Q1 2021 Health Catalyst Inc Earnings Call

And in one minute. Thank you for your patience and please continue to standby once again your conference call will begin in one minute.

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A complete disclosure of our results can be found and our press release issued today and.

As well as and a related form 8-K furnished to be said both of which are available on the investor Relations section of our website and I R Dot health catalyst Dot com.

As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call.

During the call and we will make forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

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 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.

Actual results may materially differ please refer to the risk factors and our form 10-K for 2020 filed with the SEC on February 20th at 2021, and our form 10-Q for the first quarter of 2021 that 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 that measures is provided and our press release.

With that let me turn the call over to Dan for his prepared remarks, and then Brian will subsequently provide his prepared remarks.

Dan and Brian and will then take your questions.

And.

Thank you Adam and thank you to everyone who has joined US. This afternoon. We're excited to sure first quarter 2021 financial performance along with additional highlights from the quarter I.

I will begin today's call with some commentary on our first quarter 2021 financial results by sharing that we're pleased with the company's overall financial performance or two 120 21 total revenue was 55.8 million.

And are adjusted EBITDA with a loss of point 8 million.

With these results exceeding the midpoint of a quarterly guidance on each metric <unk>.

Additionally, R Q1, 2021 technology revenue was 33.8 million, which represents 37% growth year over here and our queue 120 21 total adjusted gross margin was 54.3 per cent, representing and increase of five.

Hundred and 40 basis points year over year.

Now, let me highlight some additional items from the quarter.

You will recall from our previous earnings calls that we measure our company's performance and the three strategic objective categories of improvement growth and scale.

And we'll discuss our quarterly results with you and each of these categories.

The first category improvement is focused on evaluating our ability to enable our clients to realize massive measurable improvements while also maintaining industry, leading client and team member satisfaction and engagement.

Let me share a few examples of client improvements from recently published case studies.

The first improvement vignette highlights our work with one of our clients supporting their journey to financial and operational recovery from COVID-19.

While the latter two vignettes highlight clients leveraging our technology and services to do meaningful improvement work outside of the COVID-19 response fur.

First Carl health employed our software, including the Dos date, a platform and our new health care Dot AI solution to apply advanced data science and analytics to their COVID-19 capacity planning.

Our technology enabled our colleagues and Carl to forecast census, and related bed staffing and supply needs at the level of patient acuity.

Which provided the ability and real time to anticipate and meet the demand for facility supply and human resources required to care for COVID-19, and patience across Carl's community.

Next.

Thibodaux regional health system leveraged our solution to employ a data and formed approach to meaningfully improve care delivery and achieve reduced costs. Our software enabled our colleagues and thibodaux to significantly reduce their patient stroke pneumonia and <unk>.

<unk> mortality rates in addition to decreasing link that's day the incident of complications for patients undergoing joint replacement surgery.

And the use of blood products.

As a result, Thibadeau has achieved over 6.6 million and financial and improvements while also improving health that comes with thousands of its patients across multiple service lines.

Finally hospital sisters health system utilized our solution, including the dos platform and a quality and regulatory measures analytic software.

To integrate claims and clinical data from disparate emr's across it's a C O.

This real time integrated quality data and analytics and.

Enabled hospital sisters health system.

To improve their a C O quality measures performance across 11 measures and a single year.

Close care gas and enhance reporting accuracy and effectiveness.

Moreover Hospital sisters Health system gained.

Gained an additional 1 million and Medicare shared savings program revenue and.

And they achieved 320000 and cost savings the result of eliminating a third party quality reporting software vendor.

Also within the improvement category I'd like to highlight our team member engagement per.

Proximately every six months, we utilize the Gallup organization to measure our team members engagement levels.

And her most recent results, we achieved and overall team member satisfaction score and the 96 per cent tile.

This latest engagement level continues a pattern that has been and place for many years of industry, leading team member engagement consistently ranking between the 95th and 99 per cent tile and overall team member satisfaction scores. This latest result is of particular significance given that it comes to.

Doing a period, where we were required to adapt to a global pandemic, necessitating a remote only work environment.

As well as having welcomed nearly 200, new teammates who came to us primarily through multiple recent acquisitions.

With the leadership team continue to maintain a primary prioritized focus on team member engagement the center of our strategic flywheel, because we recognize the central and foundational contributions that our team members make and building and then utilizing the software that enables our clients to achieve <unk>.

<unk> measurable improvement.

These gallup results, coupled with our clients high satisfaction levels throughout the pandemic are heartening confirmation of our prioritization and focus on.

On a similar note I would highlight that we've been fortunate to receive multiple other external recognitions related to team member engagement, including the company's fourth recognition as a glass door best place to work. In addition to inclusion and Fortune's best place to <unk> and technology list. The one.

And Tech Council's shatter list and in her sight best information technology and services companies to work for less we.

We were also thrilled that two of our team members were recently recognized as 2021 Black engineer of the year Science Spectrum Trailblazer Award winners.

Lastly, and the improvement category I would like to highlight a recent announcement that the company achieved surface certification for and information security by High Trust high.

Hi Trust Leverages nationally and internationally accepted standards to ensure a comprehensive portfolio of security controls.

S trusted stewards of our clients data, we take your information and security and data privacy very seriously and.

As we recognize that they are central to the success of our clients and our mission.

And this announcement highlights our ongoing commitment to implementing best practice standards for protecting data confidentiality integrity and availability.

Our next strategic objected category is growth, which includes beginning new client relationships, while also expanding existing client relationships.

To begin I would comment that our current operating environment is consistent with commentary that we share. It on a Q4 2020 earnings call. The COVID-19 pandemic continues to result, and both headwinds and tailwind as it relates to our growth.

And as such we are reiterating the 20th 21 bookings expectations that we shared on our queue for 2020 earnings call.

In terms of headwinds, we anticipate our provider and market will continue to be under some amount of operational and financial strain over the coming months is health care organizations deal with the continued COVID-19, Serge along side the vaccine rollout logistics.

And as it relates to tailwind we continue to see meaningful evidence that the health care provider ecosystem is better equipped and prepared to respond to the ongoing pandemic and areas, including treatment efficacy supply chain logistics capacity planning and broader operational optimization likewise.

We're encouraged by the pace of the vaccine rollout efforts and lastly, we continue to believe that the COVID-19 pandemic will serve as an overall tailwind and 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.

Last day on the topic of growth I would share that consistent with previous commentary. We continue to believe that we have a meaningful consolidation opportunity, especially at the applications layer of our solution stack. We currently have greater than 265 million of cash and short term investments on our balance sheet a meeting.

Full portion of which is available for acquisitions.

And while the pace of our acquisition efforts will always be driven by the quality of opportunity set we continue to be encouraged by a high quality acquisition pipeline and we believe that the COVID-19 pandemic is brought certain opportunities to the forefront that may not have presented themselves otherwise.

Finally, I will make a couple of comments related to our board of directors Doctor, Tim Ferris, who has served on our board since January of 2018, and most recently as it's chair has concluded his service on the board effective may 1st 2021.

England's National Health service required Doctor Ferris to resign from our board and connection with his appointment as N. H S is national director transformation.

We are extremely grateful for the opportunity to have benefited from Doctor first is wisdom and experience for many years, and we wish him well and as exciting future role with the N H S.

And Doctor first this place weird thrilled to announce the Jackeen has accepted the invitation to serve as chair of our board of directors effective may 1st 2021.

Jack has served on our board since 2016, including several years as audit Committee chair.

Jack is more than 30 years of experience and health care technology, including as a public company CFO and currently serves on the board of directors of several companies. We're grateful projects dedication to our mission over many years as well as his depth of financial leadership experience and health care and and technology.

He is uniquely qualified to serve as our chair and moving forward.

With that let me turn the call over to Bryan Bryan.

Thank you Dan.

Before diving into our quarterly financial results I want to echo that sentiment.

And say that I am pleased with our first quarter of 2021 results.

I will now comment on our strategic objective category and scale.

For the first quarter of 2021, we generate at 55.8 million and total revenue.

And as Dan mentioned, this represents and outperformance relative to the mid point of our guidance.

And it represents and increase of 24% year over year.

Technology revenue for Q1 2021.

Was 33.8 million.

Representing 37% growth year over year.

This year over year growth was driven primarily by recurring revenue from new client additions.

From existing clients paying higher technology access fees as a result of contractual built and escalators.

And from our fight aware acquisition.

Professional services revenue for Q1, 2021 was 22 million.

Representing eight per cent growth relative to the same period last year.

This performance is primarily due to our professional services being provided to new dos subscription customers.

Partially offset by lower professional services dollar based retention achieved and 2020 relative to historical performance as a result of the COVID-19 pandemic.

Total adjusted gross margin for the first quarter 2021 was 54.

Three per cent.

Representing and increase of approximately 540 basis points year over year.

And the technology segment R. Q1, 2021, adjusted Technology gross margin was 69.1 per cent.

And increase of approximately 40 basis points relative to the same period last year.

This year over year performance was mainly driven by existing clients paying higher technology accessories from contractual bill to and escalators without a commensurate increase and hosting costs.

And I'll set partially by headwinds due to the continued costs associated with transitioning a portion of our client base to third party cloud hosted data centers and Microsoft Azure.

And the professional services segment R. Q1, 2021, adjusted professional services gross margin was 31.5 per cent.

Representing and increase of approximately 660 basis points year over year.

And and increase of approximately 410 basis points relative to queue for 2020.

This year over your performance was mainly the result of some shift and the mix of professional services delivered.

And a slightly higher utilization rate and forecasted.

And Q1 2021, adjusted total operating expenses were 31.2 million.

As a percentage of revenue.

I just did total operating expenses were 56 per cent.

Which compares favorably to 62 per cent and Q1 2020.

Adjusted EBITDA and Q1 2021 was the loss of 0.8 million.

