Health Catalyst, Inc

Welcome to the Health Catalyst Incorporated Q2 2021 Earnings Conference Call. My name is John. I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. During a question-and-answer session, if you have a question, press star then 1 on your touch-tone phone. And now I'll turn the call over to Adam Brown.

Good afternoon, and welcome to Health Catalyst's Earnings Conference Call for the second quarter of 2021. which ended on June 30th, 2021. My name is Adam Brown. I am the Senior Vice President of Investor Relations and Financial Planning and Analysis for Health Catalyst. And with me on the call is Dan Burton, our Chief Executive Officer, and Brian Hunt, our Chief Financial Officer. A complete disclosure of our results can be found in our press release issued today, as well as in our related Form 8K furnished to the SEC both of which are available on the investor relations section of our website at ir.healthcatalyst.com. As a reminder, today's call is being recorded, and a replay will be available following the conclusion of the call. During the call, we will make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, regarding trends, strategies, and the impact of the COVID-19 pandemic on our business and results of operations, our pipeline conversion rates, and our general anticipated performance of the business. These forward-looking statements are based on management's current views and expectations as of today and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlooks. Actual results may materially differ. Please refer to the risk factors in our Form 10-Q or Q1 2021 filed with the SEC on May 7, 2021 in our Form 10-Q for the second quarter of 2021 that will be filed with the SEC. We will also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of these non-GAAP financial measures to their most comparable GAAP measures is provided in our press release. With that, let me turn the call over to Dan for his prepared remarks, and then Brian will subsequently provide his prepared remarks. Dan and Brian will then take questions. Dan?

