Health Catalyst, Inc

Good afternoon, everyone, and welcome to the Health Catalyst first quarter 2024 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. To get to as many questions as time permits, we kindly ask that you limit yourself to one question and one follow-up. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the conference over to Jack Knight, Vice President of Investor Relations. Please go ahead, sir.

Good afternoon, and welcome to Health Catalyst's earnings conference call for the first quarter of 2024, which ended on March 31st, 2024. My name is Jack Knight. I'm the Vice President of Investor Relations for Health Catalyst, and with me on the call is Dan Burton, our Chief Executive Officer, and Jason Alger, 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 today's call, we will make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding our future growth and our financial outlook for the second quarter and full year of 2024, our ability to attract new clients and retain and expand our relationships with existing clients, trends, strategies, and the impact of the macroeconomic challenges, including the impact of inflation and the interest rate environment, the tight labor market, bookings, our pipeline conversion rates, the demand for deployment and development of our data and analytics platform, and the general anticipated performance of our 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 outlook. Actual results may materially differ. Please refer to the risk factors in our Form 10-K for the full year 2023, filed with the SEC on February 22, 2024, and our Form 10-Q for the first quarter of 2024 that will be filed with the SEC. We will also refer to certain non-GAAP financial measures to provide additional information to investors. Non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. A reconciliation of non-GAAP financial measures for the first quarters of 2024 and 2023 to their most comparable GAAP measures is provided in our press release. However, we have not provided forward-looking guidance for professional services gross margin, the most directly comparable GAAP measure to adjusted professional services gross margin, we will discuss later. Technology gross margin, the most directly comparable GAAP measure to our adjusted technology gross margin, we will discuss later. or net cash from operating activities the most comparable gap measure to adjusted free cash flow we will discuss later and therefore not provided related reconciliations of these non-gap measures to their most comparable gap measures because there are items that are not within our control or cannot be reasonably forecasted with that i will turn the call over to dan dan thank you jack and thank you to everyone who has joined us this afternoon

