatively impact collections of accounts receivable, and harm our business, results of operations, and financial condition. It is not possible for us to predict the duration or magnitude of the adverse results of the challenging macroeconomic environment and its effects on our business, results of operations, or financial condition at this time.
Previous report
•Transitions to Microsoft Azure and migration to Health Catalyst Ignite. We incur hosting fees related to providing DOS through a cloud-based environment hosted by Microsoft Azure. We maintain a small number of clients that have deployed DOS on-premise. We are in the process of migrating clients who deployed DOS on-premise to Azure-hosted environments. The Azure cloud provides clients with more advanced DOS product functionality and a more seamless client experience; however, hosting clients in Azure is more costly than on-premise deployments on a per-client basis. We have also started migrating certain clients to Health Catalyst Ignite. These transitions have and will continue to result in higher cost of technology revenue and a reduced Adjusted Technology Gross Margin.
Previous report
Lumeon Acquisition
Previous report
Carevive Acquisition
Previous report
ERS Corporation Acquisition
Previous report
On October 2, 2023, we acquired Electronic Registry Systems, Inc. (ERS), a cloud-based provider of clinical registry development and data management software focused on oncology with advanced data analytics expertise, for preliminary consideration of approximately $11.5 million in cash and 175,901 shares of our common stock that was originally subject to revesting over a period of 18 months.
Previous report
From a revenue mix perspective, we anticipate that full-year 2024 professional services year-over-year revenue growth will slightly outpace technology year-over-year growth, driven by the heavier weighting of our Tech-enabled Managed Services bookings in the second half of 2022 and 2023, as well as the anticipated elevated churn levels, primarily for offerings that do not provide a near-term measurable financial ROI, such as some of our clinically-focused technology offerings and our traditional consulting professional services.
Previous report
(4)Includes litigation costs, as follows:
Previous report
Total revenue was $76.4 million for the three months ended September 30, 2024, compared to $73.8 million for the three months ended September 30, 2023, an increase of $2.6 million, or 3%.
Previous report
Cost of professional services revenue was $24.7 million for the three months ended September 30, 2024, compared to $26.6 million for the three months ended September 30, 2023, a decrease of $1.9 million, or 7%. This decrease was primarily due to a $1.2 million decrease in salary and related personnel cost related to the 2023 Restructuring Plan, a $0.3 million decrease in contractor and outside service provider fees and a $0.3 million decrease in stock-based compensation.
Previous report
Sales and marketing expenses were $11.3 million for the three months ended September 30, 2024, compared to $15.1 million for the three months ended September 30, 2023, a decrease of $3.7 million, or 25%. The decrease was primarily due to a $2.6 million decrease in stock-based compensation, a $0.8 million decrease in salary and related personnel costs, and a $0.2 million decrease in decrease in contractor and outside service provider fees.
Previous report
Research and development expenses were $14.2 million for the three months ended September 30, 2024, compared to $17.7 million for the three months ended September 30, 2023, a decrease of $3.5 million, or 20%. The decrease was primarily due to a $2.7 million decrease in salary and related personnel costs, a $1.1 million decrease in stock-based compensation, partially offset by a $0.4 million increase contractor and outside service provider fees.
Previous report
General and administrative expenses were $12.2 million for the three months ended September 30, 2024, compared to $13.6 million for the three months ended September 30, 2023, a decrease of $1.4 million, or 10%. The decrease was primarily due to a $1.6 million decrease in the fair value of contingent consideration liabilities and a $0.7 million decrease in stock-based compensation. These decreases were partially offset by a $0.8 million increase in salary and related personnel costs and a $0.2 million increase in contractor and outside service provider fees.
Previous report
Depreciation and amortization expenses were consistent year over year with $10.0 million for the three months ended September 30, 2024, compared to $10.2 million for the three months ended September 30, 2023.
Previous report
Discussion of the Nine Months Ended September 30, 2024 and 2023
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Revenue
Previous report
Total revenue was $227.0 million for the nine months ended September 30, 2024, compared to $220.9 million for the nine months ended September 30, 2023, an increase of $6.1 million, or 3%.
Previous report
Professional services revenue was $83.7 million, or 37% of total revenue, for the nine months ended September 30, 2024, compared to $80.4 million, or 36% of total revenue, for the nine months ended September 30, 2023. The professional services revenue growth is primarily due to implementation, analytics, and other improvement services being provided to Platform Subscription Clients, which includes Tech-enabled Managed Services.
Previous report
Cost of professional services revenue was $71.9 million for the nine months ended September 30, 2024, compared to $73.8 million for the nine months ended September 30, 2023, an decrease of $1.9 million, or 3%. Notable changes in the cost of professional services revenue for the period include a $1.4 million decrease in stock-based compensation, a $1.3 million decrease in contractor and outside service provider fees, and a $0.3 million decrease in restructuring charges, partially offset by a $1.1 million increase in in salary and related personnel cost.
