Health Catalyst (HCAT) investor relations material

Market environment and client response

• Clients, mainly not-for-profit health systems, are adjusting to significant Medicaid and research funding cuts, leading to delayed purchasing and tighter budgets.

• Migration to Egnyte offers clients 20%+ cost savings, but many are opting to keep the savings rather than reinvest, impacting net dollar retention.

• New client pipeline is affected by the same budget constraints, with CFOs pausing new commitments.

• Forecasting has shifted to a more conservative base case, with upside scenarios for delayed cross-sell opportunities.

• Clients are expected to move past the initial shock by the 2026 budgeting cycle, with renewed engagement anticipated.

Financial performance and guidance

• Net dollar retention guidance has been reduced from 103% to 93%, mainly due to technology-related pricing headwinds from the Egnyte migration.

• Most headwinds are expected to persist through mid-2026, with a return to 100%+ retention anticipated in 2027.

• Average sales bookings have shifted to the lower end of the $300,000–$700,000 range due to tighter client scoping, not lower pricing.

• Gross margins remain strong, with apps layer averaging 80%+ gross margin and 30%+ EBITDA margin.

• Over $40 million in cost savings identified through restructuring, with impacts seen from Q3 2023 and continuing into 2026.

Product and sales strategy

• Cross-sell focus is on adjacent apps and those with clear, near-term ROI, especially in finance and cost management.

• Demand is highest for applications that deliver measurable revenue or cost savings, such as PowerCosting and labor management.

• Pipeline remains robust, but guidance for new platform clients was reduced from 40 to 30 for the year due to delays.

• Mix is shifting toward technology, with a current 2/3 tech to 1/3 services split, and a future target of up to 75% tech.