We are pleased to share our first quarter 2024 financial performance, along with additional highlights from the quarter. I will begin today's call with summary commentary on our first quarter 2024 results. We are encouraged by our first quarter 2024 financial results, including total revenue of $74.7 million and adjusted EBITDA of $3.4 million. with these results above the midpoint of our most recent guidance on each metric. Additional financial highlights from the first quarter include our adjusted gross margin of 68% for technology and 22% for professional services. Both of these metrics represent improvement compared to Q4 2023. 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 clients to realize massive, measurable improvements while also maintaining industry-leading client and team member engagement. Let me begin by sharing a couple of examples of improvements from recently published success stories. First, many healthcare organizations grapple with the challenges of labor-intensive chart abstraction and registry submission. These processes are costly and time-consuming. and demand expertise in clinical and electronic health record systems. Compounded by the industry's imperative to reduce expenses, these burdens underscore the need for innovative solutions. Our tech-enabled managed services solution for chart abstraction leverages our technology and expertise, inclusive of generative AI and process improvement methodologies, to establish substantially more efficient abstraction. Our solution enables improved timeliness, accuracy, and quality of submission, all at a meaningfully lower cost. Data exists in structured and unstructured formats within EHRs, requiring clinical interpretation and posing obstacles to chart abstraction automation. Our chart abstraction generative AI solution extracts pertinent evidence from EHR notes and note segments, learns from previously completed registry data, and recommends answers, and then presents relevant patient data to abstractors in their abstraction and validation workflows. This significantly streamlines the abstraction process by automating the laborious task of finding, interpreting, and gathering data. Additionally, its adaptive learning capabilities continually refine results through user interactions, enhancing accuracy over time. Our initial findings have demonstrated a 24% reduction in abstraction time, accompanied by heightened confidence in responses due to the inclusion of evidence within the chart abstraction generative AI platform. As a result, we are driving chart abstraction efficiencies with significant accuracy and quality, fulfilling our commitment to deliver cost savings to clients while reducing health catalyst labor costs. Next, UnityPoint Health was presented with the Flywheel Award at our 2024 Healthcare Analytics Summit for its outstanding achievements in transforming healthcare and enhancing the lives of those it serves. UnityPoint recognized the need for advanced analytics to support clinical decision-making while addressing population health priorities and effectively managing costs. Their leadership's goal was to gain a deeper understanding of their extensive collection of clinical and claims data. UnityPoint sought consistent data definitions for measuring outcomes and care quality that it was lacking in its current state. This limitation hindered their ability to leverage valuable data insights and analytics to succeed in risk-based contracts like shared savings agreements. To address these challenges, the Iowa-based Health System Network adopted the Health Catalyst Data and Analytics Platform and a suite of analytics applications to establish a single source of truth across various systems. This enabled the conversion of raw data into insights that were consistent and accessible across all settings, providing actionable information on patient characteristics and healthcare utilization patterns. They also built a better predictive model to tackle population health and financial trends. As a result, UnityPoint has been recognized for consistently delivering significant improvements throughout its organization and accomplishing considerable milestones, including over $100 million in cost savings and revenue enhancements over the past several years. These accomplishments encompass dozens of improvement initiatives, such as reducing healthcare costs by $41 million through shorter hospital stays, and saving $32 million in healthcare expenditures in a single year through improved care management practices. Additionally, they achieved a 39% relative decrease in emergency department visits and a 54% relative decrease in hospital admissions. Finally, in addition to UnityPoint receiving our Flywheel Award, Health Catalyst Public would recognize seven other recipients of the Catalyst Awards. an annual awards program recognizing hospitals and health systems that have led the way in data-informed healthcare improvement. These other winners included Baylor Scott & White Health, Providence, the Queens Health System, Wake Med Health and Hospitals, Carle Health, Community Health Network, and Integris Health. Also in the improvement category, We have been fortunate to receive an additional recent external recognition related to our team member engagement. For the seventh year in a row, the Women Tech Council named Health Catalyst to its annual shatter list, the council's list of companies with active programs leading and accelerating progress towards breaking the glass ceiling for women in technology. Our next strategic objective category is growth. which includes expanding existing client relationships and beginning new client relationships. In this category, let me first share that at the end of February, we hosted our 10th Healthcare Analytics Summit. We were excited to host nearly 1,000 attendees, representing more than 200 organizations, including participation from many existing and prospective clients, providing us with meaningful opportunities to deepen these relationships. Our growth organization hosted 115 scheduled face-to-face client and prospective client meetings, in addition to a far greater number of impromptu ad hoc meetings. Other Health Catalyst senior leaders and I personally attended most of these face-to-face client and prospective client meetings during the summit, and we feel encouraged by the momentum we are seeing in our pipeline following this year's conference. In addition, there were more than 100 presenters between keynote presentations, breakout sessions, showcases, and our user conference. And over 50% of these presentations were from clients. Lastly, based on the post-summit survey, overall satisfaction from attendees was 98%, reinforcing and confirming the value that attendees realized from the summit. One key discussion topic during our Healthcare Analytics Summit related to our next-generation data and analytics platform. As a reminder, we've made a meaningful investment in the next generation of our data and analytics platform, allowing for significant increases in its scalability and modularity by integrating cross-industry technology from partners such as Databricks, Microsoft, and Snowflake, while also benefiting from HealthCatalyst differentiated capabilities in areas of healthcare-specific data models and data content, healthcare-specific analytics, AI, and data science, and healthcare improvement expertise. We are excited to announce this next-generation data and analytics platform will be branded as HealthCatalyst Ignite. The initial deployments of Ignite are going as planned and we anticipate that all new client deployments will be on this platform. Additionally, we expect the vast majority of our current data platform subscription clients that utilize DOS will be migrated to help Catalyst Ignite over the next two to three years. Following our Healthcare Analytics Summit, we are encouraged to see strong demand from existing clients and new clients to move to Ignite. Next, related to our current growth operating environment. Consistent with what we have shared recently, we are encouraged to see health system operating margins steadily improving in recent months, specifically compared to 2022 and most of 2023. We anticipate this will be a tailwind for our bookings metrics in 2024 and for our top line growth in 2025. Related to our full-year 2024 bookings expectations, let me share some additional commentary, which is consistent with what we shared a few months ago on our Q4 2023 earnings call. Our pipeline continues to support our 2024 bookings expectations, inclusive of a dollar-based retention rate between 104% and 110%, and net new dollar subscription client additions in the mid-teens. Our pipeline continues to grow, which gives us additional confidence in achieving our 2024 bookings expectations. As a reminder, we typically experience seasonality in our bookings activity, with Q2 and Q4 normally representing the majority of our sales, aligned with healthcare organizations' fiscal years and budget cycles. Next, I am excited to announce a meaningful expansion with one of our international clients. We are pleased to have expanded our relationship with Saudi German Health to elevate health outcomes at Bayat al-Badrji Medical Company's hospitals in the United Arab Emirates. Saudi German Health is a leading private health care provider across the Middle East and North Africa, with 18 medical facilities caring for more than 2.5 million patients. Health Catalyst first announced our partnership with Saudi German in 2020 when we entered a multi-year strategic partnership to service nine Saudi German hospitals in the kingdom of Saudi Arabia. Bayat al-Badrji Medical Company implemented Health Catalyst data and analytics platform, as well as power costing and twizzle patient engagement, along with our professional services expertise. This expansion will equip the hospital staff and executives with accurate and actionable activity-based costing data. We are excited to deepen this strategic relationship. Lastly, as it relates to growth, let me share a few comments related to our M&A strategy. We continue to carefully assess potential acquisitions within our pipeline and are mindful of current market dynamics related to valuations. We will continue to be disciplined in our M&A evaluation process, requiring acquisitions to be both strategic and financially compelling for Help Catalyst. We will aim to be thoughtful about tuck-in acquisitions, and similar to the last few years, we anticipate any M&A would most likely come at the applications layer or in TEMS enablement. I'd also note that we consider M&A as one tool in a broader capital allocation toolbox. We are fortunate to have a strong balance sheet, and we regularly assess all capital allocation alternatives, always with an eye towards creating long-term shareholder value. With that, let me turn the call over to Jason. Jason?