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Health Catalyst Reports Third Quarter 2023 Results

SALT LAKE CITY, Nov. 02, 2023 (GLOBE NEWSWIRE) -- Health Catalyst, Inc. ("Health Catalyst," Nasdaq: HCAT), a leading provider of data and analytics technology and services to healthcare organizations, today reported financial results for the quarter ended September 30, 2023.

“For the third quarter of 2023, I am pleased by our strong financial results, including total revenue of $73.8 million and Adjusted EBITDA of $2.0 million, with these results beating the mid-point of our quarterly guidance on each metric. Additionally, we are grateful to be in a position to raise our full year 2023 revenue guidance range and reiterate our full year 2023 Adjusted EBITDA guidance range. We are also encouraged by our bookings results through Q3 2023, which are in line with our expectations,” said Dan Burton, CEO of Health Catalyst. “I am also happy to report that in the most recent team member engagement survey, independently administered by the Gallup organization, team member engagement scores at Health Catalyst measured in the 94th percentile. This latest engagement level continues a pattern that has been in place for many years, of industry-leading engagement, consistently ranking at or above this percentile level in overall team member engagement scores. We as a leadership team continue to maintain a primary, prioritized focus on team member engagement – the center of our strategic flywheel – because we recognize the central and foundational contributions that our team members make in building the software and providing the services expertise that enable our clients to achieve massive, measurable improvement.”

Financial Highlights for the Three Months Ended September 30, 2023

Key Financial Metrics

 Three Months Ended September 30, Year over Year
  2023   2022  Change
GAAP Financial Data:(in thousands, except percentages, unaudited)
Technology revenue$45,973  $43,997  4%
Professional services revenue$27,800  $24,357  14%
Total revenue$73,773  $68,354  8%
Loss from operations$(24,580) $(45,721) 46%
Net loss$(22,032) $(45,735) 52%
Other Non-GAAP Financial Data:(1)     
Adjusted Technology Gross Profit$31,367  $29,993  5%
Adjusted Technology Gross Margin 68%  68%  
Adjusted Professional Services Gross Profit$3,205  $4,970  (36)%
Adjusted Professional Services Gross Margin 12%  20%  
Total Adjusted Gross Profit$34,572  $34,963  (1)%
Total Adjusted Gross Margin 47%  51%  
Adjusted EBITDA$1,992  $(4,554) 144%

________________________
(1) These measures are not calculated in accordance with generally accepted accounting principles in the United States (GAAP). See the accompanying "Non-GAAP Financial Measures" section below for more information about these financial measures, including the limitations of such measures, and for a reconciliation of each measure to the most directly comparable measure calculated in accordance with GAAP.

Financial Outlook

Health Catalyst provides forward-looking guidance on total revenue, a GAAP measure, and Adjusted EBITDA, a non-GAAP measure.

For the fourth quarter of 2023, we expect:

  • Total revenue between $70.1 million and $75.1 million, and
  • Adjusted EBITDA between $0.3 million and $2.3 million

For the full year of 2023, we expect:

  • Total revenue between $291.0 million and $296.0 million, and
  • Adjusted EBITDA between $10.0 million and $12.0 million

We have not reconciled guidance for Adjusted EBITDA to net loss, the most directly comparable GAAP measure, and have not provided forward-looking guidance for net loss, because there are items that may impact net loss, including stock-based compensation, that are not within our control or cannot be reasonably forecasted.

Quarterly Conference Call Details

We will host a conference call to review the results today, Thursday, November 2, 2023, at 5:00 p.m. E.T. The conference call can be accessed by dialing (800)-225-9448 for U.S. participants, or 203-518-9708 for international participants, and referencing conference ID “HCAT Q323.” A live audio webcast will be available online at https://ir.healthcatalyst.com/. A replay of the call will be available via webcast for on-demand listening shortly after the completion of the call, at the same web link, and will remain available for approximately 90 days.

