Q4 2020 Health Catalyst Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Health Catalyst, Inc. Q4, 'twenty 'twenty earnings Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there was the question and answer session.
The ask a question during the session you will need the press star one on your telephone please be advised that today's conference is being recorded.
Any further assistance. Please press star Zero I would now like to hand, the conference you speak of today Adam Brown. Please go ahead Sir.
Good afternoon, and welcome to Health Catalyst earnings conference call for the fourth quarter of 2020, and the full year 2020.
Both of which ended on December 31, 2020.
My name is Adam Brown I'm, the senior Vice President of Investor Relations on financial planning and analysis for health catalyst.
And with me on the call is Dan Burton, our Chief Executive Officer, and Brian Hahn, Our Chief Financial Officer.
A complete disclosure of our results can be found in our press release issued today.
As well as in our related form 8-K furnished to the SEC.
Both of which are available on the Investor Relations section of our website at IR that health catalyst dotcom.
As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call.
Joining the call we will make forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095 regarding trends strategies the impact of the COVID-19 pandemic on our business and results of operations.
Our pipeline conversion rates and our general anticipated performance of the business.
These forward looking statements are based on management's current views and expectations as of today and should not be relied upon as representing our views as of any subsequent date.
We disclaim any obligation to update any forward looking statements or outlook ex.
The results may materially differ.
Please refer to the risk factors in our form 10-Q for the third quarter of 2020 filed with the SEC on November 10, 2020, and our form 10-K for 2020 debt will be filed with the SEC.
We will also refer to certain non-GAAP financial measures to provide additional information to investors.
A reconciliation of these non-GAAP measures to their most comparable GAAP measures is provided in our press release.
With that let me turn the call over to Dan for his prepared remarks, and then Bryan will subsequently per provide his prepared remarks.
Dan and Bryan will then take your questions.
Yeah.
Thank you Adam.
Thank you to everyone who has joined US this afternoon.
We are excited to share our fourth quarter and full year 2020 financial performance along with the other highlights from the quarter.
I will begin today's call with some commentary on our fourth quarter 2020 financial results.
First let me share that I am pleased with our financial performance, especially in light of the macroeconomic backdrop.
Our Q4 2020 total revenue was $53 3 million.
And our adjusted EBITDA.
It was a loss of $4 7 million.
I am happy to report that these results exceeded the midpoint of our quarterly guidance.
Likewise, I would highlight that our Q4 2020 technology revenue was $32 3 million, which represents 43% growth year over year.
24% growth when excluding the impact of the recent vital where acquisition.
Now, let me transition to some of the additional highlights from the quarter and full year.
You will recall from our previous earnings calls.
That we measure our company's performance in three primary strategic objective categories of.
The improvement growth.
Scale.
And we'll discuss our quarterly results with you in each of these categories.
The first category improvement is focused on evaluating our ability to enable massive measurable improvements for our customers, while sustaining industry, leading satisfaction and engagement.
I will first share two examples of recently documented customer improvement.
From newly published case studies. The first improvement then yet highlights our work with one of our customers supporting their journey to financial and operational recovery from COVID-19.
While the latter demonstrate some customers have widened their focus and are back to leveraging our technology and services to the of meaningful improvement work outside of the COVID-19 response.
And as you'll note. Both examples highlight customers current focus on leveraging our analytics to target revenue and cost related improvement.
First community Health network leveraged our analytics solutions, including Das and our solution for COVID-19 financial recovery in the ambulatory setting.
To understand and optimize its ambulatory operations in economic performance.
Leveraging ambulatory income statements productivity metrics access measures.
Costing and revenue cycle performance indicators and payer contracting data.
These data informed the insights of health community Health network.
Moving to ambulatory services planned for future growth.
And retained more than $15 2 million in ambulatory outpatient revenue supported by a rapid shift to telehealth.
Next let me highlight the recent improvements at the billings clinic from their work outside of COVID-19.
Billings utilized our solution to understand and identify its various sources of denials and optimize its revenue operations.
The new insights from data informed improvement efforts of billings led to a $4 5 million reduction in initial denials.
Our next strategic objective categories growth.
Which we define as adding new customers, while also deepening existing customer relationships.
In this growth category I will comment on our experiences in Q4 2020.
As well as our perspective on the growth environment.
We anticipate in the near future.
To start I would reiterate passed the commentary that our national Health care system continues to experience significant strain given the ongoing COVID-19 pandemic.
Likewise, we anticipate the health care providers will be under continued strength over the coming months.
Health care organizations respond to the ongoing COVID-19 cases, coupled with vaccine rollout logistics, we continue to focus on effectively supporting our customers to ensure they successfully manage through this unprecedented time.
We also feel encouraged as we witnessed meaningful evidence of the health care provider ecosystem is becoming better equipped and prepared to respond to the ongoing pandemic in areas, including treatment efficacy supply chain logistics capacity planning.
And broader operational optimization.
Lastly, we feel optimistic as we see early signs of accelerated progress on.
On vaccination efforts.
Next I'll share our perspective about our existing customer relationships in the near term starting with some additional detail on our technology segment.
Since the onset of the COVID-19 pandemic, our customers' overall usage of our data platform has continued to increase of.
A particular note our foundational analytics applications.
Which are crucial components of our COVID-19 technology response.
Have seen an increase of more than 50 per cent and usage since the onset of the pandemic.
Given the meaningful increase in our technology usage throughout 2020 on.
Our full year 2020 technology dollar based retention was robust.
Coming in towards the high end of our historical performance consistent with the expectations that we shared on our last earnings call.
On a go forward basis, we expect continued robust technology dollar based retention in 2021.
In line with historical performance of 107 to one of 9%.
In our professional services segment, we continued to see high levels of engagement across our team member base, which remain engaged on both COVID-19 recovery work.
As well as focusing on more general clinical financial and operational improvement work.
That said <unk>.
Consistent with what we've shared on our Q3 2020 earnings call the financial strain and posed by COVID-19 on a number of our customers led to a full year 'twenty 'twenty professional services dollar based retention in the mid ninety's per cent.
