Summary
Health Catalyst reported total revenue of $70.6 million for the second quarter of fiscal 2022, up 18% from $59.6 million in the prior-year quarter. Technology revenue grew faster than professional services revenue, shifting the mix to 64% technology and 36% professional services, against 60% and 40% a year earlier. Year to date, revenue reached $138.7 million, up 20% from $115.5 million. Management credited new DOS subscription customers, acquired technology customers, and existing customers paying higher technology access fees from contractual annual escalators.
Profitability is still the sore spot. Loss from operations was -$33.2 million for the quarter, and the loss widened from -$32.3 million a year earlier. Net loss narrowed to -$33.4 million from -$35.8 million, and diluted loss per share was -$0.62, narrower than -$0.80 a year earlier. Operating margin was -47.0%, up 7.2 percentage points from -54.2%. Adjusted EBITDA was $2.0 million, up from $1.7 million, and total adjusted gross margin was 55% against 54%. Adjusted technology gross margin rose to 70% from 68%, but adjusted professional services gross margin fell to 27% from 34% on service mix and lower utilization. The gap between GAAP and adjusted results stays wide, since stock-based compensation and amortization of acquired intangibles keep the reported loss large.
Cash generation moved the wrong way. Operating cash flow was -$9.6 million for the quarter, down from -$4.8 million a year earlier. Year to date, operating cash flow was -$8.4 million against -$8.0 million. Capital expenditures fell to $0.2 million from $2.3 million in the prior-year quarter, a 91% decline. Deferred revenue was $61.4 million at June 30, 2022, up 8.7% year over year, and remaining performance obligations were $106.0 million, up 30.4%. Interest and other expense, net fell for the quarter, helped by lower non-cash interest expense after the adoption of ASU 2020-06.
The outlook is where the tone turns. Management cut its full-year 2022 revenue and Adjusted EBITDA guidance, pointing to a challenging end market. For the third quarter of 2022, the company guides Adjusted EBITDA of negative $6.0 million to negative $4.0 million. For the full year 2022, it expects Adjusted EBITDA of negative $6.0 million to negative $4.0 million. Management expects a sequential decline in total revenue and Adjusted EBITDA in the third quarter compared with the second quarter.
The pressure comes from the health system end market. Inflation, the ongoing COVID-19 pandemic, and a tight labor market have pushed up labor and supply costs for providers without a matching rise in revenue, squeezing customer operating margins. Many healthcare organizations are delaying near-term purchasing decisions, sales cycles have elongated, and year-to-date bookings came in below plan. Health Catalyst also lost a large enterprise DOS subscription customer, which it called an isolated, customer-specific event, and some customers trimmed professional services and technology spend. More than 90% of revenue is recurring, which cushions the blow.
The balance sheet held $403.3 million in cash, cash equivalents, and short-term investments at June 30, 2022. On August 2, 2022, the board authorized a share repurchase program of up to $40.0 million. The company closed ARMUS on April 29, 2022 for $9.4 million and KPI Ninja on February 24, 2022 for $21.4 million, and integration costs are still flowing through the income statement. Named risks include the loss of key customers or partners, litigation or a security incident, regulatory changes, and the ability to recruit and retain team members. Management still expects meaningful positive Adjusted EBITDA leverage in 2023 and beyond.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $70.6M | $68.1M | +3.7% | $59.6M | +18.5% |
| Research & development | $18.1M | $17.1M | +5.8% | $14.5M | +25.0% |
| Sales & marketing | $20.9M | $20.8M | +0.5% | $16.7M | +25.2% |
| General & administrative | $17.5M | $8.8M | +98.8% | $22.5M | -22.1% |
| Total operating expenses | $69.2M | $58.4M | +18.4% | $61.9M | +11.8% |
| Operating income (loss) | -$33.2M | -$24.3M | -36.3% | -$32.3M | -2.7% |
| Operating margin | -47.0% | -35.8% | -11.2 pp | -54.2% | +7.2 pp |
| Net income (loss) | -$33.4M | -$22.5M | -48.8% | -$35.8M | +6.7% |
| Net margin | -47.3% | -33.0% | -14.4 pp | -60.1% | +12.8 pp |
| Diluted EPS | -$0.62 | -$0.54 | -$0.08 | -$0.80 | +$0.18 |
Risks
MD&A states the health system end market is experiencing meaningful financial strain, with significant increases in labor and supply costs without a commensurate increase in revenue, leading to deterioration in operating margins across many customers and prospective customers. Sales cycles have elongated, year-to-date bookings achievement has been negatively impacted, and the company expects a sequential decline in total revenue and Adjusted EBITDA in Q3 compared to Q2 2022.
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 says sales cycles have elongated as healthcare organizations delay near-term purchasing decisions while reevaluating budgets.
The company has historically relied on a limited number of customers for a significant portion of revenue, with its three largest customers during 2021 comprising 12.2% of revenue in aggregate. MD&A disclosed the loss of a large enterprise DOS subscription customer and customers trimming near-term spend, which it expects to contribute to a sequential revenue decline in Q3 compared to Q2 2022.
The market for healthcare solutions is intensely competitive, and the company competes with EHR companies such as Epic Systems and Cerner and large analytics vendors such as Optum Analytics and IBM that have greater resources. Increased competition is likely to result in pricing pressures that could negatively impact sales, profitability, or market share.
Migration of customers to Microsoft Azure is more costly per customer than on-premise deployments, increasing cost of technology revenue and reducing Adjusted Technology Gross Margin. Management expects Adjusted Technology Gross Margin to fluctuate and potentially decline in the near term due to Azure transition costs and a small subset of modular customers trimming application spend.
Adjusted Professional Services Gross Margin decreased from 34% for the three months ended June 30, 2021 to 27% for the three months ended June 30, 2022 due to service mix and lower utilization. Management expects it to fluctuate and potentially decline in the near term as customers delay or reduce services amid the challenging macroeconomic environment.
The company acquired KPI Ninja in February 2022 and ARMUS in April 2022 and is integrating them, after also acquiring Twistle in July 2021. Risks include difficulty cross-selling to acquired customers, integration-related and duplicative costs impacting the near-term operating cost profile, and potential goodwill impairment if acquisitions do not yield expected returns.
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 on interoperability and information blocking creates uncertainty, may make it easier for competitors to enter the market, and compliance costs remain unclear.
Competition for senior sales executives and software engineers with healthcare and technical expertise is intense, and the company has experienced difficulty hiring and retaining highly skilled employees. Several senior leaders are active members of the Church of Jesus Christ of Latter-Day Saints, and one co-founder took a leave of absence for full-time church service, creating key-person risk.
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 Q2 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 1, 2026.