Q4 2021 Health Catalyst Inc Earnings Call

Okay.

Good day and thank you for standing by welcome to the Health Canada's fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

A question during the session you need to press Star one on your telephone. Please be advised that today's conference is being recorded and if you require any further assistance. Please press star zero.

I would like to hand, the conference what's your speaker today Adam.

Now senior Vice President Investor Relations financial planning and analysts buoy Health, Canada. Please.

Please go ahead.

Good afternoon, and welcome to Health Catalyst's earnings Conference call for the fourth quarter of 2021, which ended on December 31 2021.

My name is Adam Brown, I am 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 Hahn, Our Chief Financial Officer.

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

As well as in our related form 8-K furnished to the SEC.

Both of which are available on the Investor Relations section of our website at IR that health catalyst Dot com.

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

During today's call, we will make forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 regarding trends strategies and 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 in our Form 10-Q for the third quarter of 2021 filed with the SEC on November nine 2021, and our Form 10-K for the year ended December 31, 2021 that will be filed with the SEC today.

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

A reconciliation of these non-GAAP financial 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.

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

Before we begin.

At health catalyst wanted to express that our thoughts prayers and support are with the people of Ukraine as they respond to the invasion of their country.

Now, let me transition back to sharing our fourth quarter and full year 2021 financial performance.

Long with additional highlights from the fourth quarter.

I will begin today's call with some commentary on our fourth quarter and full year 2021 financial results.

Reflecting back on 2021, I am extremely pleased with all that we accomplished during the year, especially in light of the continued challenging macro environment.

For the full year 2021.

Total revenue was $241 9 million.

This represents 28% year over year revenue growth.

And it represents an outperformance of over 12 million relative to the midpoint of the guidance that we shared at the beginning of 2021 after adjusting for twist acquisition.

Likewise for the full year 2021.

Total adjusted EBITDA was a loss of $11 2 million.

This represents an improvement of $10 million relative to 2020.

And it represents an outperformance of over $6 million relative to the midpoint of the guidance that we shared at the beginning of 2021 after adjusting for our <unk> acquisition.

Looking at the fourth quarter of 2021.

Total revenue was $64 7 million and our adjusted EBITDA was a loss of $6 $3 million with these results, beating the midpoint of our quarterly guidance on each metric.

Stepping back to comment more broadly.

I want to acknowledge how seriously we strive to keep the financial commitments that we made to our investors.

We have now reported as a public company for 11 quarters. Following our IPO in July of 2019.

As I reflect on this experience I am extremely proud of the track record we have demonstrated related to our actual quarterly revenue and adjusted EBITDA performance over this time period relative to the guidance that we have provided.

This consistency of performance was something that we as a management team set as an objective years before going public and we're pleased to have delivered this level of consistency.

During our first three years, that's a public company.

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 in the three strategic objective categories of improvement growth and scale and we will discuss our quarterly results with you in each of these three categories.

The first category improvement is focused on evaluating our ability to enable our customers to realize massive measurable improvements.

While also maintaining industry, leading customer and team member satisfaction and engagement.

Let me begin by sharing a couple of examples of customer improvements from recently published case studies.

In the U S claims denials are a major revenue issue for health care providers with roughly eight 5% of claims denied in the year 2020.

Albany Med northeastern New York's only academic medical center suffered from significant annual revenue loss, resulting from claims denials.

Exact or beating this issue Albany med lacked a single source of truth for payer denials data.

<unk> in limited access to aggregated data variations in our reporting.

Siloed workflows between various departments.

In response, Albany, Med leveraged our daas data platform and a robust suite of analytics applications.

Centralized payer denial data from multiple disparate software systems, including case management patient billing.

Physician practice data at.

At both the hospital visit and practice service levels.

Our data and analytics software enabled Albany med to materially improve their denials management process and establish a single source of truth, resulting in the ability to visualize and analyze the relevant data.

Duct deep dive analysis.

And identify opportunities for improvement.

This effort contributed to $3 million in revenue recovery for Albany Med in just one year.

Next as health care providers seek to optimize their cost structure and focus on their core competencies outsourcing specific functions has emerged as a cost effective consideration.

Along these lines banner health partnered with health catalyst to successfully outsource its clinical charter distraction needs leveraging our software to automate many of the manual tasks previously performed by registered nurse data abstracts.

We enabled banner helps to avoid 650000 and a distraction labor costs and save 100000 registry costs in one year. Additionally.

Additionally, clinical chart abstraction resources can now perform.

Higher complexity work as demonstrated by a 46% improvement in submission accuracy.

For electronic clinical quality measures.

Reporting and a 30% relative improvement in team member engagement.

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

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

Our most recent results we achieved an overall team member engagement score in the 96th 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 95th and 99 percentile and overall team member engagement scores. This latest results is of particular significance given that it comes during.

In a period, where we were required to sustain our remote centric work environment necessitated by the ongoing global pandemic.

We welcomed greater than 150, new teammates during the last six months of 2021.

Including those who came to us through our twist <unk> acquisition, and we responded to an increasingly tight labor market.

We as a leadership team continued to maintain a primary prioritized focus on team member engagement at the center of our strategic flywheel.

Because we recognize the central and foundational contributions that our team members make in building the software and providing the services expertise that enable our customers to achieve massive measurable improvement.

These gallup results, coupled with our customers' highest satisfaction levels throughout the pandemic, our encouraging confirmation of our prioritization and focus.

On a related note I would highlight that we have been fortunate to receive multiple other recent external recognitions relative to team member engagement.

<unk> being named two great place to works best workplaces for parents list as well as the National Association for business Resources 2021 list of best and brightest companies to work for in the nation.

And on the product front, we were very pleased with our continued high customer satisfaction rates throughout 2021 and.

And to share our recent highlight on this front. We were excited to have received the news that our charge Master management software solution. Our revenue analytics product that came to us through the vital where acquisition was recently ranked best in class for 2022 <unk>.

This marks the fourth year in a row that the vital CDM product has achieved this distinction from the class organization.

Additionally, we were also pleased.

To see several of our other products achieved a score that was greater than 90 on a 100 point scale as measured by class including twist.

Health care Dot AI.

And our value based care managed services.

Our next strategic objective categories growth, which includes beginning new customer relationships, while also expanding existing customer relationships.

First let me provide some commentary on our 2021 bookings performance at.

At a summary level I was very pleased with our growth related performance, which included bookings results at or above our historic performance levels across existing customer growth and new customer additions.

Our dollar based retention achievement for 2021 was 112%.

Meaningfully higher than our prior year's achievement levels on this metric and higher than the expectations that we shared at the beginning of 2021.

As was the case in pre pandemic years.

Our achievement levels on this metric were relatively similar.

Between our technology and professional services segments.

Driving this same customer growth performance in the technology segment was primarily are built in contractual escalators.

Along with increased customer demand for our acquired technologies.

And then the professional services segment, we were pleased to see a rebound relative to 2020 and customer demand for our recurring professional services offerings, including our analytics services domain expertise services and outsourced services.

Positive performance on our overall dollar based retention rate in 2021 was partially offset by the continued decline of our <unk> to the acquired revenue base, which as we have shared previously is not included in our dollar based retention metric.

Next our net new dos subscription customer additions for 2021 was <unk> 16.

This result is meaningfully higher than our 2020 performance and is towards the high end of our mid teens expectations set at the beginning of the year.