Which is meaningfully lower than the 107 to one of 9% retention rate we have achieved in prior years.
On a go forward basis, we expect our full year 2021 professional services dollar based retention performance to be significantly stronger than the 2020 performance.
However, we will likely still experience some strength in this area in the first half of 'twenty 'twenty, one relative to historical levels.
Finally on a combined basis for both technology and professional services, our full year 2020 dollar based retention for das customers was 102%.
Now, let me transition to providing some commentary on new dos subscription customer additions.
Overall for the full year 2020, we added nine net new dos subscription customers in line with our anticipated performance shared on our Q3 2020 earnings call.
To provide some additional context and as a reminder, as a result of COVID-19. The number of first half 2020, new customer additions was meaningfully lower than we originally anticipated entering the year.
As we entered the second half of 2020, we were pleased to see health care organizations effectively adjusting to this new operating environment with COVID-19 significantly highlighting the need for a more robust commercial grade data and analytics solution.
Likewise, given the financial strain and posed by the pandemic prospective customers showed an increased focus on revenue and cost optimization analytics, which our solution is well suited to address.
On the other hand, as COVID-19 creates some shorter term financial uncertainty.
It continues to make some health systems more cautious in the near term purchasing decisions.
With these unique dynamics in play.
We were encouraged to see our second half 'twenty 'twenty pipeline.
Progress with similar conversion rates to the second half of 2019.
Moving forward the 'twenty 'twenty, one we anticipate net new Dos subscription addition performance will be in line with historic pre pandemic performance likely in the mid teens.
Similar to what we experienced in the second half of 'twenty 'twenty.
We anticipate continued end market operational distraction related to COVID-19, and the vaccine rollout for much of 'twenty 'twenty, one offset somewhat by the pandemic highlighting the need for a more robust commercial grade data and analytics solution.
Moving on to the longer term impact of COVID-19.
As we progressed through the rollout of the vaccine and begin to return to pre pandemic normalcy potentially towards the end of 'twenty 'twenty. One we feel optimistic that the pandemic will serve as an overall tailwind in the industry's adoption of data and analytics significantly highlighting.
The need for a commercial grade data and analytics solution to replace patchwork homegrown systems.
On a related note, let me share some comments on our customer engagement on.
Customer satisfaction scores, especially related to our technology are central to our ability to accomplish our mission expand our existing customer relationships and grow our overall customer base and.
And despite the pandemic, we have been pleased to see that our customer satisfaction scores related to our technology have remained high.
In some cases the highest in the industry.
And to share of recent highlight on this front, we were pleased to receive the news that our charge Master management product line.
New revenue analytics product condition through the vital where acquisition.
It was recently ranked best in class for 2020.
This marks the third year in a row that the vital C. D. M product has achieved this distinction from the class organization.
Lastly, I would like to announce that effective March one 2021.
Dr. Tim Harris has been appointed to serve as the chair of the health catalyst Board of directors Dr.
Dr. Ferris, who currently serves as the Chief Executive Officer.
Of the Massachusetts General Physicians organization.
The served on the health catalyst board since 2018.
He will succeed Frazier Bullock, who.
We will continue to serve on our board moving forward.
Frasier joined our board as an observer in 2012 and has served as the chair since 2014.
I am deeply grateful to Frazier for his significant contributions over the past seven years to the company and his role as chair.
His leadership has been instrumental in guiding our growth and development and we are grateful to continue to benefit from his insights and experience at the board member.
Next let me express my heartfelt excitement that Dr. Paris is the appointment I.
I am grateful per Doctor first is the alignment to our mission, our cultural attributes of our operating principles.
And I anticipate that his unique perspective will continue to add significant value. During this next phase of our company's journey as he helps us increasingly appreciate the most significant challenges facing health care organizations.
With that let me turn the call over to Brian.
Brian.
Thank you Dan.
Before diving into our quarterly and full year financial results I want to Echo Dan's sentiment.
And say that I am pleased with our fourth quarter and full year 2020 results, especially in light of the macroeconomic backdrop and the COVID-19 pandemic.
I will now comment on our strategic objective category of scale.
For the fourth quarter of 2020, we generated $53 3 million in total revenue.
As Dan mentioned this represents an outperformance relative to the midpoint of our guidance.
And it represents an increase of 22% year over year.
For the full year 2020, our total revenue was $188 8 million.
Also representing 22% growth year over year.
Technology revenue for Q4 2020.
It was $32 3 million, representing 43% growth year over year.
Excluding the contribution from our recent by the <unk> acquisition, our technology revenue for Q4, 2020 was $28 1 million.
Representing 24% growth relative to the same period last year.
This year over year growth was driven primarily by recurring revenue from new customer additions and from existing customers paying higher technology access fees.
As a result of contractual built in escalators.
For the full year 2020 technology revenue was $110 5 million.
Representing 32% year over year growth.
Professional services revenue for Q4 2020.
Was 21.0 million rep.
Representing flat performance relative to the same period last year.
This performance is consistent with our expectation shared on our last earnings call.
And is primarily due to our services being provided.
The new dos subscription customers offset by lower professional services dollar based retention achieved in 2020 relative to historical performance along with lower implementation revenue.
For the full year 2020, our professional services revenue was $78 4 million.
Representing 10% year over year growth.
Total adjusted gross margin for the fourth quarter 2020 was 52, 2%.
This represents an increase of approximately 100 basis points year over year.
For the full year 2020 total adjusted gross margin was 53%.
A decrease of roughly 190 basis points compared to 2019.
In the technology segment, our Q4 2020 adjusted technology gross margin was $68 four per cent.
An increase of approximately 20 basis points relative to the same period last year.
This year over year performance was mainly driven by existing customers paying higher technology access fees from contractual built in escalators without a commensurate increase in hosting cost.
Offset partially by headwinds due to the continued costs associated with transitioning a portion of our customer base to third party cloud hosted data centers in Microsoft Azure.
For the full year 2020, our adjusted Technology gross margin was 68 five per cent.
An increase of approximately 140 basis points year over year.
In the professional services segment in Q4.
