Health Catalyst, Inc. annual report, FY2021

Health Catalyst, Inc. — FY2021 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2021. The filing is an annual Form 10-K; it does not provide a clear standalone fourth-quarter income statement or cash flow presentation. Results are compared primarily with fiscal 2020.

Business Context

Health Catalyst provides healthcare data and analytics technology and professional services. Its offering combines the cloud-based Data Operating System, analytics applications, and healthcare domain expertise. Customers are primarily healthcare providers, insurers, accountable care organizations, and other risk-bearing entities.

90 DOS subscription customers at December 31, 2021, versus 74 at December 31, 2020.
More than 350 other customers, versus approximately 300 in 2020.
Greater than 90% of 2021 revenue was recurring; 99.2% of revenue was from U.S. customers.
Dollar-based retention was 112%, versus 102% in 2020.

Financial Performance and Key Metrics

Metric	FY2021	FY2020	Change
Total revenue	$241.9 million	$188.8 million	+28%
Technology revenue	$147.7 million	$110.5 million	+34%
Professional services revenue	$94.2 million	$78.4 million	+20%
Net loss	$153.2 million	$115.0 million	Loss increased
Loss from operations	$143.7 million	$96.1 million	Loss increased
Adjusted EBITDA	$(11.2) million	$(21.3) million	Improved
Adjusted gross profit	$127.9 million	$95.0 million	+35%
Adjusted gross margin	53%	50%	+3 percentage points
Net loss per share	$(3.23)	$(2.91)	Loss per share increased

Technology represented 61% of revenue, compared with 58% in 2020; professional services represented 39%, compared with 42%. Adjusted technology gross margin increased to 69% from 68%, while adjusted professional services gross margin increased to 27% from 25%.

GAAP results remained substantially loss-making. Operating expenses increased to $261.2 million from $186.9 million, including $37.5 million of depreciation and amortization, $65.1 million of stock-based compensation, and $27.9 million of acquisition-related costs. General and administrative expense increased 45%, partly due to higher stock-based compensation, contingent consideration remeasurement, and a $1.8 million lease impairment charge.

Cash Flow, Liquidity, Debt, and Capitalization

Cash, cash equivalents, and short-term investments were $445.0 million at December 31, 2021, versus $270.9 million at year-end 2020.
Net cash used in operating activities was $23.1 million, compared with $26.1 million in 2020.
Net cash used in investing activities was $139.7 million, including $46.8 million for the Twistle acquisition, $11.8 million for property, equipment, and intangible assets, and $6.6 million of capitalized internal-use software.
Net cash provided by financing activities was $264.1 million, primarily from the August 2021 equity offering.
Cash and cash equivalents increased by $101.3 million to $193.2 million; short-term investments were $251.8 million.
The company has $230.0 million of 2.50% senior unsecured convertible notes due April 15, 2025. The carrying value was $180.9 million and estimated fair value was $335.7 million at year-end.
The initial conversion price of the notes was approximately $30.60 per share; capped calls have an initial cap price of $42.00 per share.
Operating lease liabilities totaled $23.7 million, and estimated future operating lease payments totaled $29.8 million.
Management stated that existing cash, investments, and available credit facilities should fund working capital and capital expenditure needs for at least the next 12 months, although additional capital may be required in the future.

Material Changes Versus FY2020

Revenue growth accelerated through new DOS customers, acquired customers, contractual technology fee escalators, expanded support services, and higher project-based professional services.
The company acquired Twistle on July 1, 2021, for consideration of approximately $91.9 million, including $46.7 million in net cash, $43.1 million in stock, and contingent consideration.
Technology revenue grew faster than professional services revenue, increasing the technology mix and supporting higher total adjusted gross margin.
Adjusted EBITDA improved by approximately $10.0 million, but GAAP net loss increased by approximately $38.2 million.
Depreciation and amortization doubled to $37.5 million, primarily due to amortization of acquired intangible assets.
The company completed a public offering of 4,882,075 shares at $53.00 per share and received net proceeds of approximately $245.2 million.
Contingent consideration liabilities declined to $19.3 million from $31.3 million, after settlements related to prior acquisitions and additional remeasurement expense.
The company continued migrating customers from on-premise and managed data centers to Microsoft Azure. Management expects the migration to be substantially complete by the end of 2022 and cautioned that it may increase hosting costs and pressure technology gross margin in the near term.

Outlook, Commentary, Risks, and Unusual Items

The filing does not provide a clear numerical revenue, margin, or EBITDA guidance range. Management expects continued investment in sales, marketing, research and development, customer expansion, and acquisitions. It expects operating expenses to increase in absolute dollars but potentially decline as a percentage of revenue over the long term.

Management views the recurring revenue model, increased customer platform usage, and healthcare organizations’ need for commercial-grade analytics as supportive of future growth.
COVID-19 continued to create uncertainty around healthcare budgets, customer renewals, collections, sales cycles, and professional services delivery, although management reported limited impact on technology dollar-based retention.
Azure migration may create near-term hosting inefficiencies and lower technology margins.
Acquisition integration, cross-selling, customer retention, and potential declines in legacy Medicity revenue remain important execution factors.
The business faces intense competition from EHR vendors, analytics companies, point-solution providers, and customers’ internal analytics teams.
Material risks include cybersecurity incidents, data privacy and HIPAA compliance, dependence on third-party data and Microsoft Azure, evolving healthcare and interoperability regulations, potential clinical or data accuracy liability, and lengthy sales cycles.
The company remains unprofitable, has an accumulated deficit of $878.9 million, and expects to incur losses in the future.
Outstanding acquisition-related contingent consideration had an estimated fair value of $19.3 million at year-end, including a Twistle earn-out capped at $65.0 million and expected to be paid approximately 20% in cash and 80% in shares.
Subsequent to year-end, on February 24, 2022, the company acquired KPI Ninja for preliminary gross consideration of approximately $33.0 million, including $19.5 million in cash and 463,016 shares.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal controls.

Most Important Facts for Investors to Verify

Whether revenue growth and 112% dollar-based retention continue after separating core DOS customers from acquired and legacy customer cohorts.
The pace and cost of the Azure migration and its effect on technology gross margin and customer satisfaction.
The path from improved Adjusted EBITDA to positive GAAP operating income and free cash flow, including the effect of $65.1 million of annual stock-based compensation.
Liquidity requirements and refinancing, cash settlement, or equity dilution risks associated with the $230.0 million convertible notes due in 2025.
The ultimate payout and dilution from Twistle and other contingent consideration obligations.
Integration performance and revenue contribution from Twistle and the subsequent KPI Ninja acquisition.
Exposure to healthcare budget pressures, customer nonrenewals, pricing concessions, cybersecurity incidents, data-access restrictions, and regulatory changes.
The company’s ability to utilize its approximately $580.0 million of federal and $465.7 million of state net operating loss carryforwards, which may be limited by ownership changes or insufficient future taxable income.