Health Catalyst, Inc. — Fiscal 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. This filing is an annual report, not a standalone fourth-quarter filing; the source text does not provide a separate Q4 income statement or cash flow statement.
Business context
Health Catalyst provides healthcare data and analytics technology and professional services. Its offerings include the cloud-based Data Operating System, analytics applications, and analytics, clinical, financial, operational, implementation, and outsourcing services. At December 31, 2020, the Company had 74 DOS subscription customers and more than 300 other customers, employed more than 1,000 team members, and generated approximately 99.8% of revenue from U.S. customers.
Financial performance and liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $188.8 million | $154.9 million | 22% |
| Technology revenue | $110.5 million | $84.0 million | 32% |
| Professional services revenue | $78.4 million | $71.0 million | 10% |
| Net loss | $115.0 million | $60.1 million | Loss increased |
| Loss from operations | $96.1 million | $54.9 million | Loss increased |
| Adjusted EBITDA | $(21.3) million | $(27.4) million | Improved |
| Net cash used in operating activities | $26.1 million | $32.2 million | Improved |
| Cash, cash equivalents and short-term investments | $270.9 million | $228.3 million | Increased |
- Technology represented 58% of revenue, compared with 54% in 2019. Professional services represented 42%, compared with 46%.
- GAAP cost of revenue, excluding depreciation and amortization, was $98.1 million, or 52% of revenue, versus $75.3 million, or 49%, in 2019.
- Adjusted gross profit was $95.0 million and adjusted gross margin was 50%, compared with $80.9 million and 52% in 2019.
- Adjusted technology gross margin improved to 68% from 67%. Adjusted professional services gross margin declined to 25% from 35%, primarily due to COVID-19-related discounts, lower utilization, and service-mix changes.
- Stock-based compensation increased to $38.0 million from $17.8 million. Depreciation and amortization increased to $18.7 million from $9.2 million.
- Net loss per share attributable to common stockholders was $2.91, compared with $12.86 in 2019. The 2019 amount included significant preferred-stock accretion associated with the IPO conversion.
- Operating cash usage improved to $26.1 million. Investing cash usage was $82.6 million, including $101.7 million for acquisitions. Financing cash inflow was $182.6 million, principally from the convertible notes offering.
- Working capital was $288.9 million at year-end, excluding current deferred revenue. Deferred revenue increased to $49.0 million from $32.1 million.
Material changes versus the prior comparable period
- Revenue growth was driven by new DOS customers, acquired customers, contractual technology escalators, expanded support offerings, and increased services with customers.
- DOS subscription customers increased from 65 to 74. Dollar-based retention declined to 102% from 109%, primarily reflecting COVID-19 pressure on professional services retention; technology retention was described as minimally affected.
- The Company completed acquisitions of Able Health for $21.5 million, Healthfinch for $50.5 million, and Vitalware for $119.2 million. The acquisitions added approximately $104.1 million of stated consideration, including cash, stock, and contingent consideration, and materially increased goodwill and intangible assets.
- Goodwill increased to $107.8 million from $3.7 million, and intangible assets increased to $98.9 million from $25.5 million.
- General and administrative expense increased 87% to $59.2 million, including $14.1 million from remeasurement of contingent consideration, $2.7 million of acquisition costs, $1.4 million of duplicate headquarters rent, and higher stock-based compensation and insurance costs.
- In April 2020, the Company issued $230.0 million of 2.50% convertible senior notes due 2025, received net proceeds of approximately $222.5 million, paid approximately $21.7 million for capped calls, and used $57.0 million to repay and terminate the OrbiMed credit facility.
- Long-term debt, net of current portion, was $169.0 million at year-end. The notes had an initial conversion price of approximately $30.60 per share and were not convertible as of December 31, 2020. The estimated fair value of the notes was $363.0 million versus $230.0 million of principal.
- The Company entered into a new headquarters lease requiring total payments of approximately $31.7 million over an 11-year non-cancelable term, excluding renewal options.
Guidance, outlook, commentary and risks
- Management did not provide specific numerical revenue or profitability guidance in the supplied filing text. It expects recurring revenue, which exceeded 90% of total revenue, to provide visibility and expects existing liquidity to fund working capital and capital expenditures for at least the next 12 months.
- Management expects COVID-19 to continue causing near-term uncertainty and pressure on customer purchasing and professional services retention, while potentially serving as a long-term catalyst for commercial healthcare analytics adoption.
- Management expects technology gross margin to face near-term pressure as customers migrate from private data centers and on-premise deployments to Microsoft Azure, with the migration expected to be substantially complete by the end of 2022.
- Professional services margins may remain volatile or decline because of customer mix, discounts, utilization, and delivery overhead.
- Key risks include continued operating losses, dependence on customer renewals and expansion, long sales cycles, intense competition, integration of acquisitions, cybersecurity and protected health information obligations, data access restrictions, evolving healthcare and privacy regulation, reliance on Microsoft Azure and other third parties, and potential liability from inaccurate analytics or clinical decision support.
- Outstanding obligations include $230.0 million of convertible notes due in 2025, $33.7 million of operating lease payments, and $2.0 million of acquisition-related consideration expected to be paid in early 2021.
- The Company reported an accumulated deficit of $725.7 million and federal and state net operating loss carryforwards of approximately $419.6 million and $334.6 million, respectively. A full valuation allowance remained against deferred tax assets.
- No material pending legal proceedings were reported, and management stated that internal control over financial reporting was effective. Ernst & Young issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Reconcile annual results with any separate fourth-quarter earnings release because this 10-K does not present standalone Q4 results.
- Assess whether technology growth and recurring revenue can offset weaker professional services margins and continued GAAP losses.
- Monitor Azure migration costs, technology gross margin, service availability, and customer renewal rates.
- Evaluate the integration, retention, and cross-selling performance of Able Health, Healthfinch, and Vitalware, including the $31.3 million contingent consideration liability.
- Review liquidity relative to ongoing cash operating losses, the $230.0 million 2025 notes maturity, potential conversion or repurchase obligations, and lease commitments.
- Consider dilution from convertible notes, stock-based compensation, restricted shares, equity awards, and acquisition-related contingent consideration.
- Verify the impact of COVID-19 on customer budgets, professional services demand, collections, sales-cycle duration, and dollar-based retention.