Q1 2022 Health Catalyst Inc Earnings Call
Good day, and thank you for standing by.
Come to the health catalyst first quarter 2022 earnings conference call.
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After the presentation, there will be a question and answer session.
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I'd now like to hand, the conference over to Adam Brown, Senior Vice President of Investor Relations and financial planning and analysis.
Good afternoon, and welcome to Health Catalyst's earnings Conference call for the first quarter of 2022.
Which ended on March 31, 2022.
My name is Adam Brown, and 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 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.
Please refer to the risk factors in our Form 10-K for the year ended December 31, 2021 filed with the SEC on March one 2022, and our Form 10-Q for the quarter ended March 31, 2022, which 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, we're excited to share our first quarter 2022 financial performance along with additional highlights from the quarter.
I will begin today's call with some commentary on our first quarter 2020 to financial results by sharing that we're pleased with the company's overall financial performance. Our Q1 2022 total revenue was $68 1 million, representing 22% growth year over year, and we achieved positive adjusted.
EBITDA of approximately 700000 with these results, beating the midpoint of our quarterly guidance on each metric.
Stepping back I wanted to take a moment to reflect on how proud I am of our company for Q1 2022, adjusted EBITDA performance at the time of our IPO almost three years ago, we made a commitment to our investors to reach adjusted EBITDA breakeven entering the year 2022.
Despite a global pandemic and realizing meaningful wage pressure within a tightening labor market, we delivered on this milestone.
Due to our team members' hard work and unrelenting commitment to our mission.
Additional financial highlights from the first quarter that I would now include our technology revenue of $42.
$42 2 million.
Representing 25% growth year over year Android.
<unk> adjusted Technology gross margin of 71%, representing an increase of approximately 95 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 in the three strategic objective categories of improvement growth and scale and will discuss our quarterly results with you in each of these 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 few examples of customer improvements from recently published case studies, all the customer improvement vignettes I will highlight today represent customers leveraging technology from the acquisitions that we've made over the last couple of years, a testament to the strategic nature of our M&A and the importance of.
The more comprehensive integrated value proposition now offered to our customer base.
First let me share that financial success in health care, often hinges on the health system's ability to capture its charges effectively.
One of our integrated health system customers with annual net operating revenues of more than 4 billion used a patient accounting system in charge capture tool to help ensure revenue integrity over time. However, they had seen improvement come to a halt.
The aging technology cannot provide the analytical insights that the systems leaders needed to identify opportunities to improve.
In response, the organization replaced its previous charge capture tool with vital integrity, a new health catalyst analytic application that resides within our financial empowerment suite and was in the early stages of development when we acquired vital work.
Vital integrity quickly delivered actionable insight and workforce support, enabling our customer to identify and address gaps in its charge capture processes and compliance issues, leading to a $7 $8 million increase in annual revenue.
Little integrity identified more than 23000 unique accounts for review and improvement and in its first 45 days of installation the analytics application identified 1.5 times more mist charges than the previous charge capture tool.
Next.
Community Health network in Indianapolis based health system customer was committed to ensuring its patients received appropriate primary and preventative care.
But burton burdensome time consuming documentation processes in the EMR made it difficult to improve performance and close care gaps.
Leveraging our dos data platform and are in pet embedded care gaps application, which was acquired through our health Finch acquisition are software enabled community health networks providers to have visibility into care gaps within their workflow decreasing the administrative burden on their care teams.
And optimizing processes to use data and analytics to easily track and measure performance year round.
Providers using our embedded care gets application closed greater than 370000, more care gaps and generated more revenue than providers that werent using the application.
Being a four times benefit to cost ratio.
Lastly, with the onset of the COVID-19 pandemic in 2020.
<unk> at one of our health system customers immediately recognized the need for robust telehealth based efforts to meet their increased demand.
Leveraging our twitchell by health catalyst application suite as their patient engagement technology platform. This health system rapidly expanded their care capacity supporting more than 38000 patients through COVID-19 screening testing treatment and monitoring.
95, 7% of patients adopted the twitchell technology, and Red or responded to 76, 5% of all messages.
Additionally, more than 64% of patients stated that the twist of application reduce the need to contact to provider by phone.
Also in the improvement category, we have been fortunate to receive multiple recent external recognitions first on the product side I would highlight that our health care about AI product. After its official release in 2021 has achieved meaningful industry recognition and praise recently, scoring of 93.2 on <unk>.
100 point scale in classes 2022 best in Klas report.
Class notes that health care Dot AI received a 100% score in four categories, including wood by again part of long term plans keeps all promises.
And avoids nickel and Diming.
Additionally, classes report noted that customer satisfaction with health catalyst has jumped sharply over the last year as we have improved at digging into customers' data and providing prescriptive guidance as to where they should focus their AI efforts.
Customers report that this guidance enables them to focus on the right populations and problems. Additionally, the report noted that customer spoke very highly of health catalyst expertise and willingness to help them achieve their goals. We view. This external validation is important recognition of our product vision within the mission critical.
AI product space.
