Summary
Health Catalyst reported second quarter 2021 total revenue of $59.6 million, up 37.8% from the prior-year quarter. Year-to-date revenue reached $115.5 million, up 30.7% from the prior-year period. The company also reported a net loss of $35.8 million, and the loss widened from the prior-year quarter. Operating loss was $32.3 million, and that loss also widened. Diluted loss per share was $0.80, and the per-share loss widened. Operating margin was negative 54.2%, down 18.0 percentage points from the prior-year quarter. Operating cash flow was negative $4.84 million in the quarter. Year-to-date operating cash flow was negative $7.99 million, up 54.4% from the prior-year period. Capital expenditures were $2.26 million in the quarter. Year-to-date capital expenditures were $8.14 million, up 931.4% from the prior-year period.
Non-GAAP results showed a turn toward profitability on an adjusted basis. Adjusted EBITDA was $1.7 million, compared with negative $4.2 million in the prior-year quarter. The company said this was the first time since its incorporation that it achieved positive quarterly Adjusted EBITDA. Total adjusted gross margin was 54%, up from 49%. Adjusted technology gross margin was 68%, down from 69%. Adjusted professional services gross margin was 34%, up from 21%. Deferred revenue was $56.50 million, up 51.5% from the prior-year quarter. Remaining performance obligations were $81.30 million, up 83.9% from the prior-year quarter. Management noted that greater than 90% of revenue is recurring in nature.
The quarter included several acquisition-related developments. Health Catalyst closed the Twistle acquisition on July 1, 2021. The preliminary acquisition consideration was approximately $104.5 million, consisting of $57.5 million in cash and 830,704 shares of common stock issued at $56.60 per share. The company expects Twistle to strengthen its population health analytics application suite. During the quarter, the Vitalware earn-out contingent consideration liability was settled for $15.0 million in cash and 309,458 shares of common stock. Health Catalyst expects Twistle to generate Adjusted EBITDA losses during the second half of 2021. The company also expects its transition of customers to Microsoft Azure to raise hosting costs and reduce Adjusted Technology Gross Margin. Professional services gross margin may decline in the near term because of changes in service mix and normalization in utilization rates.
Guidance points to a wider adjusted loss in the near term. For the third quarter of 2021, Health Catalyst guides Adjusted EBITDA to negative $7.5 million to negative $5.5 million. For the full year 2021, the company guides Adjusted EBITDA to negative $12.5 million to negative $10.5 million. The company has not reconciled Adjusted EBITDA guidance to net loss, the most directly comparable GAAP measure, because items such as stock-based compensation are not within its control or cannot be reasonably predicted.
Risks remain tied to the pandemic and integration. COVID-19 and the Delta variant continue to create uncertainty for healthcare providers, which could face budgetary strain and operational disruption. The company lists potential customer bankruptcy, contract termination, loss of key customers or partners, litigation, security incidents, and difficulty recruiting and retaining team members as risks. Medicity customers are expected to generate flat to declining revenue. Integration and duplicative costs from recent acquisitions could affect the operating cost profile. The company also faces higher costs as it moves customers to Azure and as it absorbs Twistle, which is expected to generate Adjusted EBITDA losses in the second half of 2021.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $59.6M | $55.8M | +6.8% | $43.3M | +37.8% |
| Research & development | $14.5M | $14.3M | +1.2% | $12.1M | +20.4% |
| Sales & marketing | $16.7M | $15.7M | +6.7% | $12.5M | +33.6% |
| General & administrative | $22.5M | $15.0M | +50.0% | $8.1M | +177.6% |
| Total operating expenses | $61.9M | $52.8M | +17.2% | $35.8M | +73.0% |
| Operating income (loss) | -$32.3M | -$24.3M | -32.9% | -$15.6M | -106.6% |
| Operating margin | -54.2% | -43.5% | -10.7 pp | -36.1% | -18.1 pp |
| Net income (loss) | -$35.8M | -$28.4M | -26.3% | -$27.2M | -31.8% |
| Net margin | -60.1% | -50.8% | -9.3 pp | -62.8% | +2.7 pp |
| Diluted EPS | -$0.80 | -$0.65 | -$0.15 | — | — |
Risks
The pandemic continues to disrupt healthcare provider customers, with the Delta variant and vaccine rollout logistics likely keeping the national healthcare system under operational and budgetary strain. MD&A notes this could decrease healthcare industry spending, delay sales cycles, and impact collections, though greater than 90% of revenue is recurring.