This strong performance was largely driven by new customer demand for our enterprise analytics population health and revenue and cost optimization offerings.

We were pleased to see these results included the cross sell.

Das to a few customers from our acquired companies. Additionally.

Additionally, we were excited to see our das light offerings contributed a modest amount to this total.

As one recent highlights of our 2021 net new dos subscription customer additions.

We are excited to have publicly shared our partnership with Temple University Health system, a large Philadelphia based academic health system recognized for its work driving medical advances through clinical innovation pioneering research and World class education.

Temple selected our data platform and power costing application suite to strengthen its financial performance and optimize its risk based contracting performance within its value based care arrangements.

Next let me share that as we begin 2022, we.

We encountered a sales environment that is largely consistent with what we experienced throughout 2021.

While we are hopeful that our end markets operating environment will improve as the year progresses.

We anticipate that.

That will be largely driven by the path.

COVID-19 pandemic.

Currently we have observed that the omicron wave has had a similar impact on our pipeline as the Delta way.

Whereby we have experienced some end market distraction, but are generally found health care organizations better prepared to respond to regional spikes and operate in more normal course.

Given all this we anticipate the COVID-19 pandemic will continue to result in both headwind and tailwind as it relates to our growth in 2022.

In terms of headwinds our provider and market will likely continue to be under some amount of financial strain, while also experiencing operational distraction.

Especially with the omicron variant alongside vaccine logistics.

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

<unk> optimization.

And as we've shared previously we continue to believe that the Covid pandemic will serve as an overall tailwind in the industry's adoption of data and analytics significantly highlighting the need for a commercial grade data and analytics solution to replace patchwork homegrown systems.

With this backdrop I'll now share some perspectives on our anticipated 2022 bookings achievement levels.

First as it relates to our 2022 dollar based retention, we anticipate achieving results between 108% and 111%.

In the technology segment, we expect this same customer growth.

We will be primarily driven by existing customer contractual expansions and increased demand for our new technology offerings, including our recently acquired technologies.

And in the professional services segment, we expect the same customer growth to be driven by increased demand for our recurring professional services such as analytics services domain expertise services and outsourced services, though I would caveat that our performance on this metric can be more variable depending on.

The demand mix of recurring versus nonrecurring services.

Next as it relates to our dos subscription customer achievement, we anticipated, adding high teens net new dos subscription customers in 2022.

We are pleased to see our year over year pipeline grow to a size that we anticipate will support this level of customer growth.

As we look at our pipeline, we anticipate this new customer growth will be driven by several factors, including one.

Our end markets continued focus on enterprise analytics population health and revenue and cost optimization solutions too.

Our broader portfolio of technology and services as a result of our recent acquisitions and product development efforts.

<unk>.

Our continued execution on our cross selling efforts.

For our Das light offering.

And five growing industry recognition of the need for data and analytics capabilities Pars.

Partially brought to light by the ongoing pandemic.

In terms of bookings cadence in 2021, we experienced some outsized bookings earlier in the year than is typical particularly in the professional services segment.

For 2022, we anticipate bookings cadence more aligned with historical years, which has been roughly 50% of bookings in the first half weighted towards Q2, and roughly 50% of bookings in the second half weighted towards Q4.

Next let me share that we have officially closed the KPN acquisition that we announced last week.

We're very excited by this tuck in acquisition with KPN engine, bringing to bear important technology capabilities that will help accelerate our existing product development roadmap.

Specifically KPN Ninja offers real time streaming capabilities.

And enhances our data processing and orchestration capabilities through standardized data ingestion.

Data normalization and data sharing.

The software will help strengthen our real time capabilities at the data platform layer as well as meaningfully enhance our population health product capabilities.

We also anticipate that KPN and just technology will provide some secondary benefits within our payer and life Sciences markets.

Total acquisition consideration that is tuck in transaction is $33 million and.

And the impact on our 2022 financials will be immaterial.

We are thrilled to welcome <unk> talented team members and we look forward to working together with them in support of our shared mission to improve health care.

Lastly.

Prior to turning the call over to Brian I wanted to share a couple of additional updates related to new leadership promotions.

<unk> with our annual planning process and in response to the company's continued growth and expansion.

First Jason Jones, who has been named as our new senior Vice President and General manager of our data platform business unit.

Jason. This is currently a member of our executive leadership team and we will also continue in his role as chief analytics and data Science Officer.

Over the last few years, Jason and his team have successfully led our company and the introduction of healthcare that AI to the market.

Differentiated industry, leading AI offering.

To his expanded responsibilities Jason brings over 25 years of deep healthcare experience and analytics data science decision support research brand product development consulting.

And information systems working at some of the most renowned healthcare organizations in the world, including Kaiser Permanente.

Intermountain healthcare bear and Unitedhealth.

Next I'm excited to announce that Maxine Lou will join our executive leadership team as our senior Vice President of M&A.

M&A integration.

Physician was first contemplated following our recent equity fund raise and it will enable our continued long term success as we look to further enhance our offering through future acquisitions.

<unk> seen joined to help catalyst over three years ago. Most recently successfully building out and leading help catalyst partner program.

Prior to help catalyst Maxine held positions across technical and business development functions within health care.

Including time spent at Siemens healthcare Varian medical systems and others.

With that let me turn the call over to Brian .

Ryan.

Thank you Dan.

Before diving into our quarterly and annual financial results I want to Echo what Dan shared.

And say that I am pleased with our overall 2021 financial performance.

I will now comment on our strategic objective category of scale for the fourth quarter of 2021, we.

We generated $64 7 million in total revenue.

This total represents an outperformance relative to the midpoint of our guidance.

And it represents an increase of 21% year over year.

For the full year 2021, our total revenue was $241 9 million.

Representing 28% growth year over year.

As Dan mentioned, we are pleased that this full year total revenue performance represents a significant outperformance relative to the guidance we shared to begin the year.

Technology revenue for the fourth quarter of 2021 was $40 1 million.

Representing 24% growth year over year.

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

From existing customers paying higher technology access fees as a result of contractual built in escalators as.

As well as from our twist <unk> acquisition that closed on July one 2021.

In Q4 twist will contributed one.

$1 8 million of technology revenue include.

Inclusive of our purchase accounting related deferred revenue write down.

Which was in line with our expectations.

For the full year 2021 technology revenue was $147 7 million rep.

Representing 34% year over year growth.

Professional services revenue for Q4, 2021 was $24 6 million.

Representing 17% growth relative to the same period last year.

This year over year performance was primarily due to our professional services being provided to new dos subscription customers.

As well as a modest amount of Unforecastabel nonrecurring revenue.

That was recognized in quarter.

For the full year 2021, our professional services revenue was $94 2 million.

Representing 20% year over year growth.

This professional services full year revenue growth represents a meaningful outperformance relative to the expectations. We shared at the beginning of the year.

Mostly driven by a few million dollars of outsized onetime nonrecurring revenue.

Along with bookings achievement that occurred earlier in the year as compared to our initial expectation.

For the fourth quarter 2021.

Total adjusted gross margin was 52, 1%.

Representing an increase of approximately 15 basis points year over year.

For the full year 2021.

Total adjusted gross margin was 52, 9%.

Representing an increase of approximately 255 basis points year over year.

In the technology segment, our Q4 2021 adjusted technology gross margin was.

It was 69, 7%.

An increase of approximately 135 basis points relative to the same period last year.

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

Partially offset by headwinds due to the continued costs associated with transitioning a portion of our customer base to third party cloud hosted data centers in Microsoft Azure.

