Summary
Health Catalyst reported total revenue of $68.1 million for the first quarter of fiscal 2022, up 21.9% from $55.8 million in the prior-year quarter. Management credited the gain to new customers, including customers of recently acquired entities, and to existing customers paying higher technology access fees from contractual annual escalators. Technology revenue was 62% of the total and professional services 38%. That mix matters because the two lines carry very different gross margin profiles. The company also continues to migrate a small number of on-premise customers to Microsoft Azure, which raises hosting costs. Health Catalyst has now reported twelve quarters as a public company, and management noted it reached its stated goal of Adjusted EBITDA breakeven entering 2022.
Profitability was mixed. The operating loss was $24.3 million, essentially flat against the $24.3 million loss in the prior-year quarter, and the loss widened slightly. Operating margin was -35.8%, up 7.8 percentage points from -43.5%. Net loss narrowed to $22.5 million from $28.4 million, and diluted loss per share improved to $0.54 from $0.65. The gap between the operating loss and the net loss reflects an income tax benefit tied to a valuation allowance release from the KPI Ninja acquisition, along with lower interest expense after the adoption of ASU 2020-06.
Non-GAAP results look better. Adjusted EBITDA was $0.7 million, against negative $0.8 million a year earlier. Total adjusted gross margin was 55%, up from 54%. Adjusted technology gross margin rose to 70% from 69%, helped by higher technology access fees without a matching increase in hosting costs. Adjusted professional services gross margin fell to 29% from 31% on a change in service mix and lower utilization rates. Adjusted net loss was $3.0 million, compared with $2.8 million, and adjusted net loss per share was $0.06 in both periods.
Cash generation turned positive. Operating cash flow was $1.2 million for the quarter, up from $3.1 million used in operating activities a year earlier. Capital expenditures fell to $0.4 million from $5.9 million. Deferred revenue rose 18.2% to $62.4 million from $52.8 million. Remaining performance obligations were $80.2 million, up 0.8% from $79.6 million, a pace well below the revenue growth rate. That gap is worth watching because it suggests contracted backlog is not expanding as quickly as the top line.
Guidance points to a modest step up. For the second quarter of 2022, management guided Adjusted EBITDA to negative $1.5 million to positive $0.5 million. For the full year 2022, the company guided Adjusted EBITDA to negative $4.0 million to negative $2.0 million. Health Catalyst also issued total revenue guidance for both periods, but it has not reconciled the Adjusted EBITDA outlook to net loss, citing items such as stock-based compensation that it cannot reasonably forecast.
Risks remain. The company flagged continued uncertainty from COVID-19, a tight health system labor market, wage pressure, and integration costs from recent deals. It acquired KPI Ninja in February 2022 for consideration of $21.4 million and ARMUS in April 2022, after Twistle at $91.9 million in July 2021. Medicity customers generate a lower dollar-based retention rate than DOS subscription customers, and revenue from them is expected to decline. The Azure migration pressures adjusted technology gross margin near term, and adjusted professional services gross margin may decline on mix and operational overhead. Health Catalyst also carries convertible senior notes due 2025 and reported federal and state net operating loss carryforwards as of December 31, 2021.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $68.1M | $64.7M | +5.2% | $55.8M | +21.9% |
| Research & development | $17.1M | $17.5M | -1.9% | $14.3M | +19.5% |
| Sales & marketing | $20.8M | $21.9M | -4.8% | $15.7M | +33.0% |
| General & administrative | $8.8M | $25.3M | -65.2% | $15.0M | -41.2% |
| Total operating expenses | $58.4M | $75.6M | -22.7% | $52.8M | +10.6% |
| Operating income (loss) | -$24.3M | -$44.8M | +45.6% | -$24.3M | -0.1% |
| Operating margin | -35.8% | -69.2% | +33.4 pp | -43.5% | +7.8 pp |
| Net income (loss) | -$22.5M | -$49.0M | +54.2% | -$28.4M | +20.8% |
| Net margin | -33.0% | -75.7% | +42.7 pp | -50.8% | +17.8 pp |
| Diluted EPS | -$0.54 | -$1.03 | +$0.49 | -$0.65 | +$0.11 |
Risks
The COVID-19 pandemic and related variants continue to disrupt healthcare provider customers, and the MD&A notes a tight health system labor market and potential for decreased healthcare industry spending, customer bankruptcies, contract non-renewals, and collections issues. MD&A also states technology dollar-based retention has not been impacted by COVID-19, but uncertainty remains.