Our adjusted professional services gross margin was 27, 4%.
A decrease of approximately 550 basis points relative to the same period last year.
This year over year decrease was mainly the result of the previously mentioned COVID-19 impact on our professional services dollar based retention.
As well as some shift in the mix of professional services delivered.
For the full year 2020, our adjusted professional services gross margin was 24, 7%.
Representing an approximately 980 basis point decrease year over year.
In Q4 2020, adjusted total operating expenses were $32 5 million.
As a percentage of revenue adjusted total operating expenses were 61%.
Which compares favorably to 66% in Q4 2019.
For the full year 2020, adjusted total operating expenses were $116 3 million.
As a percentage of revenue adjusted total operating expenses were 62%.
Which compares favorably to 70 per cent and full year 2018.
Adjusted EBITDA in Q4, 2020 was the loss of $4 7 million.
The exceeding the midpoint of our guidance and comparing favorably to an adjusted EBITDA loss of $6 5 million in the fourth quarter of 2019.
This adjusted EBITDA result was mainly driven by the strong revenue and technology gross margin performance mentioned previously.
For the full year 2020, our adjusted EBITDA was the loss of $21 3 million.
Which compared favorably to an adjusted EBITDA loss of $27 4 million in 2019.
Our adjusted net loss per share in Q4 2020 was 16.
The weighted average number of shares used in calculating adjusted net loss per share in Q4 was approximately $42 6 million shares.
For the full year 2020, our adjusted net loss per share was <unk> 68.
The weighted average number of shares used in calculating adjusted net loss per share in 2020 was approximately $39 5 million shares.
Turning to the balance sheet, we ended the fourth quarter of 2020 with $271 million of cash cash equivalents and short term investments.
Compared to $228 million at year end 2019.
As a reminder, in April 2020, we issued a private placement of convertible notes with the principal amount of $230 million.
And we used a portion of the proceeds to extinguish the outstanding term loans.
After deducting the unamortized debt discount.
Weighted to the conversion feature of $52 6 million.
And unamortized issuance costs of $4 8 million.
As of December 31, 2020, the net carrying amount of the liability component of the convertible notes is 169.0 million.
As it relates to our financial guidance for the first quarter of 2021, we expect.
Total revenue between 53.0 million and 56.0 of million.
And adjusted EBITDA losses between $3 9 million and $1 9 million.
And for the full year 2021, we expect total revenue between $225 1 million and $228 1 million.
And adjusted EBITDA losses between 16.0 million.
And $13 5 million.
I will now provide some additional detail related to our guidance.
First on revenue.
We anticipate our full year technology and professional services revenue growth rates to be roughly similar to the corresponding full year 2020 growth rates by segment.
As it relates to vital where in 2021, we anticipate revenue contribution in the low twenties of millions of mostly technology revenue.
Inclusive of the of the remaining deferred revenue write down.
As a reminder, the vital where acquisition will lapse at the end of August 2021 impacting the year over year growth rates of our technology revenue in Q3 and Q4 2021.
As it relates to our dollar based retention expectations as Dan mentioned, we expect continued robust technology dollar based retention.
In line with historical levels of 107% to 109%.
On the professional services side, we expect our full year 2021 performance to be significantly stronger than the 2020 performance.
But we will still likely experienced some strain on this metric in the first half of 2021.
Relative to historical levels.
As it relates to net new dos subscription customer additions.
We anticipate performance in line with historical pre pandemic performance likely in the mid teens.
And as it relates to cross selling amongst our customer base from our 2020 acquisitions.
We are continuing to develop our pipeline.
Our 2021 forecast assumes a moderate level of cross selling.
Robust cross selling would represent upside to our dollar based retention and new dos subscription customer metrics.
And any P&L impact would mostly be realized in 2022.
Moving on to adjusted gross margin expectations for 2021, we expect technology to remain in the high <unk>.
While our professional services adjusted gross margin can fluctuate on a quarterly basis, depending on utilization rates and on the mix of services performed overall, we expect to continue to experience. Some COVID-19 related strain, resulting in gross margins in the twenties for the full year 2021.
Lastly for adjusted EBITDA, we continue to anticipate entering 2022.
On a run rate adjusted EBITDA breakeven basis.
As it relates to our 2021 EBITDA guidance I would like to note that we anticipate having a moderate amount of expense related to integration of our 2020 acquisitions.
That we expect will subside by the beginning of 2022.
This expense is mainly associated with acquisition related investment.
Overlap in operating expense categories and.
And we anticipate realizing $2 million to $3 million and integration efficiencies in these categories by the beginning of 2022.
Importantly, given that we are in the midst of an unprecedented pandemic consistent with consistent with our cultural attributes and operating principles. We have made the intentional decision to allow for our M&A integration efficiency efforts to extend for longer than they would otherwise.
With the strong bias towards acting in the best interest of each of our team members.
This strategy is consistent with the health catalyst way.
While still enabling us to reach our adjusted EBITDA breakeven timeline.
With that I will conclude my prepared remarks.
Yeah.
Thanks, Brian.
I'll conclude my commentary by thinking our committed and highly engaged team members, whose teammates and colleagues have been dedicated to our mission and to our health system customers that they have effectively responded to the pandemic.
I'm grateful to these teammates for their central contributions to our mission and growth there.
The more of the most challenging years, we've ever experienced.
And with that I will turn the call back to the operator for questions.
Ladies and gentlemen, if you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Thats Star then one if you'd like to ask a question at this time.
Our first question comes from the line of Robert Jones with Goldman Sachs.
Great. Thanks for the questions I guess, maybe Dan I was trying to square a couple of of the comments that you made at the first just around.
The likely seeing mid teens das adds in 'twenty, one super encouraging you kind of see that getting back to what you guys were able to produce pre pandemic. But then you also made some comments about anticipating continued end market distraction through 'twenty one.
So just trying to get a little bit more you know in the weeds on what on what you meant by that and kind of what you see as far as the the distraction, resulting in slower sales of slower implementations just just trying to square those two comments would be would be great.
Yeah. Thanks for the question Bob So.