The sales cycle for a new customer has averaged approximately one year and in some cases exceeded two years. MD&A warns that large, complex customers with long procurement cycles may lead to declines in the pace of new customer additions.
The healthcare analytics market is intensely competitive, with larger competitors such as Optum Analytics, IBM, Epic Systems, and Cerner having greater name recognition, resources, and distribution. Increased competition is likely to result in pricing pressures that could negatively impact sales, profitability, or market share.
The Solution depends on sourcing data from third-party clinical, financial, and operational systems. Vendors may engage in information blocking, and the ONC/CMS Final Rule on interoperability and information blocking creates uncertainty and potential new requirements that could impair data access.
The company has acquired Medicity, Able Health, Healthfinch, Vitalware, and Twistle between June 2018 and July 2021, with Twistle closed July 1, 2021 for approximately $104.5 million. Integration costs and duplicative costs could impact operating cost profile, and Twistle is expected to generate Adjusted EBITDA losses during the second half of 2021.
Net loss widened to $35.8 million for the three months ended June 30, 2021 from $27.2 million for the three months ended June 30, 2020, and the company had an accumulated deficit of $725.7 million as of December 31, 2020. It expects costs to increase and may need additional capital.
The company issued $230.0 million of 2.50% convertible senior notes due 2025 and may not have sufficient cash to settle conversions, repay at maturity, or repurchase notes. Operating cash flow was negative $4.84 million for the three months ended June 30, 2021, down 545.1% from negative $0.75 million for the three months ended June 30, 2020.
If the Solution fails to provide accurate and timely information or is associated with faulty clinical decisions or treatment, the company could face liability to customers, members, clinicians, or patients. Contractual limitations and insurance may not fully protect against large claims.
The three largest customers comprised 5.6%, 4.6%, and 3.9% of 2020 revenue, or 14.1% in aggregate, and 11.8% in aggregate during 2019. Loss, termination, or renegotiation of any largest customer contract could negatively impact results.
Transitioning customers from on-premise and managed data centers to Microsoft Azure is more costly on a per-customer basis. MD&A states this will result in higher cost of technology revenue and a reduced Adjusted Technology Gross Margin, which decreased slightly from 69% to 68% for the three months ended June 30, 2021.
Competition for senior sales executives and experienced software engineers is intense. The risk factor also notes that several senior leaders are active members of the Church of Jesus Christ of Latter-Day Saints, and a future call to serve full-time could disrupt management, as previously occurred with co-founder Steven Barlow.
Changes in healthcare regulation, including the ONC/CMS Final Rule on electronic health information access and information blocking, could affect demand, contract terms, and data access. The impact of the Final Rule on the business is unclear due to uncertainty regarding safe harbors and exceptions.
The company has adjusted prices in the past, including new pricing introduced in the fourth quarter of 2018. Its assessments may be inaccurate, and it could underprice or overprice the Solution, requiring further pricing model changes.
The Capped Calls entered into with option counterparties are unsecured, and if a counterparty becomes subject to insolvency proceedings, the company would be an unsecured creditor. Exposure increases with the market price and volatility of common stock.
Federal and state NOLs of $419.6 million and $334.6 million as of December 31, 2020 may be subject to limitations from ownership changes under Sections 382 and 383, which could limit future utilization.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted Professional Services Gross Margin
Adjusted Technology Gross Margin
Recurring revenue
Total Adjusted Gross Margin
Summary, forecast, risks and KPIs are extracted from Health Catalyst, Inc.'s SEC filings for Q2 FY2021 (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.