Which increases our hosting costs.

For the full year 2021, our adjusted Technology gross margin was 69, 3%.

And approximately 75 basis point increase year over year.

And the professional services segment, our Q4 2021 adjusted professional services gross margin was 23, 3%.

Representing a decrease of approximately 400 basis points year over year.

And an increase of approximately 330 basis points relative to Q3 2021.

This quarterly performance was at the high end of the expectations, we shared on our last earnings call.

With these results being driven by the mix of professional services delivered.

A more normalized utilization rate as compared to the first half of 2021.

As well as the one time bonuses that we mentioned last quarter would be distributed to team members given the tight labor market and strong 2021 performance.

For the full year 2021, our adjusted professional services gross margin was 27, 1%.

And approximately 240 basis point increase year over year.

In Q4 2021, adjusted total operating expenses were $40 million.

As a percentage of revenue adjusted total operating expenses were 61, 8%.

Which is roughly similar to Q4 2020.

For the full year 2021, adjusted total operating expenses were $139 1 million.

As a percentage of revenue adjusted total operating expenses were 57, 5%.

Which compares favorably to 61, 6% and full year 2020.

Adjusted EBITDA in Q4, 2021 was a loss of $6 3 million.

Which slightly outperformed the midpoint of our guidance, mainly driven by the strong quarterly revenue performance mentioned previously.

As a reminder, our Q4 2021 adjusted EBITDA performance included certain operating expense non head count items.

That had been pushed out until the fourth quarter.

The one time investment and acquisition related integration expenses that we described on our previous earnings calls as.

As well as the onetime bonuses that we mentioned last quarter would be distributed to team members given the tight labor market and strong 2021 performance.

For the full year 2021, our adjusted EBITDA was a loss of $11 2 million.

Which compared favorably to an adjusted EBITDA loss of $21 3 million in 2020.

Similar to our revenue performance. We are pleased that this full year. Adjusted EBITDA result represents significant outperformance relative to the guidance numbers, we shared at the beginning of 2021.

Our adjusted net loss per share in Q4, 2021 was <unk> 19.

The weighted average number of shares used in calculating adjusted net loss per share in Q4 was approximately $52 1 million shares.

For the full year 2021, our adjusted net loss per share was <unk> 45.

And the weighted average number of shares used in calculating adjusted net loss per share in 2021 was approximately 47 5 million shares.

Turning to the balance sheet, we ended the fourth quarter of 2021 with $445 million of cash cash equivalents and short term investments.

Compared to $271 million at year end 2020.

As a reminder, we conducted an equity follow on offering in August 2021.

Which raised $245 million in net proceeds for general corporate purposes, including potential acquisitions.

Also as a reminder, in April 2020, we issued a private placement of convertible notes with a principal amount of $230 million.

The net carrying amount of the liability component is currently $180 9 million.

As it relates to our financial guidance for the first quarter of 2022.

We expect total revenue between $64 million.

And $67 million.

And adjusted EBITDA losses between $2 5 million and.

And zero point $5 million.

And for the full year 2022, we expect total revenue.

Between $287 8 million.

And $292 8 million.

And adjusted EBITDA losses between 4 million and $2 million.

Now let me provide a few additional details related to our 2022 guidance.

First as it relates to our Q1 2022 revenue.

We anticipate that our professional services revenue will be slightly down as compared to Q4 2021.

With the remainder of the quarterly revenue contribution coming from our technology segment.

As a general reminder, while we had strong Q4 2021 bookings performance we.

We don't get the benefit of most of those sales converting to revenue in Q1 2022.

Given that our revenue recognition is typically dependent on technology environment go lives and professional services staffing.

Which can begin a couple of months after contract signing.

On professional services Q1, 2022 revenue specifically there.

There is a larger milestone based contract which.

Which we anticipate will be completed in the first few months of 2022.

If it is achieved in Q1.

Then we would anticipate coming in around the top end of our Q1 guidance range.

Additionally, I would mention that the twister revenue contribution which is primarily in the technology segment.

We will be more backend weighted in 2022.

Given the purchase accounting related deferred revenue write down that persists through Q1 2022.

Next let me share a few additional details related to our full year 2022 guidance.

First as it relates to our total revenue at the midpoint of our guidance this represents 20% growth.

Which we are pleased is in line with our long term revenue growth targets.

In terms of the 2022 year over year revenue growth by segment.

We expect the technology segment to grow a little above 20%.

And the professional services segment to grow a little below 20%.

From a mix standpoint, this implies that the technology segment will be roughly 62, 5% of total revenue for the year.

Which in comparison to the last several years represents continued meaningful progress as it relates to our technology revenue as a percentage of total revenue.

As a reference in 2019, our technology revenue was 54% of total revenue.

As a reminder of what Dan shared our anticipated technology revenue growth is bolstered by the strong dollar based retention performance in 2020 one.

Along with our twist till acquisition.

Really offset by the continued decline of our <unk> revenue base.

Likewise, our anticipated professional services revenue growth is supported by our strong dollar based retention performance in 2021.

Partially offset by a headwind, resulting from the outsized onetime nonrecurring professional services revenue realized in 2021.

Along with a more normalized in your bookings timing anticipated in 2022 as compared to 2021.

Next in terms of our adjusted gross margin, we anticipate our adjusted technology gross margins.

We'll be in the high <unk> for the next several quarters.

And our adjusted professional services gross margin will be in the mid twenties.

Our adjusted.

<unk> professional services gross margin expectations are driven by the mix of professional services, we anticipate will be delivered.

Our forecasted utilization rates as.

As well as some wage pressure, resulting from the tight labor market.

Lastly, as it relates to adjusted EBITDA at.

At the midpoint of our guidance, we anticipate our core business to be breakeven for the year.

And for twist, though and its related integration costs to add approximately $3 million in Bern.

Mostly in the first half of the year.

In line with the expectations, we shared at the time of the Twist Hill acquisition.

We are pleased to forecast achieving this adjusted EBITDA breakeven milestone in our core business.

Insistent with what we shared at the time of our IPO nearly three years ago.

Despite experiencing a global pandemic and realizing meaningful wage pressure within a tightening labor market.

As it relates to the quarterly cadence of our adjusted EBITDA.

You will you will recall that our that we typically experienced some seasonality in our operating expenses, especially.

Especially in the third quarter related to our healthcare analytics summit.

As well as the timing of certain other non head count operating expenses throughout the year.

With that I will conclude my prepared remarks.

Dan.

Thanks, Brian .

In conclusion, I would like to recognize and thank our highly engaged team members for all they have done to further our mission and growth in 2021.

And I would share that I've never been more energized by the opportunity I see in front of us heading into 2022.

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

As a reminder to ask a question you will need to press star one on your telephone.

To withdraw your question Jess press the pound key.

Please standby we compiled roster.

Our first question will come from the line of Ryan Daniels from William Blair. Your line is open.

Hey, guys. Thanks for taking the questions and thanks for all the detail and congrats on the strong year I wanted to go into the net new client adds obviously, a nice metric and solid rebound from what the organization saw on the prior year and I'm curious if you can go to a little bit more detail on any nuances there either geographically or end market.

Most of those still within the core health systems or were you able to branch out internationally with some of those sales are into other areas like life Sciences.

Yeah. Thanks for the question Ryan.

Most of those net new dos subscription clients did come from our core market, but we did see.

