Health Catalyst (NASDAQ:HCAT) Q3 Sales Beat Estimates But Gross Margin Drops

Jabin Bastian /
2021/11/09 4:12 pm EST
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Healthcare software provider Health Catalyst (NASDAQ:HCAT) announced better-than-expected results in the Q3 FY2021 quarter, with revenue up 30.8% year on year to $61.7 million. The company expects that next quarter's revenue would be around $62.9 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Health Catalyst made a GAAP loss of $40 million, down on its loss of $27.3 million, in the same quarter last year.

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Health Catalyst (HCAT) Q3 FY2021 Highlights:

  • Revenue: $61.7 million vs analyst estimates of $60.8 million (1.5% beat)
  • EPS (non-GAAP): -$0.18 vs analyst estimates of -$0.22 (17.1% beat)
  • Revenue guidance for Q4 2021 is $62.9 million at the midpoint, roughly in line with what analysts were expecting.
  • Free cash flow was negative $8.77 million, compared to negative free cash flow of -$8.13 million in previous quarter
  • Gross Margin (GAAP): 46.4%, down from 48.3% same quarter last year

“In the third quarter of 2021, I am pleased to share that we achieved strong performance across our business, including exceeding the mid-point of our quarterly guidance for both revenue and Adjusted EBITDA,” said Dan Burton, CEO of Health Catalyst.

Founded by healthcare professionals Tom Burton and Steve Barlow in 2008, Health Catalyst (NASDAQ:HCAT) provides data and analytics technology to healthcare organizations, enabling them to improve care and lower costs.

The U.S. spends trillions every year on health care, but compared to other wealthy nations, the efficiency of the money spent often seems to be less than optimal. There is a growing pressure on lowering the costs while providing better care and utilizing healthcare data is positioned to play a key role in it.

Sales Growth

As you can see below, Health Catalyst's revenue growth has been strong over the last year, growing from quarterly revenue of $47.1 million, to $61.7 million.

Health Catalyst Total Revenue

This was a standout quarter for Health Catalyst, with the quarterly revenue up a solid 30.8% year on year, which is above average for the company. But the growth did slow down compared to last quarter, as the revenue increased by just $2.11 million in Q3, compared to $3.78 million in Q2 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 20.6% over the next twelve months, although estimates are likely to change post earnings.

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What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Health Catalyst's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 46.4% in Q3.

Health Catalyst Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.46 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has dropped significantly from the previous quarter, which is probably the opposite of what shareholders would like it to do.

Key Takeaways from Health Catalyst's Q3 Results

Since it has been burning cash over the last twelve months it is worth keeping an eye on Health Catalyst’s balance sheet, but we note that with a market capitalization of $2.63 billion and more than $455.1 million in cash, the company has the capacity to continue to prioritize growth over profitability.

It was good to see Health Catalyst deliver strong revenue growth this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $50.51 per share.

Should you invest in Health Catalyst right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.