Previous report
Operating expenses
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Sales and marketing
Previous report
Sales and marketing expenses were $43.1 million for the nine months ended September 30, 2024, compared to $50.1 million for the nine months ended September 30, 2023, a decrease of $6.9 million, or 14%. The decrease was primarily due to a $7.1 million decrease in stock-based compensation, a $3.0 million decrease in salary and related personnel costs, and a $0.3 million decrease in restructuring charges. These decreases were partially offset by a $1.8 million increase in our provision for expected credit losses and a $1.5 million increase in contractor and outside service provider fees.
Previous report
Sales and marketing expense as a percentage of total revenue decreased from 23% in the nine months ended September 30, 2023 to 19% in the nine months ended September 30, 2024.
Previous report
Research and development
Previous report
Research and development expenses were $42.9 million for the nine months ended September 30, 2024, compared to $52.3 million for the nine months ended September 30, 2023, a decrease of $9.4 million, or 18%. The decrease was primarily due to a $4.3 million decrease in salary and related personnel costs, a $3.3 million decrease in stock-based compensation, and a $1.7 million decrease in contractor and outside service provider fees.
Previous report
Research and development expense as a percentage of revenue decreased from 24% in the nine months ended September 30, 2023 to 19% in the nine months ended September 30, 2024.
Previous report
General and administrative
Previous report
General and administrative expense as a percentage of revenue decreased from 28% in the nine months ended September 30, 2023 to 18% in the nine months ended September 30, 2024.
Previous report
Depreciation and amortization
Previous report
Depreciation and amortization expenses were $31.2 million for the nine months ended September 30, 2024, compared to $31.9 million for the nine months ended September 30, 2023, a decrease of $0.8 million, or 2%. This decrease was primarily due to certain acquired intangible assets from our business combinations becoming fully amortized.
Showing the first 40 of 46 passages. Open the source sections for the rest.
Reworded paragraphs (65)
Previous wording
Highlights from the three and nine months ended September 30, 2024 included:
Current wording
Highlights from the three months ended March 31, 2025 and 2024 included:
Previous wording
•We recognized total revenue of $76.4 million and $73.8 million for the three months ended September 30, 2024 and 2023, respectively, and $227.0 million and $220.9 million for the nine months ended September 30, 2024, and 2023, respectively. The growth in revenue was primarily due to revenue from new clients and revenue expansion from existing clients.
Current wording
•We recognized total revenue of $79.4 million and $74.7 million for the three months ended March 31, 2025 and 2024, respectively. The growth in revenue was primarily due to revenue from new clients, including acquired relationships, and revenue expansion from existing clients.
Previous wording
•We incurred net losses of $14.7 million and $22.0 million for the three months ended September 30, 2024 and 2023, respectively, and $48.8 million and $87.8 million for the nine months ended September 30, 2024, and 2023, respectively.
Current wording
•We incurred net losses of $23.7 million and $20.6 million for the three months ended March 31, 2025 and 2024, respectively.
Previous wording
•Our Adjusted EBITDA was $7.3 million and $2.0 million for the three months ended September 30, 2024 and 2023, respectively, and $18.2 million and $9.7 million for the nine months ended September 30, 2024, and 2023, respectively. See the section titled “Key Financial 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.
Current wording
•Our Adjusted EBITDA was $6.3 million and $3.4 million for the three months ended March 31, 2025 and 2024, respectively. See the section titled “Key Financial 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.
Previous wording
Recent macroeconomic challenges (including high levels of inflation and high interest rates) 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.
Current wording
Recent macroeconomic challenges (including high levels of inflation, high interest rates, uncertainty with tariffs, and actual or potential changes in the Medicaid and research funding environment) 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.
Previous wording
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 Subscription Clients whose contracts, when sold as a bundle with our analytics applications, often have annual built-in, contractual technology revenue escalators. As previously described, within our professional services segment, a subset of clients have reduced their spend, while in the technology segment, a subset of modular clients and smaller platform clients have reduced their application and analytics spend. However, we anticipate our aggregate churn levels in 2024 to improve compared to 2023.
Current wording
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.
Previous wording
We continue to proactively respond to the macroeconomic environment with a strategic operating plan that emphasizes our offerings and go-to-market approach in the areas where we have the most competitive differentiation and where clients are most likely to achieve measurable financial and operational ROI both in the near term and over time. We believe this focus will enable us to move forward in a position of continued competitive and financial strength. We will continue to refine this strategic operating plan and are continuing to make several investments in research and development, primarily in enhancing the capabilities within Health Catalyst Ignite, in order to maintain our position as a market-leading data platform over the long term.
Current wording
We continue to proactively respond to the challenging macroeconomic environment with a strategic operating plan that emphasizes our offerings and go-to-market approach in the areas where we have the most competitive differentiation and where clients are most likely to achieve measurable financial and operational ROI both in the near term and over time. We believe this focus will enable us to move forward in a position of continued competitive and financial strength. We will continue to refine this strategic operating plan and are continuing to make investments in research and development, primarily in enhancing the capabilities within Health Catalyst Ignite, in order to maintain our position as a market-leading data platform over the long term.
