Summary
Health Catalyst reported total revenue of $68.4 million for the third quarter of fiscal 2022, up 10.7% from $61.7 million in the prior-year quarter. For the nine months ended September 30, 2022, revenue reached $207.1 million, up 16.9% from $177.2 million a year earlier. Growth came from new customers, acquired technology customers, and existing customers paying higher technology access fees from contractual annual escalators. Technology revenue grew faster than professional services revenue. The company also held its ninth annual Healthcare Analytics Summit in Salt Lake City in September, drawing over a thousand attendees from more than 175 existing and prospective client organizations.
Profitability remains the weak spot. The operating loss widened to $45.7 million from $42.2 million, and the net loss widened to $45.7 million from $40.0 million. Diluted loss per share was $0.84, worse than the $0.82 reported a year earlier. Operating margin improved 1.5 percentage points to -66.9% from -68.4%. The year-to-date picture is better. The net loss narrowed to $101.6 million from $104.2 million, diluted loss per share narrowed to $1.97 from $2.27, and operating margin improved 5.9 percentage points to -49.9% from -55.8%. The nine-month improvement came even as the third-quarter loss widened.
Non-GAAP results show gradual progress. Adjusted EBITDA was negative $4.6 million, better than negative $5.8 million a year ago, a 21% improvement. Adjusted net loss per share was $0.13, better than $0.18. Total adjusted gross margin held at 51%, and adjusted professional services gross margin was steady at 20%. Adjusted technology gross margin slipped to 68% from 70%, which management attributed to the cost of moving customers to Microsoft Azure hosted environments and higher support costs. Cash generation moved the wrong way. Operating cash flow was -$12.0 million for the quarter, down from -$5.4 million, and -$20.4 million for the nine months, down from -$13.3 million. Capital expenditures fell to $1.2 million in the quarter, down 29.3%, and to $1.8 million year to date, down 82.2%.
Backlog and recurring revenue held up. Remaining performance obligations were $105.0 million, up 23.4% from $85.1 million. Deferred revenue was essentially flat at $56.7 million. Management now expects the 2022 dollar-based retention rate to land between 97% and 101%, above the range shared last quarter, citing a larger expansion pipeline and lower forecast churn. Guidance for the fourth quarter of 2022 calls for Adjusted EBITDA of negative $2.1 million to negative $0.1 million. For the full year 2022, the company guides to Adjusted EBITDA of negative $4.0 million to negative $2.0 million. Management credits an expanding pipeline and cost cuts that are ahead of schedule for the raised full-year outlook, which also includes higher revenue guidance.
The macro backdrop is the main risk. Health systems face higher labor and supply costs without matching revenue, and that strain has pushed purchasing decisions out and lengthened the sales cycle. Health Catalyst lost a large enterprise DOS Subscription Customer and saw other customers trim professional services and technology spend, mostly in the first half of the year. Those moves produced a sequential decline in total revenue and Adjusted EBITDA in the third quarter compared with the second quarter, and management warns the fourth quarter could decline sequentially again. The company recorded $4.5 million in restructuring costs during the quarter and continues to shift work to offshore and nearshore labor. It also flagged the migration of a small number of customers from on-premise deployments to Microsoft Azure as a near-term drag on technology gross margin, and said Medicity customers are expected to generate declining revenue. It repurchased 709,139 shares for $8.4 million at an average price of $11.81, leaving $31.6 million of authorization. Cash, cash equivalents and short-term investments totaled $380.1 million as of September 30, 2022.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $68.4M | $70.6M | -3.2% | $61.7M | +10.7% |
| Research & development | $20.8M | $18.1M | +14.4% | $16.4M | +26.8% |
| Sales & marketing | $25.4M | $20.9M | +21.4% | $20.8M | +22.1% |
| General & administrative | $19.2M | $17.5M | +9.4% | $23.1M | -16.8% |
| Total operating expenses | $77.7M | $69.2M | +12.3% | $70.9M | +9.6% |
| Operating income (loss) | -$45.7M | -$33.2M | -37.7% | -$42.2M | -8.2% |
| Operating margin | -66.9% | -47.0% | -19.9 pp | -68.4% | +1.5 pp |
| Net income (loss) | -$45.7M | -$33.4M | -36.8% | -$40.0M | -14.3% |
| Net margin | -66.9% | -47.3% | -19.6 pp | -64.8% | -2.1 pp |
| Diluted EPS | -$0.84 | -$0.62 | -$0.22 | -$0.82 | -$0.02 |
Risks
The health system end market is experiencing meaningful financial strain from significant inflation with increases in labor and supply costs without a commensurate increase in revenue, leading to severe margin pressure. Many healthcare organizations have delayed near-term purchasing decisions and reduced costs, which elongated the sales cycle, negatively impacted bookings achievement, and led to a lower than anticipated dollar-based retention metric in the nine months ended September 30, 2022.
The sales cycle for a new DOS Subscription Customer is estimated at approximately one year and in some cases has exceeded two years, and it lengthened as experienced in 2022. A longer sales cycle creates a delay between increasing operating expenses and generating corresponding revenue.
The company lost a large enterprise DOS Subscription Customer and other customers trimmed near-term professional services and technology spend, primarily during the first half of 2022. This contributed to a sequential decline in total revenue and Adjusted EBITDA in the third quarter compared to the second quarter of 2022, and revenue and Adjusted EBITDA may decline sequentially in the fourth quarter compared to the third quarter of 2022.
Adjusted Technology Gross Margin decreased from 70% for the three months ended September 30, 2021 to 68% for the three months ended September 30, 2022, mainly due to Azure transition costs and increased support costs. Adjusted Professional Services Gross Margin decreased from 28% for the nine months ended September 30, 2021 to 26% for the nine months ended September 30, 2022 due to service mix and lower utilization, and both metrics are expected to fluctuate and potentially decline in the near term.
The company is executing cost reduction and restructuring initiatives, including workforce reductions, and incurred $4.5 million in restructuring costs in the three months ended September 30, 2022. It may not realize expected benefits or cost savings, and implementation may disrupt operations.
The company acquired KPI Ninja and ARMUS in 2022 and Twistle in 2021, and is integrating them. Integration-related and duplicative costs could impact the operating cost profile in the near term, and cross-selling or integration may not succeed.
Competition for senior sales executives and software engineers is intense. 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 co-founder Steven Barlow.
The Solution depends on sourcing data from third-party clinical, financial, and operational systems. Vendors may engage in information blocking, and the ONC and CMS Final Rule creates uncertainty; limitations on data access could impair the Solution or increase competition.
Analytics may be used to support clinical decision-making, and if data analyses are incorrect or incomplete, adverse consequences including death may occur, giving rise to product liability, medical malpractice, and other claims. Contractual limitations and insurance may not fully protect the company.
The market is intensely competitive, including from EHR companies such as Epic Systems and Cerner and large competitors such as Optum Analytics and IBM. Increased competition is likely to result in pricing pressures that could negatively impact sales, profitability, or market share.
Operating cash flow was -$12.03 million for the three months ended September 30, 2022, down 124.5% from -$5.36 million in the prior-year quarter, and -$20.45 million for the nine months ended September 30, 2022, down 53.2% from -$13.35 million in the prior-year period. The company may need additional capital, which may not be available on acceptable terms.
The board authorized a $40.0 million share repurchase plan in August 2022, and the company repurchased 709,139 shares for $8.4 million in the third quarter of 2022, leaving $31.6 million authorized. Repurchases could affect the stock price, increase volatility, and diminish cash reserves.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted Professional Services Gross Margin
Adjusted Technology Gross Margin
Total Adjusted Gross Margin
Recurring Revenue (% of total revenue)
Summary, forecast, risks and KPIs are extracted from Health Catalyst, Inc.'s SEC filings for Q3 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.