A modest contribution from those adjacent markets as well.

And in terms just additional detail Ryan there in terms of the contribution for the Das adds last year. We did note in the prepared remarks that that did include a modest contribution as well from some cross sell initiatives as well as our dawsonite offering.

Okay, perfect and then.

Of your case studies, Dan you mentioned, reducing a form of manual labor on charter extraction, which helped improve employee satisfaction and pushed more value added activities and I am curious if youre seeing more demand across the board for solutions like that given the provider burnout, we're seeing in workforce pressures, especially in the nerve.

Practitioner nurse.

Physician market is that something that you see as a growth opportunity or solutions.

You can actively sell into your customer base.

We do.

And we are seeing.

And that general trend as you mentioned, Ryan labor and staffing issues, particularly among nurses and other clinical.

Professionals is a real problem for most health care organizations today, and burnout is really a significant contributor to that one of the strengths of health catalyst long term is that focus on team member engagement and so part of what we saw in that case study example, with banner health was an ability to not only deliver those those outsourced.

Chart of shacks and services through a technology enabled service solution that was better faster and cheaper.

But it was it was also delivered in a way that the engagement of those team members actually increased.

At the same time as as that delivery of a better faster and cheaper solution. We're really excited about that offering it fits right in the center of our mission as a company to help health care become more efficient to help health care become better.

And so we're we're excited to see that continue to grow in the future.

Okay, perfect I'll hop back in the queue. Thank you.

Thanks Ryan.

Our next question will come from the line of Jessica <unk> from Piper Sandler you may begin.

Hi, Thank you so much for taking the question.

Hoping to circle back on the milestone based contract that you referenced for Q1.

Are you seeing customers increasingly sort of.

They are in the direction of contingency based contracting and is that only on the apps side or is that within the.

The Doctor all access base is now.

Yes.

It's not all that common most of our contracts are still in that.

More common recurring revenue base long term arrangement, both on the tech side and on the services side, but occasionally we do have a milestone based contract and that can.

B, both on the tech and on the services side, though it's a little bit more common in those nonrecurring services type relationships.

They're harder to project as you might imagine than the standard contracts, but the vast majority of our contracts are still more in that in that normal recurring revenue model and just to add to that Jeff we do.

We do we do aim to provide our customers with some flexibility.

Especially as it relates to services engagements with us and that we want to not have that contract model be a barrier to customers adopting more technology continuing to use our platform. So we do have one concept is just that that flexibility is important to us as we really focus on driving improvements for customers.

Got it that makes sense and then I think just we're expecting that some of the acquired capabilities would be able to drive incremental subscription revenue at das all access customers is that still the case and can you just give us a sense of.

That's how penetrated the doctor all access customers are with Gary acquired capability.

Basically on the an update on the cross sell effort. Thank you.

Yeah, absolutely Jeff Great question so.

We were pleased to see the impact of.

Those acquired capabilities driving some of the performance that we reported on for 2021 in terms of our dollar based retention for example that certainly contributed to that 112% dollar based retention, which was you know meaningfully.

Meaningfully higher than any other year in the company's history. We are excited about the cross sell opportunities within our das our client base as we've described before when we bring to bear our newly acquired technology that that falls outside of the contractual definition of what's included in that all access <unk>.

Scripture that our clients have and so that does represent upside meaningful upside and each time, we acquire them.

New capability that provides an incremental opportunity for upside. So we're excited about that at the same time.

Cross sell takes time to develop and mature and iterate on the right approach.

There is still long sales cycles, and we're still early in that process.

Our next question will come from the line of.

Cindy Motz from Goldman Sachs.

Good.

Thank you and thanks for taking my questions.

Very nice quarter, so in general it looked like.

We're ahead of where we were.

For next year and I just wanted to delve into this job.

Our retention rate, that's very very very strong here and.

And.

Is there a reason why maybe I understand that you're still guiding to very high levels, but it would seem to me as customers start to realize the effectiveness of the product I was wondering if you feel like you're taking share from competitors, but also as it might not stay.

Hi.

Some customers.

Very happy with the results keep coming in why.

More than sign up for additional services. So that's the first question and then just with the EBITDA cadence.

It looks like you probably will hit if I had to guess breakeven maybe second quarter maybe.

Maybe go negative, which has again third quarter, but then fourth quarter again positive and so then we exit the year with positive EBITDA am I thinking about that correctly.

You'd like to give any color for you know beyond that that would be great. So I'll stop there. Thanks.

Okay. Great question, Cindy will take the first question around the retention rate and how to think about that in 2022, and then we can talk about the EBITDA question as well. So on the first question. We were pleased to see really robust dollar base retention overall.

At 112% now the worrisome some factors that that were onetime in nature that impacted that 'twenty 'twenty. One dollar based retention performance at 112% for example on the services side. There were some specific contracts that came through that are a little bit harder to project moving into <unk>.

2022, and so we went a little bit more data.

Before we.

I feel like we're fully data informed and updating that perspective, we felt comfortable updating for 2022 to a higher level than what we've typically guided towards for a dollar based net retention.

Based on the.

The amount of data that we've seen thus far and certainly we're encouraged by more to cross sell within our das client base, which is encouraging to us, but we do like to be data informed in and need a little bit more time to gather some more data before providing any additional updates anything you down on that first question Brian just.

Yeah, just to add to that Dan.

So Cindy if you think about the segment, so technology and services, which are both included in our overall dollar based retention rate metric.

The majority of the technology expansion is still driven by those annual built in escalators that are ramping up for existing customers each year.

As well as to Dan Dan's point, the upsell or cross sell love.

Of our acquired applications that just provides a little more visibility and consistency on the technology side, whereas on the services side, we don't have those same.

Large kind of built in escalators and so it truly is more go gurt and to Dan's point can be a little more variable on that retention metric.

Okay, and then as it relates to the second question.

Specifically relates to EBITDA.

As we mentioned in the prepared remarks, and I might also just to add to the prepared remarks that for both the full year 2022 and for Q1. We're pleased to have achieved what we said we would strive to achieve when we went public which was.

Two to have our core business be adjusted EBITDA breakeven. So that's true in Q1 of this of this year and for the full year that our core business is is achieving at that level of adjusted EBITDA breakeven.

We also have shared previously that with the twist <unk> acquisition. There was a few million dollars approximately $3 million of EBITDA.

EBITDA loss that would be added related to the integration of twist alone in their core business performance as well that'll be weighted more towards the first half of this year.

But as you mentioned also we have some seasonality in some of our expenses like the healthcare analytics summit, which hits in Q3.

<unk> is a meaningful expense for us and so we anticipate on.

On a quarterly basis Youll see some movement up and down but we're pleased that for Q1 and for the full year, our core businesses that that adjusted EBITDA breakeven level.

Thank you you've covered it well, Dan and Cindy as well.

Just as we think longer term so sidney we're not providing specific color beyond 2022 at this point, but as Dan mentioned, we continue to feel confident in our ability to continue to drive.

Buddy progression in operating leverage as we work toward our long term targets.

Sure that makes sense and just as a follow up yeah. I mean, obviously you guys made it more like bolt on acquisitions or things like that.

It could it could change, but I'm guessing that the progress is still going to be there and then you wanted to give any more color like could we see more like keeping our ninja or anything in that regard.

Yeah, absolutely so to your to your first point about acquisitions, certainly acquisitions play a factor in the way that our overall company performance plays out so we keep that in mind, we're obviously focused on a series of financial components as well as strategic.