The healthcare data and analytics market is intensely competitive, with competitors including Epic Systems, Cerner, Optum Analytics, and IBM. Increased competition is likely to result in pricing pressures that could negatively impact sales, profitability, or market share.
The sales cycle for a new DOS Subscription Customer is estimated at approximately one year and in some cases has exceeded two years. MD&A notes customers are large, complex organizations with long procurement cycles, which may lead to declines in the pace of new customer additions.
Migration of customers from on-premise and managed data centers to Microsoft Azure is more costly per customer, has resulted in higher cost of technology revenue and reduced Adjusted Technology Gross Margin, and MD&A expects Adjusted Technology Gross Margin to fluctuate and potentially decline in the near term.
The Solution stores and transmits protected health information and customer proprietary information, and security breaches could lead to loss or inappropriate use of information, litigation, indemnity obligations, reputational damage, and regulatory investigations. Remote work and Russia-Ukraine tensions may increase cybersecurity risks.
The company incurred net losses of $153.2 million and $115.0 million in the years ended December 31, 2021 and 2020, respectively, and had an accumulated deficit of $878.9 million as of December 31, 2021. It may need additional capital and may not achieve profitability.
Analytics may be used by customers to inform clinical decision-making and treatment plans, and faulty clinical decisions or treatment could lead to product liability, medical malpractice, and other claims, including death. Contractual limitations of liability may not be enforceable.
Three largest customers during 2021 comprised 4.5%, 4.2%, and 3.5% of revenue, or 12.2% in aggregate, and during 2020 comprised 14.1% in aggregate. The loss, termination, or renegotiation of any largest customer contract could negatively impact results.
The company acquired KPI Ninja in February 2022 and ARMUS in April 2022 and is integrating them, after prior acquisitions including Twistle in July 2021. Acquisitions may divert management attention, incur integration-related and duplicative costs, and fail to achieve anticipated benefits.
Adjusted Professional Services Gross Margin decreased from 31% for the three months ended March 31, 2021 to 29% for the three months ended March 31, 2022 due to service mix and lower utilization. MD&A expects it to fluctuate and potentially decline in the near term.
MD&A states Medicity customers have generated a lower Dollar-based Retention Rate than DOS Subscription Customers and the company expects declining revenue from Medicity customers in the foreseeable future. Cross-sell and technology integration strategies may offset this decline if successful.
The Solution depends on sourcing data from third-party clinical, financial, and operational systems, and vendors may engage in information blocking. The ONC and CMS Final Rule creates uncertainty and could increase competition or compliance costs.
Competition for senior sales executives and software engineers is intense, and several senior leaders are active members of the Church of Jesus Christ of Latter-Day Saints. One co-founder, Steven Barlow, previously took a leave of absence for a full-time church service, creating key-person risk.
As of March 31, 2022, cash, cash equivalents, and short-term investments were $425.4 million, but the $230.0 million 2.50% Convertible Senior Notes due 2025 may require significant cash to settle conversions, repay at maturity, or repurchase. The company has incurred net losses and may not have sufficient cash or financing.
New DOS Subscription Customers tend to subscribe at higher rates in the second and fourth quarters of the year. Seasonality may cause period-to-period fluctuations and limit the ability to predict future results.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted Professional Services Gross Margin
Adjusted Technology Gross Margin
Recurring revenue
Total Adjusted Gross Margin
Adjusted Professional Services Gross Profit
Adjusted Technology Gross Profit
Total Adjusted Gross Profit
Summary, forecast, risks and KPIs are extracted from Health Catalyst, Inc.'s SEC filings for Q1 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.