Q1 2025 Health Catalyst Inc Earnings Call
John
Please stand by, we're about to begin.
Speaker Change: Welcome to the Health Catalyst First Quarter 2025 earnings conference call. At this time, all participants have been placed on a listen only mode, and the floor will be open for your questions following the presentation.
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Speaker Change: Now I would like to turn the conference over to Jack Knight, Vice President of Investor Relations. Please go ahead sir.
Speaker Change: Good afternoon, and welcome to Health Catalyst earnings conference call for the first quarter of 2025, which ended on March 31st 2025. My name is Jack Knight.
Speaker Change: I am the Vice President of Investor Relations for Health Catalyst, and with me on the call is Dan Burton, our Chief Executive Officer, Jason Alger, our Chief Financial Officer, and Daniel LeSueur, our Chief Operating Officer.
Speaker Change: A complete disclosure of our results can be found in our press release issue today, as well as in our related form 8K furnished to the SEC, both of which are available on the Investor Relations section of our website at ir.healthcatalyst.com
Speaker Change: As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call.
Speaker Change: During today's call, we will make forward-looking statements pursuant to the safe harbor provisions of the private security's litigation reform act of 1995 regarding our future growth and our financial outlook for Q2 and fiscal year 2025.
Speaker Change: Our ability to attract new clients and retain and expand our relationship with existing clients. Trends?
Speaker Change: Strategies, the impact of the macroeconomic challenges, including the impact of inflation, tariffs, and the interest rate environment, potential changes to government funding and payment programs that could negatively impact the business of our clients.
Speaker Change: Bookings are pipeline conversion rates, the demand for deployment and development of our ignite data and analytics platform in our applications, timing and status of ignite migrations, acquisition integration, and the general anticipated performance of our business.
Speaker Change: 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.
Speaker Change: We display any obligation to update any forward-looking statements or outlook. Actual results may materially differ.
Speaker Change: Please refer to the risk factors in our Form 10K for the full year 2024, filed with the SEC on February 26th, 2025, and our Form 10Q for the first quarter of 2025 that will be filed with the SEC.
Speaker Change: We will also refer to certain non-GAAP financial measures to provide additional information to investors.
Speaker Change: non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAP.
Speaker Change: A reconciliation of non-GAAP financial measures for the first quarters of 2025 and 2024 to their most comparable GAAP measures is provided in our press release.
Speaker Change: However, we have not provided forward-looking guidance for professional services gross margin, the most directly comparable gap measure to adjusted professional services gross margin discussed today.
Speaker Change: Technology Gross Margin, the most directly comparable gap measure to adjusted technology gross margin discussed today, and if therefore not provided related reconciliation of these non-GAAP measures to their most comparable GAAP measures , because there are items that are not within our control, work and not be reasonably forecasted.
Dan Burton: With that, I will turn the call over to Dan Burton. Dan?
Dan Burton: Thank you, Jack, and thank you to everyone who has joined us this afternoon. We are happy to share our first quarter 2025 financial performance, along with additional highlights from the first quarter.
Dan Burton: I will begin today's call with summary commentary on our first quarter 2025 results.
We are pleased with our first quarter 2025 financial results.
Dan Burton: including total revenue of $79.4 million, and adjusted EBITDA of $6.3 million, with these results above our most recent guidance on each metric.
Dan Burton: Additionally, we are encouraged with the results of our tech segment, which had revenue of $51.5 million for the first quarter of 2025, representing 10% growth year over year.
Dan Burton: A key driver to our strategy and growth moving forward is the Ignite platform.
Dan Burton: and Will Priestiverse report a strong start to the year with ten met new platform clients added in Q1.
Dan Burton: with approximately two-thirds of these net new additions coming from our existing app clients, reinforcing the strength of our cross-self strategy.
Dan Burton: Importantly, the aggregated average total ARR and non-recurring revenue per net new platform came in around the midpoint of the range of 300,000 to 700,000.
Dan Burton: This is especially encouraging, given that Q1 is typically a quieter booking squirter.