Previous wording
We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Current wording
We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Previous wording
Gross profit is a GAAP financial measure that is calculated as revenue less cost of revenue, including depreciation and amortization of capitalized software development costs and acquired technology. We calculate gross margin as gross profit divided by our revenue. Adjusted Gross Profit is a non-GAAP financial measure that we define as gross profit, adjusted for (i) depreciation and amortization, (ii) stock-based compensation, (iii) acquisition-related costs, net, and (iv) restructuring costs, as applicable. We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We believe Adjusted Gross Profit and Adjusted Gross Margin are useful to investors as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses, as well as certain other non-recurring operating expenses, and certain other non-recurring operating expenses.
Current wording
Gross profit is a GAAP financial measure that is calculated as revenue less cost of revenue, including depreciation and amortization of capitalized software development costs and acquired technology. We calculate gross margin as gross profit divided by our revenue. Adjusted Gross Profit is a non-GAAP financial measure that we define as gross profit, adjusted for (i) depreciation and amortization, (ii) stock-based compensation, (iii) acquisition-related costs, net, and (iv) restructuring costs, as applicable. We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We believe Adjusted Gross Profit and Adjusted Gross Margin are useful to investors as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses and certain other non-recurring operating expenses.
Previous wording
We present both of these measures for our technology and professional services business. We believe these non-GAAP measures are useful in evaluating our operating performance compared to that of other companies in our industry, as these metrics generally eliminate the effects of certain items that may vary from company to company for reasons unrelated to overall profitability.
Current wording
We present both of these measures for our technology and professional services business. We believe these non-GAAP financial measures are useful in evaluating our operating performance compared to that of other companies in our industry, as these metrics generally eliminate the effects of certain items that may vary from company to company for reasons unrelated to overall profitability.
Previous wording
The following is a calculation of our gross profit and gross margin and a reconciliation of gross profit and gross margin to our Adjusted Gross Profit and Adjusted Gross Margin in total and for technology and professional services for the three months ended September 30, 2024 and 2023.
Current wording
The following is a calculation of our gross profit and gross margin and a reconciliation of gross profit and gross margin, the most directly comparable financial measures calculated in accordance with GAAP, to our Adjusted Gross Profit and Adjusted Gross Margin in total and for technology and professional services for the three months ended March 31, 2025 and 2024.
Previous wording
(1)Acquisition-related costs, net include deferred retention expenses attributable to the ARMUS and KPI Ninja acquisitions.
Current wording
(1)Acquisition-related costs, net include deferred retention expenses attributable to the Upfront, Intraprise, ARMUS, and KPI Ninja acquisitions.
Previous wording
(2)Restructuring costs include severance and other team member costs from workforce reductions.
Current wording
(2)Restructuring costs include severance and other team member costs from workforce reductions. For additional detail, refer to Note 19-Restructuring Costs in our condensed consolidated financial statements.
Previous wording
Technology gross margin decreased from 53% for the three months ended September 30, 2023 to 51% for the three months ended September 30, 2024. Adjusted Technology Gross Margin decreased from 68% for the three months ended September 30, 2023 to 65% for the three months ended September 30, 2024. This year-over-year result was mainly driven by continued costs associated with transitioning a portion of our client base to Azure-hosted environments as well as from costs associated with migrating a subset of Platform Subscription Clients to Health Catalyst Ignite, partially offset by existing clients paying higher technology access fees from contractual, built-in escalators, without a corresponding increase in hosting costs.
Current wording
Technology gross margin decreased from 53% for the three months ended March 31, 2024 to 51% for the three months ended March 31, 2025. Adjusted Technology Gross Margin decreased from 68% for the three months ended March 31, 2024 to 67% for the three months ended March 31, 2025. This year-over-year result was mainly driven by continued costs associated with transitioning a portion of our client base to Azure-hosted environments as well as from costs associated with migrating a subset of Platform Clients to Health Catalyst Ignite, and Ninja Universe deployment costs incurred prior to the commencement of revenue recognition, partially offset by existing clients paying higher technology access fees from contractual, built-in escalators, without a corresponding increase in hosting costs.
Previous wording
We expect Adjusted Technology Gross Margin to fluctuate and potentially decline in the near term, primarily due to additional costs associated with the migration of clients to Health Catalyst Ignite and Ninja Universe deployment costs incurred prior to the commencement of revenue recognition. The potential decline is also attributable to a small subset of modular clients reducing their subscriptions to our software analytic applications, which tend to be higher margin offerings.
Current wording
We expect Adjusted Technology Gross Margin to fluctuate and potentially decline in the near term, primarily due to additional costs associated with the ongoing transition of Platform Clients to Health Catalyst Ignite and Ninja Universe deployment costs incurred prior to the commencement of revenue recognition, which typically begins six months or more following contract signing. The potential decline is also attributable to a small subset of App Clients reducing their software analytics application costs, which tend to be higher margin offerings.
Previous wording
Professional services gross margin increased from 4% for the three months ended September 30, 2023 to 11% for the three months ended September 30, 2024. Adjusted Professional Services Gross Margin increased from 12% for the three months ended September 30, 2023 to 17% for the three months ended September 30, 2024, primarily due to higher utilization rates and cost management efforts, driven in large part by the reduction in force that primarily occurred late in the fourth quarter of 2023 and early 2024. Our professional services are comprised of data and analytics services, domain expertise services, TEMS, and implementation services. The majority of our professional services revenue is generated from data and analytic services and domain expertise services, which are the highest gross margin professional services we provide. The delivery mix among all of our services in a given period can lead to fluctuations in our Adjusted Professional Services Gross Margin.
