Summary
Health Catalyst ended fiscal 2022 with fourth-quarter revenue of $69.16 million, up 6.9% from the prior-year quarter. Full-year revenue reached $276.24 million, up 14.2%. The top line grew even as the health system end market remained under pressure. The fourth-quarter operating loss narrowed to $36.74 million, and the full-year operating loss narrowed to $140.00 million. Net loss narrowed to $35.78 million in the fourth quarter and to $137.40 million for the full year. Full-year diluted EPS loss narrowed to $2.63. Operating margin improved to negative 53.1% in the fourth quarter, up 16.0 percentage points, and to negative 50.7% for the full year, up 8.7 percentage points.
Cash generation remained negative. Fourth-quarter operating cash flow was negative $14.82 million, down 51.6% year over year. Full-year operating cash flow was negative $35.27 million, down 52.5%. Capital expenditures were $0.42 million in the fourth quarter, down 33.4%, and $2.17 million for the full year, down 79.3%. Deferred revenue was $55.10 million, down 4.3% from the prior-year quarter. Remaining performance obligations, or RPO, were $110.90 million, up 44.0% from the prior-year quarter.
Adjusted EBITDA improved to negative $2.5 million for 2022, compared with negative $11.2 million in 2021 and negative $21.3 million in 2020. Adjusted Technology Gross Margin was 69% in 2022 and 2021. Adjusted Professional Services Gross Margin fell to 24% from 27%. Total Adjusted Gross Margin was 53% in both 2022 and 2021. DOS Subscription Clients totaled 98 as of December 31, 2022, up from 90 in 2021 and 74 in 2020. Other Clients exceeded 425, compared with over 350 in 2021. The Dollar-based Retention Rate was 100% in 2022, down from 112% in 2021 and 102% in 2020. The company lost a large enterprise DOS Subscription Client during the year.
Management's outlook for full-year 2023 calls for a higher proportion of revenue growth from professional services, especially Tech-enabled Managed Services. That mix shift will likely lower Adjusted Professional Services Gross Margin and Total Adjusted Gross Margin in 2023 compared with prior years. The company still expects Adjusted EBITDA to improve, helped by minimal incremental operating expense needed to support Tech-enabled Managed Services growth. Adjusted Technology Gross Margin is expected to fluctuate and potentially decline in the near term because of the Azure transition and the migration to a multi-tenant Snowflake and Databricks environment. Total Adjusted Gross Margin is expected to fluctuate and decline in the near term. Net new DOS Subscription Client additions in 2023 are expected to be lower than in 2021, while the Dollar-based Retention Rate is expected to improve in 2023 relative to 2022.
The main risks remain macro-driven. High inflation, high interest rates, a tight labor market, and the lingering effects of COVID-19 continue to pressure healthcare organizations. Health systems face significant increases in labor and supply costs without a commensurate increase in revenue, which has hurt their operating margins. Many clients have delayed near-term purchasing decisions, reduced costs, and elongated sales cycles. Bookings achievement was negatively impacted, some clients reduced contracted fees, and Dollar-Based Retention came in lower than anticipated in 2022. The loss of a large enterprise DOS Subscription Client was a notable headwind. Medicity clients have generated a lower Dollar-based Retention Rate and are expected to produce flat to declining revenue. The shift toward Tech-enabled Managed Services carries minimal initial services gross margins. Migration costs for Azure and the new data platform architecture will weigh on technology gross margin. The company also notes that its net operating loss carryforwards may be subject to limitations under Sections 382 and 383 of the Code.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2022 | Q3 FY2022 | QoQ | Q4 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $69.2M | $68.4M | +1.2% | $64.7M | +6.9% |
| Research & development | $19.6M | $20.8M | -5.6% | $17.5M | +12.2% |
| Sales & marketing | $20.4M | $25.4M | -19.8% | $21.9M | -6.8% |
| General & administrative | $16.1M | $19.2M | -15.9% | $25.3M | -36.3% |
| Total operating expenses | $67.8M | $77.7M | -12.8% | $75.6M | -10.3% |
| Operating income (loss) | -$36.7M | -$45.7M | +19.6% | -$44.8M | +17.9% |
| Operating margin | -53.1% | -66.9% | +13.8 pp | -69.2% | +16.0 pp |
| Net income (loss) | -$35.8M | -$45.7M | +21.8% | -$49.0M | +27.0% |
| Net margin | -51.7% | -66.9% | +15.2 pp | -75.7% | +24.0 pp |
| Diluted EPS | -$0.66 | -$0.84 | +$0.18 | -$1.03 | +$0.37 |
Risks
The health system end market is experiencing meaningful financial strain from high inflation and high interest rates, with labor and supply costs rising without commensurate revenue. This has led clients to delay purchasing decisions, reduce contracted fees, and lower the Dollar-based Retention Rate to 100% for 2022 from 112% for 2021.
The sales cycle for a new DOS Subscription Client, typically about one year and sometimes over two years, lengthened in 2022. MD&A states this elongated sales cycle negatively impacted bookings achievement and contributed to lower than anticipated Dollar-based Retention in 2022.
MD&A discloses the loss of a large enterprise DOS Subscription Client, which the company believes was a client-specific event, and this contributed to lower Dollar-based Retention Rate and lower net new DOS Subscription Client additions in 2022. The company expects 2023 net new DOS Subscription Client additions to be lower than 2021 due to continued financial strain and budget constraints in its end market.
Several senior leaders are active members of the Church of Jesus Christ of Latter-Day Saints, and the risk factor notes that one or more could receive a call to serve full-time, which has already occurred with co-founder Steven Barlow and Chief Operating Officer Paul Horstmeier. Mr. Horstmeier will step down from his role in March 2023, creating key management continuity risk.
2023 revenue growth is expected to come more from professional services, especially Tech-enabled Managed Services, which have lower initial gross margins. Adjusted Professional Services Gross Margin decreased from 27% for the year ended December 31, 2021 to 24% for the year ended December 31, 2022, and Total Adjusted Gross Margin is expected to decline in the near term.
Adjusted Technology Gross Margin remained consistent at 69% for the years ended December 31, 2022 and 2021, but is expected to fluctuate and potentially decline in the near term. Drivers include the transition of clients to Microsoft Azure, migration to a multi-tenant Snowflake and Databricks enabled data platform, and a small subset of modular clients reducing higher-margin software analytics application costs.
The company acquired KPI Ninja and ARMUS in 2022 and Twistle in 2021, and risk factors cite difficulty integrating acquired personnel, operations, and technologies, converting acquired clients to the DOS platform, and potential goodwill impairment if acquisitions do not yield expected returns.
The market for healthcare solutions is intensely competitive, with competition from EHR companies such as Epic Systems and Cerner, industry-agnostic analytics companies, and larger 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.
The company is executing cost reduction and restructuring initiatives, with restructuring costs of $8.4 million in 2022. Risk factors state that benefits may not be realized, may cost more or take longer than expected, and may disrupt operations and performance.
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 Q4 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.