Summary
Health Catalyst reported $74.7 million of total revenue for the first quarter of 2024, up 1.2% from $73.9 million in the prior-year quarter. Growth was thin and came mainly from new clients and expansion at existing ones, with the heaviest contribution from Tech-enabled Managed Services. Technology revenue slipped on elevated churn, while professional services revenue rose on implementation, analytics and improvement work for DOS Subscription Clients. Technology accounted for 63% of total revenue and professional services for 37%, a mix worth watching because the two lines carry very different margins.
The loss narrowed sharply. Net loss for the quarter was $20.6 million, compared with a $33.2 million loss a year earlier. Operating loss was $22.8 million against $34.9 million, and diluted loss per share was $0.35 versus $0.60. Operating margin improved to -30.5% from -47.3%. With revenue up only 1.2%, the improvement came almost entirely from the expense side. Two items explain much of the swing. Litigation costs of $11.7 million landed in general and administrative expense in the prior-year quarter and did not repeat, and stock-based compensation fell to $10.8 million from $13.9 million. Those gains were partly offset by a $2.2 million lease-related impairment charge on corporate office space designated for subleasing and a $3.1 million increase in Healthcare Analytics Summit event costs tied to the timing of the event.
Non-GAAP profitability moved the other way. Adjusted EBITDA was $3.4 million, down 19% from $4.2 million a year earlier. Adjusted Gross Margin slipped to 51% from 52%, and Adjusted Net Income was $2.7 million versus $3.1 million. Adjusted Professional Services Gross Margin rose to 22% from 20%, helped by higher utilization and cost management after the workforce reductions authorized in the fourth quarter of 2023.
Cash generation swung positive. Operating cash flow was $10.3 million for the quarter, compared with $5.6 million used in operating activities a year earlier. Capital expenditures were $0.2 million, down from $0.4 million. Deferred revenue was $63.6 million at March 31, 2024, down 3.8% from $66.1 million a year earlier. Remaining performance obligations told a different story, rising 134.6% to $300.5 million from $128.1 million.
Guidance for the second quarter of 2024 sets Adjusted EBITDA at $5.0 million to $7.0 million. For the full year 2024, the company reiterated Adjusted EBITDA of $24.0 million to $26.0 million. It also reiterated its bookings targets of mid-teens net new DOS Subscription Clients and a dollar-based retention rate of 104% to 110%. Management expects the main bookings seasons to be the second and fourth quarters, as in prior years.
The risks remain mostly external. Health systems continue to absorb labor and supply cost inflation without matching revenue growth, which squeezes their margins and their willingness to spend on analytics. Health Catalyst flagged elevated churn and down-sell, especially for clinically focused technology and traditional consulting services that do not deliver near-term financial return. Medicity clients are expected to keep declining. Moving clients to Microsoft Azure and to the new Health Catalyst Ignite platform raises hosting costs and pressures technology gross margin in the near term, and a heavier mix of Tech-enabled Managed Services pulls total Adjusted Gross Margin lower. The company also names loss of key clients or partners, litigation or a security incident, regulatory changes, and difficulty recruiting and retaining team members as risks.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2024 | Q4 FY2023 | QoQ | Q1 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $74.7M | $75.1M | -0.5% | $73.9M | +1.2% |
| Research & development | $14.9M | $20.3M | -26.7% | $17.1M | -12.9% |
| Sales & marketing | $19.1M | $17.3M | +10.3% | $18.6M | +2.6% |
| General & administrative | $14.6M | $15.4M | -5.6% | $23.8M | -38.9% |
| Total operating expenses | $59.0M | $63.3M | -6.8% | $70.5M | -16.3% |
| Operating income (loss) | -$22.8M | -$32.8M | +30.4% | -$34.9M | +34.7% |
| Operating margin | -30.5% | -43.7% | +13.1 pp | -47.3% | +16.7 pp |
| Net income (loss) | -$20.6M | -$30.3M | +32.1% | -$33.2M | +38.0% |
| Net margin | -27.6% | -40.4% | +12.8 pp | -44.9% | +17.4 pp |
| Diluted EPS | -$0.35 | -$0.54 | +$0.19 | -$0.60 | +$0.25 |
Risks
MD&A says the health system end market continues to experience meaningful financial strain from inflation and high interest rates, with labor and supply cost increases without commensurate revenue, leading to margin pressure. It also says pipeline demand decreased in 2023 and elevated down-sell and churn levels are expected to persist in the short term.
In early May 2024, client Steward Health Care filed a voluntary Chapter 11 petition; as of March 31, 2024, this client's outstanding balance was approximately 12% of accounts receivable, and the company cannot predict the outcome or potential credit loss. The three largest clients during 2023 comprised 12.6% of revenue in aggregate.
Technology revenue decreased slightly to $47.0 million in Q1 2024 from $47.2 million in Q1 2023 due to elevated churn levels, partially offset by new DOS Subscription Clients and contractual escalators. Deferred revenue was down 3.8% versus the prior-year quarter to $63.6 million, and the company anticipates elevated churn levels in 2024, primarily for offerings without near-term measurable financial ROI.
Migration of clients to Microsoft Azure and Health Catalyst Ignite is expected to create a near-term headwind to technology gross margin; Adjusted Technology Gross Margin decreased from 70% in Q1 2023 to 68% in Q1 2024. The company expects Adjusted Technology Gross Margin to fluctuate and potentially decline in the near term, partly because hosting clients in Azure is more costly per client than on-premise deployments.
The 2023 Restructuring Plan reduced the global workforce by approximately 10% during Q4 2023 and Q1 2024. Risks include attrition beyond the intended reduction, loss of institutional knowledge, difficulty recruiting, and failure to realize anticipated benefits and savings; restructuring costs were $1.8 million in Q1 2024.
The sales cycle for a new DOS Subscription Client is estimated at approximately one year and in some cases has exceeded two years, and it could lengthen as experienced in 2022 and 2023. TEMS sales cycles can be more difficult to predict and at times longer, creating a delay between operating expenses and corresponding revenue.
Professional services, including TEMS, have lower gross margins than technology; professional services revenue grew 4% to $27.8 million and was 37% of total revenue in Q1 2024. The company expects total Adjusted Gross Margin to fluctuate and decline in the near term due to anticipated growth in professional services, including TEMS.
The healthcare solutions market is intensely competitive, with competitors including Epic, Cerner, Optum Analytics, IBM, and industry-agnostic analytics companies, some with greater resources and distribution. Increased competition is likely to result in pricing pressures that could negatively impact sales, profitability, or market share.
Several senior leaders are active members of the Church of Jesus Christ of Latter-Day Saints, and one or more could receive a call to serve full-time, which already occurred with former COO Paul Horstmeier stepping down effective March 31, 2023. Competition for senior sales executives and software engineers is intense, and the 2023 Restructuring Plan may cause attrition beyond the intended reduction.
The Solution depends on sourcing data from third-party clinical, financial, and operational systems, and vendors may engage in information blocking or impose new or additional fees. The ONC and CMS Final Rule on interoperability and information blocking creates uncertainty and potential new requirements for healthcare industry participants.
The company has acquired multiple businesses, including ERS in October 2023, and may have difficulty integrating personnel, operations, and technologies or cross-selling to acquired clients. If acquisitions do not yield expected returns, it may be required to take goodwill impairment charges.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted Professional Services Gross Margin
Adjusted Technology Gross Margin
Adjusted Gross Margin
Summary, forecast, risks and KPIs are extracted from Health Catalyst, Inc.'s SEC filings for Q1 FY2024 (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 1, 2026.