Exceeding the midpoint of our guidance and comparing favourably too and adjusted EBITDA loss of 6 million and the first quarter of 2020.

This Q1 adjusted EBITDA result was mainly driven by the strong revenue and gross margin performance mentioned previously.

Additionally, it was partially driven by some non headcount expenses that we anticipate will be pushed out into subsequent subsequent quarters and 2021.

Are adjusted net lost per share and Q1 2021 was six cents.

The weighted average number of shares used and calculating adjusted net loss per share and Q1 was approximately 43.9 million chairs.

Lastly, as it relates to our GAAP income statement.

Let me share and update on some of the areas of year over year increase.

First I would note that our queue 120, 21, depreciation and amortization expense increased by 4.9 million year over year.

Primarily due to the amortization of acquired intangible assets, resulting from our 20th 20 business combinations.

Next you will see that are key 120, 21 stock based compensation expense.

Increased by 4.8 million year over year.

In addition to expense associated with incremental R. S U grants and performance based or a Hugh grant this.

This increases also the results are restricted shares issued and revest it as.

That's part of acquisition consideration from our 2020 acquisitions and able health and vital where.

And this re best thing is classified as stocked eighth compensation expense.

Turning to the balance sheet. We ended the first quarter of 2021 with 266 nine of cash cash equivalents and short term investments.

Compared to $271 million, a year and 2020.

As a reminder, and April 2020, we issued a private placement of convertible notes with the principal amount of 230 million and.

And we used a portion of the proceeds to extinguish and outstanding term low.

After deducting the unamortized debt discount related to the conversion feature of 53.6 million.

And unamortized issuance cost of 4.5 million.

As of March 31st 2021, the net carrying amount of the liability component of the convertible notes is 171.9 million.

As it relates to our financial guidance for the second quarter of 2021.

We expect total revenue between 55.1 million and.

And 58.1 million.

And adjusted EBITDA losses between 4.8 million.

And 2.8 million.

And for the full year 2021, we expect total revenue between $228.1 million and.

And 231.1 million.

At their respective midpoint misrepresents and increase of 3 million compared to the full year revenue guidance, we provided last quarter.

We also expect adjusted EBITDA losses between 15 million and 13 million.

At their respective midpoint this represents and improvement.

A 0.7 5 million compared to the full your guidance, we provided last quarter.

Lastly, I'll I will provide a few additional details submitted to our guidance and 2021 forecast.

First we anticipate our queue to 2021 professional services revenue will be roughly flat to Q1 2021.

As a reminder, Q2 2021 professional services you over your growth.

And will result, and a more favourable comparison relative to the other quarters and 2021.

Given that and Q2 2020, we offer the subset of our clients temporary professional service and discounts helping.

Helping to support them through the acute COVID-19 related financial strain.

Next I would mention that we continue to anticipate our overall adjusted professional services gross margin percentage.

Will be in the twenties for the full year 2021.

Driven by a forecasted mix of services utilized and are forecasted you'd <unk> utilization rate.

And lastly, I would like to provide and a reminder, that we do typically experienced seasonality and our operating expenses.

The increase and our operating expenses that we anticipate for the remainder of the year.

Mainly driven by non headcount expenses, including our health care analytic summit.

The acquisition related integration expense that we described on our queue for 2020 earnings call.

As well as continued strategic investment and our growth and research and development functions consistent with previous commentary.

With that I'll conclude my prepared remarks, yeah.

Thanks, Brian.

I will conclude my commentary by thinking are highly engaged team members I'm grateful to these teammates for their central contributions to our mission and growth.

And with that I will turn the call back to the operator for questions.

Thank you and as a reminder to ask the question press, Taiwan and your telephone keypad to withdraw your question Pester Pankey.

This time and I will be compiled a cat and a roster.

Our first question and some rather gallons that come and fix your question case.

Great. Thanks for taking my question. This is Jack rub off on for Bob.

So would you be able to describe specifically what and professional services mix was better in the corner and if I heard you correctly. It sounds like you expect some of that and extrovert. So could you talk about how what transpired within professional services and a quarter and packs how do you view the balance and the year.

Yeah absolutely.

So in terms of our queue. One professional services performance, we did see uhm a bit of and uptick in terms of the mix of services offered that are some of our higher margin professional services. So as a reminder, we have uhm three main components of professional services offerings. One is our implementation services.

One is our data and analytics consulting services and the third is are outsourced services.

Data and analytics and then our and mine went that our our domain expert services are the higher margin professional services that we offer and we did see a bit of and uptick towards those and Q1.

That was also related to actually some some additional non-recurring a project based work.

Along those lines and coupon as well and that's why you to see a bit of and uptick and that gross margin and and our utilization rate Uhm and Q1 and.

And then looking ahead.

Based on the pipeline of services that we have visibility visibility and two now we do expect one or utilization rate to normalize a little bit more throughout the remainder of the year and.

And then to that that mix of services, which is slightly more to those lower margin uhm relative professional services offerings.

Throughout 2021.

Understood. Thanks, so much.

And you Jack.

Thank you and next question comes from and 10 and I was like J P. Morgan.

Hi, Thanks, so much for taking my question maybe for the second quarter, you know with the flat professional services grow with that actually and play some really nice organic technology growth for the second quarter. So just wondering if there's anything incremental and there or maybe any you know optimism that you're saying that that might be needing to that.

And it thank you uhm.

So what's your point, we do consistent with what we've shared and our prior earnings cause as well. We do expect continued robust technology growth for the full year of 2021, and we shared on our queue for call that our annual 2021 technology growth and growth rate what book similar Directionally.

To what you saw and 2020, which was approximately 30% growth.

And so to your point, we do expect on a sequential basis technology to continue to pick up slightly uhm quarter over quarter by a few percentage points, although there can be a little bit of.

And quarter variation on that exact number based on a few factors like the timing of go lives and implementation dates and the like.

Okay helpful. Thank you Uhm and then you can just want on the macro environment and you know we've been hearing a lot about the <unk> macro backdrop being more favorable for value based care.

I'm, just wondering what you're seeing uhm around appetite for that thanks.

Yes, so generally speaking and we are seeing more discussions any as it relates to population health and value based care coming back as a higher proportion of the conversations that we're having both with new clients and with existing clients relative to where they have been over the last 15 months.

COVID-19 specific activity had really dominated so that is something that we're seeing as well as and I've taken those kinds of conversations.

Great. Thank you very much.

Thank you.

Our next question comes from Ryan Daniels with William Blair and your question. Please.

Yeah. Thanks for taking my questions. Congrats on a strong start to the year I wanted to do a follow up there on the kind of population health or value based care front and the vignettes. You provided are always very helpful and wanted to focus on the one where you worked with an E C O on quality reporting.

And improvement and the practices and and drove north Vermilion plus and savings is that something that you think is transferable.

To pairs and two large provider groups thinking large physician groups or advanced medical practices as well because we're seeing them.

More and more enter this space, whether it's through Medicare advantage or taking M. A attributed lives or even direct contracting. So I'm curious what your thoughts are about that mark and tell Ya opening up for for your kind of commercial great analytic solutions.

Yeah. Thanks for the question Ryan we have been focused on strengthening our overall value proposition as it relates to measures and particular and and many organizations have specific requirements and those measures often relate directly to other really important aspects of operation.

Performance and financial performance and so we would see that this capability that H S. H S was able to to leverage our solution and produce is applicable and the pair space and and different subsegment to the pair space as well. So we are excited about uhm.

The and the potential of others utilizing that kind of a solution and and yielding similar benefits do.

And I think I would add Ryan is as you know so the vast majority of our current customer base is on the more traditional provider side, but we do have some segment. Some portion of our customer base that is in those verticals that you described and what day and stand describe and along the spectrum of brisk growing entities Acos and the like and do you think our platform.

And our population health applications have relevant and Sir.

Okay Super helpful. And then one quick follow up just on the margin front and I'm thinking longer term and nature. If we look at the different portions of your services offering if it's fair to think that the day to analytics over time.

Could increase is a portion of that services revenue with you, having a broader offering and constantly introducing new use cases.

And how should we think about that again longer turn not not talking for this year, but and over the next three to five years home like that's Q. Thanks.

It's a good question right and and I would share that we feel like we're and learn mode, especially during the COVID-19 pandemic, where we're just trying to learn and and observe and we want to I think take the rest of this year to better understand what we're observing and the professional services space I think pre.

[noise] COVID-19, we would share a perspective that it was it was not a typical at all to see different parts of those three components of our service ramp up per rep down at any given quarter based on the kind of improvement work that we were doing we've seen some other changes that have occurred over the last 15 months and we're trying to pay attention to signal and.

<unk> as we get through the pandemic and and so will likely keep observing before making any specific observations, but then use the planning cycle each year as another opportunity to step back consider if we've seen any any more macro changes that would be a note and if we do observe any.

And we would share those you know following the planning process probably early next year.

And one other thing I would add.

And just just in terms of our longterm.

Longterm professional services gross margin target that that is in the mid thirties. As we have stated and so that that margin would reflect essentially that mix of those services that I described and did and analytics and other consulting services are a good.

A good portion of that.

Great. Thank you again.

Thanks Ryan.

Our next question comes from Sean and Leon with five per cent or your question. Please.

Hi, Thanks, very much you called out a greater amount of non-recurring services and the quarter could you quantify that and maybe tell us a little bit more about what that was.

Yeah, sure and I'll make a comment and then Brian Please feel free to add as well so I would characterize Shawn that the increase and nonrecurring revenue oriented services is one of those elements that we've seen recently during the Miss independent make that a number of clients had been interested and those kinds of Prague.

<unk>, that's something where we don't feel ready to make any pronouncements, yet about a longer term shift and I'll look Brian comment on the specifics as it relates to Q1, but it is something that we're watching as we progress through 2021, and we'll see if as we gather more day to there's there's anything that we feel has <unk>.