About Health Catalyst

Health Catalyst is a leading provider of data and analytics technology and services to healthcare organizations committed to being the catalyst for massive, measurable, data-informed healthcare improvement. Its clients leverage the cloud-based data platform — powered by data from more than 100 million patient records and encompassing trillions of facts—as well as its analytics software and professional services expertise to make data-informed decisions and realize measurable clinical, financial, and operational improvements. Health Catalyst envisions a future in which all healthcare decisions are data informed.

Available Information

Our investors and others should note that we announce material information to the public about our company, products and services, and other matters related to our company through a variety of means, including our website (https://www.healthcatalyst.com/), our investor relations website (https://ir.healthcatalyst.com/), press releases, SEC filings, public conference calls, and social media, including our and our CEO's social media accounts, in order to achieve broad, non-exclusionary distribution of information to the public and to comply with our disclosure obligations under Regulation FD.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements include statements regarding our future growth and our financial outlook for Q4 and fiscal year 2023. Forward-looking statements are subject to risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance.

Important risks and uncertainties that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: (i) changes in laws and regulations applicable to our business model; (ii) changes in market or industry conditions, regulatory environment, and receptivity to our technology and services; (iii) results of litigation or a security incident; (iv) the loss of one or more key clients or partners; (v) the impact of the challenging macroeconomic environment (including high inflationary and/or high interest rate environments) on our business and results of operations; and (vi) changes to our abilities to recruit and retain qualified team members. For a detailed discussion of the risk factors that could affect our actual results, please refer to the risk factors identified in our SEC reports, including, but not limited to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 expected to be filed with the SEC on or about November 2, 2023 and the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 28, 2023. All information provided in this release and in the attachments is as of the date hereof, and we undertake no duty to update or revise this information unless required by law.


Condensed Consolidated Balance Sheets
(in thousands, except share and per share data, unaudited)

  As of
September 30,
 As of
December 31,
   2023   2022 
  (unaudited)  
Assets    
Current assets:    
Cash and cash equivalents $94,971  $116,312 
Short-term investments  252,726   247,178 
Accounts receivable, net  46,085   47,970 
Prepaid expenses and other assets  14,671   16,335 
Total current assets  408,453   427,795 
Property and equipment, net  26,096   25,928 
Intangible assets, net  71,996   92,189 
Operating lease right-of-use assets  15,277   16,658 
Goodwill  185,982   185,982 
Other assets  5,116   3,734 
Total assets $712,920  $752,286 
Liabilities and stockholders’ equity    
Current liabilities:    
Accounts payable $6,327  $4,424 
Accrued liabilities  21,457   19,691 
Deferred revenue  53,067   54,961 
Operating lease liabilities  3,402   3,434 
Total current liabilities  84,253   82,510 
Convertible senior notes  227,655   226,523 
Deferred revenue, net of current portion  312   105 
Operating lease liabilities, net of current portion  18,233   18,017 
Other liabilities  73   121 
Total liabilities  330,526   327,276 
     
Stockholders’ equity:    
Preferred stock, $0.001 par value per share; 25,000,000 shares authorized and no shares issued and outstanding as of September 30, 2023 and December 31, 2022      
Common stock, $0.001 par value per share, and additional paid-in capital; 500,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 57,044,112 and 55,261,922 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively  1,469,422   1,424,681 
Accumulated deficit  (1,086,858)  (999,023)
Accumulated other comprehensive loss  (170)  (648)
Total stockholders’ equity  382,394   425,010 
Total liabilities and stockholders’ equity $712,920  $752,286 


Condensed Consolidated Statements of Operations
(in thousands, except per share data, unaudited)