As we evaluate M&A and we prefer M&A opportunities that are that are neutral from an EBITDA perspective to positive, but that isn't always the case and sometimes there's a strategic reason why.

We still feel good about moving forward as it relates to keep your eye Ninja.

Let me just share a few thoughts there. So first of all as we shared in our prepared remarks from a financial perspective to keep you in India contribution is immaterial because it's a small tuck in acquisition, but in terms of the strategic rationale. We're very excited about the technology capabilities that will strengthen our data platform value.

Positioned to clients in some specific ways.

We are planning that the technology that we've acquired through keep that engine will be integrated into our data platform and accelerate our existing product roadmap.

There are some specific capabilities that we're really quite excited about as it relates to real time streaming capabilities.

And enhancement of our data capabilities through standardized data ingestion like through fire CCD HL seven data normalization data sharing.

And some other interesting overall data orchestration capabilities.

It also offer some specific capabilities and our ability to handle the long tail of Emr's from a data integration perspective and is also an NCQA certified data data aggregator vendor.

So there is there is a lot of technology capabilities that we're excited about adding an accelerating from a product roadmap perspective of the data pop from there. We see specific use cases at a primary level that these capabilities help us with in and pop health in particular at a primary level there are some secondary.

Ari benefits also that we think will come to us over time to accrue to us over time in the payer space and the life Sciences space and even in the HIV market where.

Were they address some specific gaps that existed for us in our solution set and we're excited to fill those gaps through the acquisition of this technology.

One other thing I had mentioned.

Oh, sorry, one other thing I'd mention real quick to keep that engine team has a presence in the U S. Now with a small team as well as our presence with a small team in India and we're excited about expanding our global footprint and team member base across the globe and inclusive of of growing and investing in.

Our presence in India as well. So this gives us a foundation upon which to build there.

Excellent. Thank you very much for taking my question it sounds good.

Thanks Cindy.

Our next question will come from the line of Elizabeth Anderson from Evercore ISI. Your line is open.

Hey, guys. Good evening and thanks, so much for the question. My first question is around the dollar based retention rate, obviously that had a really nice step up in 'twenty to 'twenty to 2021 .

So I sort of think about the expectations is that sort of maybe 112% as share around that the kind of run rate that we should think about on a long term basis or were there any kind of obviously you had some.

2020, it wasn't unusual for many reasons. So I just wanted to just think about understand how you guys were thinking about that over the longer time.

Yeah. Thank you for the question Elizabeth.

We do view the 2021 performance is very strong relative to what we've seen historically there were some components of the 2021 performance that informed the fact that we raised our 2022 guidance from where it had been before 2021 to that one away.

111% range.

But that's the comfort level that we felt given the data that we've seen thus far so there may well have been some one time elements in 2020 , one that we'd like to gather a little bit more data before before making any other conclusions. So that we can be data informed so we raised the.

Your expectation.

A little bit for 'twenty, 'twenty, two but we need to keep gathering data before going above that range of one way to 111 that we described.

Our prepared remarks.

Got it.

Very helpful and then in terms of the professional services gross margin.

It is nice to see that you were pointing to that mid 20% range.

For the full year, despite some of the wage pressure and mix is that something we should think of as soon as may be seeing.

More pressure in the beginning of the guarantor of expanding as we go out and go through the year and sort of lap some of the yeah on the back lapsed some of the results from the back half of 2021 .

Yeah. That's a good question I think.

As we think about the impact of some of the wage pressure items in professional services in particular.

We would <unk>.

Identify that Theres, probably a couple of points of margin pressure there.

<unk> two.

The need for us to be strong in terms of.

Base salary increases that we offered a team members obviously, we keep team members and their engagement at the center of the flywheel. So it's very very important to us to be competitive as it relates to compensation. We also definitely leaned in on behalf of team members as it relates to their equity compensation component is a really nice long term incentive for our team members to stay at home cattle.

List and we benefited greatly from that as we shared in the prepared remarks with 96 percentile team member engagement as measured by the Gallup organization and much lower turnover rates than what the rest of the industry.

Is experiencing.

As we think moving forward, it's very hard for us to predict exactly.

Each of the components that might impact that those gross margin.

Performance levels in the pro services space, we're certainly watching and studying the situation as it relates to which inflationary elements tend to be longer term versus transitory that'll have an impact.

But I would share that that as we think over the next year or so we do believe that this market will continue to be competitive and we need to stay competitive.

In response to that market keep our commitments to our team members.

To ensure that we stay consistent with our strategy to offer above market compensation with team members.

Just to add to that it's really helped to Oh, sorry go ahead.

Yes, just to add to that Dan so.

On Dan's point around that that headwind on gross margin on the professional services side relative to the wage pressure.

It does take us a little bit of time to work through price.

<unk> on the services side for existing customers on where most of our customers have contracts that are long term and kind of pricing in place.

Whereas they are a little bit more flexibility on that from a new customer standpoint. So that is something that we're working on but can take a little time to play out and to your question Elizabeth on kind of cadence or quarterly distribution of that margin.

I wouldn't say that I see a major kind of trend in terms of first half second half professional services gross margin shifts.

Other than as you as we've seen in the past.

Pro services gross margin can fluctuate.

Leasing them out on a quarterly basis and an annual eight based on those factors that you mentioned the wage dynamics and the mix of services and utilization. So you can't can move around a bit.

Got it thank you so much.

Thank you. Your next question line of Stephan.

Stephanie Davis from SVP Leerink you may begin.

Hi, guys. Thank you for taking my question.

Just one.

Final question.

Doc.

Doc.

And the commentary about the mix of Das Das fly a broader number of adjacency add ons.

How should we think about that.

And takes to the contribution that they get there.

And what the status is kind of your historical model.

Yes, great question, Stephanie and I will share a few thoughts Brian preset so.

There is a modest impact if you think about that.

The 2021 contract since of of net new dos subscription clients, including a modest number of.

New structures like Das light for example that might come in at a lower price point.

But the vast majority of those net new dos subscription clients.

We're much more in line with what we've seen historically and so the vast majority are still at that same kind of price point with a modest impact.

With those dos light contributors.

That's how we've thought about it moving forward as well that the majority of that high teens, the vast majority of the high teens.

Subscription clients that we're projecting for 2022 will fall within that more traditional price point.

And subscription type with a modest amount of contribution of the smaller das flight offerings in those smaller offerings out there. We obviously started at a lower price point. They also offer more expansion opportunity relative to what you might see in a more typical contract I think I think to add to that Dan stepped into your.

Point as we think about.

At long term revenue growth target of 20% plus to your point, we have seen a little bit of a shift in 2021 as an example on the first piece of that long term target, which is that dollar based retention rate metric coming in a little bit higher than our historical one O seven to 109.

We've typically said that the balance of that 20% comes from the new customer additions and so.

To Dan's point on the.

The das slight contribution in enterprise contribution Theres also a retention rate dynamic that we're trying to work through and think about.

How that might play out over time.

To Dan's point, we're not ready to kind of make you know immediate for announcements in terms of a long term shift on retention rate being higher and the das contribution being balanced but those are the two factors we're thinking through as we go forward.

I understand that's awesome cloud.

Up on that how should we think about.

Acknowledging it's still early on the contribution from converting das flight client to follow that kind of what the strategy is for going through that process in terms of timeline.

Okay.

Okay.