At a net net level essentially that overall guidance as it relates to the the mid teens in terms of.
Net new dos subscription clients has a couple of puts and takes associated with it. So we wanted to highlight some of the the challenging elements that we're still experiencing that you noted Bob.
As it relates to some subset of health systems are still in the midst of the pandemic response are still somewhat hesitant in some cases because of the uncertainty on the flip side. There are some net positives as well like a greater recognition of the need for a commercial grade data and analytics platform when we net.
Out of those puts and takes but we would.
Observe at an overarching level would be the.
The pipeline dynamics that we're experiencing right now after you net out those effects.
Our are about the size and about the pace of conversion that we experienced pre pandemic levels and that's where we landed on.
Being comfortable with the guidance that we provided.
No that's all.
She really helpful. And then on maybe if I just one follow up you know maybe Brian you. Hugh you mentioned some upside from cross sell I wanted to make sure I understood.
Which assets specifically you were talking about and then I guess just more generally you know if you think about it even going back from the Disney and then more recently with able on vital vital wear and health finishes just curious on on the latest thoughts on on the cross sell opportunity I know I know obviously those deals were done for the merits of you know in much weighted the merits of the of the assets, but there was.
Also clearly of cross sell component to it just just any latest thoughts on the cross sell opportunity and how those how those have progressed.
Yeah, absolutely thanks, Bob.
So the commentary I made around cross selling to your question around which assets that relates to.
Relates to primarily on more recent 2020 acquisitions.
And kind of both the direction, so and the ability to cross sell applications that we've acquired for example might of wearing health bench to dos subscription customers and then also on ability to cross sell das to those acquired customers on the upside from where.
We're active in both of those areas and developing a pipeline there on.
Both ways. So now as I mentioned that is reflected on a modest amount in our 2021 on bookings color.
And if we were to significantly kind of drive robust cross selling there that would represent upside to essentially both of our bookings metrics. Our dollar based retention metric essentially and then also the new customer additions metric.
And I agree with that I would just add.
Similar to what we've tried to do in the past as we think about forecasting is.
Strong desire to be data informed.
In the in that process of building of forecast and since we've only owned some of these assets for a few months now like with the vital where acquisition. For example, we're still in the early days and want more data to inform any updates to the forecast and that's why the cross sell that's included in the force.
Cast is at a modest level that is data informed and obviously.
As always we're working every day to try to the other.
It performed that forecast, but at this point, we didnt feel comfortable.
Before we got more data about our cross sell efforts to update the forecast.
Got it thanks, so much I appreciate it.
Thanks, Bob.
Our next question comes from Ryan Daniels with William Blair.
Yeah, Hey, guys. Good afternoon. This is Jared haase in for in for Ryan I guess, just first question from me Bryan I think you alluded to this on your prepared remarks, but you know it sounds like one of the key kind of investment areas is just around integration related efforts, but I was hoping you can maybe call out any other kind of.
The investment priorities for the year, either you know kind of in terms of adjacent markets or specific areas of the of the product just any color around investment priorities kind of beyond those integration efforts.
Certainly thanks Gerry.
So in terms of priorities in 2021, you mentioned the integration on the M&A side is a big part of the one other area of couple of areas I would just call out.
So one would be we are seeing continued emphasis.
From an end market perspective on the ability to drive.
Our financial optimization things like revenue and cost optimization from the health care organization standpoint, and so that's an area of aligns with our might of where acquisition that we are continuing to focus on.
The other area of I would call out is.
Related to the.
The transition that we've made with the president role recently, where we are trying to.
Optimize our growth investments to be able to capitalize on this longer term tailwind of the pandemic has highlighted of the importance of data and analytics. So wanted to be able to support that effort get out ahead of that and plan for the future of that way.
Okay, Yeah that makes sense and then I guess a follow up to that last point, you made Brian as well as to Bob's question earlier. So no. Appreciate the idea that youre seeing kind of some sort of headwinds in tailwind that's sort of net out to the outlook of mid teens net client adds this year, which is kind of consistent.
With what your normal expectations had been so as the headwinds of that equation kind of alleviate the we'd get back to normal post pandemic should we think about those tail wins is giving you potential to exceed mid teens net new clients going forward or is that still of the reasonable target once we get to that normalized environment.
Yes, thanks for that question Jared.
I think our focus right now is on getting through the pandemic in 2021, and we do continue to see those puts and takes playing out certainly in the first half of 'twenty 'twenty, one and we want to remain nimble and keep our ear to the ground as we as we understand more and as we go.
The more data we.
We don't feel like we're in a good position to provide anything beyond our 2021 guidance that we shared other than just to reiterate that long term view that we continue to feel confident in and that 20 plus percent growth cadence on an annual basis and we are certainly working every day to find ways.
To accelerate.
The adoption of data and analytics in the health care ecosystem, but that's probably where we feel comfortable stopping at this point.
Got it makes sense thanks for that thanks for that color.
Our next question comes from Sandy Draper with true of Securities.
Hi, Thanks, This is stan on for Sandy.
A couple of quick questions first.
Of the non client additions this year a function of cross sells of what are the all net new.
Have some modest cross sell activity that was inclusive in there, although I would mention and note that the commentary that Brian gave about the overall pipeline activity in the first half of 2020 being slower than what we had normally.
<unk> experienced pre pandemic was also true in the in the cross sell space at a similar level. There was an impact in the first half and at a similar level in the second half we saw an uptick in the in the pipeline dynamics that the felt a lot more like pre pandemic levels.
Got it.
And then maybe a quick one here on.
Just I know, it's a fluid situation, but curious are there any plans to resume more face to face activities from the sales force on.
How are you thinking about that.
Yeah. We are we're monitoring the situation like like the rest of the planet right now and we are encouraged to see an acceleration in the rate of vaccinations in the U S. In particular, but also elsewhere.
We are.
I'm anxious to see that continue.
And as that you know of explanation rate accelerates in and represents a larger proportion of the of the overall population, we think that will lead to.
Increased travel, particularly.
With of the year and increased usage of our offices the.