  Three Months Ended September 30, Nine Months Ended September 30,
   2023   2022   2023   2022 
  (in thousands) (in thousands)
Revenue:        
Technology $45,973  $43,997  $140,483  $131,624 
Professional services  27,800   24,357   80,371   75,450 
Total revenue  73,773   68,354   220,854   207,074 
Cost of revenue, excluding depreciation and amortization shown below:        
Technology(1)(2)(3)  15,169   14,572   45,755   41,895 
Professional services(1)(2)(3)  26,618   21,768   73,774   63,048 
Total cost of revenue, excluding depreciation and amortization  41,787   36,340   119,529   104,943 
Operating expenses:        
Sales and marketing(1)(2)(3)  15,084   25,401   50,050   67,141 
Research and development(1)(2)(3)  17,667   20,770   52,339   56,066 
General and administrative(1)(2)(3)(4)(5)  13,625   19,192   61,129   45,551 
Depreciation and amortization  10,190   12,372   31,919   36,633 
Total operating expenses  56,566   77,735   195,437   205,391 
Loss from operations  (24,580)  (45,721)  (94,112)  (103,260)
Interest and other income (expense), net  2,607   142   6,490   (2,700)
Loss before income taxes  (21,973)  (45,579)  (87,622)  (105,960)
Income tax provision (benefit)(2)  59   156   213   (4,339)
Net loss $(22,032) $(45,735) $(87,835) $(101,621)
Net loss per share, basic $(0.39) $(0.84) $(1.57) $(1.89)
Net loss per share, diluted $(0.39) $(0.84) $(1.57) $(1.97)
Weighted-average shares outstanding used in calculating net loss per share, basic  56,711   54,304   56,062   53,667 
Weighted-average shares outstanding used in calculating net loss per share, diluted  56,711   54,304   56,062   54,025 

________________________
(1) Includes stock-based compensation expense as follows:

  Three Months Ended September 30, Nine Months Ended September 30,
   2023   2022   2023   2022 
Stock-Based Compensation Expense: (in thousands) (in thousands)
Cost of revenue, excluding depreciation and amortization:        
Technology $497  $494  $1,408  $1,563 
Professional services  1,927   1,991   5,682   6,082 
Sales and marketing  5,149   7,037   16,049   20,925 
Research and development  2,927   3,390   8,677   9,643 
General and administrative  3,732   4,392   10,929   15,143 
Total $14,232  $17,304  $42,745  $53,356 


(2) Includes acquisition-related costs (benefit), net, as follows:

  Three Months Ended September 30, Nine Months Ended September 30,
   2023   2022   2023   2022 
Acquisition-related costs (benefit), net: (in thousands) (in thousands)
Cost of revenue, excluding depreciation and amortization:        
Technology $66  $74  $208  $267 
Professional services  96   143   298   509 
Sales and marketing  102   367   304   1,557 
Research and development  198   693   587   2,358 
General and administrative  1,664   2,015   1,705   (1,503)
Income tax benefit           (4,533)
Total $2,126  $3,292  $3,102  $(1,345)


(3) Includes restructuring costs as follows:

  Three Months Ended September 30, Nine Months Ended September 30,
   2023   2022   2023   2022 
Restructuring costs: (in thousands) (in thousands)
Cost of revenue, excluding depreciation and amortization:        
Technology $  $  $12  $ 
Professional services     247   434   247 
Sales and marketing     1,559   1,205   1,559 
Research and development     2,257   286   2,257 
General and administrative     436   118   436 
Total $  $4,499  $2,055  $4,499 


(4) Includes litigation costs as follows:

  Three Months Ended September 30, Nine Months Ended September 30,
   2023   2022   2023   2022 
Litigation costs: (in thousands) (in thousands)
General and administrative $24  $  $21,279  $ 
Total $24  $  $21,279  $ 


(5) Includes non-recurring lease-related charges as follows:

  Three Months Ended September 30, Nine Months Ended September 30,
   2023   2022   2023   2022 
Non-recurring lease-related charges: (in thousands) (in thousands)
General and administrative $  $3,700  $2,681  $3,700 
Total $  $3,700  $2,681  $3,700 


Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)