Next as it relates to our team member engagement I am proud to share that the women Tech Council has named help catalysts to its 2020 to shatter list. This is the fifth year in a row. We've earned a spot on the women Tech counsels listed technology companies with active programs that are leading and accelerating progress towards breaking the glass ceiling.
For women in the industry.
Lastly, we are excited to also share that health catalyst has been named to Inc. Magazine's 2022 annual Best places to work list the sixth year in a row, we have achieved this designation.
Our next strategic objective categories growth, which includes beginning new customer relationships, while also expanding existing customer relationships.
First in terms of the current selling environment I would share that our outlook is in line with what we shared on our last earnings call. A few months ago. As we shared then we anticipate that COVID-19 pandemic will continue to result in both <unk> and headwinds as it relates to our growth in 2022.
First as it relates to tailwind following the omicron wave we are encouraged to see the recent trajectory of the pandemic, including meaningfully lower hospitalization rates. Likewise, we continue to see meaningful evidence that the health care provider ecosystem is well equipped and prepared to respond to the ongoing pandemic in areas, including treatment.
Efficacy supply chain logistics capacity planning and broader operational optimization.
And as we've mentioned before we continue to believe that the Covid 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 <unk>.
Place patchwork homegrown systems as.
As it relates to headwinds, while I mentioned, the positives related to the trajectory of the pandemic. We do anticipate our provider end market will likely continue to be under some amount of financial stream. While also experiencing ongoing operational distraction, especially with the VA to sub variant alongside vaccine logistics.
Likewise, our provider end market continues to experience some financial strain, resulting from the tight labor market.
With this backdrop, our Q1 2022 pipeline and conversion rates performed largely in line with expectations and similar to what we shared a couple of months ago. Our current pipeline continues to support the bookings expectations for 2022 shared at the beginning of the year, including net new dos subscription customer additions in the high <unk>.
Teams and a dollar base retention rate between 108% and 111%. Likewise, we continue to expect our bookings cadence to be aligned with historical years, meaning that the second quarter and the fourth quarter of this year are forecasted to be our most significant bookings quarters aligned with health care organization.
Budget cycles as such as is the case every year, our forecast assumes a material amount of bookings achievement in the second quarter.
Next as it relates to growth. We are excited to have publicly announced one of our recent customer additions Tallahassee Memorial health care private not for profit community healthcare system, serving a 17 County region in North, Florida, and South, Georgia selected health catalyst as their data platform provider.
To power their clinical transformation journey, including enabling their ambitious quality and safety goals, we expect our comprehensive software solution, including our dos data platform self serve.
Self service analytics, Touchstone data and clinical and quality analytics offering will enable a thorough accessible and accurate view of Tallahassee memorials patient data and provide them the necessary tools to scale and improve their analytic efficiency across their enterprise.
We view this partnership is important recognition of the strength of our data platform and clinical and quality technology offering.
We aligned with our focus on driving measurable improvements at each of our customers.
Lastly, as it relates to growth, let me share a couple of comments related to our M&A efforts.
First we are excited to have closed the acquisition of <unk> Corporation at the end of April .
This tuck in acquisition provides us with a clinical registry development and data management technology solution to complement the health catalyst's existing data abstraction services business we.
We anticipate this integrated technology and services solutions will be a compelling value proposition to drive tangible financial savings for our customers in the critical functional area of registry reporting that.
The purchase price for this tuck in transaction is $15 million of mostly cash consideration.
And the impact of this acquisition on our 2022 financials will be immaterial.
We're thrilled to welcome arms as talented team members and we look forward to working together with them in support of our shared mission.
Commenting more broadly on our M&A strategy, we continue to carefully assess potential acquisitions women within our pipeline of course, we are mindful of current market dynamics, including in some cases, a near term disconnect in valuation expectations between the public and private markets. We will continue to.
Disciplined.
Our M&A evaluation process, requiring acquisitions to be both strategically and financially compelling for health catalyst.
I'd also note that we consider M&A not in a vacuum, but rather as one tool in a broader capital allocation toolbox. We are fortunate to have a strong balance sheet and we regularly assess all capital allocation alternatives always with an eye to maximizing long term shareholder value.
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, what Dan shared and say that I am pleased with our first quarter financial and operational performance.
I will now comment on our strategic objective category of scale for.
For the first quarter of 2022.
We generated $68 1 million in total revenue.
This total represents an outperformance relative to the midpoint of our guidance and.
And it represents an increase of 22% year over year.
Technology revenue for the first quarter of 2022 was $42 2 million.
Representing 25% 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 well as from our twist <unk> acquisition that closed on July one 2021.
This quarterly revenue performance was slightly higher than anticipated.
Due to technology environment go lives occurring on average faster than forecasted.
Professional services revenue for Q1 2022.
It was $25 9 million representing.
Representing 17% growth relative to the same period last year.
This amount outperformed the guidance expectations, we shared last quarter MAU.
Mostly the result of successfully achieving completion of a large milestone based contract in March.
In occurrence, we had mentioned was a possibility on our last earnings call.
Okay.
