Health Catalyst (NASDAQ:HCAT) reported second-quarter 2026 revenue above the high end of its guidance range and adjusted EBITDA at the high end of its outlook, while outlining a strategic shift following the July 31 divestiture of its Vitalware and Med-Metrix businesses.
Chief Executive Officer Ben Albert said the company’s second-quarter performance reflected progress under Project Nexus, an initiative aimed at simplifying operations, reducing costs and focusing investment on its core technology opportunities. He said the company is in the early stages of a multiyear transformation and continues to face revenue pressure tied to platform migrations and certain lower-margin services work.
Second-Quarter Results
Adjusted gross margin was 51%, compared with 50% in the year-earlier period. Adjusted technology gross margin declined to 63% from 66%, which Chief Financial Officer Jason Alger attributed to costs associated with migrating customers to the Ignite platform and deployment costs incurred before revenue recognition begins. Adjusted professional services gross margin increased to 22% from 18% a year earlier.
Adjusted operating expenses fell to $25.9 million, or 37% of revenue, from $30.6 million, or 38% of revenue, in the prior-year quarter. Alger said Project Nexus savings were partially reflected in the quarter, with the full quarterly run rate expected in the second half.
Adjusted EBITDA totaled $9.9 million, at the high end of the company’s $9 million to $10 million guidance range. Adjusted net income per share was $0.04, based on a weighted-average share count of 74 million.
Vitalware Sale Retires Debt
Health Catalyst completed the divestiture of Vitalware and Med-Metrix on July 31 for $147 million in total cash consideration. Net proceeds were $145.5 million after transaction costs, subject to customary adjustments.
The company used the sale proceeds and cash on hand to fully repay approximately $160 million in credit-facility debt, including accrued interest and a prepayment premium. On a pro forma basis, assuming the transaction and debt repayment had occurred at quarter-end, Health Catalyst would have held about $82 million of cash equivalents and short-term investments and carried no debt, Alger said.
Albert said Vitalware was a strong business but was outside the company’s highest-conviction technology opportunities. He added that the revenue-cycle-management market had become more competitive and that growing Vitalware would have required significant additional investment.
Alger said the debt repayment is expected to eliminate approximately $19 million in annual GAAP interest expense and about $16.5 million in annual cash interest payments, based on annualizing the first half of 2026. Health Catalyst also has a transition services agreement with Med-Metrix for up to six months that is expected to provide a modest income offset during that period.
Updated Outlook Reflects Divestiture and Investments
Following the divestiture, Health Catalyst reduced its full-year outlook. The company now expects 2026 revenue of $246 million to $249 million and adjusted EBITDA of $18 million to $18.5 million.
For the third quarter, it forecast revenue of $55 million to $56 million and adjusted EBITDA ranging from breakeven to $500,000.
Alger said the primary factor behind the updated outlook was the removal of five months of Vitalware revenue and adjusted EBITDA following the July 31 closing. Vitalware generated $11.4 million in adjusted EBITDA during the first half, although Alger said the business’s elevated margin was not expected to continue because of the investment required to grow it.
The outlook also includes continued investments in new products, a proprietary intelligence layer, AI-driven automation, the Ignite and interoperability platform, and ongoing customer migrations. The migration efforts have created near-term cost pressure from additional staffing, duplicate hosting costs for operating two environments and the cost of loading historical data, Alger said.
- Full-year adjusted gross margin is expected to be below 50% following the sale of higher-margin Vitalware.
- Adjusted technology gross margin is expected in the low 60% range.
- Adjusted professional services gross margin is expected in the low- to mid-teens.
- Project Nexus cost savings are expected at the lower end of the company’s prior $3 million to $4 million estimate after accounting for intentional team-related investments.
Migration and Services Pressures Continue
Health Catalyst reiterated that it is working through customer churn and downsell associated with the migration from DOS to Ignite. The company previously disclosed $12.5 million in notified annual recurring revenue downsell and churn related to the migration, along with approximately $52 million of additional at-risk ARR, of which it expected to retain $22 million.
Alger said the company continues to see significant pressure in this area and is not updating that framework. Some migration-related churn, including associated services revenue, has occurred earlier than expected and weighed on second-half expectations. The company expects to be generally through migration-related churn headwinds by the end of 2027.
Health Catalyst is also evaluating its services business and aligning it with areas where it sees the highest conviction alongside its technology offerings. The company now expects to exit 2026 near the lower end of its previously discussed services revenue range, at about $55 million annually, as some clients bring managed-services work back in-house.
On bookings, the company maintained its full-year target of $22 million to $26 million, including Vitalware bookings through the transaction date. Albert said Health Catalyst’s immediate focus is on validating its highest-conviction opportunities in the market and executing its transformation while maintaining a strong cash position.
About Health Catalyst (NASDAQ:HCAT)
Health Catalyst (NASDAQ: HCAT) is a healthcare data and analytics technology company founded in 2008 and headquartered in Salt Lake City, Utah. The company went public in 2019 and has since focused on delivering a unified data platform that helps healthcare organizations aggregate and analyze clinical, financial and operational information.
The core of Health Catalyst’s offering is the Data Operating System (DOS), a modular data management platform that integrates disparate data sources—from electronic health records to claims and patient-generated data—into a single analytics environment.