  Nine Months Ended
September 30,
   2023   2022 
Cash flows from operating activities    
Net loss $(87,835) $(101,621)
Adjustments to reconcile net loss to net cash used in operating activities:    
Stock-based compensation expense  42,745   53,356 
Depreciation and amortization  31,919   36,633 
Impairment of long-lived assets  2,681   4,925 
Non-cash operating lease expense  2,272   2,458 
Amortization of debt discount and issuance costs  1,132   1,124 
Investment discount and premium (accretion) amortization  (6,816)  (608)
Provision for expected credit losses  1,626   700 
Deferred tax provision (benefit)  6   (4,527)
Change in fair value of contingent consideration liabilities     (4,668)
Other  101   (71)
Change in operating assets and liabilities:    
Accounts receivable, net  259   (800)
Prepaid expenses and other assets  385   2,020 
Accounts payable, accrued liabilities, and other liabilities  1,847   873 
Deferred revenue  (1,688)  (4,365)
Contingent consideration liabilities     (3,234)
Operating lease liabilities  (2,673)  (2,644)
Net cash used in operating activities  (14,039)  (20,449)
     
Cash flows from investing activities    
Proceeds from the sale and maturity of short-term investments  256,101   270,171 
Purchase of short-term investments  (254,448)  (274,529)
Capitalization of internal-use software  (9,331)  (10,024)
Purchase of intangible assets  (986)  (1,317)
Purchases of property and equipment  (981)  (1,752)
Proceeds from the sale of property and equipment  21   20 
Acquisition of businesses, net of cash acquired     (27,846)
Net cash used in investing activities  (9,624)  (45,277)
     
Cash flows from financing activities    
Proceeds from exercise of stock options  937   3,927 
Proceeds from employee stock purchase plan  3,206   2,558 
Repurchase of common stock  (1,808)  (8,393)
Payments of acquisition-related consideration     (1,342)
Net cash provided by (used in) financing activities  2,335   (3,250)
Effect of exchange rate changes on cash and cash equivalents  (13)  (27)
Net decrease in cash and cash equivalents  (21,341)  (69,003)
     
Cash and cash equivalents at beginning of period  116,312   193,227 
Cash and cash equivalents at end of period $94,971  $124,224 


Non-GAAP Financial Measures

To supplement our financial information presented in accordance with GAAP, we believe certain non-GAAP measures, including Adjusted Gross Profit, Adjusted Gross Margin, Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted Net Income (Loss) per share, basic and diluted, are useful in evaluating our operating performance. For example, we exclude stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding our operational performance and allows investors the ability to make more meaningful comparisons between our operating results and those of other companies. We use this non-GAAP financial information to evaluate our ongoing operations, as a component in determining employee bonus compensation, and for internal planning and forecasting purposes.

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. 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.

Adjusted Gross Profit and Adjusted Gross Margin

Adjusted Gross Profit is a non-GAAP financial measure that we define as revenue less cost of revenue, excluding depreciation and amortization, adding back stock-based compensation and acquisition-related costs, net 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. The following is a reconciliation of revenue, the most directly comparable GAAP financial measure, to Adjusted Gross Profit, for the three months ended September 30, 2023 and 2022:

  Three Months Ended September 30, 2023
  (in thousands, except percentages)
  Technology Professional Services Total
Revenue $45,973  $27,800  $73,773 
Cost of revenue, excluding depreciation and amortization  (15,169)  (26,618)  (41,787)
Gross profit, excluding depreciation and amortization  30,804   1,182   31,986 
Add:      
Stock-based compensation  497   1,927   2,424 
Acquisition-related costs, net(1)  66   96   162 
Adjusted Gross Profit $31,367  $3,205  $34,572 
Gross margin, excluding depreciation and amortization  67%  4%  43%
Adjusted Gross Margin  68%  12%  47%

________________________
(1) Acquisition-related costs, net include deferred retention expenses attributable to the ARMUS and KPI Ninja acquisitions.