For the first quarter 2022 total adjusted gross margin was 54, 6%.
Representing an increase of approximately 30 basis points year over year.
In the technology segment, our Q1 2022 adjusted technology gross margin was 71%.
An increase of approximately 95 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 cost associated with transitioning a portion of our customer base to third party cloud.
Hosted data centers in Microsoft Azure, which increases our hosting costs.
And the professional services segment, our Q1 2022 adjusted professional services gross margin was 29, 3%.
Representing a decrease of approximately 220 basis points year over year.
And an increase of approximately 600 basis points relative to the fourth quarter of 2021.
This quarterly performance was higher than the expectations, we shared on our last earnings call.
Mostly the result of the large milestone based contract we achieved in Q1.
In Q1 2022, adjusted total operating expenses were $36 5 million.
As a percentage of revenue adjusted total operating expenses.
Were 53, 6%.
Which compares favorably to 55, 8% in Q1 2021.
Adjusted EBITDA in Q1, 2022 was positive zero point $7 million.
With this performance, beating the midpoint of our guidance and comparing favorably to an adjusted EBITDA loss of zero point $8 million in the first quarter of 2021.
This Q1 2022 adjusted EBITDA result was mainly driven by the strong quarterly revenue performance mentioned previously.
Along with the timing of some non head count expenses that we anticipate will be pushed out to later in the year.
Our adjusted net loss per share in Q1, 2022 was approximately six <unk>.
The weighted average number of shares used in calculating adjusted net loss per share in Q1 was approximately 53 million shares.
Turning to the balance sheet. We ended the first quarter of 2022 with $425 million of cash cash equivalents and short term investments compared to $445 million at year end 2021.
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 $225 4 million.
As it relates to our financial guidance for the second quarter of 2022.
We expect.
Total revenue between $68 million.
And $71 million.
And adjusted EBITDA between a loss of $1 5 million.
And positive zero point $5 million.
And for the full year 2022, we continue to 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 in terms of our full year 2022 year over year revenue growth by segment.
Consistent with what we shared on our last earnings call.
We continue to expect the technology segment to grow a little above 20%.
And the professional services segment to grow a little below 20%.
In terms of Q2, we anticipate that our technology revenue will grow a few percentage points sequentially.
And that our professional services revenue will be flat to slightly down quarter over quarter.
This quarterly professional services revenue dynamic is mainly driven by the material outperformance in Q1 professional services revenue.
Resulting from the large milestone based contract achieved in March.
Normalizing for a more ratable revenue recognition across quarters are Q2 professional services revenue growth would be more aligned with our typical quarterly revenue growth cadence.
Next in terms of our adjusted gross margin, we continue to anticipate that our adjusted technology gross margin will be in the high Sixty's for the next few quarters.
And that our adjusted professional services gross margin will be in the mid twenties.
Specifically for Q2, we anticipate our professional services adjusted gross margin will be a few percentage points lower than our Q1 2022 performance.
Given that the Q1 2022 margin was boosted by the onetime large milestone based contract achieved in Q1.
Lastly, and consistent with what we shared.
On our last earnings call, we continue to expect some seasonality.
And our operating expenses.
Especially in the third quarter related to our healthcare analytics summit.
As well as the timing of certain other non head count operating expenses, including the onetime trussell integration expenses throughout the year.
With that I will conclude my prepared remarks, Dan.
Thanks, Bryan in conclusion, I would like to recognize and thank our highly engaged team members without their consistent contributions to our mission and growth. None of this would be possible and with that I will turn the call back to the operator for questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
In the interest of time, we ask that you limit yourself to one question.
Our first question comes from Anne Samuel with Jpmorgan.
Hi, Thanks.
Your first quarter EBITDA was really nicely positive in your second quarter guide implies he could potentially be positive again, if you hit the high end I'm.
Just curious one what levers contributed to that improved profitability in the quarter and two you know what.
What's incremental for expenses in the back half of the year that are causing you to maybe not hit EBITDA positive for the full year is that maybe some of those pushed out expenses that you talked about in the prepared remarks. Thanks.
Yeah. Thank you Annie this is Dan I'll share a few thoughts and then Bryan please feel free to add as well so as it relates to the Q1 EBITDA now we were excited about that.
Being positive one of the items that Bryan highlighted in his prepared remarks was that milestone based payment that had a material impact.
Given that it came in in Q1.
And and contributed certainly to that positive EBITDA and then as it relates to the back half of the year.
One element that I know you have direct experience with them as a former attendee is our annual healthcare analytics summit that happens in Q3. There is a series of expenses that are onetime in nature associated with that summit that we host for for many to attend hundreds to attend and so that's one.
One of a couple of examples of of back half weighted expenses that.
That do contribute to a little bit more burn in the second half than in the first half anything you'd add Bryan.
He goes well said, Dan yeah, but the milestone in Q1 was a little bit higher margin professional services milestone and we saw that margin tick up in Q1 do you expect that to tick down slightly through the remainder of the year.
And then as Dan said, we've seen historically some seasonality in our operating expense and had a little bit of delay in some of the non head count expense that we thought we would.