Change materially or longer term, Brian what would you at.

Yeah, just to add on the quantification Sean of it so.

Given that the vast majority of our services are still recurring it is fairly small you could think about it as a million or so of additional non-recurring services, but fairly small portion of our overall next currently.

Okay. That's good to know thank you and just on the overall pipeline and a new dos clients. I mean can you characterize that a little bit in terms of you know are you going to kind of regained momentum after after a pandemic year this year and.

And how is that the maturity of the pipeline progressing.

So overall, we would continue to characterize the pipeline and the way that we have been but it.

Behaves a lot like pre pandemic levels and that is the result of headwinds and tailwind that we've described previously we continue to experience those headwinds and those tailwind that.

And that affects specifically the new client the new Dr subscription client pipeline as well.

We do anticipate and and look forward to getting through the pandemic and then we do believe that those tailwind associated with a sense that every health system needs a commercial grade data platform like dos rather than a homegrown patchwork infrastructure will persist beyond the <unk>.

Pandemic, but we still observe long sales cycle, so of approximately one year and so the result of that longer term tailwind will take time much much of that will take beyond 2021 to really show up and in terms of pipeline performance anybody and you would add on that.

And I'm thinking.

So just remind remind me have you given us and target for the number of dos clients and you knew dos clients and want to add this year.

We did share a mid teens expectation.

And so that's what we're still on track for.

That's right.

Thanks, so much.

Thank you <unk>.

Our next question comes from and you said that Anderson with Evercore No question. Please.

Hi, guys. Thanks, so much for <unk> for that question can you talk about and tender.

And.

Different and like you know new prospects or.

And people in the pipeline are looking for or different.

Service that they're really interested and.

Yes. Thank you for the question Elizabeth So as we mentioned a few minutes ago, we are seeing more questions more interest as it relates to to what we saw before the pandemic in terms of a lot of focus and a lot of discussion around value based care and population health that.

And that slowed down during the last 15 months, where there was more of a specific focus on COVID-19 response and everything related to that.

We are seeing that that topical area pick up a little bit more over the last few months.

Alright, I think I would.

Alright.

Oh, and I'm, just gonna and Elizabeth Uhm, we continue to see.

Again focus on areas like the financial optimization cost optimization inefficiencies and population health as Dan mentioned, but then continued focus on.

That robust commercial grade solution as compared to a patchwork solution, that's less flexible and and environment like us.

Makes sense and and you.

<unk>.

<unk> <unk>.

<unk> exactly.

Yeah, we we we are not breaking that out and our and our filings or 10-Q and did not did not comment on it and the prepared remarks.

We did break that out and our filings through 2020, and the year of acquisition, but I could point you Elizabeth to the color as well that we provided on our last call.

Which was that.

For the year, we expected vital or to contribute and the low 20 millions in 2021 and terms of revenue and that low 20 million.

As you are aware, there's a deferred revenue right down and that will have an impact on that.

Two one Q2 in particular and and tick off towards the back half of the year. So hopefully that helps you with a little bit of color on that on that level.

Got it so sorry, just to clarify that low twenties contribution is for all four quarters.

And not like the.

The first three quarters until you laugh and purchase date rape.

Yes, yes, yes for the full year of 2020 offer of 2021, all four quarters.

And thank you.

Thank you and next question and contact Stephanie day, both book of the day and leaving please go ahead.

Thank you for taking my question and bathroom and Florida.

Thinking about the new sales path and the exit the.

Pandemic could you walk us through that and you're kind of opportunity and he can bring in danger clients had to pause per cough and current during the pandemic and and that wallet going and bounced back pretty immediately or do you think for sending your brought him and configuration. This could be more of a multimedia recovery.

Yes, So we think about thank you for the question and Stephanie we think about the.

And the the growth of the company and two broad categories. One is with new clients and as we've stated previously we certainly did experienced especially in the early months of the pandemic more of a pause like you mentioned and discussions about having a new claim.

Relationship.

Starting in the back half of last year, we saw that reengagement occur.

But we still have a long sales cycle of about one year with regards to new client discussions now the second category that we think of in terms of growth is expansion with existing clients and that's typically more streamlined set of discussions and can vary.

A lot based on what they specifically are focused on and what they would like to expand as we share previously a lot of the discussions with existing clients focused on COVID-19 response, especially the first six months of the pandemic, we started to see some of the other aspects of our portfolio of offerings come.

Going back.

Starting and the latter half of last year, and we see that continuing forward.

Even more in the first part of this year as well and we anticipate that that will continue to be the case moving forward and and you'd add Brian Yeah, just just add Stephanie as well and.

And the and market that were selling into and health care. So budget cycles tend to be sent on set on an annual basis and.

Shifts in terms of day.

The macroeconomic environment or trends that way can tend to potentially have a lag as it gets reflected and updated budget cycles and and flowing into our our sales cycle.

And that same know of patches and is there any chance for pick up and be professional service side that you're not factory and today and tomorrow immediate or is that still or we can do lockset with a textile side of the lab.

Yeah, It's great question it's.

It's something that we're continuing to monitor so and Q1, we did have that uptick that I mentioned that increased our utilization rate a little bit beyond what we had expected.

We are wanting to continue to monitor that and.

And that trend and that demand and assess over the next couple of quarters, but it's something that we're we're thinking through and will provide updates on.

Online to see a compare goodness alright, thank you guys.

Thanks, Stephanie.

Okay and next question comes from Steve help her with Cantor Fitzgerald. Please go ahead.

Hi, just a quick housekeeping question, you talked about a higher level of stock compensation and the quarter.

Due to the.

Fasting.

Acquisition related stock.

I'm, assuming that doesn't repeat and subsequent quarters. So is it.

Is that a safe assumption.

Yes, yes, there will be.

There will be some of that that continues through a portion of 2021, just based on the reinvesting schedule and that's been defined from those acquisitions, but to your point, we do think about that is.

Essentially somewhat separate and different from the stock based com that's driven by.

<unk> brands performance based grants team member retention and compensation and a life, but that will have a little bit of a lag as it rose through 2021.

Right, but the subsequent quarters and the aggregate does that does that does.

Dot com number of decline.

And we would expect the stock comp number two to pick up slightly just based on those those grants that I described so.

I think it's fair to think about as a percentage of revenue as an example stock based comp could pick up by a few percentage points through the next few quarters and 2021.

And then.

The the reinvesting does that go into any one category or is it spread throughout.

It's broken out in our and our filings and the form of restricted chairs and.

And so I'd have to I'd have to look exactly I think it's mostly and a single opex category, but we do breakout those shares separately.

Thank you.

Mmk. Our next question comes from global crossed and the <unk>. The question. Please.

Thank you.

I think this question has come up and a couple of different context, but.

<unk>.

And is there anything you can occur.

Lane or help us understand the patterns and your face and trucks or how.

And how they.

And you services utilization of a catch phrase.

Once we get through the pandemic or based on the conversations they're having me feel interest the time and issue as opposed to any real changes in behavior and a longer term day.

Yes. Thank you for the question David So the vast vast majority of our clients tap.

Tap into both our technology at the data platform, where as well as at the applications, where as well as different components of our services and we have a a particular perspective about our services that they're all designed to enable our clients to be successful to enable them to realize measurable massive improve.

<unk> and the areas of most importance to them as a result, and as we've discussed previously we're comfortable with that mix of services changing each quarter based on what the needs of our clients are and we see the different clients need different components of those three categories of services that we offer and.

We're comfortable with that and that's one of the reasons why historically you've seen some variation in terms of the the gross margin profile of services and any given quarter, we're comfortable with that because we're optimizing those services to really focus on enabling and our clients to be successful as the first measure of our success and services and.

And as a result, we're flexible there and then you'd add Brian just that.

I think to Dan's earlier point, we're continuing to learn about the long term attachment rates longterm kind of more normalised growth crowd growth profile and the services segment.

We have provided color at least for 2021 and in terms of our professional services dollar based retention rate that we would expect to be up meaningfully from the mid nineties and 2020.

Although still have some pressure and particularly and the first half of 2021 and potentially for the year on that retention rate. So at least hopefully that provide some color in terms of how we think about it this year and and how that would flow into 2022 revenue.

Right and I've got it thanks for that and and.

Submit by massive right it would imply your guidance for your.

Sequentially, Rosemary for slipped down and the back half of the year. So.

If that matters right is that just conserve and so because of the variability and services or is there something more to it and.

Yeah, I'll comment and then Brian please feel free as well so as Brian mentioned earlier and the first quarter, we did observe.

Some increased activity as it relates to non recurring revenue services and.

And because they're non-recurring and nature and and project based and nature those services come into and and later and the year and that's.

Ah component of our services offering that that is relatively newer in terms of its proportion.

And clients interest as I mentioned before we are focused mostly on and ensuring that we're offering services, they're really helpful. The clients and enabling them to be successful and that's one of the reasons why during the pandemic and even as we're continuing independent and making the first half, we're still watching and observing and trying to understand if there.

Or or anything and.

Any patterns that might last beyond the pandemic versus those that are more specific with the pandemic and and we don't feel we have and updated yet to to understand how non-recurring services is one example might play out through the rest of the year and so we do try to be data informed when we think about projections for the back half of the year what would you add.

And I think that was well said.

And.

Great Alright, thank you.

Thank you and next question comes from Daniel Crosslight with C D.

Can you provide and update on cross sales this quarter, both selling dos clients I nearly acquired solutions and and crossed selling the dos platform too acquired clients.

Yes, so in the and the first category of selling newly acquired applications cross selling those and toward US client base. We did have some success and Q1, we're still early and that process of of sharing.

That those expanded offerings and our portfolio, but that app swear across cell is typically at a lower incremental price point and so the sales cycle is is a little bit shorter and those cases, so we have a little bit more data there and we did see some success, we do assume some moderate cross cell and our.

