Health Catalyst (NASDAQ:HCAT) Surprises With Q3 Sales

Jabin Bastian /
2022/11/08 4:09 pm EST

Healthcare software provider Health Catalyst (NASDAQ:HCAT) reported results ahead of analyst expectations in the Q3 FY2022 quarter, with revenue up 10.7% year on year to $68.3 million. The company expects that next quarter's revenue would be around $67.9 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Health Catalyst made a GAAP loss of $45.7 million, down on its loss of $40 million, in the same quarter last year.

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Health Catalyst (HCAT) Q3 FY2022 Highlights:

  • Revenue: $68.3 million vs analyst estimates of $66.8 million (2.33% beat)
  • EPS (non-GAAP): -$0.13 vs analyst estimates of -$0.19
  • Revenue guidance for Q4 2022 is $67.9 million at the midpoint, below analyst estimates of $68.3 million
  • Free cash flow was negative $16.2 million, compared to negative free cash flow of $9.77 million in previous quarter
  • Gross Margin (GAAP): 46.8%, in line with same quarter last year

“In the third quarter of 2022, 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, and, based on an expanding pipeline and ahead-of-schedule cost reduction efforts, we are also pleased to raise our full year 2022 revenue and Adjusted EBITDA guidance. In addition, we now expect our 2022 dollar-based retention achievement level to be between 97% and 101%, an increase relative to the range we shared last quarter.” 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 two years, growing from quarterly revenue of $47.1 million in Q3 FY2020, to $68.3 million.

Health Catalyst Total Revenue

This quarter, Health Catalyst's quarterly revenue was once again up 10.7% year on year. But the revenue actually decreased by $2.27 million in Q3, compared to $2.54 million increase in Q2 2022.Shareholders might want to pay closer attention to this as the management is guiding for the decline in sales to continue in the coming quarter

Guidance for the next quarter indicates Health Catalyst is expecting revenue to grow 4.91% year on year to $67.9 million, slowing down from the 21.4% 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 6.26% 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.


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 46.8% 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 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 $375.9 million and more than $380.1 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Health Catalyst outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was less good to see the pretty significant deterioration in gross margin and the revenue guidance for the next quarter slightly missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Health Catalyst. The company is flat on the results and currently trades at $6.47 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.