Potential of reopening the offices for those who are vaccinated and taking other precautions as well, but at this point, we're still early in that process.
Yeah. Thanks, Dan the only other thing I would add Stan so that is just given the nature of our sales cycle and the duration of our sales cycle of approximately a year.
We were fairly well equipped to adapt to a virtual sales environment, just given the number of touch points that we typically had.
We're off the non in person in our sales cycle and so the feel.
Feel good about our ability to adapt and continue on that type of environment as well.
Got it thanks, so much.
Thank you.
Our next question comes from Sean Wieland with Piper Sandler.
Hi, it's Jeff on for Sean. Thank you for taking the question.
So thank.
Thank you Jeff.
I understand a little bit about where evil health either as it was acquired or in the products that you have since developed.
Where it fits into the rest of the adjustment process.
12 of our prospective of retrofit that debt and if you could just help us understand who you're competing with there and how you're thinking about and pending regulatory changes and then the evolving competitive landscape change getting acquired by use of it.
Yes, absolutely Jeff. Thank you for the question.
When we acquired able health just about a year ago.
The primary element that we were most excited about is the strength that they would bring around.
The process of submitting measures to regulatory bodies and the broader context of the quality improvement and population health as well.
And they had already built and automated steps in that process.
Normally quite manual and quite labor intensive.
So the place in which we've integrated that capability is really within the broader population health category, which includes.
So much of the work around measures reporting.
And the infrastructure that that enables is that.
Better faster more accurate and often.
More cost effective way through automation and through the use of technology of submitting those required measures to regulatory bodies and also using those measures to understand.
Our improvement efforts, our quality and our population health capabilities that was an important component of an overarching population health.
Offering that we wanted to make sure that we can offer in a compelling way we've combined that.
But on another acquisition with with regards to health Finch, which brought us another important capability of the pop health space and the otherwise around the closing the loop when we have insights when we're submitting measures when we're reporting out our performance being able to close the loop at the point of care.
He's also really critical to influencing making better decisions for example in the care of patients and.
In health Finch brings that component of the of the capability. When you combine that with some of our care management and pop health Foundation's capabilities. We're really excited about that portfolio that we can offer of all powered by das at the data apart from layer.
To really enable us to be competitive and differentiated in what we can offer and as you know.
Companies that offer of components of our population health solution.
And they range from very very large companies. The very small companies. We also have capabilities more on the in the revenue cycle space.
That had been bolstered by our vital where acquisition and that broad space is more of the broad space that the change health care for example would operate within.
And yet even within that space.
We offer is quite distinct and different from what they were focused on on the Rev cycle space, our charge master solution, there isn't the competitive product that the change offered or the optum offers either but rather it's a complement to some of the other work that they do.
Got it thank you.
You bet. Thank you.
Our next question comes from Elizabeth Anderson with Evercore.
Hey, guys.
Just wondering if you could talk about any changes to the professional services there's been Colorado.
Is there anything in terms of what people are looking for or sort of duration of of work or anything, but just sort of think about it on that.
Yes. Thank you for the question of Elizabeth So one of the elements that we observed early in the pandemic at a pronounced level and it's still the case, but out of more muted level is a shift in the kind of services that our clients wanted us to perform.
Away from more traditional improvement work clinical improvement work, especially as well as some operational improvement work.
And focus specifically on pandemic response, so that was a dramatic shift that we experienced a year ago and into the spring and early summer we have seen that more traditional clinical improvement work ramp back up.
As well as other improvement work financial operational and as Brian mentioned the the pandemic is also influenced of more keen focus on the financial performance of the health system and so we find ourselves doing more revenue oriented work the cost structure work.
That is all data informed and and also aided by some of our recent acquisitions. So the services work has shifted zone.
I would also share that there are some components of what we're able to offer in terms of tech enabled services that are able to automate certain processes that would otherwise be very labor intensive and manual.
And the able health measures example, that I provided just a minute ago. As one example, also the work of chart abstraction is another example, where we've seen an increase in activity there and the interest and Theres a services component to that as well as the technology component to that so we have seen some more.
Shift elements that have occurred I would share that we're seeing more of that mix shift back to pre pandemic levels.
And we're seeing an uptick in some of those pre pandemic areas of of clinical improvement work are seeing an increase.
But we also wouldn't be surprised to see some of these other areas of focus continue.
At a robust level moving forward as well so the only.
Of the thing out on.
Elizabeth to that is in terms of the core from.
One of our key kind of Differentiators on the services side is.
One of our team member engagement and focus and the ability to kind of attract and retain.
Real experts in the field of certain domains and analytics in.
And provide that expertise to our client base that may have some more difficulty in.
And recruiting of type of talent and so I think that core kind of value prop or acting as a supplement to our customer teams on the services side. This is intact.
Got it that's very helpful. And then just my view on that.
Catherine type of question.
The change.
<unk> 20 on your Capex items.
As a percentage.
Well how are you thinking about capex going on.
The word.
Yeah. Good question. So so there was the change in terms of the Capex primarily related to.
Actually an office build out that we're working on for our headquarters. So there was an uptick there there will be some additional capex in 2021 related to that.
Lease hold improvement in office build out and then once that's done it would more normalize to a similar level as a percentage of revenue of what we've seen in the past so no no major changes the other than that more one time of Capex.
Got it that's very helpful. Thanks.
Our next question comes from Stephanie Davis with SDB Leerink.
Hey, guys Congrats Macquarie and thank you for taking my question.
Thank you.
Back from.
Earlier on the pandemic when he introduced the dos light solution and hear about maybe what kind of betting the opportunity you have converting those clients to a full suite of solutions.
Sure.
Yes, so we.
The accelerated some of our work.
Due to the pandemic.
Around trying to take what we had partially developed around of das slide offerings and we did.
Pick that work and offer up some pandemic specific health and support and we still had some other specific use cases, where you could start smaller.
With a lighter version of Das and then be able to expand overtime we.
We did see some pipeline movement in the Twenty-twenty, especially in the second half of 2020, and we did see some modest contribution to.
Due to the net loss net new dos.