Forecasts and inner guidance at that App Slayer. The second category is is selling apps where clients on the dos pop.

Platform and that's a more difficult cross cell, it's a much larger price tag to get started and those clients that are app only clients of newly acquired companies. For example are used to a much lower price point. So that is a category, where we continue to see pipeline movement and we're we're continuing to.

Focus there, but given the longer sales cycle and the the larger ticket and.

And that will take longer to play out and much of that we expect would play out from a P&L perspective really more into next year and beyond.

Got it okay. Okay, and then on on the quarterly cadence of New Dos had this year.

I think you mentioned mid teens, it's still be the expectations for total ads, but would you expect the call.

Totally keyed into those ads to once again be back weighted or you expect that to normalize to kind of Ah.

A pre pandemic level.

I think the answer is yes to both actually that that pre pandemic, we did see a back waiting.

And each half of the year, where the second quarter and the fourth quarter, where typically.

More heavy in terms of the sales activity and that aligns with southern Brian mentioned earlier that most of our clients have an annual budget cycle.

And that usually either.

Typically aligns with the calendar year or more of a mid year kind of fiscal year and schedule. So we do expect that that will continue to be the case.

Weighted towards Q2 and Q4.

But the pandemic has throne.

Throw in some curve balls and so we're continuing to just watch and monitor and doing anything I would add based and is just to dance point.

Once those contracts sign and are onboard it there can be just a bit of variation.

And and timing impact of the.

The time between posts contract signing and then and then I go live data and implementation date that can have an impact on the timing of that and.

And recognition.

A couple of months Coupla free okay. Okay. So if we assume kind of a 10 40 10 40 quarterly cadence.

Would that be a good assumption.

Yes.

Okay.

Thanks Scott.

Thank you Daniel.

Our next question comes from Irish along with Baghdad.

Hey, guys. Thanks for taking my question. So I guess the first question on and I'm wondering if you can kind of elaborate on your Anthony comment, particularly on the pipeline that you were looking at maybe and can you talk about what capabilities and what day Oh five Okay. And then I also kind of want to get you.

My thoughts around to buy their fulfilled depression.

Yes, thank you for those questions Iris.

And we continue to believe long term that we are in a good position to be a consolidator and this space and believe that will be the case for many years to come and that's one of the reasons why we have been acquisitive and active with three acquisitions over the last 15 months or so and as we mentioned and are prepared remarks that we see.

C a meaningful high quality robust pipeline of acquisition opportunities, we primarily or focus at the App Slayer of our technology stack as as that is aware, which includes many companies a number of whom are startups that may struggle to make it long term is independent companies.

But may fit really well within our portfolio and to your point I risk. We go through a rigorous process of build partner by analysis. When we think about the portfolio of offerings that we have at the applications, where we continue to focus on specific areas, where we want to be the.

The best and the World and differentiated and we continue to think of acquisitions as a way of accelerating.

The portfolio that we can offer for example, and areas like population health, where there are always opportunities for us to make more robust are offering and we've use both research and development and.

Investments as well as acquisitions in the past to strengthen our are offering their and pop health for example, and we believe there may be other opportunities like and areas like patient engagement. For example, we continue to also focus and other areas like the CFO value proposition both on the revenue side and the cost side, where we want to strengthen.

We can offer and terms of tangible ROI. Great. Recent example of strengthening that through acquisitions was flightaware. We do believe there are other opportunities for us to strengthen the about the value proposition to cfo's and in terms of the size of offering we want to always be and a physician with our capital structure.

And to be very strong in terms of being able to go after a great opportunities as they present themselves and fit with our strategic framework and as such we want to have a strong balance sheet today as we mentioned and are prepared remarks, we sit with with over $265 million of cash and cash equivalents on the balance sheet.

Much of that can be utilized along with equity.

In and pursuing opportunities that can be small on the one and of the spectrum like tuck and acquisitions like cable health all the way up to a few hundred million and.

And in total enterprise value and everything and between and we want to make sure that we're always well positioned when we see a strategic opportunity and the acquisition space to have the balance sheet strength and the capability to to act. So that we can be that consolidator longterm that.

We believe we we should be in order to fulfill our mission and.

And just to add to the areas to dance point around the build vs by vs. On partner framework. So one additional year that we tend to lean a little bit heavier on in terms of the build opportunity as our platform layer.

Typically and you saw we did announce.

Some additional capability relate.

Related to machine learning augment and intelligence AI and that's a horizontal capability.

And health care Dot net.

Built into to our platform layer that were encouraged by itself just another framing in terms of where we're focused their unbilled vs. Bye.

Okay, Great actually my second and follow up question is on the health care Dot AI pollution, I'm wondering like how much time and resources did it take you guys to kind of build that solution and then maybe if you can kind of highlight what's special about it if you compare it to some of the other furniture.

That's on and my Cat.

Yes. Thank you for the question so as Brian mentioned, we focus a good deal of our R&D investment at the data platform and the data content layer as key elements of differentiation that really get our clients started on becoming more data informed and the health care Dot AI is a great.

Example, at that data content layer, where we are focused on investment to make sure that.

That our clients have data organized and a way that is.

Is not a black box and and you ask the question of how does this differentiate from.

Some of the other AI offerings in the marketplace and that's an important distinguishing factor that we have found and work across the health health care delivery spectrum.

And ecosystem debt when leaders clinical or operational leaders are are leveraging a black box from and AI perspective, where they can't understand or they don't have access to understand the assumptions behind the results that come out of the AI black box, they're much less likely to trust and to utilize.

And that information, we purposefully build all of our solutions around the AI offering at that data content layer as drill level. So that you can see exactly what the assumptions were what were the input what was the waiting of those inputs in determining and developing a predictive.

Model and then we allow our clients those leaders to be able to adjust the assumptions that go into those predictive models, we want them to be the owners of those predictive models and those machine learning capabilities, because the adoption of those capabilities goes way up and because fundamental.

We believe that AI as a support not a replacement for the decision making that needs to take all take place always and be in the hands of clinical leaders, who have that there'll be and expertise and how the relationship with a patient and AI provides a great support to that and win AI is utilized and that way adoption.

And is much higher than what we've otherwise seen and the industry and.

And we're really pleased to see that adoption high with our clients that are utilizing health care Dot AI.

Because they can they can be and the driver's seat there's still the decision maker they haven't mineral placed but rather they're now using this new capability to make even better decisions.

Yeah and helpful. Thank you.

Thank you.

I last question comes from David last time with the P. I G. A question. Please.

Hi, Uhm can you talk a little bit about the piece of cells in the hospitals as we get through the pandemic. Some of the publicly traded hospital companies have reported you know.

Uhm E R volumes at 73 per cent of baseline, so still well below baseline and the inpatient volume is you actually a little bit light.

And as well in some cases and I know you had a product that was helping hospitals identify where they quickly cover elective procedures.

<unk> I guess, maybe any comments around hospital volumes and and COVID-19 with and it sounds would be helpful. Thank you.

Yes. Thank you David good to hear your voice.

[laughter] so across our client base I would characterize our recent conversations as.

Consistent in some ways with what you just share that many many of our health system clients are still experiencing impacts from COVID-19, as we share it and are prepared remarks that that impact either.

Ken Ken manifests itself in terms of a shift and prioritization towards a focus on vaccination logistics for example, and other COVID-19 specific care, but they're delivering a second place that it can manifest itself as as it relates to pre pandemic volumes and and in some cases, we do see.

Some of our clients that have not yet gotten back to pre pandemic volumes, others have and I think many are approaching.

Much more close to that pre pandemic volume, but there's still and impact area and in both of those categories, where they've either shifted their focus and and they're doing some pendant make specific activity or they still haven't quite gotten back to that prepaying pandemic level, but we are seeing that.

That over time, most of our clients are getting closer and closer to those free pandemic levels.

Okay, Great and then just a quick follow up all scripts, obviously sold EPS I <unk> I would think that that could potentially open up and RCM opportunity for somebody no like yourself <unk> any thoughts on that and any other comments there are some space and general and and vital it was great and what's really charge.

Master was a lot of other areas.

And that you know to be valuable I think.

Yes. So are Sam is a very large space as you know David and we.

We were focused with regards to the vital where acquisition, an enabling technology foothold that would be meaningful beachhead and in a place where we can build around that charge master capabilities, knowing that that was a small subsegment of a very broad space, we've been pleased with that foothold and and that beach.

And had opportunity that vital where provides us likewise, our activity based costing solution and of course is another important technology foothold.

It does enable us to to build around that and the space of what is most important to CFO and as mentioned earlier that CFO value proposition continues to be and area prioritized focus for us we're both in our R&D investments as well as in our.

And our potential acquisition related activities will continue to be focused.

Very much on the technology that can enable more and more.

Measurable improvement and this space and in specific sub segments, where we feel that we can be differentiated as you know there are many players and abroad RCM space, we want to make sure that the specific sub segments that we go after that we focus on our sub segments to play to our natural strength surround organizing data from.

And a different sources and and analyzing that data and using technology of the app slur that can really automate and measurably improve so we will continue with that lens as we think about our position within that broad space.

Great. Thanks, so much.

Thank you.

Thank you and I'm going to and the Q&A right now, there's no questions and Nikki and pass that call to Dan Burton far finally, Mike.

Thank you Carmen and thank you to all those who have dialed and for this report we appreciate your interest and our company and we look forward to staying in touch and the months at.

Thank you, ladies and gentlemen, and this concludes today's conference call. Thank you for your participation and you may now disconnect.

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Thank you for standing by and welcome to the health catalyst, earning conference call for the first quarter of 2021.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

To ask a question at that time. Please press Star then one when you touch tone telephone.

And the amount of today's conference call is being recorded.