Thank you, Adam, and thank you to everyone who has joined us this afternoon. We are excited to share our second quarter 2021 financial performance along with additional highlights from the quarter. I will begin today's call with some commentary on our second quarter 2021 financial results by sharing that we are pleased with the company's overall financial performance. Our Q2 2021 total revenue was $59.6 million and our adjusted EBITDA was 1.7 million, with these results exceeding the midpoint of our quarterly guidance on each metric. As it relates to our adjusted EBITDA performance, we are excited to have achieved positive quarterly adjusted EBITDA for the first time since the company's incorporation. And while we anticipate being adjusted EBITDA negative in the second half of 2021, we view this achievement in the second quarter as an important milestone in demonstrating in the operating leverage of our business. Additionally, I would like to highlight that our Q2 2021 technology revenue was $35.5 million, representing 39% growth year over year. And our Q2 2021 total adjusted gross margin was 54.4%, representing an increase of approximately 530 basis points year over year. Now let me highlight some additional items from the quarter. You will recall from our previous earnings calls that we measure our company's performance in the three strategic objective categories of improvement, growth, and scale, and we'll discuss our quarterly results with you in each of these categories. The first category, improvement, is focused on evaluating our ability to enable our customers to realize massive, measurable improvements while also maintaining industry-leading customer and team member satisfaction and engagement. First, let me share a few examples of customer improvements from recently published case studies. The first two improvement vignettes highlight our work with our customers supporting their population health and care management needs, while the last vignette highlights the synergies of our technology offering with one of our recent acquisitions. First, at Queens Health System, nearly 60% of their emergency department visits were from a patient population suffering from homelessness. In many of those instances, those patients would have received better care for their specific needs outside of the emergency department at materially lower expense. In response, Queens leveraged our software, including our DOS data platform, along with our analytics applications, to develop a robust and targeted care management program enabling data-informed care navigation to better serve this unique patient population. This care management improvement work allowed Queens to realize the avoidance of more than $16 million in costs, the result of reduced emergency department utilization, length of stay, and readmissions. Next, ChristianaCare Health System was experiencing operational strain imposed by the COVID-19 pandemic. and therefore sought a data-informed approach to accurately identify patients within its populations most at risk for severe illness or hospitalization from COVID-19. Leveraging our DOS data platform and our newly released healthcare.ai technology solution, ChristianaCare enhanced its care management program by effectively implementing predictive analytics to assign a risk score to each patient and prioritize targeted outreach and interventions to the highest-risk patients. This work allowed ChristianaCare to meaningfully reduce hospital and intensive care unit admissions, resulting in savings of $1.8 million. Lastly, MultiCare Health System, experiencing significant growth along with changing payer reimbursement and billing guidelines, leveraged our solution, including our DOS platform, and VitalWare's Vital Integrity application. Our software enabled MultiCare to access timely and actionable insights, leading to improved revenue cycle performance, optimized charge capture processes, and reduced losses. In just three months, MultiCare identified and resolved more than 350 charge capture issues, retaining more than $6 million in net revenue. The organization also identified $36.6 million in additional annual gross revenue at risk of not obtaining optimal reimbursement, providing MultiCare the opportunity to intervene. Our next strategic objective category is growth, which includes beginning new customer relationships while also expanding existing customer relationships. To begin, our current operating environment is largely consistent With commentary that we shared on our last two earnings calls, the COVID-19 pandemic continues to result in both headwinds and tailwinds as it relates to our growth. And as such, we are reiterating the 2021 bookings expectations that we shared on our previous earnings calls. In terms of headwinds, we anticipate our provider end market will continue to be under some amount of operational and financial strain over the coming months. as healthcare organizations deal with the continued COVID-19 surge, especially given the rise in the Delta variant, alongside vaccine rollout logistics. As it relates to tailwinds, we continue to see meaningful evidence that the healthcare provider ecosystem is much better equipped and prepared to respond to the ongoing pandemic in areas including treatment efficacy, supply chain logistics, capacity planning, and broader operational optimization. And lastly, we continue to believe that the COVID pandemic will serve as an overall tailwind in the industry's adoption of data and analytics, significantly highlighting the need for a commercial-grade data and analytics solution to replace patchwork homegrown systems. In terms of focal areas for current and prospective customers, the highest demand areas include software to enable population health efforts, as well as revenue and cost optimization analytics. As such, in addition to our recent TWSL acquisition, we are also encouraged to see the relevance and robustness of recently released additions to our population health and financial improvement solution suites, which I'll describe next. First, we recently introduced our Value Optimizer analytics application. Value Optimizer is an enhancement to our existing Population Health Foundations analytics application suite focused on identifying the most significant opportunities for value-based care performance improvement. As healthcare organizations further focus on their population health initiatives and enter into a greater number of risk-based contracts, our Value Optimizer product allows for a comprehensive, quantified view of potential financial improvement opportunities, and it provides continually refreshed data and benchmarking, along with transparent risk and benchmarking methodologies. Next, I would like to highlight our recent introduction of PowerLabor, a new internally developed analytics application within our financial improvement solution suite. Our Power Labor solution is focused on addressing a CFO's need for cost optimization within his or her largest operating expense line item, labor, which accounts for nearly 60% of hospital costs. Built on top of our DOS data platform, Power Labor allows healthcare decision makers to accurately predict labor needs, plan for changes in staffing, and optimize staff-to-patient ratios. Leveraging data from disparate sources, PowerLabor enables optimization of labor resources, improvement of operations, and ultimately reduced overall labor spend. We anticipate that the introduction of these software solutions will further solidify our ability to capitalize on some of the highest demand areas within our end market. Also in the context of our growth efforts, Let me next mention that we are looking forward to hosting our eighth annual Healthcare Analytics Summit in September. While the format will be virtual again this year, we continue to believe that this conference represents a meaningful opportunity for HealthCatalyst to continue to provide thought leadership within the healthcare data and analytics ecosystem while carefully listening to our customers and prospects as we further cultivate and deepen those relationships. The theme of this year's conference will be multi-domain analytics, and we are fortunate to feature many of the leading voices in the country as our keynote speakers. As a reference, last year's summit attracted thousands of registrants from more than 750 healthcare organizations across the world. Lastly, I would like to make a few comments on a recent acquisition of TWSL, which we are happy to announce officially closed on July 1st, 2021. As a reminder, TWSL is a leading patient engagement software solution that automates personalized communication between care teams and patients, leveraging rich clinical content. We anticipate TWSL will meaningfully bolster our population health analytics application suite as healthcare organizations increasingly look for a comprehensive population health solution. This is particularly important as healthcare organizations begin to normalize operations outside of COVID-19, with many reprioritizing their transition to value-based care models and optimizing care delivery in virtual settings. The Twistle technology also has applicability in the clinical and quality improvement space through established clinical pathways and patient communication channels, as well as in the life sciences market. We are thrilled to welcome our highly talented TWSL teammates to Health Catalyst, further enabling our mission to be the catalyst for massive, measurable, data-informed healthcare improvement. Likewise, looking out over the next few quarters, we continue to be encouraged by a high-quality acquisition pipeline. With that, let me turn the call over to Brian.