Health Catalyst (NASDAQ:HCAT) Posts Better-Than-Expected Sales In Q4 But Full Year Guidance Underwhelms

Full Report / February 28, 2023
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Healthcare software provider Health Catalyst (NASDAQ:HCAT) reported Q4 FY2022 results topping analyst expectations, with revenue up 6.87% year on year to $69.2 million. The company expects that next quarter's revenue would be around $71.3 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Health Catalyst made a GAAP loss of $35.8 million, improving on its loss of $49 million, in the same quarter last year.

Health Catalyst (HCAT) Q4 FY2022 Highlights:

  • Revenue: $69.2 million vs analyst estimates of $68.3 million (1.32% beat)
  • EPS (non-GAAP): -$0.05 vs analyst estimates of -$0.11
  • Revenue guidance for Q1 2023 is $71.3 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for upcoming financial year 2023 is $292.5 million at the midpoint, missing analyst estimates by 2.06% and predicting 5.89% growth (vs 14.5% in FY2022)
  • Free cash flow was negative $18.2 million, compared to negative free cash flow of $13.2 million in previous quarter
  • Gross Margin (GAAP): 44.9%, down from 47.8% same quarter last year

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.

Healthcare sector is undergoing a major digital transformation, but as funds are poured into the digitization of health care records and processes, organizations are confronted with the reality that gathering the data is just the first step toward actually lowering costs and improving care, and the real challenge is making that information useful. To be able to succeed in today’s healthcare environment, hospitals need data from 50 to 150 different sources, but often or able to access less than 10, as they are typically running a number of siloed systems that are unable to communicate with each other and are generating data that is very difficult to query and analyze.

To solve these problems, Health Catalyst provides a centralized software platform that enables organizations to aggregate data from healthcare sources inside and outside of the hospital and manage it all in one place. This data then flows into Health Catalyst’s data analysis software that has been tailored for healthcare use and is even able to provide organizations with AI-enabled predictive capabilities that are powered by data that Health Catalyst accumulated from more than 100 million patient records. And because hospitals are often struggling with enough competent IT personnel, a large part of the business is providing expert services to help healthcare providers derive meaningful insights and actually improve patient outcomes, reduce healthcare costs and enhance customer experience.

For example, a small hospital in Louisiana was within six months able to decrease sepsis mortality rate to half of the national average. Sepsis is a growing problem in the United States, and it is a serious medical condition caused by a strong immune response to infection that can lead to very severe and potentially fatal outcomes. The hospital set up a new screening tool and an online dashboard that showed them how often the sepsis treatment protocol is applied, how well the screening is done, and how quickly the physicians are getting to see the patients. Then they used Health Catalyst to help them identify cases that need further scrutiny and zoom in on individual patients and providers, and intervene as needed.

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.

Health Catalyst competes with Epic Systems, Cerner (NASDAQ:CERN), and IBM (NYSE:IBM), as well as general-purpose data management platforms such as Snowflake (NYSE:SNOW), Teradata (NYSE:TDC), and Cloudera (NYSE:CLDR).

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 $53.3 million in Q4 FY2020, to $69.2 million.

Health Catalyst Total Revenue

Health Catalyst's quarterly revenue was only up 6.87% year on year, which might disappoint some shareholders. On top of that, revenue increased $808 thousand quarter on quarter, a strong improvement on the $2.28 million decrease in Q3 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates Health Catalyst is expecting revenue to grow 4.72% year on year to $71.3 million, slowing down from the 21.9% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $292.5 million at the midpoint, growing 5.89% compared to 14.2% increase in FY2022.


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 44.9% in Q4.

Health Catalyst Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.45 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.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Health Catalyst burned through $18.2 million in Q4, increasing the cash burn by 75% year on year.

Health Catalyst Free Cash Flow

Health Catalyst has burned through $43.7 million in cash over the last twelve months, a negative 15.8% free cash flow margin. This low FCF margin is a result of Health Catalyst's need to still heavily invest in the business.

Key Takeaways from Health Catalyst's Q4 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 $730.9 million and more than $363.5 million in cash, the company has the capacity to continue to prioritise growth over profitability.

Health Catalyst topped analysts’ revenue expectations this quarter, even if just narrowly. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that Health Catalyst's revenue guidance for the full year missed analysts' expectations and the revenue guidance for next year indicates quite a significant slowdown in growth. Overall, this quarter's results could have been better. The company is down 0.57% on the results and currently trades at $13.9 per share.

Is Now The Time?

When considering Health Catalyst, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Health Catalyst we will be cheering from the sidelines. Its revenue growth has been solid, though we don't expect it to maintain historical growth rates. Unfortunately, its customer acquisition is less efficient than many comparable companies, and its gross margins show its business model is much less lucrative than the best software businesses.

Health Catalyst's price to sales ratio based on the next twelve months is 2.6x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

The Wall St analysts covering the company had a one year price target of $13.6 per share right before these results, implying that they didn't see much short-term potential in the Health Catalyst.

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