Summary
Health Catalyst closed fiscal 2023 with $75.1 million in fourth-quarter revenue, up 8.6% year over year. Full-year revenue reached $295.9 million, up 7.1%. The company stayed unprofitable on a GAAP basis. Fourth-quarter operating loss was $32.8 million, a 10.8% improvement. Fourth-quarter net loss was $30.3 million, a 15.3% improvement. Full-year operating loss was $126.9 million, a 9.4% improvement. Full-year net loss was $118.1 million, a 14.0% improvement. Diluted EPS for the full year was -$2.09, a 20.5% improvement. Operating margin was -43.7% in the fourth quarter, up 9.5 percentage points, and -42.9% for the full year, up 7.8 percentage points.
Cash flow and backlog metrics showed mixed signals. Fourth-quarter operating cash flow was -$19.0 million, down 28.5% year over year. Full-year operating cash flow was -$33.1 million, up 6.2%. Fourth-quarter capital expenditures were $0.3 million, down 38.6%. Full-year capital expenditures were $1.2 million, down 43.0%. Deferred revenue was $55.8 million, up 1.3%. Remaining performance obligations were $264.4 million, up 138.4%. On a non-GAAP basis, fourth-quarter Adjusted EBITDA was $1.4 million. Full-year Adjusted EBITDA was $11.0 million. Adjusted Gross Margin was 46% in the fourth quarter and 49% for the full year. Adjusted Technology Gross Margin was 67% in the fourth quarter and 68% for the full year. Adjusted Professional Services Gross Margin was 12% in the fourth quarter and 15% for the full year.
Operational metrics were stable but not strong. The Dollar-based Retention Rate was 100% for 2023. DOS Subscription Clients totaled 109 at December 31, 2023, up from 98 at December 31, 2022. Net new DOS Subscription Clients were 11 in 2023. Management expects net new DOS Subscription Clients in the mid-teens range for 2024 and a Dollar-Based Retention Rate of 104% to 110%. For the first quarter of 2024, Health Catalyst guided Adjusted EBITDA to $2.0 million to $4.0 million. For the full year 2024, the company guided Adjusted EBITDA to $24 million to $26 million, representing approximately 125% growth at the midpoint. Mid-term targets for 2025 include revenue growth of 10% to 15% and Adjusted EBITDA margin of 10% to 12%. The 2025 targets also include Technology business unit Adjusted EBITDA margin of approximately 20% and Professional Services slightly positive. Long-term targets for 2028 include Adjusted EBITDA of $100 million or more, with Technology at 55% of revenue. For 2028, targets include Technology business unit Adjusted EBITDA margin of approximately 30% and Professional Services around 10%. The company also plans to hold its 10th annual Healthcare Analytics Summit at the end of February 2024 and expects approximately 1,000 attendees. Vitalware Chargemaster Management software was ranked Best in KLAS for 2024, the fifth year.
Risks remain centered on the health system end market. High inflation, high interest rates, and a tight labor market have pressured client budgets. Health Catalyst has seen lower pipeline demand and elevated down-sell and churn, especially for offerings without near-term financial ROI. The average subscription revenue for new 2023 DOS Subscription Clients was toward the low end of the expected $500,000 to $1,500,000 range. The company's 2023 net new DOS Subscription Clients had a lower average starting annual recurring revenue than historical levels. The company expects professional services to become a higher percentage of total revenue in 2024, which pressures gross margin because TEMS starts at lower margins. Migration to Microsoft Azure and a multi-tenant Snowflake and Databricks environment also creates near-term gross margin headwinds. Leadership changes add execution risk. Bryan Hunt will transition from CFO to Strategic Advisor on March 1, 2024. Jason Alger will become CFO, and Dan LeSueur will become COO. The company also faces litigation costs and restructuring costs, though it expects operating leverage from prior restructuring. The company completed the ERS acquisition in October 2023.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2023 | Q3 FY2023 | QoQ | Q4 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $75.1M | $73.8M | +1.8% | $69.2M | +8.6% |
| Research & development | $20.3M | $17.7M | +14.8% | $19.6M | +3.4% |
| Sales & marketing | $17.3M | $15.1M | +14.5% | $20.4M | -15.2% |
| General & administrative | $15.4M | $13.6M | +13.2% | $16.1M | -4.5% |
| Total operating expenses | $63.3M | $56.6M | +11.9% | $67.8M | -6.6% |
| Operating income (loss) | -$32.8M | -$24.6M | -33.4% | -$36.7M | +10.8% |
| Operating margin | -43.7% | -33.3% | -10.3 pp | -53.1% | +9.5 pp |
| Net income (loss) | -$30.3M | -$22.0M | -37.6% | -$35.8M | +15.3% |
| Net margin | -40.4% | -29.9% | -10.5 pp | -51.7% | +11.4 pp |
| Diluted EPS | -$0.54 | -$0.39 | -$0.15 | -$0.66 | +$0.12 |
Risks
The health system end market is experiencing meaningful financial strain from high inflation and high interest rates, with increases in labor and supply costs without a commensurate increase in revenue. MD&A states this has led to decreased pipeline demand, elevated down-sell and churn, and a Dollar-based Retention Rate of 100% for 2023 versus 112% for 2021.
The sales cycle for a new DOS Subscription Client is estimated to typically be approximately one year and in some cases has exceeded two years, and the company started to experience lengthening in 2022. MD&A notes lower net new DOS Subscription Client additions in 2023 and 2022 compared to 2021, and average subscription revenue for 2023 net new DOS Subscription Clients was toward the low end of the $500,000 to $1,500,000 expected range.
Growth in TEMS and professional services, which have lower initial gross margins, is pressuring profitability. Adjusted Professional Services Gross Margin decreased from 24% for the year ended December 31, 2022 to 15% for the year ended December 31, 2023, and Total Adjusted Gross Margin decreased from 53% to 49% over the same periods.
Litigation costs were $21.3 million for the year ended December 31, 2023, compared with no such costs in 2022, and the company notes risk of securities class action litigation and other claims. Uninsured or underinsured claims could result in unanticipated costs and reduce results of operations.
The healthcare analytics market is intensely competitive, including against EHR companies such as Epic Systems and Cerner and large vendors such as Optum Analytics and IBM with greater resources. Increased competition is likely to result in pricing pressures that could negatively impact sales, profitability, or market share.
The three largest clients during 2023 comprised 5.5%, 3.6%, and 3.5% of revenue, or 12.6% in aggregate, and the company relies on a limited number of clients for a significant portion of revenue. Loss, termination, or renegotiation of any largest client contract could adversely affect results.
The 2023 Restructuring Plan reduced the global workforce by approximately 10% during the fourth quarter of 2023, with further reductions in the first quarter of 2024, and may cause attrition beyond intended, loss of institutional knowledge, and difficulty recruiting. Restructuring costs were $8.8 million for the year ended December 31, 2023.
The company completed the ERS acquisition on October 2, 2023 for net cash consideration of $11.4 million and has made multiple acquisitions since 2018. Integration difficulties, inability to cross-sell, or goodwill impairment could adversely affect results.
Changes in healthcare regulation, government funding, or client and vendor consolidation could reduce demand, cause contract terminations, and make new contracts harder to negotiate. The increasing market share of EHR companies in data analytics at hospital systems may cause existing clients to terminate contracts.
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. 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 has already occurred with former COO Paul Horstmeier stepping down effective March 31, 2023.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from Health Catalyst, Inc.'s SEC filings for Q4 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.