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Health Catalyst's (NASDAQ:HCAT) Q2 Earnings Results: Revenue In Line With Expectations But Quarterly Guidance Underwhelms


Petr Huřťák /
2023/08/08 4:11 pm EDT

Healthcare software provider Health Catalyst (NASDAQ:HCAT) reported results in line with analysts' expectations in Q2 FY2023, with revenue up 3.65% year on year to $73.2 million. However, the company expects next quarter's revenue to be around $72.2 million, missing Wall Street's estimates. Health Catalyst made a GAAP loss of $32.6 million, improving from its loss of $33.4 million in the same quarter last year.

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Health Catalyst (HCAT) Q2 FY2023 Highlights:

  • Revenue: $73.2 million vs analyst estimates of $72.6 million (0.83% beat)
  • EPS (non-GAAP): $0.05 vs analyst estimates of -$0.01 ($0.06 beat)
  • Revenue Guidance for Q3 2023 is $72.2 million at the midpoint, below analyst estimates of $72.8 million
  • The company reconfirmed revenue guidance for the full year of $293 million at the midpoint
  • Free Cash Flow was -$15.5 million compared to -$8.87 million in the previous quarter
  • Gross Margin (GAAP): 46.1%, down from 51.3% in the same quarter last year

“For the second quarter of 2023, we are encouraged by our financial results, including total revenue of $73.2 million and Adjusted EBITDA of $3.5 million, with these results beating the mid-point of our quarterly guidance on each metric. Additionally, given that we are tracking slightly ahead of our previous full year revenue and Adjusted EBITDA guidance, we are raising our 2023 revenue and Adjusted EBITDA guidance. We are pleased with our strong first half bookings performance and continued pipeline growth. As a result, we are reiterating our full year 2023 bookings expectations, inclusive of dollar-based retention rate and net new DOS subscription client additions. We are also encouraged to have received multiple additional external recognitions related to our team member engagement once again this 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 mediocre over the last two years, growing from $59.6 million in Q2 FY2021 to $73.2 million this quarter.

Health Catalyst Total Revenue

Health Catalyst's quarterly revenue was only up 3.65% year on year, which might disappoint some shareholders. On top of that, the company's revenue actually decreased by $655 thousand in Q2 compared to the $4.71 million increase in Q1 2023. Shareholders might want to pay closer attention to this situation as management is guiding for another decline in sales next quarter.

Next quarter's guidance suggests that Health Catalyst is expecting revenue to grow 5.63% year on year to $72.2 million, slowing down from the 10.7% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 8.22% over the next 12 months.

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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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 46.1% in Q2.

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, sales and marketing, and general administrative overhead. Health Catalyst's gross margin is poor for a SaaS business and it's deteriorated even further over the last year. This is probably the opposite direction that shareholders would like to see it go.

Key Takeaways from Health Catalyst's Q2 Results

Although Health Catalyst, which has a market capitalization of $761.8 million, has been burning cash over the last 12 months, its more than $343.8 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

We struggled to find many strong positives in these results. On the bright side, the company raised its adjusted EBITDA guidance for the full year, but its gross margin is falling and next quarter's revenue guidance missed Wall Street's expectations. Overall, the results could have been better. The stock is flat after reporting and currently trades at $12.95 per share.

Health Catalyst may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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