Health Catalyst, Inc. (HCAT) stock intrinsic value fair value estimate & owner earnings analysis

Health Catalyst sells cloud data, analytics and consulting services to hospitals and health systems. In 2025 technology subscriptions were 67% of revenue and professional services 33%, and more than 90% of revenue was recurring. Revenue was $311.1M in 2025, roughly flat on 2024 ($306.6M) after years of growth that came largely from acquisitions. What the business actually earns. We measure owner earnings as operating cash flow, less swings in working capital, less stock compensation, less the part of capital spending needed just to stay in business (including capitalized software development). On that basis the company has lost money in every year we can measure. Owner earnings per share were about -$2.43 (2019), -$1.71 (2020), -$2.26 (2021), -$1.98 (2022), -$1.55 (2023), -$0.67 (2024) and -$0.45 (2025). The 2025 loss of about $31.7M came from operating cash flow of only $0.7M, after $15.1M of favorable working-capital timing was removed, $27.0M of stock compensation and $20.5M of maintenance-level capex. Reported 2025 net loss was $178.0M, including a $110.2M non-cash write-down of acquired goodwill and intangibles. Because the write-down is non-cash it does not change owner earnings, but it tells us the acquisitions made since 2020 (Vitalware, Twistle, ARMUS, Carevive, Lumeon, Upfront and others) appear not to have earned what was paid for them. Management's adjusted EBITDA is positive, but it leaves out stock compensation, restructuring and capitalized software, which are real costs, so we do not rely on it. What changed in 2026. On July 31, 2026 the company sold its Vitalware revenue-cycle unit for $147M and used the proceeds to retire roughly $160M of term-loan debt (an approximately $16.5M reduction in annual cash interest; the company paid $21.9M in cash interest in 2025). Management says about $82M of cash remains and no debt, against about 75.3M shares outstanding. That is a much safer balance sheet, but the company gave up a profitable piece: management put Vitalware's adjusted EBITDA at $11.4M for the first half of 2026. Meanwhile revenue is shrinking. First-half 2026 revenue was $141.2M versus $160.1M a year earlier, and second-quarter revenue fell 12.7% ($70.5M). Management guides third-quarter revenue of $55-56M, which reflects the sale. The main cause is the migration of older clients from the DOS platform to the new Ignite platform: the 2025 annual report discloses $12.5M of annual recurring revenue already notified as reduced or lost, and up to about $52M more subject to negotiation in 2026 and 2027. Management expects to keep about $22M of that at-risk amount and to be through the migration headwinds by the end of 2027. Dollar-based retention fell to 93% in 2025 from 102% in 2024. Stock compensation is falling (management expects it at a mid-single-digit share of revenue in 2026 and $6.5M was recorded in the first half). Our estimate of owner earnings after the sale. First-half 2026 owner earnings were about -$13.1M (operating cash flow $18.8M, less $15.3M of favorable working-capital movement, $6.5M stock compensation, $10.1M capex). Adjusting that run-rate for the lost Vitalware profit and the saved interest points to a burn of roughly $30M per year for the remaining business before any improvement. Growth-path check: owner earnings per share improved from -$0.67 to -$0.45 in 2025, but we do not extend that improvement, because 2026 revenue is falling double digits and the migration churn is dated through 2027 by the company's own disclosure. We start with a cash burn, not a repeat of the 2025 improvement. Base case ($0.45 per share). We credit no growth and no margin recovery, since none is contracted or proven. We credit the roughly $82M of cash (about $1.09 per share), then subtract the burn while the migration churn runs: about $15M in the second half of 2026 and about $30M in 2027. About $37M remains, which is roughly $0.45-0.50 per share after discounting at 6%. After 2027 we assume the business stops burning cash and assign it no further value. That assumption rests on the company's repeated cost programs (restructuring charges of $8.8M in 2023, $2.1M in 2024 and $9.7M in 2025) and management's stated $3-4M cost-savings program, but it is a judgement, not a proven result. We assign no value to the recurring revenue base itself, because in seven years it has never produced positive owner earnings. Bear case ($0.00). The full $52M of at-risk annual recurring revenue is lost to the migration, burn runs near $20M in the second half of 2026 and $40M in 2027, and the burn does not stop. Cash would be exhausted around 2028 and shareholders would likely be diluted by a new equity raise before then. With the debt repaid the shares cannot be worth less than zero on our numbers, but nothing durable is left in this case. Bull case ($0.65). The company retains the roughly $22M of at-risk revenue it expects to keep, the cost savings arrive, and the burn is about $12M in the second half of 2026 and $18M in 2027. About $52M of cash remains, or about $0.65 per share after discounting. We do not credit any profit after that, since no year of positive owner earnings exists to point to. What would make this wrong. The upside is that the remaining business, with more than 90% recurring revenue and 96.3% of revenue from the United States, reaches sustained positive owner earnings sooner than we credit, which would be worth much more than the cash. The downside is faster churn, another acquisition write-down, or a further capital raise. We could not read the second-quarter 2026 quarterly filing text directly, so the first-half 2026 figures rely on its tagged financial data and press summaries of it, and the Vitalware sale terms, post-sale cash and guidance come from company statements reported in the earnings call and press coverage, not from a filing. Those statements were used only for facts, not for our earnings level.