The subscription clients from the light version, but we're still really early in that process.
That would represent to your point.
Some opportunity for dollar based.
Net retention of our expansion with those.
With the with those situations, where a client starts at a lower the price point, but we're still early and we still have more to go from a pipeline perspective, it's still a long sales cycle even.
Even right now and some of that may be influenced by the pandemic.
We'll learn more of this year.
About how that sales cycle is impacted by a lighter version of the das but we are we're encouraged to see some pipeline momentum there and I think it'll we'll learn a lot more in 'twenty and 'twenty one.
So is it safe to say, that's not baked into the outlook at all but could be a source of upside.
Perhaps similar to the cross sell commentary that at a modest level. We've included some some elements in the forecast.
Because we're early and we like to be data informed we didn't go beyond the modest level in the forecast.
Of course, and then just one quick one on the the kind of selling environment you guys have talked about 2020 of the very challenged here.
Oh Wow.
You can grow on the double digit.
Are there any.
Sales tactics or thoughts that you would want to bring from the pandemic world into the post pandemic sales force at health catalyst.
Yes, absolutely. So I think we've all learned that you can do a lot of things virtually that maybe we didn't think we could and that was certainly true in the sales process both on the new client side.
I would of intuitively thought was maybe the hardest place to make progress we still saw that we could make meaningful progress moving forward from a pipeline conversion perspective virtually.
And then secondly with existing clients.
We certainly saw a little bit to Brian's earlier comments that.
My goodness there is a lot we can do to be a really effective partner, including thinking about talking about ways, we can expand our relationships.
All through virtual discussions and so I think of lot of that will carryover beyond the pandemic and could.
Could be encouraging but again.
We also had a lot of challenges related to the the hand, the pandemic that were headwinds as well so it's a little bit challenging for us to opine too far until we kind of get past the pandemic, but those were some of the highlights that felt like they could be positive well beyond the pandemic as well.
Just add Stephanie to your point on the 2020 growth. We appreciate those comments on.
One other point I'd add is we are fortunate to have that recurring revenue business model, which gives us a lot of visibility into that and your revenue and so we did mentioned at the onset of the pandemic the.
Given the nature of our recurring revenue model.
We could see a more muted impact on 2020 revenue growth just given that visibility that we had in here from prior year sales.
I understood that's super helpful. Thank you guys.
Thanks, Stephanie.
Our next question comes from Richard close with Canaccord.
Great. Thanks for the questions on congratulations during a challenging year.
Wanted to go back a couple of years to the middle of city acquisition.
And obviously 2020 had its challenges with Covid and whatnot, but just wanted to revisit the city and what Youre thinking about in terms of debt customer base.
And the opportunity to upsell.
And any just update in and around that I think originally they had 100 customers and then you really thought about it as you know maybe 60, we're sort of in the sweet spot for health catalyst upsell of potentially.
Yes. Thank you for the question Richard So.
The.
What I would share with regards to <unk> is that.
We've seen.
The minister of the performance play out largely as we had forecasted.
And we tried to be data informed in the way we thought about the forecast that has included in 2020, some contribution from cross sell from the Minister the client base.
It's also important to us.
To note that as we shared when we were.
The newly public company, we were fortunate to.
To have a situation where the consideration that we paid was was very minimal.
And as such.
For the for that acquisition to two the positive from the.
Our financial perspective.
We anticipated a modest set of contributions and we've we've realized those who we feel good about that at a broader level I think the concept of the cross sell with something that Modicity helps us better understand and certainly informed our later acquisitions of able health health.
And vital where and in many ways.
Start to to have the opportunity to have those conversations in both directions that Brian talked about.
We continue to believe that at bidirectional cross sell is a very meaningful opportunity for us one that we've built in at a modest level.
At a moderate level in 2021, but we're certainly working to to build an infrastructure on cross sell that becomes very significant and we're hopeful that the perhaps over time we might.
Outperform that.
The forecasted element that's that's already included in 2021 and as such debt.
Outperformance would represent some upside.
Okay, great. Thank you.
Thanks Richard.
Our next question comes from John Ransom with Raymond James.
Hi, there.
We've seen the public hospital companies report pretty darn, good fourth quarter numbers and.
Yeah with all of the support for all of the Cares Act.
Advance funding.
Electives coming back there.
Yes, it's pretty good shape.
Would you say that that picture it translates to the kind of large IBM that you deal with are they actually in pretty good financial shape on balance relative to what we might have thought.
The dark days of April 2020.
Yes. Thanks for the question John So certainly we would agree with the statement that the.
Net across the spectrum of our client base.
Perhaps without exception our clients on a much better financial condition now than they were in March April may of last year, where they were really facing an existential crisis that they hadn't seen in decades.
So we're certainly better off than where we were then and to your comments the cares Act and other supports.
And funding elements combined with the ability to get back the volumes associated with electric procedures in particular has been very helpful.
Would characterize across our client base that we're still observing the spectrum of performance. We have some clients that perhaps look a little bit more of like what you just described.
On the positive side with regards to some of the publicly traded.
Health systems, that's at the high end of of.
What we would.
Characterizes our experience. We also have a number of health systems that while there the much better off than they were in the spring and early summer.
Still not back to pre pandemic volumes in electric procedures. For example, some are down 5%, 10% 15%.
But that's that's a lot better than where we were aware of where volumes in the late spring and early summer in some cases were down 80 90 loss per cent and so.
So when we think forward for example about talks of of of another stimulus.
We would be clear, we would want to be clear on the on the health of catalyst side that we believe that can be very helpful.
In especially building out on infrastructure to be better prepared for the future of.
For future pandemic.
Responses and Theres, a theres of needed infrastructure the.
The pandemic exposed that we really only have as a patchwork today.
And I think that stimulus funding.
But there's a different level of urgency to that.
The that round of stimulus then the.
The existential kind of urgency that we experienced.
Last spring and early summer.
The other thing I would add Dan I agree with what you said in terms of the improved.
Our financial situation for.
Our end market I would just add as well debt.
In addition to that there is an operational distraction and focus.