Current wording
Professional services gross margin decreased from 16% for the three months ended March 31, 2024 to 8% for the three months ended March 31, 2025. Adjusted Professional Services Gross Margin decreased from 22% for the three months ended March 31, 2024 to 16% for the three months ended March 31, 2025, primarily due to lower utilization rates in our professional services organization, timing of certain one-time revenue items that we anticipate will occur later in 2025, and increased costs related to pilot ambulatory operations TEMS, which we are planning to exit. Our professional services are comprised of data and analytics services, domain expertise services, Tech-enabled Managed Services (TEMS), and implementation services. The majority of our professional services revenue is generated from data and analytic services and domain expertise services, which are the highest gross margin professional services we provide. The delivery mix among all of our services in a given period can lead to fluctuations in our Adjusted Professional Services Gross Margin.
Previous wording
Total gross margin increased from 34% for the three months ended September 30, 2023 to 36% for the three months ended September 30, 2024. Total Adjusted Gross Margin increased from 47% for the three months ended September 30, 2023 to 48% for the three months ended September 30, 2024. We expect total Adjusted Gross Margin to fluctuate and decline in the near term, primarily due to anticipated growth in professional services, including TEMS.
Current wording
Total gross margin decreased from 39% for the three months ended March 31, 2024 to 36% for the three months ended March 31, 2025. Total Adjusted Gross Margin decreased from 51% for the three months ended March 31, 2024 to 49% for the three months ended March 31, 2025. We expect total Adjusted Gross Margin to fluctuate and decline in the near term, primarily due to a mix shift to a greater proportion of technology revenue as well as anticipated improvement in technology and professional services gross margins over time.
Previous wording
Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for (i) interest and other (income) expense, net, (ii) income tax provision (benefit), (iii) depreciation and amortization, (iv) stock-based compensation, (v) acquisition-related costs, net, (vi) litigation costs, (vii) restructuring costs, and (viii) non-recurring lease-related charges. We view acquisition-related expenses when applicable, such as transaction costs and changes in the fair value of contingent consideration liabilities that are directly related to business combinations, as costs that are unpredictable, dependent upon factors outside of our control, and are not necessarily reflective of operational performance during a period. We believe that excluding restructuring costs, litigation costs, and non-recurring lease-related charges allows for more meaningful comparisons between operating results from period to period as these are separate from the core activities that arise in the ordinary course of our business and are not part of our ongoing operations. We believe Adjusted EBITDA provides investors with useful information on period-to-period performance as evaluated by management and a comparison with our past financial performance, and is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.
Current wording
Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for (i) interest and other (income) expense, net, (ii) income tax provision, (iii) depreciation and amortization, (iv) stock-based compensation, (v) acquisition-related costs, net, (vi) restructuring costs, and (vii) non-recurring lease-related charges. We view acquisition-related expenses when applicable, such as transaction costs and changes in the fair value of contingent consideration liabilities that are directly related to business combinations, as costs that are unpredictable, dependent upon factors outside of our control, and are not necessarily reflective of operational performance during a period. We believe that excluding restructuring costs, and non-recurring lease-related charges allows for more meaningful comparisons between operating results from period to period as these are separate from the core activities that arise in the ordinary course of our business and are not part of our ongoing operations. We believe Adjusted EBITDA provides investors with useful information on period-to-period performance as evaluated by management and a comparison with our past financial performance, and is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.
Previous wording
The following is a reconciliation of our Adjusted EBITDA to net loss, the most directly comparable financial measure calculated in accordance with GAAP, for the three and nine months ended September 30, 2024 and 2023.
Current wording
The following is a reconciliation of our net loss, the most directly comparable financial measure calculated in accordance with GAAP, to Adjusted EBITDA for the three months ended March 31, 2025 and 2024.
Previous wording
(1)Acquisition-related costs, net include third-party fees associated with due diligence and deferred retention expenses, post-acquisition restructuring costs incurred as part of business combinations, and changes in fair value of contingent consideration liabilities for potential earn-out payments.
Current wording
(1)Acquisition-related costs, net include third-party fees associated with due diligence, deferred retention expenses, post-acquisition restructuring costs incurred as part of business combinations, and changes in fair value of contingent consideration liabilities for potential earn-out payments.
Previous wording
(2)Restructuring costs include severance and other team member costs from workforce reductions.
Current wording
(2)Restructuring costs include severance and other team member costs from workforce reductions. For additional details, refer to Note 19 in our condensed consolidated financial statements.
Previous wording
(4)Non-recurring lease-related charges includes the lease-related impairment charge related to our corporate office space designated for subleasing. For additional details, refer to Note 9 in our condensed consolidated financial statements.
Current wording
(3)Non-recurring lease-related charges include the lease-related impairment charge related to our corporate office space designated for subleasing. For additional details, refer to Note 9 in our condensed consolidated financial statements.