Okay.
That's helpful. Thanks, with maybe hoping you could provide a little bit of color on.
How big that milestone contract wise and how much that helped in the first quarter.
Yeah, Yeah. It was approximately $1.5 million of revenue that we incurred in Q1 and most of that was on the services side and typically we would have seen that revenue would be recognized over a few quarter time period, but we are as you know trying to be.
Trying to be flexible with current clients and prospects in terms of enabling different services contracting models, but the real goal of being being flexible on their adoption of new technologies, and ensuring that we're driving outcomes and improvement for them.
Great. Thanks, so much.
Any.
Our next question comes from Ryan Daniels with William Blair.
Yes, thanks for taking the questions. Congrats on the strong start to the year Dan One for you you mentioned some of the pressures on your client base and one that stood out as the labor and workforce issues, which I know we've been seeing a lot of lately, both from a staffing and capacity and the cost side I am curious if you could kind of look internally on that issue.
Talk to us a little bit more about how you are.
Managing hiring and retention of your workforce, especially on the services side, probably a lot of demand there.
Ensuring that the culture remains intact as I know that's very important to you. Thank you.
Yeah. Thank you for the question Ryan It is really important and we have made that a priority focus for a long time now and that included in the 2022 planning cycle, we prioritized ensuring that we made really meaningful progress as it relates to team member compensation for example in and that.
Has been something that we believe has helped US we've been encouraged to see even in this really tight labor market that actually our turnover rates are starting with the first of the year, which were already well below the industry averages have ticked downward each subsequent month through the end of April and that's encouraging for us and when coupled with the fact that.
As we shared in our last earnings call. The most recent Gallup engagement survey data came in with with team member engagement in the 96 percentile and as that is such a central component of our differentiation as a company, we're really pleased to see.
Some meaningful measures, suggesting that that things are going well, we don't take anything for granted this is a very difficult environment of hiring environment and retention environment, we're going to continue to prioritize team member engagement prioritize taking care of our team members. So that that key point of differentiation remains in place in the months and years ahead.
Okay, great I'll stick to the one and hop back in the queue. Thanks.
Thanks Ryan.
Our next question comes from Jessica <unk> with Piper Sandler.
Hi, Thank you so much for the question and congrats on the execution against the EM profitability target.
So I just wanted to ask a little bit more about the quarter over quarter decrease in G&A I think there was it.
It was down pretty are pretty substantially versus Q4 as to just what drove some of that operating expense efficiency.
And what does that decrease the 10.6 million dollar decrease.
And the fair value of contingent consideration at refer to specifically thank you.
Yeah. Thanks, Jeff.
So when you're looking at G&A trends from Q4 to Q1 on the face of our financial statements. The vast majority of that of that decrease from a GAAP perspective is related to.
Essentially a gain from.
From an expense standpoint on the contingent consideration liability, which is which has the potential earn out.
Consideration that we would potentially issue for the twist soul.
Acquisition that we did last year, so the the measurement period on that earn out.
Is ah midway through 2022.
And so as we as.
As we kind of estimate that potential earn out during the year that that value of that liability does fluctuate on a quarterly basis.
The primary driver of the of the GAAP change in G&A. If you look at kind of non-GAAP G&A metrics I'd also ticked down a little bit but much on a much smaller basis and most of that was just timing some of the seasonality in orange.
Can I just ask one quick follow up on that so just does the sequential decrease.
What does that what should we be inferring them with respect to the performance of the total acquisition.
And thank you.
Yeah. Good question.
Yeah. So so as I mentioned, we are required to estimate that potential liability and value each quarter from an accounting standpoint. So so that's the primary driver of that change there can be fluctuations in our estimated achievement there, but the good news for US is that we structured that earn out in that deal as essentially upside to the.
The color that we provided the torso would contribute from a revenue standpoint at the time of the deal. So even though there can be fluctuations in that you.
You know it is a win win if we're able to pay out some earn out consideration and that would be merited by higher growth than what we expected.
Got it that's really helpful. Thank you.
Yep.
Yes.
Our next question comes from Cindy Motz with Goldman Sachs.
Hi, Thanks for taking my question and also congratulations on the quarter looks pretty good especially.
The EBITDA congratulations on that so.
On that though Directionally I know you don't give longer term guidance, but it looks like you're teed up pretty well, though for 2023 and beyond.
You may make other acquisitions, but.
It looks like 2023 is looking pretty good with EBITDA and maybe just from the cost lines do you want to comment on that and then I. Just also I was curious if you had your net revenue retention rate for the quarter.
Yes, so on the second question first.
We will share net dollar based retention numbers once a year for the full year. We did we did share that we are are.
Are reaffirming that guidance that we provided at the first of the year for dollar based retention being in that one away 2011, and then once the year is over we'll we'll share with the actuals were and then on the on the the directionality of our EBITDA. We would agree we're pleased with the trajectory that we've been on since we were.
Public that.
That we talked about.
Being able to be on a trajectory, where we will crossover to EBITDA positive territory within this timeframe and pleased that that milestone was achieved.