The health organizations will be putting on on continued COVID-19 COVID-19 treatment and on vaccine rollout through 2021, which adds another dynamic from an operating standpoint.
Maybe one more thing I agree with that also John that I would add would be just the the two puts and takes that we that we mentioned in our prepared remarks that on the positive side, we are seeing more and more health systems acknowledge and understand the need for a commercial grade data and analytics infrastructure that helps on the flip side.
We still observe hesitation.
In terms of budgeting processes that because we're still on the pandemic, we're not all the way through.
Of vaccination perspective, there's there's still this hesitancy to make more meaningful larger commitments and so there are puts and takes that we think will play out over the next six months in particular before we perhaps return to a little bit more normalcy.
Okay and then.
Thank you my other my other question is.
I'm, just thinking about the remote work dynamic and challenging enough.
Cell over zone, if you will but what about.
Have you been able to bridge all of the collaboration on product development work.
While working remotely and have you seen in the I mean, there's no external evidence that your innovation has slowed but are there any challenges you are seeing with collaboration on product innovation without having.
People in the room.
Thanks for that question, that's an interesting one.
If I were to characterize the innovation that came out of 2020, I would characterize us as accelerating innovation, mostly surrounding the pandemic and we were enabled.
Two to virtually collaborate at a very significant level of clients.
And what to build on top of the flexible data platform too.
To be responsive to a very dynamic situation and there was some great innovations that came out of that process and.
Though it seems.
Perhaps counterintuitive.
In a way we've never had more collaboration with our clients than we did in 2020 it was.
To be sure of very exhausting on on all accounts across.
Our team member base and our clients I don't know that I've ever seen on the health care ecosystem of feel more collectively exhausted in many ways and so we've got to be we've got to be cognizant of that but there was some great innovative breakthroughs that came through that that process that all was really enabled through.
A virtual set of interactions, but we were helped by the fact that before the pandemic most of it of our interactions on the product development side and even on the services side were virtual and so we didn't have a heavy face to face business model, even before the pandemic and that probably made it a little bit easier for us to the pivot really affect.
<unk>.
In the midst of the pandemic.
The thing I would add to that Dan.
Terms of focus on innovation as well Dan referenced.
At our 2020 acquisitions, while there is work to do to integrate the acquisitions into our broader portfolio of technology solutions that does provide us with an opportunity for further innovation as we do that work and Dan referenced one of those innovation opportunities with the able health and health of bench combination that we're working through so ex.
Writing innovation opportunities there with our recent acquisitions.
Thank you very much.
Our next question comes from David Grossman with Stifel.
Thank you.
So sorry, the I.
I can ask a kind of a more detailed financial question on the guidance and maybe if you can just indulge me and when I look at it the <unk> sequential revenue growth looks I think consistent with last year, which looked pretty strong to me relative to the cadence of.
Of 2020 bookings, which seem to be weaker in the first half and picked up in the back half of the year and then on the other hand, the sequential growth thereafter for the balance of the year, it's probably a little more modest.
That I would've expected with again that cadence of bookings growth. So I guess first am I missing something obvious here and if not.
Is it just you've got pretty good visibility on the first quarter unless so as the year goes on so you're being a little more conservative or is there something else going on here that I may not be seeing.
Yes, Thanks, David Good question.
I wouldn't say that you are missing anything obvious or a big takeaway there I think you've kind of hit on it were.
There can be some variation in a quarter of.
<unk> revenue guidance from revenue performance.
Just on timing of contract signings and the like and so nothing major I would call out on.
On that point.
Okay, so, but there isn't anything nonrecurring necessarily unusual non recurring in the first quarter.
Is that correct.
No nothing major no vast majority of our revenue base is recurring in nature. So I wouldn't say anything major but the current standpoint.
Right and maybe if I could just follow up of question that was asked earlier just about the services business given what you experienced in the downdraft in demand during the pandemic for services and those resources.
It hasn't made you would all rethink that model at all of that May make.
Sure.
Those.
The services.
Kind of content more accessible to more people.
And on what Im thinking of it as just broadening of the pyramid I know very much of your model is predicated on the expertise of the people that you provide but I I'm just wondering just as the business scales as well you know our U S.
As you've gone through the pandemic has that changed your thinking at all about how you want to leverage that business going forward.
Thanks for that question David.
The insightful question and something that we're watching and monitoring throughout 2021, we're not ready at this point to provide any changes to the long term guidance that we've provided as it relates to how we think about surfaces, how we think about tech.
But it is informative.
On to observe that in 2020 of that was the first year, where we saw some changes in the way that the.
The tech business performed relative to the services business and in many ways we were we.
We were really encouraged to see tech utilization so high with the.
No.
A bump of about 50% in terms of utilization.
And very robust tech dollar based retention as well.
And then we are trying to be observant of.
Some of the mix shifts that we've that we observed in the pandemic, but also then.
Have the benefit of of data as we get through the pandemic to understand which shifts might have been temporary of nature, which might be a little bit more.
Permanent in nature, and I think as we work through that in 2021, we do plan to to try to learn as we go.
And then either reaffirm that.
We continue to feel comfortable with that long term perspective that we shared a couple of years ago as we were going public as a company or provide an update.
But given that we're still in the midst of of the pandemic, we wanted to provide ourselves with time and space to keep observing.
Got it thanks very much.
Our next question comes from Daniel gross line with Citi.
Hi, guys. Thanks for taking the question here maybe.
Bit of a bigger picture question on the competitive environment as you look forward to 2022 and beyond.
Particularly from non traditional competitors, we've seen Google expanded its relationship with Ascension and we've seen a consortium of hospitals form of.
Revert it to better utilize and monetize their data.
The reported how do you how do you see that competitive environment is shaping up not just from your traditional competitors, but also of the more non traditional folks.
Yes, thanks for the question Daniel.
We continue to believe that there is a there is a role to play.
In terms of.
Non traditional non health care specific competitors, let's say crop more cross industry.
The technology companies like you mentioned, Google there are others as well and we continue to be of the perspective that the innovations that are coming through those across the industry technology companies should be leveraged should be a part of the transformation that needs to take place in health care and.