Previous wording
•Add new clients. We believe our ability to increase our client base will enable us to drive growth. Our potential client base is generally in the early stages of data and analytics adoption and maturity. We expect to further penetrate the market over time as potential clients invest in commercial data and analytics solutions. As one of the first data platform and analytics vendors focused specifically on healthcare organizations, we have an early-mover advantage and strong brand awareness. Our clients are large, complex organizations who typically have long procurement cycles, which, as a result, may lead to declines relative to our historic pace of our new client additions, which included small clients.
Current wording
•Add new clients. We believe our ability to increase our client base will enable us to drive growth. Our potential client base is generally in the early stages of data and analytics adoption and maturity. We expect to further penetrate the market over time as potential clients invest in commercial data and analytics solutions. As one of the first data platform and analytics vendors focused specifically on healthcare organizations, we have an early-mover advantage and strong brand awareness. Our clients are large, complex organizations who typically have long procurement cycles, which, as a result, may lead to challenges with adding new Platform Clients.
Previous wording
•Impact of acquisitions. We have acquired multiple companies over the last few years, including Medicity in June 2018, Able Health in February 2020, Healthfinch in July 2020, Vitalware in September 2020, Twistle in July 2021, KPI Ninja in February 2022, ARMUS in April 2022, ERS in October 2023, Carevive in May 2024, and Lumeon in August 2024. The historical and go-forward revenue growth profiles of these businesses may vary from our core DOS Subscription Clients, which can positively or negatively impact our overall growth rate. For example, Medicity clients have generated a lower dollar-based retention rate than DOS Subscription Clients and we expect declining revenue from Medicity clients in the foreseeable future. As we integrate the teams acquired via our recent acquisitions, we have also incurred integration-related costs and duplicative costs that could impact our operating cost profile in the near term.
Current wording
•Impact of acquisitions. We have acquired multiple companies over the last few years, including Medicity in June 2018, Able Health in February 2020, Healthfinch in July 2020, Vitalware in September 2020, Twistle in July 2021, KPI Ninja in February 2022, ARMUS in April 2022, ERS in October 2023, Carevive in May 2024, Lumeon in August 2024, Intraprise in November 2024, and Upfront in January 2025. The historical and go-forward revenue growth profiles of these businesses may vary from our core Platform Clients, which can positively or negatively impact our overall growth rate. For example, Medicity clients have generated a lower dollar-based retention rate than Platform Clients and we expect declining revenue from Medicity clients in the foreseeable future. As we integrate the teams acquired via our recent acquisitions, we have also incurred integration-related costs and duplicative costs that could impact our operating cost profile in the near term.
Previous wording
•Changing revenue mix. Our technology and professional services offerings have materially different gross margin profiles. While our professional services offerings help our clients achieve measurable improvements and make them stickier, they have lower gross margins than our technology revenue. For the nine months ended September 30, 2024, our technology revenue and professional services revenue represented 63% and 37% of total revenue, respectively. Changes in our percentage of revenue attributable to Technology and Professional Services would impact future gross margin and Adjusted Gross Margin.
Current wording
•Changing revenue mix. Our technology and professional services offerings have materially different gross margin profiles. While our professional services offerings help our clients achieve measurable improvements and make them stickier, they have lower gross margins than our technology revenue. For the three months ended March 31, 2025, our technology revenue and professional services revenue represented
Previous wording
Furthermore, changes within the types of professional services we offer over time can have a material impact on our professional services margin and Adjusted Professional Services Gross Margin, impacting our future gross margin and Total Adjusted Gross Margin. See the section titled “Key Financial Metrics – Reconciliation of Non-GAAP Financial Measures” above for more information.
Current wording
Furthermore, changes within the types of professional services we offer over time can have a material impact on our Adjusted Professional Services Gross Margin, impacting our future gross margin and Total Adjusted Gross Margin. See “Reconciliation of Non-GAAP Financial Measures” above for more information.
Previous wording
On August 1, 2024, we acquired Lumeon Ltd. (Lumeon), a digital health company dedicated to helping provider organizations mend broken care coordination processes through automated care orchestration. We accounted for the acquisition of Lumeon as a business combination. The acquisition consideration transferred was$39.8 million and was comprised of estimated net cash consideration of $36.2 million, Health Catalyst common shares with a fair value of $2.9 million, and contingent consideration based on certain earn-out performance targets for Lumeon during an earn-out period ending on June 30, 2025, with an acquisition-date fair value of $0.7 million. The purchase resulted in Health Catalyst acquiring 100% ownership in Lumeon.
Current wording
On August 1, 2024, we acquired Lumeon Ltd. (Lumeon), a digital health company dedicated to helping provider organizations mend broken care coordination processes through automated care orchestration. We accounted for the acquisition of Lumeon as a business combination. The acquisition consideration transferred was$39.8 million and was comprised of net cash consideration of $36.2 million, shares of our common stock with an aggregate acquisition-date fair value of $2.9 million, and contingent consideration based on certain earn-out performance targets for Lumeon during an earn-out period ending on June 30, 2025, with an acquisition-date fair value of $0.7 million. The purchase resulted in Health Catalyst acquiring 100% ownership in Lumeon.