I will now turn the call somebody and host Mr. Adam Brown you may begin.

Good afternoon, and welcome to Health Catalyst earnings Conference call.

For the first quarter of 2021.

And data on March 31, 2021.

My name is Adam Brown, and I'm, the senior Vice President of Investor Relations and financial planning and analysis for health catalyst.

And with me on the call is Dan Burton, our Chief Executive Officer, and Brian <unk>, Our Chief Financial Officer.

A complete disclosure of our results can be found in our press release issued today as well as and our related form 8-K furnished to the SEC both of which are available on the Investor Relations section of our website at IR Dot health catalyst Dot com.

As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call.

During 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.

Actual results may materially differ please refer to the risk factors and our form 10-K for 2020 filed with the SEC on February 25, 2021, and our form 10-Q for the first quarter of 2021 that will be filed with the SEC.

We will also refer to certain non-GAAP financial measures to provide additional information to investors.

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 provide his prepared remarks.

Dan and Bryan will then take your questions Dan.

Dan.

Thank you Adam and thank you to everyone who has joined US this afternoon.

We're excited to share our first quarter 2021 financial performance along with additional highlights from the quarter.

We'll begin today's call with some commentary on our first quarter 2020 one financial results by sharing that we are pleased with the company's overall financial performance. Our Q1 2021 total revenue was $55 8 million.

And our adjusted EBITDA was a loss of $8 million.

With these results exceeding the midpoint of our quarterly guidance on each metric. Additionally.

Additionally, our Q1 2021 technology revenue was $33 8 million, which represents 37% growth year over year and our Q1 2021 total adjusted gross margin was 54.3% growth.

Presenting and increase of 540 basis points year over year.

Now, let me highlight some additional items from the quarter.

You will recall from our previous earnings calls that we measure our company's performance and the three strategic objective categories of improvement growth and scale.

And we'll discuss our quarterly results with you and each of these categories.

The first category improvement is focused on evaluating our ability to enable our clients to realize massive measurable improvements while also maintaining industry, leading client and team member satisfaction and engagement.

Let me share a few examples of client improvements from recently published case studies.

The first improvement and yet highlights our work with one of our clients supporting their journey to financial and operational recovery from COVID-19.

While the latter two vignettes highlight clients leveraging our technology and services to do meaningful improvement work outside of their COVID-19 response.

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Carl Health employed our software, including the Daas data platform and our new health care Dot AI solution to acquire advanced data science and analytics to their COVID-19 capacity planning.

Our technology enabled our colleagues and Carl to forecast census, and related bad staffing and supply needs at the level of patient acuity.

Which provided the ability and real time to anticipate and meet the demand for facility supply and.

Human resources required to care for COVID-19 patients across Carl's community.

Next.

Thibodaux regional health system leveraged our solution to employ data informed approach to meaningfully improve care delivery and achieve reduced costs are software enabled our colleagues at pivotal to significantly reduce their patients' stroke pneumonia and <unk>.

<unk> mortality rates in addition to decreasing length of stay the incidents of complications for patients undergoing joint replacement surgery.

And the use of blood products.

As a result, thibodaux has achieved over $6 6 million and financial improvements, while also improving health outcomes for thousands of patients across multiple service lines.

Finally hospital sisters health system utilized our solution, including the das platform and our quality and regulatory measures analytics software.

To integrate claims and clinical data from disparate EMR is a profit ACO.

And this real time integrated quality data and analytics enabled hospital sisters health system to improve their ACO quality measures performance across 11 measures and a single year.

Close care gaps and enhanced reporting accuracy and effectiveness.

Moreover, Hospital sisters health system.

Gained an additional $1 million and Medicare shared savings program revenue.

And they achieved 320000 and cost savings the result of eliminating a third party quality reporting software vendor.

Okay.

Also within the improvement category I'd like to highlight our team member engagement.

Approximately every six months, we utilize the Gallup organization to measure our team members' engagement levels.

And our most recent results we achieved an overall team member satisfaction score and the 96 percentile.

This latest engagement level continues a pattern that has been in place for many years of industry, leading team member engagement consistently ranking between the 19th and.

And 99 percentile and overall team member satisfaction scores. This latest result is of particular significance.

Given that it comes during a period, where we were required to adapt to a global pandemic, necessitating a remote only work environment.

And as well as having welcomed nearly 200, new teammates who came to us primarily through multiple recent acquisitions.

We as a leadership team continue to maintain and primary prioritized focus on team member engagement the center of our strategic flywheel, because we recognize the central and foundational contributions that our team members make and building and then utilizing the software that enables our clients to achieve.

Massive measurable improvement.

And these gallup results, coupled with our clients high satisfaction levels throughout the pandemic, our hardening and confirmation of our prioritization and focus.

And on a similar note I would highlight that we have been fortunate to receive multiple other external recognitions related to team member engagement.

Including the company's fourth recognition as a glass door best place to work in addition to inclusion and fortunes best place to work and technology list.

The women Tech counsels shatter list and in her sides best information technology and services companies to work for less.

We were also thrilled that two of our team members were recently recognized as 2021 Black engineer of the year Science Spectrum Trailblazer Award winners.

Lastly, and the improvement category I would like to highlight our recent announcement that the company achieved served and certification for him and information security by High Trust.

Hi Trust Leverages nationally and internationally accepted standards to ensure a comprehensive portfolio of security controls.

As trusted stewards of our clients' data, we take information and security and data privacy very seriously.

And as we recognize that they're central to the success of our clients and our mission and.

And this announcement highlights our ongoing commitment to implementing best practice standards for protecting data confidentiality integrity and availability.

Our next strategic objective category is growth, which.

Which includes beginning new client relationships, while also expanding existing client relationships.

To begin I would comment that our current operating environment is consistent with commentary that we shared on our Q4 2020 earnings call and COVID-19 pandemic continues to result in both headwinds and <unk> as it relates to our growth.

And as such we are reiterating the 2020, one bookings expectations that we shared on our Q4, 2020 earnings call.

In terms of headwinds, we anticipate our provider and market will continue to be under some amount of operational and financial strength over the coming months.

Health care organizations deal with the continued COVID-19 surge along side the vaccine rolled out logistics and.

And as it relates to tailwind we continue to see meaningful evidence that their health care provider ecosystem is better equipped and prepared to respond to the ongoing pandemic and areas, including treatment efficacy supply chain logistics capacity planning and broader operational optimization.

Likewise, we are encouraged by the pace of the vaccine rollout efforts and lastly, we continue to believe that the COVID-19 pandemic will serve as an overall tailwind and the industry's adoption of data and analytics.

And when you're highlighting the need for a commercial grade data and analytics solution to replace patchwork homegrown systems.

Last day on the topic of growth I would share that consistent with previous commentary. We continue to believe that we have a meaningful consolidation opportunity, especially at the applications layer of our solutions stack. We currently have greater than $265 million of cash and short term investments on our balance sheet.

A meaningful portion of which is available for acquisitions.

And while the pace of our acquisition efforts will always be driven by the quality of opportunities that we continue to be encouraged by our high quality acquisition pipeline and we believe that the COVID-19 pandemic has brought certain opportunities to the forefront that may not have presented themselves otherwise.

Finally, I will make a couple of comments related to our board of directors Dr. Tim Harris, who has served on our board since January of 2018, and most recently as its chair has concluded his service on the board effective may one 2021.

England's National Health service required Doctor ferrous to resign from our board and connection with his appointment as NHS is national director transformation.

We are extremely grateful for the opportunity to have benefited from Doctor Apheresis wisdom and experience for many years and we wish them well and it is exciting future role with the NHS.

And Dr. Apheresis place, we're thrilled to announce the Jack Kane has accepted the invitation to serve as chair of our board of directors effective may one 2021.

Jack has served on our board since 2016, including several years as audit Committee chair.

Jack has more than 30 years of experience and health care technology, including as a public company CFO and currently serves on the board of directors of several companies. We are grateful for JAKKS dedication to our mission over many years as well as debt the financial leadership experience and health care and and technology.

He is uniquely qualified to serve as our chair moving forward.

With that let me turn the call over to Bryan Bryan.

Thank you Dan.

Before diving into our quarterly financial results I want to Echo Dan's sentiment.

And say that I am pleased with our first quarter 2021 results.

I will now comment on our strategic objective category of scale.

For the first quarter of 2021 we generated $55 8 million and total revenue.

As Dan mentioned, this represents and outperformance relative to the midpoint of our guidance.

And it represents an increase of 24% year over year.

Technology revenue for Q1 2021.

$33 8 million.

Representing 37% growth year over year.

This year over year growth was driven primarily by recurring revenue from new client additions.

From existing clients paying higher technology access fees as a result of contractual built in escalators and from our Fido where acquisition.

Professional services revenue for Q1, 2021 was $22 million.

Representing 8% growth relative to the same period last year.

This performance is primarily due to our professional services being provided to new dos subscription customers parse.

Partially offset by lower professional services dollar based retention achieved in 2020 relative to historical performance as a result of the COVID-19 pandemic.

Total adjusted gross margin for the first quarter 2021.

$54.

3%.

Representing an increase of approximately 540 basis points year over year.

And the technology segment, our Q1 2021 adjusted technology gross margin was 69, 1%.

And increase of approximately 40 basis points relative to the same period last year.

This year over year performance was mainly driven by existing clients paying higher technology access fees from contractual built in escalators without a commensurate increase and hosting costs.

Offset partially by headwinds due to the continued costs associated with transitioning a portion of our client base to third party cloud hosted data centers and Microsoft Azure.

And the professional services segment, our Q1, 2020 one adjusted professional services gross margin was 31 five per cent.

Representing an increase of approximately 660 basis points year over year.

And an increase of approximately 410 basis points relative to Q4 2020.

This year over year performance was mainly the result of some shift and the mix of professional services delivered.