  Three Months Ended September 30, 2022
  (in thousands, except percentages)
  Technology Professional Services Total
Revenue $43,997  $24,357  $68,354 
Cost of revenue, excluding depreciation and amortization  (14,572)  (21,768)  (36,340)
Gross profit, excluding depreciation and amortization  29,425   2,589   32,014 
Add:      
Stock-based compensation  494   1,991   2,485 
Acquisition-related costs, net(1)  74   143   217 
Restructuring costs(2)     247   247 
Adjusted Gross Profit $29,993  $4,970  $34,963 
Gross margin, excluding depreciation and amortization  67%  11%  47%
Adjusted Gross Margin  68%  20%  51%

________________________
(1) Acquisition-related costs, net include deferred retention expenses attributable to the ARMUS, KPI Ninja, and Twistle acquisitions.
(2) Restructuring costs include severance and other team member costs from workforce reductions.


Adjusted EBITDA

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) litigation 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 litigation costs 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. The following is a reconciliation of our net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA, for the three months ended September 30, 2023 and 2022:

  Three Months Ended September 30,
   2023   2022 
  (in thousands)
Net loss $(22,032) $(45,735)
Add:    
Interest and other (income) expense, net  (2,607)  (142)
Income tax provision  59   156 
Depreciation and amortization  10,190   12,372 
Stock-based compensation  14,232   17,304 
Acquisition-related costs, net(1)  2,126   3,292 
Litigation costs(2)  24    
Restructuring costs(3)     4,499 
Non-recurring lease-related charges(4)     3,700 
Adjusted EBITDA $1,992  $(4,554)

________________________
(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.
(2) Litigation costs include costs related to litigation that are outside the ordinary course of our business. For additional details, refer to Note 14 in our condensed consolidated financial statements.
(3) Restructuring costs include severance and other team member costs from workforce reductions. For additional details, refer to Note 18 in our condensed consolidated financial statements.
(4) 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 1 in our condensed consolidated financial statements.


Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share

Adjusted Net Income (Loss) is a non-GAAP financial measure that we define as net loss adjusted for (i) stock-based compensation, (ii) amortization of acquired intangibles, (iii) restructuring costs, (iv) acquisition-related costs, net, including the change in fair value of contingent consideration liabilities, (v) litigation costs, (vi) non-recurring lease-related charges, and (vii) non-cash interest expense related to our convertible senior notes. We believe Adjusted Net Income (Loss) provides investors with useful information on period-to-period performance as evaluated by management and 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.

  Three Months Ended September 30,
   2023   2022 
Numerator: (in thousands, except share and per share amounts)
Net loss $(22,032) $(45,735)
Add:    
Stock-based compensation  14,232   17,304 
Amortization of acquired intangibles  7,063   9,400 
Restructuring costs     4,499 
Acquisition-related costs, net(1)  2,126   3,292 
Litigation costs(2)  24    
Non-recurring lease-related charges(3)     3,700 
Non-cash interest expense related to convertible senior notes  378   375 
Adjusted Net Income (Loss) $1,791  $(7,165)
Denominator:    
Weighted-average number of shares used in calculating net loss per share, basic  56,710,602   54,303,667 
Non-GAAP weighted-average effect of dilutive securities  857,570    
Non-GAAP weighted-average number of shares used in calculating Adjusted Net Income (Loss) per share, diluted  57,568,172   54,303,667 
     
Adjusted Net Income (Loss) per share, basic $0.03  $(0.13)
Adjusted Net Income (Loss) per share, diluted $0.03  $(0.13)

________________________
(1) Acquisition-related costs, net includes 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.
(2) Litigation costs include costs related to litigation that are outside the ordinary course of our business. For additional details, refer to Note 14 in our condensed consolidated financial statements.
(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 1 in our condensed consolidated financial statements.


Health Catalyst Investor Relations Contact:

Adam Brown
Senior Vice President, Investor Relations and FP&A
+1 (855)-309-6800
ir@healthcatalyst.com

Health Catalyst Media Contact:
Tarah Neujahr Bryan
Chief Marketing Officer
media@healthcatalyst.com

November 2, 2023

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