Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Health Catalyst Inc (HCAT, Financial) reported total revenue of $75.9 million and adjusted EBITDA of $7.5 million for Q2 2024, both exceeding the midpoint of their guidance.
- The company saw strong bookings performance, particularly with net new platform subscription clients, leading to an increased forecast for 2024.
- Health Catalyst Inc (HCAT) received significant external recognitions, including being named one of the 50 best healthcare data analytics companies in the US by Newsweek.
- The company announced meaningful new client partnerships, including with Sing Health in Singapore and Adena Health in Ohio.
- Health Catalyst Inc (HCAT) closed acquisitions of Carevive and Lumion, enhancing their capabilities in oncology and patient journey coordination, respectively.
Negative Points
- The company anticipates more revenue impact from new client additions to occur in late 2024 to early 2025 due to longer implementation times for international and health information exchange clients.
- Adjusted professional services gross margin decreased by roughly 190 basis points relative to Q1 2024.
- Health Catalyst Inc (HCAT) updated their 2024 dollar-based retention forecast to 100% to 106%, reflecting some challenges in client retention.
- The company noted a meaningful bad debt reserve related to a client in bankruptcy proceedings, impacting their financial outlook.
- There is potential for down-sell during the migration to the Ignite platform, as clients may opt for lower-cost infrastructure.
Q & A Highlights
Q: How are you thinking about the extension hospital portfolio sales in relation to your business? Does this create potential contract loss risk or opportunities for new wins?
A: We benefit from the fact that our solutions are directly tied to hard dollar payments and ROI, which increases our confidence that these solutions will need to be maintained. We are monitoring the situation closely and expect continued relationships, as seen in historical sales situations. β Daniel Burton, CEO
Q: Given the better-than-expected bookings guidance, how might this flow through to margins in 2025? Is there any difference in seasonality for revenue next year?
A: The mix of our growth tends towards higher-margin elements, strengthening our confidence in EBITDA progression. We expect meaningful revenue ramp in Q4 2024 and early 2025 due to longer implementation timelines for health information exchange and international contracts. β Daniel Burton, CEO
Q: Can you discuss the improved upsells with existing clients? How much is due to new products, improved macro, or changes in go-to-market strategy?
A: The new Ignite platform's modularity and flexibility have made it easier for non-platform clients to adopt components. Improved end-market conditions have also helped, especially with prospective clients. We have deepened our focus on cross-sell opportunities, which have shown more than twice the conversion rate compared to new client relationships. β Daniel Burton, CEO
Q: How are you thinking about the potential for existing customers to migrate downstream or down the ASP stack? Could this affect the 100% to 106% dollar-based retention rate?
A: We have seen improvement in down-sell trends from 2023. The Ignite platform offers a lower cost infrastructure and higher gross margin, providing clients with options for more functionality at the same price or the same functionality at a lower price. β Daniel Burton, CEO
Q: Can you talk about the conversion to Ignite with existing clients and the margin opportunity compared to legacy platforms?
A: Migrations are on track to be completed over the next couple of years. Ignite offers a higher margin profile, expected to run around 70% gross margins compared to DOS's 60%. β Daniel Lesueur, COO and Jason Alger, CFO
Q: How are you thinking about your life sciences strategy given the acquisition of Carevive? Should we expect more investment in this space?
A: We are interested in the life sciences space, particularly in oncology. We will be opportunistic and focused on specific use cases where Carevive has had success, ensuring traction before making significant investments. β Daniel Burton, CEO
Q: Can you go into more detail about the underlying technology of Ignite and its capabilities? Are you worried about potential churn during the migration process?
A: Ignite combines scalable cross-industry technology with healthcare-specific content, offering a robust and flexible solution. We have seen strong demand for migrations, with existing clients excited about the updated infrastructure. β Daniel Burton, CEO and Daniel Lesueur, COO
Q: How should we think about potential pacing for deploying capital going forward? Any lessons learned in integration and growth plans for acquired capabilities?
A: We will focus on smaller tuck-in technology capabilities that fit within our areas of focus. Our strategy is informed by high conversion rates in cross-selling within existing client relationships, ensuring disciplined investment for meaningful ROI. β Daniel Burton, CEO
Q: Has the modularity of the Ignite platform shortened the sales cycle or increased your shots on goal?
A: Both dynamics are at play. Lower initial price points typically correlate with shorter sales cycles, and we have observed this in a few cases. We will continue to monitor and gather data. β Daniel Burton, CEO
Q: Any impact from CrowdStrike on either you or your clients?
A: We were not meaningfully impacted by the CrowdStrike situation and have been able to move forward without significant issues. β Daniel Burton, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