And a slightly higher utilization rate and forecasted.

And Q1 2021 adjusted total operating expenses were $31 2 million.

As a percentage of revenue.

Adjusted total operating expenses were 56%.

Which compares favorably to 62% and Q1 and 2020.

Adjusted EBITDA in Q1, 2021 was the loss of zero point $8 million.

Exceeding the midpoint of our guidance and comparing favorably to and adjusted EBITDA loss of $6 million and the first quarter of 2020.

This Q1 adjusted EBITDA result was mainly driven by the strong revenue and gross margin performance mentioned previously and.

Additionally, it was partially driven by some non head count expenses that we anticipate will be pushed out into subsequent subsequent quarters and 2021.

Our adjusted net loss per share and Q1, 2021 and <unk>.

The weighted average number of shares used in calculating adjusted net loss per share and Q1 was approximately $43 9 million shares.

Lastly, as it relates to our GAAP income statement.

Let me share and update on some of the areas of year over year increase.

First I would note that our Q1, 2020, one depreciation and amortization expense increased by $4 9 million year over year.

Primarily due to the amortization of acquired intangible assets, resulting from our 2020 business combinations.

Next you will see that our Q1 2021 stock based compensation expense.

<unk> increased by $4 8 million year over year.

In addition to expense associated with incremental or a share grants and performance based or a shoe grants.

This increase is also the result of restricted shares issued and Revest. It.

As part of acquisition consideration from our 2020 acquisitions of able health and vital ware.

And this reinvesting is classified as stock based compensation expense.

Turning to the balance sheet. We ended the first quarter of 2021 with $266 million of cash cash equivalents and short term investments compared to 271 million at year end 2020.

As a reminder, and April 2020, we issued a private placement of convertible notes with a principal amount of $230 million.

And we used a portion of the proceeds to extinguish and outstanding term loans.

After deducting the unamortized debt discount related to the conversion feature of $53 6 million.

And unamortized issuance cost of $4 5 million.

As of March 31, 2021, the net carrying amount of the liability component of the convertible notes is $171 9 million.

As it relates to our financial guidance for the second quarter of 2021, we expect total revenue between $55 1 million and.

And $58 1 million.

And adjusted EBITDA losses between $4 8 million.

And $2 8 million.

And for the full year 2021, we expect total revenue between $228 1 million and.

And $231 1 million.

And their respective midpoint. This represents an increase of $3 million compared to the full year revenue guidance, we provided last quarter.

We also expect adjusted EBITDA losses between $15 million and $13 million.

And their respective midpoint this represents an improvement.

Of 0.7 5 million compared to the full year guidance, we provided last quarter.

Lastly, I will provide a few additional details related to our guidance and 2021 forecast.

First we anticipate our Q2 2021 professional services revenue will be roughly flat to Q1, 2020 one.

As a reminder, Q2 2021 professional services year over year growth.

Will result in a more favorable comparison relative to the other quarters and 2021.

Given that in Q2, 2020, we offered a subset of our clients temporary professional services discounts helping.

Helping to support them through the acute COVID-19 related financial strength.

Next I would mention that we continue to anticipate our overall adjusted professional services gross margin percentage.

And we'll be in the twenties for the full year 2021.

Driven by our forecasted mix of services utilized and our forecasted utilization rate.

And lastly, I would like to provide a reminder, that we do typically experience seasonality and our operating expenses.

The increase and our operating expenses that we anticipate for the remainder of the year.

Mainly driven by non head count expenses.

<unk>, our health care analytics summit.

The acquisition related integration expense, we described on our Q4, 2020 earnings call.

As well as continued strategic investment and our growth and research and development functions consistent with previous commentary.

With that I'll conclude my prepared remarks, yeah.

Thanks, Brian.

I will conclude my commentary by thinking our highly engaged team members I'm grateful to these teammates for their central contributions to our mission and growth.

And with that I will turn the call back to the operator for questions.

Thank you and as a reminder to ask a question press star one on your telephone keypad to withdraw your question press the pound key.

Please stand by while we compile the Q&A roster.

My first question is from Robert Jones with Goldman Sachs. Your question. Please.

Great. Thanks for taking my questions and this is Jack rogoff on for Bob.

So would you be able to describe specifically what and professional services mix was better and the quarter and if I heard you correctly. It sounds like you expect some of that next to revert.

So could you talk about how what transpired within professional services and the quarter impacts how you view the balance and the year.

Yes, absolutely.

So in terms of our Q1 professional services performance, we did see.

A bit of and uptick in terms of the mix of services.

And that our some of our higher margin professional services. So as a reminder, we have three.

And three main components of professional services offerings. One is our implementation services, one is our data and analytics consulting services and.

The third is our outsourced services.

Data and analytics and then.

In line with debt our domain expert services are the higher margin professional services that we offer and we did see a bit of an uptick towards those and Q1.

That was also related to actually some some additional nonrecurring or project based work.

Along those lines and Q1 as well and that's why you did see a bit of an uptick and that gross margin and and our utilization rate and Q1.

And then looking ahead.

Based on the pipeline of services that we have visibility visibility and to now we do expect one our utilization rate to normalize a little bit more throughout the remainder of the year.

And then two that that mix of services, which has slightly more to those lower margin relative professional services offerings.

Throughout 2021.

Understood. Thanks, so much.

Thank you Jack.

Uh huh.

Thank you. Our next question comes from and Samuel with Jpmorgan.

Hi, Thanks, so much for taking the question.

Maybe for the second quarter, you know, what that's flat professional services growth that actually implies some really nice organic technology growth for the second quarter. So just wondering if there's anything incremental and there.

And thank you.

So to your point, we do consistent with what we've shared in our prior earnings calls as well we do expect.

Continued robust technology growth for the full year 2021, and we shared on our Q4 call.

Our annual 2021 technology growth and growth rate would look similar directionally to what you saw and 2020, which was approximately 30% growth.

And so to your point, we do expect.

On a sequential basis technology to continue to tick up slightly.

After over quarter by a few percentage points, although there can be a little bit of.

And quarter variation on that exact number based on a few factors like the timing of go lives and implementation dates and alike.

Okay helpful. Thank you and then maybe just one on the macro environment. We've been hearing a lot about the NAV macro backdrop being more favorable for value based care.

And I'm, just wondering what youre seeing around appetite for that thanks.

Yes, so generally speaking we are.

We're seeing more discussions any as it relates to population health and value based care coming back as a higher proportion of the conversations that we're having both with new clients and with existing clients relative to where they've been over the last 15 months, where COVID-19 specific activity had really dominated.

So that is something that we're seeing as well as an uptick and those kinds of conversations.

Great. Thanks very much.

Thank you.

Our next question comes from Ryan Daniels with William Blair. Your question. Please.

Yes, thanks for taking my questions. Congrats on a strong start to the year I wanted to do a follow up there on the kind of population health or value based care front and the vignettes you provided and are always very helpful and I wanted to focus on the one where you worked with and ACO on quality reporting.

And.

And improvement and the practices and drove the familiar and plus and savings is that something that you think is transferable.

To payers and to large provider groups thinking large physician groups or advanced medical practices as well because we are seeing them more and more enter this space, whether it's through Medicare advantage or taking MAA attributed lives or even direct contracting. So I'm curious what your thoughts are about debt market opening up for <unk>.

And kind of commercial grade analytics solutions.

Yes. Thanks for the question Ryan we have been focused on strengthening our overall value proposition as it relates to measures in particular and and many organizations have specific requirements and those measures often relate directly to other really important aspects of operational.

<unk> and financial performance and so we would see this capability that Hs Hs was able to leverage our solution and produce is applicable and the payer space and and different sub segments of the payer space as well. So we are excited about.

And the potential of others utilizing that kind of a solution and.

And yielding similar benefits.

I think I would add Ryan is.

As you know so the vast majority of our current customer base is on the more traditional provider side, but we do have some segment. Some portion of our customer base that is in those verticals that you described and what Dan and Dan described and along the spectrum of risk bearing entities Acos and the like and do you think our platform and our population health.

Patients have relevance there.

Okay Super helpful. And then one quick follow up just on the margin front and I'm thinking longer term in nature.

And the different portions of your services offering is it fair to think that the data analytics over time.

Could increase as a portion of that services revenue with you, having a broader offering and constantly introducing new use cases.

And just how should we think about that again longer term not not talking this year, but and you over the next three years to five years, how might that SKU. Thanks.

It's a good question, Ryan and I would share that we feel like we are and learn mode, especially during the COVID-19 pandemic, where we're just trying to learn and observe and we want to I think take the rest of this year to better understand what we're observing in the professional services space.

I think pre COVID-19, we would share a perspective that it was it was not atypical at all to see different parts of those three components of our service ramp up or ramp down and in any given quarter based on the kind of improvement work that we're doing we've seen some other changes that have occurred over the last 15 months and we're trying to pay attention to.

Signal and noise as we get through the pandemic and and so we will likely keep observing before making any specific observations, but then use the planning cycle each year as another opportunity to step back consider if we've seen any any more macro changes.

That would be of note and if we do observe any we would share those following the planning process probably early next year.

And one other thing I would add Ryan just just in terms of our.

Long term professional services gross margin target.

And that is and the mid thirties.

As we've stated and so that that margin will reflect essentially that mix of those services that I described and data and analytics and other consulting services are a.

A good portion of that.

Okay, great. Thank you again.

Thanks Ryan.

Our next question comes from Sean Wieland with Piper Sandler Your question. Please.

Hi, Thanks very much.

You called out.

A greater amount of non recurring services and the quarter could you quantify that and maybe.

And I tell us a little bit more about what that was.

Yes, Sean I'll make a comment and then Brian please feel free to add as well, so I would characterize Sean debt.

The increase in non recurring revenue oriented services is one of those elements that we've seen recently.