Yes, it's a very important question and in many ways, we've been getting some meaningful practice in that regard as we have integrated application layer.

Companies, an organization, whether theres a client relationship there, but it's at a smaller level than what we would be talking about in terms of expanding to dos. So.

We have some experience with that.

It is as you might imagine a longer sales cycle theres more complexity, often we have to migrate up in the organization.

Two more of the C suite in order to make that that transition I think the upside as we mentioned just a few minutes ago is that theres a lot more expansion opportunity when we start at a slight level or at the cross sell level with an atmosphere.

Client relationship.

But the downside of the challenges we have to go get that rather than that that increase being contractually.

Already built in.

And I would just add staffing to that debt at a foundational level I would say that expansion.

Opportunity still does follow our long term strategic flywheel orientation of we're starting with an initial use case or bringing in data in a specific department our analytic area.

Were applying an application to that data identifying unique insights to drive in them are applying expertise to ensure that those improvements or execute on and that really is what that flywheel entails and enables us to then expand beyond that department and circulate those successes within our organization and grow from there so at a foundation.

A level that's similar we're just as Dan mentioned getting more experience on executing against that quickly across these initial use cases.

Okay.

You hear about some of these announcements on conversion.

Yes.

Thanks.

Our next question will come from the line of Richard close from Canaccord. Your line is open.

Yes, Thanks, a lot congratulations on a good.

Great year.

And the positive pipeline.

Dan I'm curious if you could discuss.

Maybe how you factored in the current environment for your customers from a labor perspective.

Sure.

And maybe how that got factored into the guidance.

Yeah.

Yeah, Great question Richard So.

We are certainly sensitive to the fact that our customers are facing some specific challenges certainly the challenges we discussed a few minutes ago around labor labor shortages burn out difficulty around staffing is a thematic element that we're hearing and that's one of the reasons why I think R. R.

Power Labor application suite. For example is something that we were grateful to be ready to introduce mid last year towards the second half of last year.

We've seen a lot of interest in using that software.

Two to get our utilization is strong and as positive as possible with the staffing that we have likewise as was discussed a few minutes ago. The fact that we can offer some outsourced tech enabled services that.

<unk> can sometimes help out our clients who are are are facing a strain in difficulty.

Retaining existing staff and recruiting new staff has also been an area of growth for us and something that we are excited to see continued to grow at the same time, we recognize that there is.

Theres so much strain within the health care ecosystem as we mentioned in our prepared remarks that that sometimes data that can be a headwind in terms of talking about new areas to focus on new work to do that exhaustion level can be a challenge for us to overcome but we're working our way through that.

And you know one of the strengths of the company is our depth of empathy and understanding for our clients and the depth of the relationship with clients and so a lot of what we tried to do is meet them where they are.

Try to help with with areas that give them a greater sense of hope and optimism for the future, but then often opens up.

Bandwidth to be able to consider new areas of growth and expansion.

No.

Okay and as a follow up since we're sitting here at the beginning of the year I was wondering if you could talk a little bit about the competitive environment right now how youre thinking about your market share performance.

And then maybe commentary on win rates and if you lose what's the main reason that you lose.

Yeah, Great question.

So.

And should we see a competitive landscape it feels quite similar to what we observed in the past.

And we think about it in three different categories. So versus the data platform category. We continued to see the biggest competitor is home often with little bit of help from across industry Tech vendor and secondarily.

Competition from the EMR vendors trying to expand into the analytics space.

A lot of the same dynamics I have been at play and were pleased to see strong win rates through 2021 anticipate those same strong win rates to continue.

Occasionally over the years, we see someone at the apps layer or a couple of vendors at the apps layer that have started as more of a point so to try to kind of broaden their offering into more of a horizontal offering we've seen that in the last year or so with a couple of vendors trying to do that in the <unk>.

Health Space for example to expand beyond pop health and we've seen as we've seen in the past a number of challenges with that strategy. We've found that it's a lot harder than it looks to go from a vertical point solution to a horizontal platform. So we anticipate that the long term competitive dynamic will continue to be really a folk.

On winning against homegrown plus some help from cross industry, and then winning against the EMR at the platform layer at the apps layer. It continues to be a very dynamic competitive environment with hundreds of different point solution providers, often with very very significant capabilities in one area.

Or a couple of areas and those point solution providers, we have to compete head to head to head against soda in the pop health space or in the financial space.

In the clinical space, we have to meet them and match their specific capabilities and then try to showcase why what we can do below the apps, they're at above the apps layer.

Both at a data platform, an aggregation layer and then above the upsell with our services expertise make us so much better as a partner not only in that one point solution area, but also across a broader array of problems that these health systems are going to have to face and that's where we continue to see really strong win rates.

Is the fact that we offer a full solution not just help with one or two use cases.

Thank you.

Sure.

Our next question comes from the line of John ran from Raymond James Your line is open.

Hey, good afternoon.

So youre approaching EBITDA breakeven, you're sitting there with over $400 million in cash.

I'm just you know I'm sure you've got a parade of investment bankers in and out of your offices there.

Yeah Middle market company.

Company platforms out there so how do you kind of sift through the wheat from the chaff and when you're talking to people who want to sell you something what guidance you gave them not to show you something thats not going to be interesting to you.

Yeah, Great question. So we.

We do believe long term in this informed the strong balance sheet that we've seen.

Driven to how that we can be a consolidated long term, especially at the apps layer where to your point, maybe theres not a million companies, but there are hundreds of companies that are.

We respect that we recognize it built really interesting technology.

That often solves a problem in a really effective way and we try to emphasize humility catalysts to to be excited when we see that.

Technical capability that could accelerate what we can offer to our clients and the value proposition that we can get to more quickly through M&A and through consolidation, we do try to be very disciplined in the way that we think about.

The strategic framing of acquisition opportunities in and we also pride ourselves on often instigating proprietary processes, rather than banker led processes, where we cultivate relationships over the long term with our ecosystem. We have a partner programs as I mentioned earlier in the prepared remarks vaccine Lu who has just been promoted.

Built out health Catalyst's partner program, and that's an opportunity for us to get to know directly.

Hundreds of these companies that we then bill.

Build and deepen relationships with them and as we find that Theres, a great strategic fit and as it matches up with what we're hearing from our client base as important areas of capability. That's when we.

The funnel and we deepen the focus on these organizations and as is often the case and this was the case with keep you in India. There was no formal process.

Whereby you know that that organization was considering selling we instigated a proprietary process and that was true of the <unk> acquisition as well and so we believe that gives us some meaningful advantages and we try to leverage the fact that the company is often a preferred destination for these startup organizations because.

We take care of their people their team members and we take care of their clients at a really high level that there's a preference to end up at health catalyst in and we intend to use our balance sheet strength to use a significant focus and investment to continue to be a consolidator in the future and just to add to that day I thought that was well said on the strategic kind of frame.

Mark that we use.

One other dynamic that we're working through.

And trying to stay aware of as we have seen over the last few quarters.

Valuations in the public markets shift meaningfully down and that is still taking time to fully play out in the private markets.

And so that is a dynamic that we're facing now where we do aim to continue to be disciplined from a valuation standpoint, and a financial standpoint.

And we expect that that will.

Adjust and roll through the private markets in the future, but it does take some time.

And just as a follow up.

Yeah. It was your customers' exit the Covid emergency and hopefully get back to you.

Quote unquote normal.

What solutions do you think they will demand of U.

