Health Catalyst, Inc

Thank you for standing by and welcome to the Health Catalyst third quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program is being recorded. And now I'd like to hand the program over to Adam Brown.

Good afternoon, and welcome to Health Catalyst's earnings conference call for the third quarter of 2021, which ended on September 30th, 2021. My name is Adam Brown. I'm 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, 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 for Q2 2021 filed with the SEC on August 6, 2021, and our Form 10-Q for the third quarter of 2021 that will be filed with the SEC today. 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 prepared remarks, and then Brian will subsequently provide his prepared remarks. Dan and Brian will then take your questions. Dan?

Thank you, Adam, and thank you to everyone who has joined us this afternoon. We're excited to share our third quarter 2021 financial performance along with additional highlights from the quarter. I will begin today's call with some commentary on our third quarter 2021 financial results. by sharing that we're pleased with the company's overall financial performance. Our Q3 2021 total revenue was $61.7 million, and our adjusted EBITDA was a loss of $5.8 million, with these results beating the midpoint of our quarterly guidance on each metric. Additionally, our Q3 2021 technology revenue was $38.3 million, representing 37% growth year-over-year, And our Q3 2021 adjusted technology gross margin was 69.9%, representing an increase of approximately 150 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. Let me begin by sharing a couple of examples of customer improvements from recently published case studies. First, Carle Health and its affiliated Health Alliance health plan struggled with a largely manual approach to its population health and value-based contracting initiatives. In response, Carl and Health Alliance leveraged our DOS data platform and our new value optimizer analytics application, which we introduced on our last earnings call. This software allowed Carl to have real-time insight into a multitude of cost utilization and performance metrics from across 10 key population health areas. including inpatient and skilled nursing facility readmission, inpatient discharge disposition, and emergency department utilization. This integrated data and analytics technology solution enabled CARL to improve its risk-based contract performance, including greater than $10 million in cost and utilization opportunity identified, $100,000 in manual labor costs avoided, and a greater than 90% improvement in analytics efficiency. Next, UnityPoint Help recognized that its patients with complex chronic conditions were overutilizing its healthcare services, particularly when transitioning from hospital admission to an ambulatory care setting. Yet, despite having access to large volumes of data, its clinicians and care managers lacked timely insight into care provided across acute and ambulatory settings. In response, UnityPoint utilized our DAS data platform along with a robust suite of analytics applications and AI software to effectively identify patients with high risk of worsening health conditions that often result in non-urgent emergency department visits or unplanned hospital admissions and enrolled them in their care management program. The care management program then enabled UnityPoint's care managers to appropriately intervene, preventing unnecessary healthcare utilization and reduced spending. In the 30 months since undertaking this improvement initiative, UnityPoint has decreased healthcare spending by more than $32.2 million, the result of a 54% relative reduction in hospital admissions and a 39% relative reduction in ED visits. Likewise, its patients have gained more than 11,000 more days at home and had nearly 2,000 fewer ED visits. Also in the improvement category, I would highlight that we have been fortunate to receive multiple recent external recognitions related to our team member engagement. First, Health Catalyst achieved inclusion in Modern Healthcare's Best Place to Work list, the ninth year in a row achieving this distinction. ranking number 39 this year. We were also recognized by Great Places to Work and Fortune Magazine's 2021 Best Workplaces for Women list and were named to Inc.' 's 2021 Best-Led Companies list. Health Catalyst was also fortunate to have Holly Ramosh, Chief Clinical Officer, Senior Vice President and General Manager of Clinical Quality Analytics at Health Catalyst, be named to Modern Healthcare's 2021 Class of top 25 innovators for her work related to COVID-19. Likewise, Sadika Mahmood, General Manager and Senior Vice President of our Life Sciences Business Unit, received the Women Tech Council's 2021 Award for Transformational Leadership. We are thankful to have Holly and Sadika as two great examples of the benefits of having deep healthcare domain expertise and the differentiation that this provides our company. Our next strategic objective category is growth, which includes beginning new customer relationships while also expanding existing customer relationships. To begin, the current sales environment is largely consistent with commentary that we've shared throughout 2021. The COVID-19 pandemic continues to result in both headwinds and tailwinds as it relates to our growth. In terms of headwinds, Our provider end market has continued to be under some amount of financial strain while also experiencing operational distraction, the result of healthcare organizations dealing with the continued COVID-19 pandemic, especially with the rise in the Delta variant in the third quarter, alongside vaccine rollout logistics. And 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 as we've shared before, we continue to believe that the COVID-19 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 our 2021 bookings expectations, our dollar-based retention continues to track in line with the expectations we shared at the beginning of the year. As a reminder, at the beginning of the year, we shared that we anticipate our 2021 technology dollar-based retention to continue to be robust in line with historical levels of 107 to 109%. And for professional services, we expected our full year 2021 performance to be significantly stronger than our 2020 performance, but that we would still experience some strain on this metric relative to historical levels. Next, related to our net new DAS subscription customer additions, let me provide a reminder that we typically experience seasonality in our new customer bookings. with Q2 and Q4 normally representing the majority of our sales, aligned with healthcare organization fiscal years. This fourth quarter will also represent an important new customer selling season, as most fourth quarters have been for our company throughout its history. As shared at the beginning of the year, we continue to expect mid-teens, net new DAS subscription, customer bookings achievements, We continue to be encouraged by our late-stage new customer pipeline, driven by strong demand in areas such as enterprise analytics, population health, and revenue and cost optimization analytics. Also in the growth category, and as a follow-up to our last earnings call commentary, in September we hosted our eighth annual Healthcare Analytics Summit, along with our annual customer-focused user group. This year's virtual conference was once again a success, welcoming a few thousand registrants representing more than 675 organizations in 18 countries. Attendee satisfaction was again greater than 97%, with participants having the opportunity to hear from many of the leading healthcare and analytics voices in the world provide their perspectives on this year's theme of multi-domain analytics. highlighting how the most successful healthcare organizations integrate data and analytics across multiple domains to achieve significant revenue costs and quality outcomes. This year's summit and user group also provided Health Catalysts with a meaningful opportunity to continue to provide thought leadership within the healthcare data and analytics ecosystem while further cultivating and deepening our relationships with customers and prospects. Next, as it relates to growth, we are excited to have publicly announced a few of our recent customer additions, including Mount Nittany Health and Oklahoma Heart Hospital. Mount Nittany Health, located in central Pennsylvania, plans to leverage our DOS data platform, along with key elements of our population health technology offering, to enable new performance insights, better manage its risk, and drive population health improvements across its system. Likewise, Oklahoma Heart Hospital one of the largest cardiovascular networks in the United States, partnered with Health Catalyst with the objective of accelerating the system's cost transparency goals, including helping executives and analysts better understand and evaluate the true cost of care delivered and empowering clinicians with the right data to inform their decision-making. To support this transformational work, Oklahoma Heart will leverage our DOS data platform and our power costing analytics application, delivering Oklahoma Heart with a comprehensive view of the true cost of their patient care. With that, let me turn the call over to Brian. Brian?