We're also excited to continue to see that trajectory.
Go towards our long term targets that we've shared of EBITDA margins between the 20 and 25% range long term that will take a number of years for us to achieve but we anticipate that we will continue to make progress in that direction in 'twenty 'twenty three and beyond.
Great can I sneak in one more about the acquisition Armistice could you just elaborate a little bit more than that does that have anything like will that position you well with your data and.
Possibly life Sciences clinical trials any information there would be great. Thanks.
Yeah, absolutely. So we are excited about arm as I mentioned in my prepared remarks, it's a small tuck in acquisition. It's the smallest acquisition in terms of consideration that the company has done since going public.
So it is a small tuck in acquisition, but we're excited about the strategic benefits that can accrue to one of our business lines, which is that outsource churn attraction business, where we provide outsource Chuck charter Jackson services to a number of health system clients, what we can do a better faster and cheaper and arms.
As technology automates, even more of that process, specifically that the submission of registries.
And so we can offer even stronger value proposition in terms of being better faster and cheaper and so it was very natural combination for us to pursue and we anticipate that many of our clients will appreciate that additional efficiency advantage to that solution and that's one of our more popular higher.
Growth segments of our business and so excited to see that growth continue.
Great. Thanks.
Thanks Cindy.
Our next question comes from Elizabeth Anderson with Evercore.
Hi, guys. Thanks, so much for that question.
Questions, we've been getting.
Lots of investors.
Is that.
With the general capital markets environment.
You know being what it is are you do you guys have any anticipated plans in the next 12 months to raise capital in any form.
Yeah. Thanks for the question Elizabeth So.
We are as we mentioned in the prepared remarks have a strong balance sheet.
We're grateful for that that.
Enables us to be in a position to make.
Important strategic moves which could include and have included in the past.
Strategic M&A.
To your point the current M&A landscape in current market environment presents some unique challenges in terms of disconnects between public market valuations that have been adjusting significantly and theres often as you know a lag between public and private market valuations and so we're mindful of that as we mentioned in the prepared.
Remarks, we intend to stay very disciplined in our approach to M&A, but appreciate having a strong balance sheet that can enable us if and when we find opportunities in the M&A landscape that make strategic and financial sense.
To be able to move forward, there and like we mentioned in the prepared remarks, we're also.
Mindful that M&A is one of a number of items in the in the tool box as it were from a capital perspective, we remain open to any and are consistently.
Evaluating different options as it relates to the most effective use of capital and creating long term shareholder value and and that will continue I think given where we are today, we feel very good about our our strong balance sheet and and there may be many scenarios, where we have sufficient cash.
Capital to execute well against our strategy and in the next several quarters ahead.
Just to add to that Dan.
I do I do think it's worth kind of mentioning that.
In terms of recent M&A, we have been fortunate to deploy some of that capital.
While still having a strong balance sheet over the last little less than a year on three three acquisitions.
And having done a few dozen public company. It does give us a lot of.
Internal.
Runway and opportunity to focus on those integrations and to execute against what we're what we're seeing is some of the cross sell opportunities both apps to dos customers as well as Dos Cross opportunity. So we're we're excited to continue to be heads down executing on those opportunities internally as well.
That's very helpful. Thanks, guys.
Thanks Elizabeth.
Our next question comes from Stephanie Davis with S. T D Securities.
Hey, guys. Thank you for taking my question I was hoping you could tell us more about the demand environment given some of the.
Some of the hospital in Marquette is there still an appetite for larger turnkey projects.
Dos.
Right.
Should we think about the backdrop.
Yeah. Thanks for the questions Stephanie so the backdrop is is behaving.
Similar to what we shared in previous quarters. So there are always some headwinds and some tail winds that we experience on a regular basis, but we wouldn't characterize it as as either better or worse than what we've been experiencing the last several quarters and that's one of the reasons why we felt comfortable affirming the full year guidance from a bookings perspective.
Both as it relates to net new dos subscription clients and as it relates to the dollar based retention.
Just to add to that Stephanie in terms of the what we expect in terms of contribution toward our net new dos subscription goals. This year. We do continue to believe that the majority of those ads will be more of our enterprise dos cell sales motion.
We will have some some contribution from dos like we did sign a few dos like customers last year and that pipeline continues to grow but still is a minority of the adds that we would expect then and that's reflective of our current pipeline as well.
Okay.
Demand is there.
They're often shift and ranking with the prioritization.
This backdrop and would you ever maybe go farther outside of Europe .
And there's something like Credentialing.
But could also help manage hospitals.
Yeah.
Yes, Great question, and I think right now as Bryan mentioned a minute ago, we've got plenty of wood to chop with the with the acquisitions that we've done there's a lot for us to work on and we have many markets open to us that we're really excited about it. So we're actually quite energized just focusing on the markets that we.
<unk> that we've already invested in and entered into I would share in terms of any shift in in demand or popularity.
Certainly with some of the trends around staffing shortages.
Labor shortages labor utilization being a challenge we're cognizant of the fact that that's an important area for our for our clients and solutions like you know power Labor for example in power costs really help you manage an end.
And optimize based on those labor.
Strange that a lot of our health system clients are facing pop health can also directly contribute to efficiencies that are important to maintain in this kind of environment and pop health continues to be very.
Very active from a pipeline perspective, and then the last area chart abstraction, and we mentioned earlier with the <unk> acquisition being a popular and a growing area for us.
That is something that we can offer that helps to alleviate some of the staffing shortage issues.
And also provides a better faster and cheaper alternative to many health systems that they can bake in hard dollar savings. So those those solutions, whether it's hard dollar savings.
On the cost side and solutions, whether it's hard dollar revenue implications like what we shared in our prepared remarks around vital where with charge Master management. Those are all great. Examples of our very near term helpful items that are in today's environment had been quite popular.
Anthony Microporous CFO based installation. Thank you guys.
Thanks, Stephanie.
Okay.
Our next question comes from Richard close with Canaccord Genuity.
Yes. Thanks for the question congratulations as well maybe to just dive in deeper on the labor side I'm curious.
Dan If you think the labor situation at your clients.
Is it more of a headwind or Intel or tailwind and I'm curious you know how you think about the labor situation in terms of driving specifically the professional services business. If you can increasingly become in.
You know and.
Help out on the professional services side for them.
Supplying that tailwind.
Yeah. Good question, Richard and certainly as both a headwind than a tailwind maybe.
I I'd, probably keep it pretty equal on.
On the headwind side, you know the fact that these health system clients are often spending a little bit more on on staffing definitely put some pressure on their margins and so whenever there's pressure on margins you have to be very cognizant of that at the same time. The fact that we have so many solutions that both help them optimize the staff.
What they have and help them be more efficient.
Is a very natural discussion for us to have and we can really be part of the solution and so that's where certain aspects of what we offer and that even plays into your question about services certainly the mix of services can be impacted by what expertise our clients are having a hard time recruiting for for example, where it's often really hard.
For them to recruit for data scientists are deep domain experts and that tends to be an area of.
A real popularity for us and that's a little bit higher margin and then on the flip side. Our outsource charter projection. For example is another area, where we've seen meaningful interest in growth.
Because it's low cost and it's lower cost and and we also do a really nice job of keeping engagement levels really really high when our clients outsource that to us and we can give them a hard dollar savings that's a lower margin offering within our services.
Our portfolio and also something that we've seen be more popular so they kind of they kind of a mixed together and and that's where I'd say, it's probably about equal parts headwind and tailwind, but but we're grateful to have so many solutions that can really help even in the near term are to to help you.
These health systems navigate this difficult labor environment.
Okay and as a follow up on Bryan made some comments earlier.
A couple of questions ago on the three acquisitions and focusing in on the integrations.
Can you just update us on how integrated our all the trade.
Acquisitions at this point in terms of the functionality.
Yeah happy to Richard So.
We tend to think about the first six to 12 months post acquisition as really important heavy lifting from a technology integration perspective, and so if.
If you think about the last 12 months.
Within the last 12 months, we've acquired twists will and we're probably furthest along of those of the three acquisitions. We've done this last year in terms of the twist the technology integration and we're seeing some really encouraging signs I mentioned, one example, in our prepared remarks, where theres some really natural <unk>.
Action points between Torisel patient engagement technology in and of their population health efforts and clinical improvement efforts, where it's a really natural extension of what we're already doing with our clients and utilizing dos and utilizing some of our clinical assets at the applications layer, so that twisted technology and people integrate.
<unk>.
Is on track with where we hoped it would be and we're coming up you know in a month and a half on the on the one year anniversary. So I would say, it's tracking well with our expectations.
The other two acquisitions keep your eye Ninja and RMS were both quite a bit smaller acquisitions and.
And more tuck in in nature.
But we're pleased with where we are with regards to the KPN Ninja integration in and are very excited about the technology that they're they're ringing to health catalyst in terms of real real time streaming capabilities and other capabilities that are very relevant at a platform and a data layer for all of our clients and then our Ms. Zhu.
<unk> closed a few weeks ago and so we're excited to be seeing positive signals, but we're very early on there, but it's a it's a small tuck in acquisition in and will be embedded within our our outsourced services business unit.
So we anticipate that that integration will go smoothly and in quite well.
Okay. Thank you.
Richard.
Our next question comes from.
Okay.
Yeah.
You cut out there for us.
Hello, you repeat that.
Hi.
Oh is it.
What does that mean that the mystery yes.
This is John John Ransom at Raymond James How are you.
Hey, John welcome. Thank you sorry about that.
Okay.
Okay.
Thanks, Kevin.
No.
I'm trying to think like second level, a little bit about you mentioned the rapid course that we're all aware of the rapid reset in public valuation.
Sirius.
How long is the standoff between.
The public Mark in the private Mark.
Again, I am trying to think about this glass half empty or glass half full I mean, if you don't have to raise capital.
Do you think there might be the opportunity to find them.
Yeah.
At much better prices than you might have a year ago, two years ago and if so.
Yes, how long typically in your experience to date.
The market to adjust to the reality.
Yes, it's a good question hard to know.
But.
In studying some of the past fluctuations in cycles. It isn't uncommon for it to take six to 12 months or even longer in some cases for a full kind of.
Harmony to exist in terms of public and private.
Valuations and so as as Bryan shared earlier, we've we've been active as a public company with six acquisitions. Since we went public three in the last year, we've got plenty of meaningful work to do in terms of ensuring great integration great Cross sell results and we're really early on in that.
Process. So we're excited to focus on really really good execution against those acquisitions, while the public and private markets kind of work things through on their own and to your point in the meantime, we will continue to have a very strong balance sheet will continue to be disciplined both strategically and financially and then we anticipate that there.
It will be more of a harmony in terms of the approach to valuations that will exist here over the next six 912 months.
In which case, we want to be well positioned to take advantage of the opportunities that exist.
And just as a follow on to that.
Most of that price environment, we find ourselves.
I know youre attention levels.
Great view in terms of.
Dot com or <unk> subsidiary cash or stock or any other any other things that we're not thinking about that.
Lower than desired stock price that.
That you have to adjust.
Your tactics around.
Yeah I appreciate the question John So I think for us as a company one of the more significant challenges for US is as you know and as we've discussed we practiced being a public company for a couple of years before our IPO nearly three years ago.
We take the commitments that we make really seriously and that's one of the reasons why the company for 12 out of 12 quarters has beaten the midpoint of its guidance on every metric.
And and also reached each of the longer term milestones that we that we shared when we went public we talked a lot about that with our team members, who say this is what we need to do to keep our commitments to public shareholders. So that we can be a successful publicly traded company in and I think one of the dynamics that we're having to manage now is.
As we've delivered really well against those but the stock price doesn't reflect that and there are a lot of macroeconomic factors that factor into that obviously.
And so part of what we have to do is some education with our team members to two.
Better understand some of those factors that are outside of our control and then also.
We've made a deliberate decision, including this last annual planning cycle to prioritize to your point John cash compensation for our team members. So that we make sure that we're very competitive on cash compensation in that was embedded in our 2022 operating plan and our 2022 guidance was meaningful progress on base.
Salaries.
And on cash compensation in general, which makes it easier for team members is still challenging but it makes it easier for them to think about the equity component as a longer term component of.
Their compensation and the other piece that really helps us as we focus a ton on engagement in our mission.
And so many of our team members come to health catalyst for a multitude of reasons, including often at the center as is this desire to make the world a better place that the fact that what we do save lives and prevent injuries helps team members take a longer term view, but.
We also have to realize the compensation matters a lot to them. So we're going to keep prioritizing cash compensation to team members and as we prioritize that as we've discussed in the past we do expect over time that you'll see stock based compensation come down overtime, but that'll take some time, but that's certainly the direction that we're headed.
Yeah.
Thanks, so much.
Thanks, John Sean.
Our next question comes from Daniel Grossly with Citi.
Hi, guys. Thanks for taking the question Daniel the improvements that you're covered in the case studies that you highlighted in your prepared remarks were all from an acquired assets, which I thought was interesting can you quantify the cross sell that you've seen this year.
From the recently acquired assets, both from Upselling acquired analytics to existing dos clients and then the other way around selling dos into some of the clients that you acquired when you purchased.
These assets.
Yeah, absolutely. Thanks for the question Danielle. So we are excited about that cross sell in and that was certainly.
An important factor in our 2021 dollar based retention performance of 112%, which was meaningfully higher than what we'd ever.
Spirit's before that certainly as we tried to highlight the cross sell of these newly acquired technologies contributed directly to that.
That higher than than historic dollar based retention and we were excited that we were able to add meaningfully more net new dos subscription clients in 2021, and we were in 2020 for example, and that also informed our comfort level last earnings call in raising the annual.
Guide in terms of the net new dos subscription clients to the high teens and in raising beyond historic levels multiyear historic levels are the dollar based retention that we expect to be more in that one away to 111 range, whereas in.
In prior years before 2021, and then more of that 171 or nine range. So.
As we mentioned in our prepared remarks are based on our Q1 performance and our view of the pipeline today, we felt comfortable reaffirming the full year guide.
We're both of those bookings metrics around net new dos subscription clients in and and the dollar based retention and that's definitely informed by some encouraging data around the cross sell now I will share I feel like we're in early innings as it relates to the cross sell opportunity that exists.
Just beginning to really understand how to do that at a systematic level. So and that takes time to figure out with each acquisition is it takes some time to develop the integrated messaging and to integrate the go to market strategy, but.
But over time, we believe that will be a major growth engine for us that we're excited about and just to add to that Dan.
Your question Daniel the other kind of data point.
Sure. It is that our our Q1 is typically.
Smaller kind of bookings quarter for us relative to other quarters, so not a ton of new data.
In terms of.
What Dan shared relative to last year, the cross sell success and achievement.
But our first half is a big selling season start Q2 is a big season of selling for us as well as Q4. So we're encouraged by the pipeline that we have and are working hard to execute against that in Q2.