Previous wording
On May 24, 2024, we acquired Carevive Systems, Inc. (Carevive), a leading oncology-focused health technology company centered on understanding and improving the experience of patients with cancer. We accounted for the acquisition of Carevive as a business combination. Oncology providers and life science researchers use Carevive’s flagship platform and/or Carevive data in routine clinical practice for treatment care planning, clinical trial screening, care coordination, remote patient monitoring, and/or post-treatment care. The acquisition consideration transferred was$22.1 million and was comprised of net cash consideration of $18.6 million, shares of our common stock with a fair value of $2.6 million, and contingent consideration based on certain earn-out performance targets for Carevive during an earn-out period ending on June 30, 2025, with an acquisition-date fair value of $0.9 million. The purchase resulted in us acquiring 100% ownership in Carevive.
Current wording
On May 24, 2024, we acquired Carevive Systems, Inc. (Carevive), a leading oncology-focused health technology company centered on understanding and improving the experience of patients with cancer. We accounted for the acquisition of Carevive as a business combination. The acquisition consideration transferred was$22.1 million and was comprised of net cash consideration of $18.6 million, shares of our common stock with an aggregate acquisition-date fair value of $2.6 million, and contingent consideration based on certain earn-out performance targets for Carevive during an earn-out period ending on June 30, 2025, with an acquisition-date fair value of $0.9 million. The purchase resulted in us acquiring 100% ownership in Carevive.
Previous wording
We derive our revenue from sales of technology and professional services. For the three months ended September 30, 2024 and 2023, technology revenue represented 64% and 62% of total revenue, respectively, and professional services represented 36% and 38% of total revenue, respectively. For the nine months ended September 30, 2024 and 2023, technology revenue represented 63% and 64% of total revenue, respectively, and professional services represented 37% and 36% of total revenue, respectively.
Current wording
We derive our revenue from sales of technology and professional services. For the three months ended March 31, 2025 and 2024, technology revenue represented 65% and 63% of total revenue, respectively, and professional services revenue represented 35% and 37% of total revenue, respectively.
Previous wording
Technology revenue. Technology revenue primarily consists of subscription fees charged to clients for access to use our data platform and analytics applications. We provide clients access to our technology through either an all-access or limited-access, modular subscription. Most of our subscription contracts are cloud-based and generally have a three- or five-year term, of which many are terminable after one year upon 90 days’ notice. The majority of our DOS subscription contracts have built-in annual escalators for technology access fees. Also included in technology revenue is the maintenance and support we provide, which generally includes updates and support services.
Current wording
Technology revenue. Technology revenue primarily consists of subscription fees charged to clients for access to use our Platform and analytics applications. We provide clients access to our technology through either an all-access or limited-access, modular subscription. Most of our subscription contracts are cloud-based and generally have a three- or five-year term, of which many are terminable after one year upon 90 days’ notice. The vast majority of our Platform Client subscription contracts have built-in annual escalators for technology access fees. Also included in technology revenue is the maintenance and support we provide, which generally includes updates and support services.
Previous wording
Professional services revenue. Professional services revenue primarily includes analytics services, domain expertise services, Tech-enabled Managed Services, and implementation services. Professional services arrangements typically include a fee for making FTE services available to our clients on a monthly basis. FTE services generally consist of a blend of analytic engineers, analysts, and data scientists based on the domain expertise needed to best serve our clients.
Current wording
Professional services revenue. Professional services revenue primarily includes analytics services, domain expertise services, TEMS, and implementation services. Professional services arrangements typically include a fee for making FTE services available to our clients on a monthly basis. FTE services generally consist of a blend of analytic engineers, analysts, and data scientists based on the domain expertise needed to best serve our clients.
Previous wording
Although we expect cost of technology revenue to increase in absolute dollars as we increase headcount, cloud computing, and hosting costs to accommodate growth, and as we continue to transition clients to third-party hosted data centers with Microsoft Azure and migrate clients to Health Catalyst Ignite, our next generation data platform, we anticipate cost of technology revenue as a percentage of technology revenue will generally decrease over the long term. We expect cost of technology revenue as a percentage of technology revenue to fluctuate and potentially increase in the near term, primarily due to additional costs associated with transitioning a small number of clients from on-premise deployments to Microsoft Azure-hosted environments and migrating clients to Health Catalyst Ignite, our next generation data platform.
Current wording
Although we expect cost of technology revenue to increase in absolute dollars as we increase headcount, cloud computing, and hosting costs to accommodate growth, and as we continue to transition clients to third-party hosted data centers with Microsoft Azure and migrate clients to Health Catalyst Ignite, we anticipate cost of technology revenue as a percentage of technology revenue will generally decrease over the long term. We expect cost of technology revenue as a percentage of technology revenue to fluctuate and potentially increase in the near term, primarily due to additional costs associated with transitioning a small number of clients from on-premise deployments to Microsoft Azure-hosted environments and migrating clients to Health Catalyst Ignite.
Previous wording
Cost of professional services revenue. Cost of professional services revenue consists primarily of costs related to delivering our team’s expertise in analytics, strategic advisory, improvement, and implementation services. These costs primarily include salary and related personnel costs, travel-related costs, and outside contractor costs. We expect the 2023 Restructuring Plan to reduce future, ongoing cost of professional services revenue. We further expect that the future savings from the reduced headcount will be offset by continued growth in our professional services, including TEMS.
