Health Catalyst, Inc

Welcome to the Health Catalyst Third Quarter 2024 Earnings Conference Call. At this time, all participants have been placed on 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 as many questions as time permits, we kindly ask that you limit yourself to one question. If you have any follow-ups, please re-enter the queue. So others can hear your questions clearly, we ask that you pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Jack Knight, Vice President of Investor Relations.

Good afternoon, and welcome to Health Catalyst's earnings conference call for the third quarter of 2024, which ended on September 30th, 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, Jason Alger, our Chief Financial Officer, and Dan LaSueur, our Chief Operating 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 remainder of 2024 and full year 2025. Our ability to attract new clients and retain and expand our relationships with existing clients, trends, strategies, the impact of the macroeconomic challenges, including the impact of inflation in 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, M&A activity, 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 on 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-Q for the second quarter of 2024, filed with the SEC on August 8, 2024, and our Form 10-Q for the third 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 an isolation or as a substitute for financial information presented in accordance with GAAP. A reconciliation of non-GAAP financial measures for the third 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 discussed today, technology gross margin, the most directly comparable GAAP measure to adjusted technology gross margin discussed today, or net cash from operating activities, the most directly comparable gap measure to adjusted free cash flow discussed today, and have 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 Berg. Dan?

Thank you, Jack, and thank you to everyone who has joined us this afternoon. We are pleased to share our third quarter 2024 financial performance and other recent highlights. I will begin today's call with summary commentary on our third quarter 2024 results and outlook. We are encouraged by our third quarter 2024 financial results, including total revenue of $76.4 million and adjusted EBITDA of $7.3 million. both of which exceeded the midpoint of our previous guidance. Additionally, we are updating our expectations for both revenue and adjusted EBITDA for 2024. On revenue, we now anticipate 2024 revenue will be between $305 million and $311 million. On 2024 adjusted EBITDA, We are raising our expectations to between $25 million and $27 million. Likewise, we are pleased with our bookings performance through Q3 2024, and we are reiterating our full-year 2024 bookings expectations, inclusive of net new platform subscription client additions and dollar-based retention rate. We will discuss in greater detail shortly. 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 an example of a client improvement from a recently published case study. Archiving unique and complex data is challenging for health systems as data resides in multiple disparate systems and includes both structured and unstructured data. Traditional healthcare data archiving methods can be costly and inefficient, which hinders data sorting and utilization efforts. Guy's and St. Thomas' NHS Foundation Trust recognized the need for a scalable and sustainable approach to archiving and accessing clinical data. The organization was committed to maintaining access and utilization of historical data dating back as far as 30 years, but it lacked scalable and sustainable approaches to archiving and quickly accessing clinical data from decommissioned legacy systems. Several legacy systems were built on aging technology, which increases the risk of data breaches and system failures. As a result, guys in St. Thomas's initially attempted to build an in-house solution, but increasing costs and complications slowed development time, and the organization needed to find a better solution quickly to preserve historical data. To combat this issue, Guy's and St. Thomas' partnered with Health Catalyst to ingest data from 60 source systems into the Health Catalyst data platform to streamline its data archiving processes. The Health Catalyst data platform offers many advantages compared to cold storage, as our platform provides a secure, modern, and reliable system, ensuring that teams across the organization can continue to access the data Together with Guy's and St. Thomas', we built analytics applications to visualize data and provide comprehensive reporting to help drive actionable improvement. By leveraging Health Catalyst Data Platform, the organization created a robust, scalable, and cost-effective long-term solution that helps Guy's and St. Thomas' improve patient outcomes and realize operational efficiency. resulting in over $8.5 million in cost savings. Following these positive results, the organization plans to build additional analytics and aggregate data from 70 more source systems into the data platform. Also in the improvement category, we have been fortunate to receive additional external recognitions. First, we are excited to be named one of the best workplaces in healthcare by Fortune, for the second year in a row, as a top workplace in Utah by the Salt Lake Tribune for the 11th year in a row, and as one of America's greatest workplaces for people with disabilities by Newsweek. We were also honored as part of the Utah 100 by Mountain West Capital for the 10th time, a list that includes the fastest growing companies in Utah. Lastly, we are excited to share that Jessica Curran, our Vice President of Data Science and Analytics, was recently named a finalist for the Women Tech Awards by the Women Tech Council, recognizing the exceptional work Jessica does as the product owner for Health Catalysts Healthcare.ai, a suite of AI products and expert services that help hospitals and health systems dramatically expand the use of AI to improve healthcare decision-making. Our next strategic objective category is growth, which includes expanding existing client relationships and beginning new client relationships. Consistent with what we have shared over the last few quarters, we are encouraged to see health system operating margins steadily improving and stabilizing. This improving end market contributes to our robust pipeline and our continued confidence in our expectation that our top-line growth will accelerate back to double digits in 2025. As such, we are reiterating our full-year 2024 bookings expectations, inclusive of net new platform subscription additions in the low 20s, and our dollar-based retention rate between 100% and 106%. We are excited that low 20s net new platform subscription additions would represent the best year in health catalyst history for this metric, underscoring the significant client demand we continue to see for our solutions. Related to our full-year 2024 bookings expectations, let me first share a reminder that similar to prior years, Q4 is anticipated to be an important bookings quarter. For new clients, we continue to anticipate the average ARR plus non-recurring revenue for 2024 net new platform subscription clients will be between $400,000 and $1 million. As it relates to our 2024 dollar-based net retention, we are reiterating our expectations shared on our Q2 call of 100% to 106%. Q4 bookings will have a significant impact on where we end up on our new client performance and dollar-based net retention for 2024. As a reminder, Dollar-based net retention excludes items such as non-recurring professional services revenue, as well as expansions within our non-platform application-only client base. We anticipate these two categories of existing client expansion, which fall outside of the current definition of dollar-based retention, will be meaningful drivers of revenue growth. and we expect they will also contribute to our adjusted EBITDA growth in 2025 due to their higher margin profile than TEMS expansions. Given that these important growth categories fall outside of our current definition of dollar-based retention and our desire to provide shareholders with meaningful insight into our growth drivers, we are continuing to consider whether it would be helpful to update the growth metrics we have historically shared. We anticipate we will be in a position to share this potential update in early 2025. Given the importance of our next-generation Ignite platform in enabling our growth and product strategy, and consistent with last quarter's earnings call, our Chief Operating Officer, Dan Lesweir, has joined this earnings call. We expect that he will join future earnings calls to provide status updates and to help answer Ignite-related questions. With that, let me turn some time over to Dan Lesweir.