During the midst of the pandemic that a number of clients had been interested and those kinds of projects, that's something where we don't feel ready to make any pronouncements, yet about a longer term shift and I'll, let Brian comment on the specifics as it relates to Q1, but it is something that we're watching as we progressed through 2021 and we'll see if.

As we gather more data there's anything that we feel has changed materially or longer term, Brian what would you add.

Yes, just to add on the quantification and Sean of it so.

Given that the vast majority of our services are still recurring it is fairly small you could think about it as a $1 million or so of additional non recurring services, but fairly small portion of our overall mix currently.

Sure.

Okay. That's good to know thank you and just on the overall pipeline of new dos clients. I mean can you characterize that a little bit in terms of.

Are you going to.

And kind of regain momentum after after a pandemic here this year and how is that the maturity of the pipeline progressing.

So overall, we would continue to characterize the pipeline and the way that we have been that.

Behaves a lot like pre pandemic levels and that is the result of headwinds and <unk> that we've described previously we continued to experience those headwinds and those tailwind.

And that affects specifically the new client.

The new dos subscription client pipeline as well, we do anticipate and and look forward to getting through the pandemic and then we do believe that those tailwind associated with the <unk>.

Hence that every health system needs, a commercial grade data platform like daas, rather than a homegrown Patrick.

Infrastructure will persist beyond the pandemic, but we still observe long sales cycles of approximately one year and so the result of that longer term tailwind will take time.

Much of that will take beyond 2021 to really show up in terms of pipeline performance and Brian you would add all of that makes sense. Thanks Dan.

Hi.

And just remind remind me have you given us and target for the number of das clients need.

<unk> clients and want to add this year.

We did share a mid teens expectation.

And so that's what we're still on track book.

That's right.

Super Thanks, so much.

Thank you Sean.

Our next question comes from Elizabeth Anderson with Evercore. Your question. Please.

Hi, guys. Thanks, so much for further questions.

Can you talk about in Tenda and the demand environment is different and what.

New prospects, who are essentially been people in the pipeline are looking for or different aspects of your service that they're really interested in.

Yes. Thank you for the question Elizabeth So as we mentioned a few minutes ago, we are seeing more questions more interest as it relates to to what we saw before the pandemic in terms of a lot of focus and a lot of discussion around value based care and population health.

And that that slowed down during the last 15 months, whether it was more of a specific focus on COVID-19 response and everything related to that.

We're seeing that.

And that topical area pick up a little bit more over the last few months.

And the thing.

Alright.

I'm, just an analyst and Beth.

We continue to see.

Again focus on areas like the financial optimization and cost optimization and efficiencies and population health as Dan mentioned, but then continued focus on that robust commercial grade solution as compared to our Patrick solution, that's less flexible and environment like this.

Makes sense and.

And you.

If I missed this did you size, the vital where contribution and the quarter exactly.

Yes.

We are not breaking that out and our.

Our filings our 10-Q and did not did not comment on it and the prepared remarks.

We did break that out and our filings through 2020 per year of acquisition, but I could point Sheila best of the color as well that we provided on our last call.

Which was that.

For the year, we expected <unk> to contribute in the low 20 million.

In 2021 in terms of revenue.

And that low 20 millions.

As Youre aware theres, a deferred revenue write down that will have an impact on that through Q1 Q2 in particular, and then tick up towards the back half of the year. So hopefully that helps you a little bit of color on that on that level.

So sorry, just to clarify that low twenty's contribution is for all four quarters of <unk> and not like the.

And just the first three quarters until you lap the purchase date right.

Yes, yes, yes for the full year of 2020, all for our 2021 and all four quarters.

Got it thank you.

Thank you. Our next question comes from Stephanie Davis of D Day.

Please go ahead.

Thank you for taking my question and congrats and Florida.

Thinking about the new sales process and we exit the pandemic could you walk us through the near term opportunity and we engage with clients that had a positive cost concerns during the pandemic and as that wallet going and bounce back pretty immediately or do you think for some of your broader reaching physicians and this could be more of a multi.

Our Capri.

Yes, so when we think about thank you for the question Stephanie we think about.

The growth.

Of the company and two broad categories, one is with new clients and as we've stated previously we certainly did experience.

Experience, especially in the early months of the pandemic more of a pause like you mentioned and discussions about.

Having a new client relationship starting in the back half of last year, we saw that reengagement occur.

But we still have.

A long sales cycle.

About one year with regards to new client discussions now the second category that we think of in terms of growth.

And as expansion with existing clients and that's typically more streamlined set of discussions and.

Can vary.

A lot based on what they specifically are focused on and what they'd like to expand as we shared previously a lot of the discussions with existing clients focused on COVID-19 response, especially the first six months of the pandemic, we started to see some of the other aspects of our portfolio of offerings coming back.

Jack.

Starting in the latter half of last year, and we see that continuing forward.

Even more.

And in the first part of this year as well and we anticipate that that will continue to be the case moving forward anything you'd add Brian yes, just to just to add definitely as well.

<unk>.

And the end market that we're selling into and health care. So budget cycles tend to be sent on set on an annual basis and.

Shifts in terms of the.

And the macroeconomic environment or trends that way and tend to potentially have a lag as it gets reflected and updated budget cycles, and then flowing into our our sales cycle.

And that same know a patch and spend is there any chance for pick up and the professional service side that you're not factoring in just as that seems more immediate or is that still always going to be locked up with the textile side of the world.

Yeah, It's a great question.

It's something that we're continuing to monitor so and Q1, we did have that uptick that I mentioned debt.

Increased our utilization rate a little bit beyond what we had expected.

We are wanting to continue to monitor that.

That trend and that demand and assess over the next couple of quarters, but its something that were we're thinking through and will provide updates on.

Yeah and lines of SKU Conservatives and alright, Thank you guys.

Thanks, Stephanie.

Thank you. Our next question comes from Steve Halper with Cantor Fitzgerald. Please go ahead.

Hi, just a quick housekeeping question, you talked about a higher level of stock compensation in the quarter due to the vesting.

Acquisition related stock.

I'm, assuming that doesn't repeat in subsequent quarters.

And so is it.

Is that a safe assumption.

Yeah, Thanks, Steve, Yes, there will be.

There will be some of that that continues through a portion of 2021 just based on the re vesting schedule that's been defined from those acquisitions.

But to your point, we do think about that is.

Essentially somewhat separate and different from the stock based comp that's driven by <unk>.

Archie brands performance based grants team member retention and compensation and alike, but that will have a little bit of a lag as it rolls through 2021.

But the subsequent quarters and the <unk>.

Aggregate does that does that can and does the stock comp number decline.

We would expect the stock comp and number two to tick up slightly just based on those those grants that I described so.

And I think it's fair to think about as a percentage of revenue as an example stock based comp could tick up by a few percentage points through the next few quarters in 2020 one.

And then.

The the reinvesting did that go into any one category or is it spread throughout.

It's broken out in our and in our filings and the form of restricted shares.

And so I'd have to I'd have to look at like I think it's mostly and a single opex category, but we do break out those shares separately.

Thank you.

Thank you. Our next question comes from global grasp and with Stifel. Your question. Please.

Thank you.

I think this question has come up and a couple of different context, but.

<unk>.

Is there anything you can.

Explain or help us understand the patterns and your face and trucks.

How the.

And your services utilization and attach rates once we get through the pandemic.

Based on the conversations we're having and we feel it's just a timing issue.

And as opposed to any real changes in behavior on a longer term basis.

Yes. Thank you for the question David So the vast vast majority of our clients.

Tap into both our technology at the data platform layer as well as with the applications layer as well as different components of our services and we have a particular perspective about our services there.

They are all designed to enable our clients to be successful to enable them to realize measurable massive improvements in the areas of most importance to them as a result, and as we've discussed previously we are.

We're comfortable with that mix of services changing each quarter based on what the needs of our clients are and we see the different clients need different components of those three categories of services that we offer.

And we're comfortable with that and Thats one of the reasons why historically you've seen some variation in terms of the gross margin profile of services and any given quarter, we're comfortable with that because we're optimizing those services to really focus on enabling our clients to be successful as the first measure of our success and services and.

As a result, we're flexible there anything you'd add Brian just that.

I think to Dan's earlier point, we're continuing to learn about the long term attachment rates long term kind of more normalized gross profit.

Growth profile and the services segment.

We have provided color at least for 2021 in terms of our professional services dollar based retention rate debt.

We'd expect to be up meaningfully from the mid <unk> and 2020, although still have some pressure and in particular and the first half of 2021 and potentially for the year on that retention rate. So at least hopefully that provides some color in terms of how we think about it this year and and how that would flow into 2022 revenue.

Got it thanks for that and.

And so.

So maybe my math is right it would imply your guidance for the year.

Sequentially revenue growth slowed down quite a bit and the.

Back half of the year so.

That math is right is that just conservatism because of.

And the variability and surfaces or.

Is there something more to it.

Yeah, I'll comment and then Brian please feel free as well so as Brian mentioned earlier and the first quarter, we did observe.

And some increased activity as it relates to non recurring revenue services.

And because they are nonrecurring in nature and and project based in nature.

<unk> services coming to it and later in the year and that.

Yes.

A component of our services offering debt.

Debt is relatively newer in terms of its proportion.

And clients interest as I mentioned before we are focused mostly on and ensuring that we're offering services that are really helpful to clients and enabling them to be successful and that's one of the reasons why during the pandemic and even as we're continuing independent making the first half, we're still watching and observing and trying to understand if there.

Or anything any patterns that might last beyond the pandemic versus those that are more specific to the pandemic and and we don't feel we have enough data yet.

To understand how non recurring services is one example might play out through the rest of the year and so we do try to be data informed when we think about projections for the back half of the year, what would you add Brian.

That was well said thank you Dan.

Great Alright, thank you.

