Summary
Health Catalyst reported preliminary third quarter 2023 results on October 27, 2023. Total revenue was $73.8 million, up 7.9% from the prior-year quarter. Year-to-date revenue was $220.9 million, up 6.7%. The company reported a net loss of $22.0 million, narrowed 51.8% from the prior-year quarter. Year-to-date net loss was $87.8 million, narrowed 13.6%. Operating loss was $24.6 million, narrowed 46.2%. Year-to-date operating loss was $94.1 million, narrowed 8.9%. Diluted EPS was -$0.39, improved 53.6%. Year-to-date diluted EPS was -$1.57, improved 20.3%. Operating margin was -33.3%, up 33.6 percentage points. Year-to-date operating margin was -42.6%, up 7.3 percentage points. Adjusted EBITDA was $2.0 million, up 144% from $(4.6) million. The results are preliminary and unaudited.
Non-GAAP margins show pressure. Total Adjusted Gross Margin was 47%, compared with 51% in the prior-year quarter. Adjusted Professional Services Gross Margin fell to 12% from 20%, driven by growth in Tech-enabled Managed Services, which start at lower gross margins, and lower utilization rates. Adjusted Technology Gross Margin was 68%, flat year over year. Total Adjusted Gross Profit was $34.6 million, down 1%. Adjusted Technology Gross Profit was $31.4 million, up 5%. Adjusted Professional Services Gross Profit was $3.2 million, down 36%. For the nine months, Total Adjusted Gross Margin was 50%, compared with 54%. Adjusted Technology Gross Margin was 69%, compared with 70%. Adjusted Professional Services Gross Margin was 16%, compared with 26%. The company expects total Adjusted Gross Margin to fluctuate and decline in the near term due to anticipated growth in professional services, including Tech-enabled Managed Services.
Cash and backlog metrics. Operating cash flow was $3.1 million in the quarter, up 125.9% from the prior-year quarter. Year-to-date operating cash flow was -$14.0 million, up 31.3%. Capital expenditures were $0.1 million, down 87.5%. Deferred revenue was $53.4 million, down 5.8%. Remaining performance obligations were $196.0 million, up 86.7%. The company expects annual Adjusted EBITDA to continue to improve, although it may fluctuate from quarter to quarter. It also expects a higher proportion of gross bookings from existing clients. Net new DOS Subscription Clients are expected to have lower average starting ARR, with average subscription revenue toward the low end of the $500,000 to $1,500,000 range. More than 90% of revenue is recurring.
Guidance. For the fourth quarter of 2023, Health Catalyst expects Adjusted EBITDA between $0.3 million and $2.3 million. For the full year 2023, the company expects Adjusted EBITDA between $10.0 million and $12.0 million. The company raised its full year 2023 revenue guidance range and reiterated its full year 2023 Adjusted EBITDA guidance range. The full third quarter 2023 operating results will be released on November 2, 2023.
Risks. The health system end market remains under financial strain from high inflation, high interest rates, and a tight labor market. Clients face increases in labor and supply costs without commensurate revenue, leading to deterioration in operating margins. The company anticipates this dynamic to persist for at least the next few quarters. It has seen a decrease in pipeline demand relative to the prior period and elevated churn for offerings that do not provide near-term financial ROI, such as clinically-focused technology and traditional consulting Professional Services. The company expects a higher proportion of net bookings in the second half of 2023 compared with its historical average. It also expects its 2023 Professional Services dollar-based retention to be higher than Technology. Other risks include loss of key clients or partners, litigation, security incidents, regulatory changes, and challenges in recruiting and retaining team members. The company continues to invest in research and development, primarily in enhancing the capabilities within its DOS platform.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $73.8M | $73.2M | +0.8% | $68.4M | +7.9% |
| Research & development | $17.7M | $17.6M | +0.4% | $20.8M | -14.9% |
| Sales & marketing | $15.1M | $16.4M | -8.0% | $25.4M | -40.6% |
| General & administrative | $13.6M | $23.7M | -42.4% | $19.2M | -29.0% |
| Total operating expenses | $56.6M | $68.4M | -17.3% | $77.7M | -27.2% |
| Operating income (loss) | -$24.6M | -$34.6M | +29.0% | -$45.7M | +46.2% |
| Operating margin | -33.3% | -47.3% | +14.0 pp | -66.9% | +33.6 pp |
| Net income (loss) | -$22.0M | -$32.6M | +32.4% | -$45.7M | +51.8% |
| Net margin | -29.9% | -44.5% | +14.7 pp | -66.9% | +37.0 pp |
| Diluted EPS | -$0.39 | -$0.58 | +$0.19 | -$0.84 | +$0.45 |
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 margin pressure. MD&A states this has decreased pipeline demand relative to pre-2022 and caused elevated realized and anticipated churn, primarily for offerings without near-term financial ROI.
The sales cycle for a new DOS Subscription Client is estimated at approximately one year and in some cases has exceeded two years, and the company started to experience lengthening in 2022. MD&A notes a decrease in pipeline demand and expects a higher proportion of net bookings in the second half of 2023, creating timing risk between operating expenses and revenue.
The board authorized the 2023 Restructuring Plan on October 31, 2023 to reduce the global workforce by approximately 10% during the fourth quarter of 2023. Risks include attrition beyond the intended reduction in force, loss of institutional knowledge, and failure to realize anticipated benefits and savings.
Total Adjusted Gross Margin decreased from 51% for the three months ended September 30, 2022 to 47% for the three months ended September 30, 2023, and from 54% to 50% for the nine months ended September 30, 2023. MD&A expects total Adjusted Gross Margin to fluctuate and decline in the near term due to growth in lower-margin Tech-enabled Managed Services.
MD&A reports elevated technology churn levels for DOS Subscription Clients, primarily for parts of the Solution that do not offer near-term financial ROI, including some smaller modular DOS relationships. Aggregate churn in 2023 is expected to be more heavily weighted toward the first half of 2023.
MD&A reports a $21.3 million increase in litigation costs that are out of the ordinary course of business for the nine months ended September 30, 2023. Future litigation could be costly and time-consuming to defend and could result in additional liabilities.
The company acquired ERS on October 2, 2023 for approximately $11.5 million in cash and 175,901 shares, and has made multiple acquisitions since 2020. Integration difficulties, inability to realize anticipated benefits, dilution, and goodwill impairment could adversely affect results.
Competition for senior sales executives and software engineers is intense, and the 2023 Restructuring Plan may result in attrition beyond the intended reduction in force or adversely impact the ability to recruit and hire qualified personnel. Loss of key personnel could harm business and future growth.
SaaS KPIs
All quarters →Adjusted EBITDA
Adjusted Professional Services Gross Margin
Adjusted Technology Gross Margin
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 Q3 FY2023 (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.