Current wording
Cost of professional services revenue. Cost of professional services revenue consists primarily of costs related to delivering our team’s expertise in analytics, strategic advisory, improvement, and implementation services. These costs primarily include salary and related personnel costs, travel-related costs, and outside contractor costs. The 2023 and 2025 Restructuring Plans have reduced our ongoing cost of professional services revenue. However, we expect that the future savings from the reduced headcount may be offset by continued growth in our professional services, including TEMS. Our cost of professional services revenue may fluctuate as a percentage of our revenue from period to period due to the timing and extent of non-recurring professional services arrangements.
Previous wording
Research and development. Research and development expenses primarily include salary and related personnel costs for our data platform and analytics applications teams, subscriptions, and outside contractor costs associated with the development of products. We have developed an open, flexible, and scalable data platform. We plan to continue to invest in research and development to develop new solutions and enhance our applications library. The 2023 Restructuring Plan increased our research and development expenses in the first quarter of 2024 due to severance costs, but we expect that the reduction in headcount will reduce future, ongoing research and development expenses. Our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the nature, timing, and extent of these expenses.
Current wording
Research and development. Research and development expenses primarily include salary and related personnel costs for our data platform and analytics applications teams, subscriptions, and outside contractor costs associated with the development of products. We have developed an open, flexible, and scalable data platform. We plan to continue to invest in research and development to develop new solutions and enhance our applications library. The 2023 Restructuring Plan and 2025 Restructuring Plan increased our research and development expenses in the first quarter of 2024 and first quarter 2025, respectively, due to severance costs, but we expect that the reduction in headcount will reduce future, ongoing research and development expenses. Our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the nature, timing, and extent of these expenses.
Previous wording
General and administrative. General and administrative expenses primarily include salary and related personnel costs for our legal, finance, people operations, IT, and other administrative teams, including certain executives. General and administrative expenses also include facilities, subscriptions, corporate insurance, accounting, directors’ fees, litigation costs, and the change in fair value of contingent consideration liabilities. Our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.
Current wording
General and administrative. General and administrative expenses primarily include salary and related personnel costs for our legal, finance, people operations, IT, and other administrative teams, including certain executives. General and administrative expenses also include facilities, subscriptions, corporate insurance, outside legal, accounting, directors’ fees, and the change in fair value of contingent consideration liabilities. Our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses, including due to restructuring initiatives.
Previous wording
Interest and other income (expense), net primarily consists of income from our investment holdings partially offset by interest expense. Interest expense is primarily attributable to the Notes. It also includes the amortization of discounts on debt and amortization of deferred financing costs related to our debt arrangements.
Current wording
Interest and other (expense) income, net primarily consists of interest expense from our debt arrangements offset by income from our investment holdings. Interest expense is primarily attributable to the Convertible Senior Notes and Credit Agreement and also includes the amortization of deferred financing costs related to our debt arrangements.
Previous wording
Income tax provision (benefit) consists of U.S. federal, state, and foreign income taxes. Because of the uncertainty of the realization of the deferred tax assets, we have a full valuation allowance for our net deferred tax assets, including net operating loss carryforwards (NOLs) and tax credits related primarily to research and development.
Current wording
Income tax provision consists of U.S. federal, state, and foreign income taxes. Because of the uncertainty of the realization of the deferred tax assets, we have a full valuation allowance for our net deferred tax assets, including net operating loss carryforwards (NOLs) and tax credits related primarily to research and development.
Previous wording
As of December 31, 2023, we had federal and state NOLs of $602.6 million and $505.5 million, respectively, which will begin to expire for federal and state tax purposes in 2032 and 2023, respectively. Our existing NOLs may be subject to limitations arising from ownership changes and, if we undergo an ownership change in the future, our ability to utilize our NOLs and tax credits could be further limited by Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code). Future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Sections 382 and 383 of the Code. Our NOLs and tax credits may also be limited under similar provisions of state law.
Current wording
As of December 31, 2024, we had federal and state NOLs of $680.7 million and $571.6 million, respectively, which will begin to expire for federal and state tax purposes in 2032 and 2025, respectively. Our existing NOLs may be subject to limitations arising from ownership changes and, if we undergo an ownership change in the future, our ability to utilize our NOLs and tax credits could be further limited by Sections 382 and 383 of the Code. Future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Sections 382 and 383 of the Code. Our NOLs and tax credits may also be limited under similar provisions of state law. On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was enacted and signed into U.S. law. The IRA includes provisions imposing a 1% excise tax on share repurchases in excess of the fair value of stock issuances, including compensatory stock issuances, that occur after December 31, 2022 and introduces a 15% corporate alternative minimum tax on adjusted financial statement income. We do not expect the tax provisions of the IRA to have a material impact on our condensed consolidated financial statements.
Previous wording
(2)Includes acquisition-related costs (benefit), net, as follows:
Current wording
(2)Includes acquisition-related costs, net, as follows:
Previous wording
(5)Includes non-recurring lease-related charges, as follows:
Current wording
(4)Includes non-recurring lease-related charges, as follows:
Showing the first 40 of 65 pairs. Open the source sections for the rest.
Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
65% and 35% of total revenue, respectively. Changes in our percentage of revenue attributable to Technology and Professional Services would impact future gross margin and Adjusted Gross Margin.
Current report — wording carried from elsewhere
On July 16, 2024 (the Closing Date), we entered into a credit agreement with Silver Point Finance, LLC as administrative agent and collateral agent, and the lenders from time to time party thereto (Credit Agreement). The Credit Agreement provides a five-year term loan facility in an aggregate principal amount of up to $225 million, consisting of an initial term loan in the aggregate principal amount of $125 million, which was funded on the Closing Date, and a delayed draw term loan facility in the aggregate principal amount of $100 million, which was undrawn on the Closing Date.
Current report — wording carried from elsewhere
There were no shares repurchased during the three months ended March 31, 2024. The total remaining authorization for future shares of common stock repurchases under our Share Repurchase Plan is $24.8 million as of March 31, 2025.
Rearranged previous paragraphs (10)
Previous report — wording carried elsewhere
The following is a calculation of our gross profit and gross margin and a reconciliation of gross profit and gross margin to our Adjusted Gross Profit and Adjusted Gross Margin in total and for technology and professional services for the nine months ended September 30, 2024 and 2023.
Previous report — wording carried elsewhere
Technology gross margin remained consistent at 52% for each of the nine months ended September 30, 2024 and 2023. Adjusted Technology Gross Margin decreased from 69% for the nine months ended September 30, 2023 to 67% for the nine months ended September 30, 2024. This year-over-year result was mainly driven by continued costs associated with transitioning a portion of our client base to Azure-hosted environments as well as from costs associated with migrating a subset of Platform Subscription Clients to Health Catalyst Ignite, partially offset by existing clients paying higher technology access fees from contractual, built-in escalators, without a corresponding increase in hosting costs.
Previous report — wording carried elsewhere
We expect Adjusted Technology Gross Margin to fluctuate and potentially decline in the near term, primarily due to additional costs associated with the migration of clients to Health Catalyst Ignite, also due to costs associated with Ninja Universe deployments prior to revenue recognition. The potential decline is also attributable to a small subset of modular clients reducing their subscriptions to our software analytic applications, which tend to be higher margin offerings.
Previous report — wording carried elsewhere
Professional services gross margin increased from 8% for the nine months ended September 30, 2023 to 14% for the nine months ended September 30, 2024. Adjusted Professional Services Gross Margin increased from 16% for the nine months ended September 30, 2023 to 20% for the nine months ended September 30, 2024, primarily due to higher utilization rates and cost management efforts, driven in large part by the reduction in force that primarily occurred late in the fourth quarter of 2023 and early 2024. Our professional services are comprised of data and analytics services, domain expertise services, TEMS, and implementation services. The majority of our professional services revenue is generated from data and analytic services and domain expertise services, which are the highest gross margin professional services we provide. The delivery mix among all of our services in a given period can lead to fluctuations in our Adjusted Professional Services Gross Margin.
Previous report — wording carried elsewhere
On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was enacted and signed into U.S. law. The IRA includes provisions imposing a 1% excise tax on share repurchases in excess of the fair value of stock issuances, including compensatory stock issuances, that occur after December 31, 2022 and introduces a 15% corporate alternative minimum tax on adjusted financial statement income. We do not expect the tax provisions of the IRA to have a material impact on our condensed consolidated financial statements.
Previous report — wording carried elsewhere
Our income tax provision consists of current and deferred taxes for U.S. federal, state, and foreign income taxes. As we have a full valuation allowance on our net deferred tax assets, our income tax provision typically consists primarily of minimal state and foreign income taxes, which is the case for the three months ended September 30, 2023. The income tax benefit for the three months ended September 30, 2024 is primarily due to a foreign deferred income tax benefit offset by minimal current state and foreign income taxes.
Previous report — wording carried elsewhere
Technology revenue was $143.3 million, or 63% of total revenue, for the nine months ended September 30, 2024, compared to $140.5 million, or 64% of total revenue, for the nine months ended September 30, 2023. The technology revenue increase was primarily due to growth from new Platform Subscription Clients, revenue from existing clients paying higher technology access fees from contractual, annual escalators, and new offerings of expanded support services, partially offset by elevated churn levels.
Previous report — wording carried elsewhere
Cost of technology revenue, excluding depreciation and amortization, was $49.0 million for the nine months ended September 30, 2024, compared to $45.8 million for the nine months ended September 30, 2023, an increase of $3.2 million, or 7%. The increase was primarily due to a $3.7 million increase in cloud computing and hosting costs largely from the expanded use of Microsoft Azure to serve existing and new clients, partially offset by a $0.3 million decrease in salary and related personnel costs, including stock-based compensation, and a $0.2 million decrease in license and revenue share fees.
Previous report — wording carried elsewhere
Critical accounting policies and estimates are those that we consider critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Previous report — wording carried elsewhere
Actual results could differ materially from these estimates under different assumptions or conditions. We will continue to actively monitor the impact of the recent inflationary pressures, market volatility caused by bank failures, the challenging macroeconomic environment in general, and other factors on our estimates, including our expected credit losses, goodwill impairment assessments, and the fair value and/or recoverability of other assets.