Thank you. Our next question comes from Daniel <unk> with Citi.

Can you provide and update on cross sells this quarter, both selling dos clients and newly acquired solutions and cross selling the das platform to acquired clients.

Yes, so in the first category of selling newly acquired applications cross selling those and toward US client base. We did have some success in Q1, we're still early and that process of sharing.

That does expanded offerings and our portfolio, but that apps layer cross sell is typically at a lower incremental price point and so the sales cycle is there is a little bit shorter and those cases. So we are a little bit more data there and we did see some success, we do assume some moderate cross sell.

Forecast and our guidance.

That apps layer. The second category is is selling apps their clients on the das.

Platform and Thats, a more difficult cross sell it's a much larger price tag to get started and those clients that are app only clients of newly acquired companies. For example are used to a much lower price point.

So that is a category, where we continue to see pipeline movement and we're we're continuing to focus there, but given the longer sales cycle and the larger ticket.

That will take longer to play out and much of that we expect would play out from a P&L perspective really more into next year and beyond.

Got it okay. Okay, and then on on the quarterly cadence of New Das adds this year.

And I think you mentioned mid teens is still the expectations for total adds but would you expect the core.

Italy cadence of those adds to once again be back weighted or do you expect that to normalize to kind of a.

A pre pandemic level.

I think the answer is yes to both actually that debt pre pandemic, we did see.

<unk> weighting.

And in each half of the year, where the second quarter and the fourth quarter, where typically.

More heavy in terms of the sales activity and that aligns with selling Brian mentioned earlier that most of our clients have an annual budget cycle.

And that usually either typically aligns with the calendar year or more of a mid year kind of fiscal year and schedule. So we do expect that that will continue to be the case.

Weighted towards Q2 and Q4.

But the pandemic has.

Thrown some curve balls and so we're continuing to just watch and monitor is the only thing I would add thanks, Dan as just to Dan's point.

Once those contracts signed and her and her onboard that there can be just a bit of variation.

And and timing impact of.

The time between post contract signing and then and then it go live data and implementation date and that can have an impact on the timing of that and recognition.

A couple of months couple three okay. Okay. So if we assume kind of a 10 40 10 40 quarterly cadence.

Sure.

Would that be a good assumption.

Yes.

Okay.

Thanks, guys.

Thank you Daniel.

Our next question comes from Irish Law with Batman.

Hey, guys. Thanks for taking my question.

First question on M&A and I'm wondering Dan if you can kind of elaborate on your M&A comment.

Particularly on the pipeline that Youre looking at maybe can you talk about what capability and what size.

And looking at and then I also kind of wanted to get your thoughts around the buy versus build decision.

Yes, thank you for those questions Iris.

We continue to believe long term debt, we are and a good position to be a consolidator in this space and believe that will be the case for many years to come and that's one of the reasons why we have been acquisitive and active with three acquisitions over the last 15 months or so and as we mentioned in our prepared remarks that we see.

A meaningful high quality robust pipeline of acquisition opportunities.

And we primarily are focused at the apps layer of our technology stack as as that is aware, which includes many companies a number of whom are startups that may struggle to make it long term as independent companies, but may fit really well within our portfolio and to your point a risk we go through a rigorous process.

Assess a build partner or buy analysis, when we think about the portfolio of offerings that we have at the applications layer. We continue to focus on specific areas, where we want to be.

The best and the World and differentiated and we continue to think of acquisitions as a way of accelerating.

The portfolio that we can offer for example, and areas like population health, where there are always opportunities for us to make more robust our offering and we've used both research and development invest.

Investments as well as acquisitions in the past to strengthen our offering there and pop health for example, and we believe there may be other opportunities like and areas like patient engagement. For example, we continue to also focus and other areas like the CFO value proposition both on the revenue side and the cost side, where we want to strengthen.

What we can offer in terms of tangible ROI a great. Recent example of strengthening that through acquisitions was vital where we do believe there are other opportunities for us to strengthen the value.

The value proposition to Cfos and in terms of the size of offering.

And we want to always be and are positioned with our capital structure to be very strong in terms of being able to go after a great opportunities as they present themselves and fit with our strategic framework and as such we wanted to have a strong balance sheet today as we mentioned in our prepared remarks, we sit with with.

Over $265 million of cash and cash equivalents on the balance sheet much of that can be utilized along with equity.

And pursuing opportunities that can be small on the wind into the spectrum like tuck in acquisitions like able health all the way up to a few hundred million and.

And.

In total enterprise value and everything in between and we want to make sure that we're always well positioned when we see a strategic opportunity and the acquisition space to have the balance sheet strength and the capability to act. So that we can be that consolidated long term debt. We believe we.

We should be in order to fulfill our mission and.

And just to add to the IRS to Dan's point around the build versus buy versus partner framework. So one additional area that we tend to lean a little bit heavier on in terms of the build opportunity as our platform layer.

Typically and you saw we did announce.

Some additional capability relate.

And related to machine learning augmented intelligence AI, that's a horizontal capability.

Non health care data AI built into to our platform layer that we're encouraged by so just another framing in terms of where we're focused there on build versus buy.

Okay, Great actually my second follow up question is on the health care AI solution.

And I'm wondering what how much time and resources did it take you guys to kind of fill that solution and then maybe if you can kind of highlight what's special about it.

Compare it to some of the other solution on the market.

Yes. Thank you for the question so as Brian mentioned, we focus a good deal of our R&D investment at the data platform and the data content layer.

Key elements of differentiation that really get our clients started on becoming more data informed and the health care Dot AI is a great example, at that data content layer, where we are focused on and investment to make sure that debt.

And that our clients have data organized in a way that is not a black box and you asked the question of how does this differentiate from.

Some of the other AI offerings in the marketplace and that's an important distinguishing factor that we have found and work across the health and health care delivery spectrum and.

And ecosystem debt when leaders clinical our operational leaders are leveraging a black box from and AI perspective, where they can't understand or they don't have access to understand the assumptions behind the results that come out of the AI Black box there are much less likely to trust and to utilize.

And that information, we purposefully build all of our solutions around the AI offering at that data content layer as driller book. So that you can see exactly what the assumptions were what were the inputs.

Was the weighting of those inputs in determining and developing a predictive model and then we allow our clients those leaders to be able to adjust the assumptions that go into those predictive models, we want them to be the owners of those predictive models and those machine learning capabilities because.

The adoption of those capabilities goes way up and because fundamentally we believe that AI is a support not a replacement for the decision making that needs to take take place always and.

And be in the hands of clinical leaders, who have that domain expertise and how the relationship with the patient and AI provides a great support to that and when AI is utilized and that way adoption is much higher than what we have otherwise seen and the industry.

And we're really pleased to see that adoption high with our clients that are utilizing health care about AI.

They can they can be and the driver's seat there's still the decision maker. They haven't been replaced but rather they are now using this new capability to make even better decisions.

Very helpful. Thank you.

Thank you Iris.

Our last question comes from David Larsen with BP.

Your question please.

Hi, can you talk a little bit about.

And the pace of sales into hospitals as we get through the pandemic some of the publicly traded hospital.

Companies have reported.

ER volumes at 73% of baseline, so still well below baseline and the English and volumes are actually a little bit light.

And as well in some cases.

And I know you had a product that was helping hospitals and identify where they could recover elective procedures.

I guess, maybe any comments around hospital volumes and COVID-19 related sales would be helpful. Thank you.

Yes. Thank you David good to hear your voice.

So across our client base.

Would characterize our recent conversations as.

Consistent in some ways with what you just share that many many of our health system clients are still experiencing impacts from COVID-19, as we shared in our prepared remarks that that impact either.

Ken manifests itself in terms of a shift and prioritization towards <unk>.

Focus on vaccination logistics for example, and other COVID-19 specific care that they are delivering a second place that it can manifest itself is as it relates to pre pandemic volumes and in some cases, we do see some of our clients that have not yet gotten back to pre pandemic volumes others have.

And I think many are approaching.

A much more close to that pre pandemic volume, but there is still an impact there and in both of those categories, where maybe they have shifted their focus and they are doing some pandemic specific activity or are they still haven't quite gotten back to that prepayment and pandemic level, but we are seeing.

And that over time, most of our clients are getting closer and closer to those pre pandemic levels.

Okay, Great and then just a quick follow up all scripts, obviously sold EPS side to stride and I would think that that could potentially open up and RCM opportunity for somebody.

Like yourselves.

Any thoughts on that and any other comments.

And the RCM space in general and and by the way is great, but it's really charge master was a lot of other areas.

And that could be.

And I think.

Yes, so our Sam as a very large space as you know David and we.

We were focused with regards to the <unk> acquisition on enabling technology foothold that would be.

A meaningful beachhead and a place where we can build around that charge master capabilities, knowing that that was a small sub segment of a very broad space. We've been pleased with that foothold and that beachhead opportunity that vital where it provides us likewise are activity based costing solution corus is another important.

Technology foothold there.

And that does enable us to to build around that in the space of what is most important to a CFO and as mentioned earlier that CFO value proposition continues to be and area of prioritized focus for us we're both in our R&D investments as well as in our.

And our potential acquisition related activities will continue to be focused very much on the technology that can enable more and more measurable improvement in this space and in specific sub segments, where we feel that we can be differentiated as you know there are many players and the <unk>.

Rod RCM space, we want to make sure that the specific sub segments that we go after that we focus on our sub segments that play to our natural strength around organizing data from many different sources.

And then analyzing that data and using technology at the apps layer that can really automate and measurably improve so we will continue with that lens as we think about our position within that broad space.

Great. Thanks very much.

Thank you.

Thank you and I'm going to and the Q&A right now there's no question and Nick you and pass the call to them and Barton for final remarks.

Thank you Carmen and thank you to all those who have dialed in for this report we appreciate your interest and our company and we look forward to staying in touch and the months at.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect.