Summary
Health Catalyst reported total revenue of $61.7 million for the third quarter of fiscal 2021, up 30.8% from $47.2 million in the prior-year quarter. Technology accounted for 62% of the total and professional services 38%, a mix that shifted toward technology from 59% and 41% a year earlier. Year to date, revenue of $177.2 million rose 30.7% from $135.6 million. Management credited new DOS subscription customers, acquired technology customers, contractual annual escalators on existing technology access fees, and expanded support services. More than 90% of revenue is recurring, which cushions the model against near-term demand shocks.
Profitability moved the other way. The operating loss widened to $42.2 million from $23.5 million, and the operating margin fell to -68.4% from -49.7%. Net loss was $40.0 million, or $0.82 per diluted share, against $27.3 million and $0.68 per diluted share a year earlier. The net loss came in smaller than the operating loss largely because of an income tax benefit tied to a valuation allowance release from the Twistle acquisition. Costs climbed on several fronts at once: stock-based compensation, acquisition-related costs, lease-related impairment charges, and amortization of acquired intangibles.
Non-GAAP measures tell a steadier story. Adjusted EBITDA improved to -$5.8 million from -$6.4 million, and total adjusted gross margin held at 51%. Adjusted technology gross margin rose to 70% from 68%, while adjusted professional services gross margin fell to 20% from 25% on service mix, higher medical claim costs, and normalized utilization. Operating cash flow was -$5.4 million for the quarter, worse than -$4.5 million a year ago, but the nine-month figure improved to -$13.3 million from -$22.0 million. Capital expenditures rose to $1.7 million from $0.5 million in the quarter.
Deferred revenue of $56.5 million was up 54.0% from $36.7 million a year earlier, which points to solid billings. Remaining performance obligations of $85.1 million slipped 0.8% from $85.8 million, so contracted backlog is not expanding alongside revenue. The balance sheet carries $455.2 million in cash, cash equivalents, and short-term investments as of September 30, 2021, boosted by an August secondary offering of 4,882,075 shares at $53.00 per share that raised $245.2 million in net proceeds. The company closed the Twistle acquisition on July 1, 2021 for $91.9 million in consideration.
Guidance points to a softer fourth quarter. For the fourth quarter of 2021, management expects Adjusted EBITDA between -$7.5 million and -$5.5 million, and for the full year of 2021 between -$12.5 million and -$10.5 million. The company provides forward-looking guidance on total revenue, a GAAP measure, and Adjusted EBITDA, a non-GAAP measure, and has not reconciled Adjusted EBITDA guidance to net loss. It expects an Adjusted EBITDA loss in the fourth quarter, citing an expected increase in travel-related expenses, the Twistle acquisition, and possible one-time bonuses in a tight labor market.
Several risks weigh on the outlook. Migrating customers to Microsoft Azure hosting costs more per customer than the private data center and should pressure adjusted technology gross margin near term. Medicity customers generate lower dollar-based retention, and management expects flat to declining revenue from them. Professional services margins depend on delivery mix, utilization, and medical claim costs. COVID-19 and the Delta variant could still strain provider budgets and slow new customer additions. The company also flags litigation or a security incident and the loss of key customers or partners as risks. Health Catalyst hosted its eighth annual Healthcare Analytics Summit in September, drawing more than 3,000 registrants from more than 675 organizations and 18 countries.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $61.7M | $59.6M | +3.5% | $47.2M | +30.8% |
| Research & development | $16.4M | $14.5M | +12.8% | $13.4M | +22.4% |
| Sales & marketing | $20.8M | $16.7M | +24.6% | $14.6M | +42.2% |
| General & administrative | $23.1M | $22.5M | +2.4% | $13.3M | +73.4% |
| Total operating expenses | $70.9M | $61.9M | +14.6% | $46.3M | +53.1% |
| Operating income (loss) | -$42.2M | -$32.3M | -30.7% | -$23.5M | -80.1% |
| Operating margin | -68.4% | -54.2% | -14.2 pp | -49.7% | -18.7 pp |
| Net income (loss) | -$40.0M | -$35.8M | -11.7% | -$27.3M | -46.4% |
| Net margin | -64.8% | -60.1% | -4.7 pp | -57.9% | -6.9 pp |
| Diluted EPS | -$0.82 | -$0.80 | -$0.02 | — | — |
Risks
The ongoing COVID-19 pandemic, especially the Delta variant, could continue to decrease healthcare industry spending, cause customers to fail to renew or renegotiate contracts, and disrupt sales and professional services teams. MD&A states it is not possible to predict the duration or magnitude of the adverse effects.
The healthcare solutions market is intensely competitive, with competitors such as Epic Systems, Cerner, Optum Analytics, and IBM having greater name recognition, longer operating histories, and significantly greater resources. Increased competition is likely to result in pricing pressures that could negatively impact sales, profitability, or market share.
If the Solution fails to provide accurate and timely information or is associated with faulty clinical decisions or treatment, customers, members, clinicians, or patients could assert claims. Adverse consequences, including death, may occur and contractual limitations of liability may not be enforceable.
The sales cycle for a new customer has averaged approximately one year and in some cases exceeded two years, and COVID-19 could lengthen it, delaying revenue relative to operating expenses. The company spends substantial time and money pursuing sales without assurance of a sale.
The three largest customers during 2020 comprised 5.6%, 4.6%, and 3.9% of revenue, or 14.1% in the aggregate. The sudden loss or renegotiation of any largest customer contract could adversely affect results of operations.
The company acquired Twistle in July 2021 for $91.9 million and previously acquired Vitalware, Healthfinch, and Able Health, and is integrating them. Integration may divert management attention, incur duplicative costs, fail to achieve cross-sell benefits, or result in impairment charges.
The transition of customers from the private data center and on-premise deployments to Microsoft Azure is more costly on a per-customer basis and will result in higher cost of technology revenue and a reduced Adjusted Technology Gross Margin. MD&A expects Adjusted Technology Gross Margin to fluctuate and potentially decline in the near term.
Adjusted Professional Services Gross Margin decreased from 25% for the three months ended September 30, 2020 to 20% for the three months ended September 30, 2021 due to service mix, higher medical claim costs, and normalization in utilization rates. It may fluctuate due to tight labor market and potential one-time bonuses.
Competition for senior sales executives and software engineers with healthcare and analytics experience is intense, and the tight labor market may require one-time bonuses. Failure to attract or retain key personnel could severely harm business and future growth prospects.
Medicity customers have generated a lower Dollar-based Retention Rate than DOS Subscription Customers, and the company expects flat to declining revenue from Medicity customers in the foreseeable future. Cross-sell and technology integration success could offset these declines.
The Solution depends on sourcing data from third parties, and those third parties could block access to data, impairing the Solution or limiting its effectiveness. Failure by customers to obtain proper permissions and waivers may also result in claims or limit data use.
The company issued $230.0 million of 2.50% Convertible Senior Notes due 2025 and used $21.6 million of net proceeds for Capped Calls. Ability to repay or repurchase the Notes depends on market conditions and future performance, and the company is subject to counterparty risk with the Capped Calls.
Changes in the healthcare industry, including increasing market share of EHR companies in data analytic services at hospital systems and customer or vendor consolidation, could cause existing contracts to terminate and make new contracts harder to negotiate on acceptable terms.
Because technology and professional services revenue is generally recognized ratably over the contract term, a decline in new contracts or a late-quarter non-renewal may not be reflected immediately but could reduce future revenue. The company may be unable to quickly adjust costs in response to reduced revenue.
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 Q3 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.