Yeah makes sense, thanks for the color.
Thanks, Daniel Thanks, Dan.
Our next question comes from David Larsen with B P. I G.
Hi, congratulations on a good quarter.
What are your expectations for GAAP G&A costs over the remainder of the year like for two Q3 Q4 Q.
I know that there was this sort of that gain in SG&A in <unk>, but.
It seems like it was pretty material like from $23 million a quarter down to $8 8 million a quarter was it was like a $15 million gain so just any any color there would be helpful. Thank you.
Yeah, Yeah. Thanks, David.
Yeah. The game so the gain is laid out.
If you look through kind of our <unk>.
non-GAAP reconciliation.
Most of the acquisition related non-GAAP expense that we breakout was related to that change in fair value of the contingent consideration for the earn out. So that's the main dynamic in Q1 moving forward I don't I don't expect huge changes on a quarterly basis through the remainder of the year.
In particular on a on a non-GAAP basis that should stay fairly consistent on the G&A line line item. There is some seasonality like we talked about towards the back half of the year with G&A, but what we can see to your point there can be fluctuations on a GAAP basis, meaning mainly related to that earn out. Good news is that that will get chewed up. This next quarter just given the earn.
Timing is as of June 30th.
Okay.
So there was it looks like there was like a $4 8 million dollar item in <unk> and then into Q1.
Will there be another adjustment like that and then.
And then it sort of complete.
So no impact in <unk>.
Right, Yeah. The Q2 adjustment will depend on the actual achievement. So there could be there could be a net expense there could be net reversal of expense or in that gain just depending on how that shakes out in Q2, and then yes to your point no other changes beyond Q2.
Yeah.
Okay. Thanks, very much I'm all set I.
Appreciate it.
Thanks, David.
Our next question comes from that but we are Syria with Bahrenburg.
Hey, good evening.
And great quarter, Thanks for taking my question.
I wanted to just touch on.
Shan Lehmann here a lot of commentary on many other calls just addressing that.
How are you thinking about the price escalators built into kind of your older contracts and maybe.
Are you looking to kind of renegotiate those.
Due.
This includes SRAM Island.
Or are they already Texas, I'm, sorry, CPI index, how are you thinking about the pricing and adjusting for this.
Both on the tech side.
On the professional services side.
And a second.
Is that.
Baked into guidance.
Any color on that would be helpful. Thank you.
Okay, great. Thanks Dev for the for the question, Yes inflation is on everyone's mind. These days, I understanding which of which elements of inflation or long term, which elements or are more transitory.
Our important factors interestingly within the health care space outside of certain aspects like the labor shortage for example, with nurses.
Health care pricing increases have been below.
Many other sectors and so we're we try to be cognizant of that as well. We do have built in technology escalators that are contractual in nature with the passing of each year. Those are often in the low double digit percentage range. So they're already very robust.
And while there is an opportunity every few years to look at that.
Typically we have three to seven year contracts put in place from a technology pricing perspective, but they're they're often very robust in terms of those built in escalators.
And so we wouldn't anticipate dramatic changes to the way that those are structured on the professional services side those are little bit more fluid and there's an opportunity for us to to stay a little bit more fluid and flexible in terms of understanding the market conditions and as I mentioned earlier, there will likely be some cases.
We're like with domain expertise services it may be appropriate for us to think about higher prices.
And for our clients to accept those and in other circumstances and cases, the fact that we can offer.
A lower cost alternative and an efficient alternative.
We'll we'll be there.
The primary driver of the value proposition to those clients and they are very sensitive to that value proposition that pricing, but the compare might build at more favorable because they're experiencing a little bit more price increases in terms of their own labor and especially those areas like clinically oriented areas like churn.
Subtraction, so we're seeing some puts and takes and we're keeping our ear to the ground tech is a little bit longer term from a pricing perspective already built in contractual escalators that are pretty robust services, there's a little bit more flexibility, but we are sensitive to ensuring that our value proposition is really strong to clients and so.
Except in a few circumstances, where like with domain expertise services there might be a.
A reasonable and merited a meaningful price increase I think we'll try to stay at a more.
Reasonable level with our clients and stay in line with what they are experiencing as well just to your second question Deb in terms of what's built into guidance.
To Dan's commentary, what we've reflected is more representative of kind of the historical pricing that is built in to our existing customer contracts in and so as Dan mentioned, that's going to take some time to play out and adjust against that.
So that's what we expect in terms of guidance impact from that this year. There is on our on the cost side of the equation for us.
The technology line item for us is less headcount intensive so it's less impacted by inflationary pressure wage pressure, which benefits our gross margin.
Relative to the services segment, which is namely mainly head count that's where we are seeing more of that wage pressure head that's a bit of a headwind for us while it takes us time for us to address.
Great. Thank you.
Thanks Deb.
I'm showing no further questions in queue I'd like to turn the call back to Dan Burton for closing remarks.
Alright. Thank you all for your continued interest in health catalyst. We appreciate your time and look forward to future conversations have a great evening.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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