That's one of the reasons why we are.
<unk> due to benefit from our partnership with Microsoft why we leveraged the Microsoft Azure environment is an incredibly scalable robust technology environment from which to host our data platform Likewise.
Likewise, we believe long term there is great value.
At the health care level of the technology stack on the data health care data level of the technology stack, where those who are.
24 by seven focused in health care.
An important role to play in real differentiation to play in partnership with others that debt for a variety of reasons may choose not to operate up the tech stack when we get into more of health care specific investments in health care specific content that includes companies like health catalyst, where health care is all we do and most.
Of our technology investments have been data oriented investments to ensure it that content layer.
We're able to make sense of the data with our clients and likewise.
<unk> share of like what you mentioned with true better we think.
We need more of that and that's a real positive for the industry. So that so the health care can benefit from clinically rich data that exists in these health system settings. These are places where the individuals that work there spend all of their time focused on on really understanding that health care data.
Also what we do and and we view.
The the stewardship role that we play on behalf of our health system clients and their patients is one where we can provide value added through the technology.
On the capabilities at the at the data platform layer at the content of the data content later in the App players to enable the use of that health care specific clinical of rich content and a really effective way and we're excited to play a role and we believe we are differentiated in the capabilities that we can offer there and the only.
When you are dedicated.
To the health care space and you spend 24 by seven there.
And likewise, we're excited that tap into partners.
And others, who have a role to play and contributions to make as well.
Makes sense and then direct contracting of Medicare is slated to start in April I know you are one of your key constituencies as acos, but curious if if direct contracting in particular opens up a new market or new client base for you among D.
<unk>, particularly as we think about the build out of your pop health modules.
Yes, we try to keep an eye on innovation and that's a good example of innovation in the in the payer space.
More broadly speaking, but there are new innovative models that are that are being enabled which we think is a positive and that's where while we have grown up serving more traditional health systems. We're grateful that we have customer relationships.
And those new innovative risk bearing entity spaces.
And with as you said, our our increased focus on population health, bringing more and more components to bear.
We feel like we have a more robust offering day to offer up to this emerging segment of the market and we intend to play in that segment of the market as well.
Got it thanks, Dan.
Thank you Daniel.
Our next question comes from Glenn Santander flow with Guggenheim Securities.
Glen you maybe on mute.
Our next question comes from Sean Dodge with RBC capital markets.
Thanks.
Maybe could you talk a little bit more about the recent partnership with smarter health.
I think it is kind of geography that you've historically not really focused on in.
Southeast Asia and at the end market. The the payers that also it would be fair.
As far as that really best focus is this just the situation where your licensee dos or are you committing people do the two and then anything you can share on the revenue model is there just in case of of revenue share agreement debt related.
Related to this.
Yes. Thank you for that question, Sean and we are.
I'm excited.
To see some international traction Singapore is one place where we have a team member base.
In Singapore, and we have had the opportunity to do some work there.
Through some of that work, we were introduced the smarter health and where we're excited to work with them as you said.
On the kind of relationship that we might have might be more akin to us providing technology to a partner that is then available on the ground to assist in the delivery.
And the use of that technology to measurably improve.
It's a small starting relationship consistent with what we've shared generally about our international.
And our general adjacent market investments, which have been modest in an opportunistic and of fall out of few specific guidelines around focusing on our work for example in the English language and trying to make some other sort.
The full decisions that allow us to grow modestly over time.
With a modest investment and so we're we're encouraged by the progress, but believe that we will that will materialize more over the longer term.
And just to confirm what Dan said, Sean you could think about it is the similar revenue model on contract model.
Typical customer of ours.
Okay.
Thank you.
Our next question comes from Iris long with Bahrenburg capital.
Hey, guys. Thanks for taking my question.
So I have a few questions related to your customer adds and the cross sell opportunity. So first I'm wondering if you can disclose how many total customers you have X all of the year end.
Trying to understand like how big the cross sell opportunities can get to and then secondly, I understand that the <unk> 'twenty 'twenty, one guidance and that's a modest assumption on cross sell but as we think of all.
Beyond 2021, as we get off of the pandemic and all of the integration of the kind of complete it should we expect the cross sell opportunity in the das customer apps to kind of ex salary.
Yes. Thank you for those questions Iris so on your on your first question.
We now would share that with the addition of the nine net new dos subscription clients added to the 65 that we started the year with we're now at 74.
Net new Dot net total dos subscription clients and as it relates to your second question with regards to cross sell I think you're framing it in the right way that we try to be data informed as a result, we've added on.
A modest assumption for the 2021 forecast, while we're also going to be investing meaningfully in those growth areas inclusive of organizing around the president role. So that we can be ready as we get through the pandemic for the.
The opportunity to take advantage of some of those longer term tailwind that we believe are emerging and understanding the value of our commercial grade data platform and the analytics capabilities. We're also going to be working in 'twenty and 'twenty. One on building of cross sell infrastructure, but we hope is robust and we certainly hope to our.
Perform.
When we share of forecasts and guidance, we try to also be very disciplined and data informed in that process.
Okay, sorry, I wasn't clear in my first question I guess I'm wondering if you can disclose the total customers that you have.
Yeah, Yes. Good question here. So in addition to the 74 dos subscription customers.
And you'll see this in our filings we do have over 300.
The other customers, which are primarily driven by the acquired customers from the recent 2020 acquisitions and the minister of the acquisition.
Okay got it and then I have a quick follow up on pricing. So we know that you gave out from discount for professional services in 2020, I'm wondering if you or SKU, giving out those discounts to our customers.
We are not no. So we wrapped up in that.
That process really in the in the summer timeframe of last year and so we've been now a number of months past that.
At that stage in the process.
At this point.
Got it thank you.
Thank you. Thank you.
I'm showing no further questions in queue at this time I would like to turn the call back to Dan Burton for closing remarks.
Thank you and thank you all for your interest in health catalyst. We appreciate it and we look forward to continuing the dialogue and the in the months ahead take care everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music] zone.