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Health Catalyst (NASDAQ:HCAT) Surprises With Q2 Sales But Stock Drops


Jabin Bastian /
2022/08/04 4:45 pm EDT
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Healthcare software provider Health Catalyst (NASDAQ:HCAT) beat analyst expectations in Q2 FY2022 quarter, with revenue up 18.4% year on year to $70.6 million. However, guidance for the next quarter was less impressive, coming in at $66.8 million at the midpoint, being 10.4% below analyst estimates. Health Catalyst made a GAAP loss of $33.4 million, improving on its loss of $35.8 million, in the same quarter last year.

Is now the time to buy Health Catalyst? Access our full analysis of the earnings results here, it's free.

Health Catalyst (HCAT) Q2 FY2022 Highlights:

  • Revenue: $70.6 million vs analyst estimates of $69.8 million (1.08% beat)
  • EPS (non-GAAP): -$0.03 vs analyst estimates of -$0.10
  • Revenue guidance for Q3 2022 is $66.8 million at the midpoint, below analyst estimates of $74.5 million
  • The company dropped revenue guidance for the full year, from $290.3 million to $273.5 million at the midpoint, a 5.78% decrease
  • Free cash flow was negative $13.5 million, compared to negative free cash flow of $2.45 million in previous quarter
  • Gross Margin (GAAP): 51%, up from 49.5% same quarter last year

“I am pleased to share that Q2 2022 marked another quarter of strong financial performance, 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.

Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it slow and costly to extract actionable insights, which in turn drives demand for modern cloud-based data analysis platforms that can efficiently analyze the silo-ed data.

Sales Growth

As you can see below, Health Catalyst's revenue growth has been strong over the last year, growing from quarterly revenue of $59.6 million, to $70.6 million.

Health Catalyst Total Revenue

This quarter, Health Catalyst's quarterly revenue was once again up 18.4% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.54 million in Q2, compared to $3.37 million in Q1 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Health Catalyst is expecting revenue to grow 8.2% year on year to $66.8 million, slowing down from the 30.8% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 20.6% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Profitability

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 51% in Q2.

Health Catalyst Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.51 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Key Takeaways from Health Catalyst's Q2 Results

Since it has still 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 $969.9 million and more than $403.3 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Health Catalyst improve their gross margin this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was unfortunate to see that Health Catalyst's revenue guidance for the full year missed analyst's expectations and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Health Catalyst. The company is down 5.33% on the results and currently trades at $17.22 per share.

Health Catalyst may have had a tough quarter, but does that actually create an opportunity to invest 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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