Versus what you've been dealing with over the past couple of years and how much or how might that inform your strategy.

Yeah, Great question, So we feel like we've already seen some.

Early window into how this might play out and one of the areas that that certainly increased dramatically in terms of client interest.

As our clients became more capable I would say of responding to the ups and downs of the Covid pandemic was population health and.

And certainly another area that there.

That was quite relevant through the worst of the pandemic and continues even thereafter is the financial empowerment suite.

Where it continues to be really important on the revenue side and on the cost side to manage things very carefully and very effectively. So those are two areas definitely that we see increased demand and I believe that will continue that longer term clinical improvement areas are an area, where we're starting to see an uptick where those were some example areas where.

We saw a pause during COVID-19 and we've seen some uptick in that activity as.

Health care organizations have a little bit more bandwidth to think about more traditional clinical improvement activities as well.

I mean do you think that.

For all the talk about.

Value based care in pop health and risk sharing.

That's been overstated at that or are most of your clients still on a fee for service world with a kicker or do you see it.

Certainly in the for profit health care system, it's largely fee for service, but do you see the not for profits moving more quickly and to really taking meaningful amounts of risk.

Yeah. So I'll tell a quick story my first job out of college was at the Boston Consulting group on my second client was a health system and this is back in the mid nineties and and I was asked to model out how long will it take essentially for the the whole ecosystem to move to value based care now is debating in my.

Mind, whether it would take three or five years and that was 2025 years ago, right and and based on the research reports that you look at the.

The latest estimate I've seen is about 10% of the revenue base is in true value based risk based models within the provider ecosystem. So we're still only 10% of the way there. So certainly this is taking a long time.

On the other hand, we are seeing more and more.

Contracts that have some component of risk in them.

Among our client provider systems with.

With both commercial and Medicare Medicaid.

Relationships that that there are meaningfully larger components and increasingly more common components of risk elements and theres, an appetite I think in a sense within the provider ecosystem that debt for multiple good strategic reasons, they need to be learning how to take on more risk learning how to.

To operate effectively in a value based care world, because even though it's taking a while.

In many ways. The train has left the station on on the increased prevalence of risk and understanding and utilizing and managing risk effectively as a provider.

Think is something that is here to stay and that's one of the reasons why we've seen an uptick that I think will be more long long lasting in terms of pop health offerings.

And I'll remind you electric cars are only 3% of the car sell too.

Right.

Got it.

It can take time.

You're right.

Thank you.

Our next question will come from the line of David Grossman from Stifel. You may begin.

Thank you, it's getting kind of late here, so maybe I'll just limit it to one thing and you've given some great detail and some of the previous questions on your services business. It sounds like the services segment has become.

Less predictable impacting retention and margins. So first to my interpretation interpreting that correctly and if so is this really just an artifact of the pandemic tight labor markets and kind of some financial distress at your customer or are you really preparing for a more fundamental secular shoe.

And how the client is going to consume your service offering.

Yes, it's a good question, David I'll share a few thoughts and Brian . Please also share I think.

There's a there are components of the variability of our services business that had been consistent for many years now and we've spoken many times about them. For example, the mix of services that is demanded.

Is something that we allowed to shift over time based on a primary focus of ours being what does the client need to be successful in realized measurable improvements as Brian mentioned, a few minutes ago.

And so if that mix shifts more towards lower margin.

Or if that mix shifts from recurring revenue services to project based nonrecurring revenue surfaces were very comfortable with that and we operate as a business.

With the primary focus on client success from a professional services perspective, and so as we've seen over the last 11 quarters as about the company.

The gross margin in the pro services spaces, as low as 20% and as high as high thirties, and and we're comfortable with that and we've tried to be transparent about that as a long term component of our business that we will continue to to optimize first for client success. So that's something that hasn't changed.

And that we believe will continue to factor into our services overall performance now there are some specific elements in the near term that we're watching one of which is.

We talked about earlier, the tight labor market the impact of inflation the impact of needing to increase wages for our services based team members and understanding which components of inflation pressure are long lived and which are more transitory is something that we're watching overtime and N T.

Your point also David.

There there may be some components of the mix of services that are being offered that could be related to the pandemic and so another component for us before we would make any pronouncements about updates to our long term guidance for example would be allowing ourselves time to observe as the nation in the.

[noise] World hopefully gets through the pandemic and we move into more of an endemic state.

To really observe where there are some structural elements that were just specific with the pandemic that now come back to a.

Different states or where these are more permanent longstanding shift and we want the benefit of of observing that for a period of time before making any long term updates yeah I agree.

I agree and I think David you characterized it well in terms of.

Having a little bit less visibility into that segment is something new for us and that actually provided us.

A little bit of upside in our 2021 performance with some outperformance on that on that revenue segment. So there's more variation there and agreed with what Dan said.

A new dynamic in 2021 that we're wanting to kind of see how that plays out through 2022. So that we can assess that go forward profile.

Alright, so if you think about the dynamics impacting that business today, though is it is it fair to say that.

You know and you would never say this as a blanket statement, but just given what you know now a low watermark in terms of here you've got wage inflation. So you've got margin pressure <unk> got some variability in mix of outsourcing versus maybe a more strategic professional services. So.

Is that the right way to look at it that well.

Probably and as uncertain environment for that segment as we would expect to be at least based on what you've seen us historically.

It could be it could be.

And at the same time, it's also pushed us as an organization to think about how can we do things more efficiently how can we.

Broadened and rethink the way that we deliver services one of the things that I mentioned earlier about keeping an engine that we're excited about is as more of a global presence a presence in India.

The thought processes around where we can provide certain services and how we can make them more efficient I think makes us stronger and so we've appreciated that and then we will see.

And if if you're right then there may be some you know some future upside.

But we're not certain how that will play out and so we want to gather some more data first.

Great got it thanks for that.

It's David.

Our next question will come from the line of Daniel gross flight from Citi You may begin.

Hey, guys. This is Andrew Nowinski.

Thanks for taking my question.

Wanted to go back and ask about the higher.

Hosting cost patterns associated with.

Transitioning a portion of your customers today.

One.

I'm just wondering if you anticipate that the customers hang higher accessories, and that's built in price escalators will continue to offset these headwinds pertaining to you.

Technology gross margins continued to expand nicely.

Yeah. Thank you for the question and so we do anticipate finishing that transition which has been a couple of your headwind in transitioning some on prem clients to the Azure cloud environment that should be completed by the end of this year and so.

That will be the point at which I think will have some of those headwinds behind us.

And then we do anticipate that you'll see some meaningful positive expansion over time.

So as we've shared in the past the data of platform business from a gross margin profile perspective, we believe long term will be a lower <unk>.

Profile relative to the apps layer gross margin profile, but as the mix shifts over time towards more and more revenue technology revenue coming through the apps layer, that's where you see a favorable trend towards the overall gross margin moving towards those longer term targets that we've talked about.

Okay. Thank you that's super helpful. And then if I could ask one more.

Now you mentioned a modest contribution from the golf light customers. Okay. If you could share.

What types of clients and has seem to be most receptive to this type of pricing model.

Yeah, absolutely so.

We have not modified the target client profile.

That we're focused on in terms of who would be a great long term fit so the same.

The guidance that we've provided in terms of net.

Patient revenue on the provider side for example has applied.

What we found to be the most telling factor is is often where we can get traction within the organization as Brian mentioned, a few minutes ago, often there's one department that is facing one specific issue or problem and our ability with us light to be more competitive from a price perspective relative to point to.

