8-K: Health Catalyst Reports Mixed Q4 and Full Year 2023 Results, Announces Leadership Changes and Provides 2024 Guidance

Health Catalyst reported its Q4 and full year 2023 financial results, exceeding revenue guidance but experiencing a lower than expected dollar-based retention rate, while also announcing significant leadership changes and providing financial guidance for 2024.

Summary

• Health Catalyst reported total revenue of $295.9 million for 2023, which exceeded the midpoint of their guidance.
• The company's Adjusted EBITDA for 2023 was $11.0 million, aligning with the midpoint of their guidance.
• Adjusted EBITDA is expected to grow by approximately 125% in 2024.
• The company's dollar-based retention rate for 2023 was 100%, which was below the forecasted range of 102% to 110% due to delays in Tech-Enabled Managed Services (TEMS) expansion opportunities.
• Health Catalyst added 11 net new DOS subscription clients in 2023, which was in line with expectations.
• For the first quarter of 2024, the company expects total revenue between $72.5 million and $76.5 million and Adjusted EBITDA between $2.0 million and $4.0 million.
• For the full year 2024, the company expects total revenue between $304 million and $312 million and Adjusted EBITDA between $24 million and $26 million.
• The company anticipates adding mid-teens net new DOS subscription clients in 2024.
• The company anticipates a dollar-based retention rate between 104% and 110% in 2024.
• The company has set a long term target of $500M+ revenue and $100M+ Adjusted EBITDA by 2028.

Sentiment

Score: 7

Explanation: The document presents a mixed picture with positive revenue results and strong Adjusted EBITDA growth projections, but also highlights challenges with dollar-based retention and leadership changes. The overall sentiment is cautiously optimistic.

Positives

• The company exceeded revenue guidance for both Q4 2023 and full year 2023.
• The company's Adjusted EBITDA for 2023 was in line with guidance.
• The company anticipates significant Adjusted EBITDA growth in 2024, at a rate of approximately 125% or more.
• The company is seeing improvements in the operating environment of its end market.
• The company's Vitalware Chargemaster Management software solution was ranked Best in KLAS for 2024.
• The company is strategically allocating more growth resources toward new client and cross-selling efforts.
• The company is rolling out the next-generation of its data platform software, enabling significant increases in scalability and modularity.

Negatives

• The company's dollar-based retention rate for 2023 was 100%, which was below the forecasted range of 102% to 110%.
• The lower dollar-based retention rate was primarily due to a delay of a few larger Tech-Enabled Managed Services (TEMS) expansion opportunities.
• The company experienced a net loss of $118.1 million for the full year 2023.
• The company's adjusted professional services gross profit decreased by 31% for the full year 2023.

Risks

• The company's actual results may differ materially from forward-looking statements due to various factors, including changes in financial performance, unexpected events, and market conditions.
• The company's ability to predict the timing of larger TEMS deals is challenging.
• The company's financial performance is subject to macroeconomic challenges, including high inflation and interest rates.
• The company's ability to recruit and retain qualified team members could impact results.
• The company's business model is subject to changes in laws and regulations.
• The company's results are subject to market and industry conditions, regulatory environment, and receptivity to its technology and services.
• The company's results are subject to the risk of litigation or a security incident.
• The company's results are subject to the risk of the loss of one or more key clients or partners.
• The company's results are subject to the risk of a new public health crisis.

Future Outlook

Health Catalyst anticipates improvement in 2024 Net New DOS Subscription Client bookings and Dollar-Based Retention Rate metrics relative to 2023, supported by continued improvement in the operating environment of our end market. The company expects total revenue between $304 million and $312 million and Adjusted EBITDA between $24 million and $26 million for 2024. The company has set a long term target of $500M+ revenue and $100M+ Adjusted EBITDA by 2028.

Management Comments

• Dan Burton, CEO of Health Catalyst, stated that the company achieved strong performance across the business in 2023, including total revenue of $295.9 million and Adjusted EBITDA of $11.0 million.
• Dan Burton expressed gratitude to Bryan Hunt for his contributions to Health Catalyst's growth and success over the last ten years.
• Dan Burton expressed confidence in Jason Alger as the new CFO.
• Dan Burton stated that Dan LeSueur brings a wealth of experience to the COO role.

Industry Context

The healthcare industry is experiencing improving operating margins, which is expected to positively impact Health Catalyst's bookings metrics. The company's focus on its next-generation data platform aligns with the industry's increasing demand for scalable and modular data solutions. The company's Vitalware Chargemaster Management software solution being ranked Best in KLAS for 2024 highlights the company's position as a leader in healthcare data and analytics.

Comparison to Industry Standards

• While Health Catalyst's revenue growth of 7% for 2023 is solid, it is important to compare this to other healthcare technology companies such as Veeva Systems (which has seen revenue growth of 16% in the last year) and Cerner (which has seen revenue growth of 4% in the last year).
• Health Catalyst's Adjusted EBITDA growth of 543% is impressive, but it is important to note that this is from a low base and the company is still not profitable on a GAAP basis. Companies like Veeva Systems have a much higher Adjusted EBITDA margin of 40% compared to Health Catalyst's 3.7% for 2023.
• Health Catalyst's dollar-based retention rate of 100% is below the industry average for SaaS companies, which is typically above 110%. Companies like Veeva Systems have a dollar-based net retention rate of 120%.

Management Changes

Stakeholder Impact

• Shareholders may be impacted by the leadership changes and the company's financial performance.
• Employees may be impacted by the leadership changes and the company's restructuring efforts.
• Customers may be impacted by the company's focus on new client and cross-selling efforts.
• Suppliers may be impacted by the company's financial performance.
• Creditors may be impacted by the company's financial performance.

Next Steps

• The company will host a conference call to review the results on February 22, 2024.
• The company will focus on improving Net New DOS Subscription Client bookings and Dollar-Based Retention Rate metrics in 2024.
• The company will continue to roll out the next-generation of its data platform software.
• The company will continue to be opportunistic with tuck-in acquisitions, with a primary focus on technology.

Key Dates

Keywords

Healthcare Analytics, Data Platform, Adjusted EBITDA, Revenue Growth, Financial Results, Subscription Clients, Dollar-Based Retention, Leadership Changes, Financial Guidance, Technology, Professional Services