<unk> players is the major advantage and an opportunity for us where we've we've done a little bit better than what we have done in the past when we didn't have a das light offering and wouldn't be advanced in the process, especially when it is just a single department that is focused on a single use case. So that's that's the scenario where we've seen a little.

Better traction with the benefit of Das light than we saw before introducing daas like I agree with that Dan and I agree with the comment around no major shift in terms of the type of customer end market, but I would note that in terms of the use cases.

Sure, what what Dan mentioned as well, where we do continue to see.

Demand in both the revenue and financial optimization side.

As well as the population health value based care side and do believe that we have some.

Targeted das light use cases standard situations, where we are.

We are more competitive in those instances now.

Got you thank you and congrats on the quarter.

Thank you.

Our next question comes from the line of David Larsen from BTG you may begin.

Hi, Congrats on the quarter I thought I heard in your prepared comments some detailed discussions around denials management solution.

Do you have like that module built and if so like how new is it.

That's one of the biggest challenges that a lot of hospitals are facing with the denied claims and if you can address that effectively it obviously accelerated cash to hospitals rapidly. So I would think that that would be of high value to hospitals. CFO is just any color around that would be helpful.

Yeah, absolutely David so.

As is the case across all of our offerings and inclusive of the financial offering and specifically even more narrowly.

As it relates to the denials management solution that we spoke about in our prepared remarks das or the data platform as the foundation.

<unk>.

Gathering the right information that is necessary in order to make progress there and understand the specific opportunities for improvement that above that as we've discussed in the past.

Part of what we offer at the apps layer <unk>.

<unk> includes a library of lighter touch analytics accelerators that are.

That our visualizations that can be customized.

To a specific situation at a at a specific health care organization. In this case, we used one of those analytics accelerators to help all the Albany Med, specifically visualize where the opportunities exist and then and then act on those and so that is something that we were able to to leverage the das infrastructure.

The data platform and infrastructure and then they just needed a lighter touch solution at the apps layer to really visualize what they care. The most about and then go after the savings of the improvement and it is something that we could.

Leverage and replicate elsewhere as well.

To that David.

Dan's point on the foundation of these analytic use cases being dos.

One thing I wanted to call out that I think is an important differentiator at our foundational das level is the das platform is open and self service and our customers do build their own reports to Dan's point customize starter set dashboards and alike in a self service way, which we think is differentiated in the market for health care and so we do.

Use that self service building as well as the.

The customization that customers do to inform our to your point kind of longer term application roadmap.

Great. Thanks, very much and then was there a deferred revenue drag in the quarter that you did not add back and will there be a drag in 2022 that youre not adding back and can you quantify how much that is.

Yes.

And particularly related to them.

The main headwind that I called out in the prepared remarks, David of the medicinal <expletive> .

A decline in some modesty is primarily technology revenue legacy revenue base, there and as we've shared over the last couple of years does continue to decline. That's the primary kind of drag I would call out in terms of what we see going into 2022.

Okay, but there's there's not like an acquisition related deferred revenue adjustment that that's a headwind okay.

Okay. Thanks very much.

Small amount in Q1 remaining before it was sold.

For that write down that is true.

Okay, great. Thanks very much.

Thanks, David.

Our next question will come from the line of Glen Santangelo from Jefferies. You may begin.

Yes, good evening and thanks for taking my questions Dan O'brien I just have a high level question and then a modeling question.

It sounds like you have a fair amount of client momentum in and you finished up the year pretty strong on the Das AD side a record dollar based retention you did a couple of acquisitions and you have some cross sell opportunities I think you highlighted in your prepared remarks strong bookings in <unk>, but yet when I look at the fiscal.

22 revenue guidance, you're calling for deceleration of your revenues by six or 700 basis points.

It seems inconsistent with the with the client momentum that you seemingly have and I was just wondering if you could maybe just frame that for us a little bit I'm sure. There's some level of conservatism, maybe you're building in there.

Any high level thoughts are around that inconsistency.

Yes.

Sure Yeah happy to comment and then Brian Please add as well. So we were pleased with the strength of the 2021 performance, both with existing clients and with new clients and encouraged by that.

There were some elements that moving forward into 2022, both on the tech side on the services side that we wanted to pay attention to as we thought about our guidance.

I will note that as we mentioned in the prepared remarks at the midpoint.

Our guidance for the year 2020 represents 20% year over year growth, which is consistent with what we shared long term as the company's growth profile of 20 plus percent.

It's similar to the way we've thought about things in the past.

But as we think about 2022 in particular.

On the tech side as Brian mentioned earlier there is.

A headwind as it relates to the <unk> business that that will impact our tech overall revenue performance.

And then on the services side in 2021.

We did realize some specific services revenue.

Around non recurring contracts that are harder for us to predict and there was a there was a timing element in 2020 . One also that we called out in the prepared remarks, where we signed a particularly large services contract a little bit earlier in the year than we would typically see and so as we look forward to 2022, we've tried to.

Normalized for a couple of those factors, but even with those factors we were pleased to be able to guide to.

At the midpoint of that 20% growth level for twist with you.

The thing I would add to that Dan to your question Glenn on 2020 , one I think full year revenue growth just wanted to point out that 2021 did have.

The vital where inorganic contribution for a good portion of the year given that we completed that acquisition in Q3 2020.

So you would want to factor that in and thinking through the growth rate for 2021 as compared to going forward and you could look at Q4 as an example, where by the way had lapsed by that point in time and keep worked pretty quickly alright, thats perfect that makes a lot of sense. Thanks for walking me through that and then maybe secondly, it sounds like you are continuing to make.

Progress on the margins can you, maybe just give us a sense for embedded within that fiscal 'twenty two guidance what level of stock based comp you are assuming so we can ultimately think about think about that as it may relate to the balance sheet and cash flow statement, thanks, and I'll stop there.

Yeah. Thanks, Glenn.

So in terms of stock based comp what we saw in 2021 I'll just point out a couple of items. There first so 2021 I think as you know does have one nuance around.

Stock based compensation that is related to <unk>.

<unk> acquisition consideration from prior M&A deals where.

That is considered from an accounting standpoint stock based comp, but it's really the upfront acquisition.

So overtime.

We do break that out in our financial statements, you'll be able to kind of see that contribution when you think about stock based comp overall and as a percentage of revenue.

When we look at it as a percentage of revenue so in 2021, excluding that re vested consideration.

We're in the mid 20% range.

And then as we head into 2022.

We do expect generally to have operating leverage on that metric as a percentage of revenue.

But we did try to be really thoughtful from a team member standpoint in terms of ensuring.

Long term incentive is Asian and retention of team members for 2022 and beyond such that we expect to be in a similar range around that mid twenty's level as a percentage of revenue for 2022.

And really wanted to just be thoughtful about getting ahead of.

What some people are seeing in this tight labor market around the potential great resignation another.

Turnover of dynamics, where that is obviously very important for us to ensure that we continue to attract and retain over the long term. These talented team members. So that's what we that's what we see in 2022, and then as I mentioned over the coming years expect to drive leverage in that in that metric going forward.

Okay. Thanks for all the details.

Thank you Ryan.

Thank you I'm not showing any further questions in the queue I'd like to turn the call back over to Dan for any closing remarks.

Thank you all again for your interest in health catalyst. We appreciate your questions and we look forward to having great future discussions as well have a good evening.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

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