Dan Burton: and we believe that the momentum we see from ignite with its additional modularity compared to DOS is the primary driver of this performance.
Dan Burton: We are encouraged to see Ignite's flexibility and lower average starting price, providing a streamlined sales process compared to DOS.
Dan Burton: This performance reinforces our confidence in achieving our full-year guidance of approximately 40 net new platform clients. And we anticipate being around halfway to that goal by the end of June .
Dan Burton: We are encouraged by this result as it underscores the effectiveness of our strategic shift to ignite a flexibly priced consumption-based platform.
Dan Burton: Ignite is a strategic shift away from the rigid high-touch model built around legacy dots.
The shift to ignite allows us to accelerate sales cycles.
Dan Burton: As we can offer ignite at a much lower entry price than the roughly $1.5 million price tag of DOS, particularly when clients are looking to start with a single use case.
Built on a solid foundation of industry standard technology.
Dan Burton: Ignite is a quicker, more cost-effective platform, allowing clients to see a faster ROI.
Dan Burton: It also opens the door to built-in cross-cell and upsell opportunities across our expanded portfolio, including our recently acquired patient experience and cybersecurity solutions.
Dan Burton: Ignited a more profitable platform than DOS, with approximately 70% gross margins compared to approximately 60% for DOS.
Dan Burton: Additionally, net new Ignite platform client ads generally have a more profitable 80-20 revenue mix between technology and professional services versus the roughly 50-50 historical mix for
Dan Burton: and with our 10 net new prop from Client Winds, this model shift is already delivering tangible
Dan Burton: The pace and quality of these wins underscore the effectiveness of our improved go-to-market strategy with the decision we made earlier this year to sharpen focus on lead generation, including moving marketing under the sales organization.
Dan Burton: and validates the improved flexibility, speed, and value that Ignite brings to clients.
Dan Burton: Ignite has also been key to our partnerships with leading platforms like Databricks and Microsoft.
Dan Burton: In addition, certain Ignite modules like Helpker.ai are now transactable on the Microsoft Azure Marketplace.
Speaker Change: Given the strategic importance of Ignite and the importance of the migration of existing platform clients to Ignite, I'll now turn some time over to Daniel LeSueur or an Ignite Migration Update.
Speaker Change: Thank you, Dan. I want to start by echoing what Dan shared that we continue to believe that the transition to ignite is a strategically important initiative that enhances our ability to deliver long-term, sustainable value to both clients and shareholders.
Speaker Change: We are monitoring our pace closely and anticipate completing the large majority of ignite migrations by mid-2026 and completing approximately two-thirds by year-end 2025.
Speaker Change: Many of the migrations involve smaller, less complex clients where the client may utilize a single DOS module such as healthcare.ai. In these cases, the transition to ignite is effectively seamless. More of a flip of the switch than a full-scale migration.
Speaker Change: As part of our shift to Ignite, we've encountered client scenarios where Ignite's lower cost structure has prompted thoughtful pricing discussions and in some cases has led to a reduction in total client spend compared to DOS.
Speaker Change: We continue to focus on cross-selling additional applications to these clients, which we expect will continue to help offset this reduction in spend.
Speaker Change: These scenarios have been factored into our 2025 bookings expectations, including our anticipated dollar-based retention rate performance.
Speaker Change: and we will continue to closely monitor trends. Importantly, we expect this headwind will subside starting in late 2026 after we complete the large majority of the Ignite Migrations.
Thank you for that update, Dan.
Speaker Change: To help showcase the long-term sustainable value that Ignite can enable for clients. Let me now share an example of an Ignite-powered client improvement from a recently published case study.
Speaker Change: LifePoint Health operates across 60 community hospital campuses with a wide range of disparate EHRs and it faced significant challenges in accessing unified actionable data to support quality improvement at scale.
Speaker Change: To address this, life point leveraged ignite, to identify and prioritize high impact opportunities in areas including sepsis, heart failure, blood product utilization, and repetitive lab testing.
in partnership with Health Catalyst Clinical Improvement Services.
Speaker Change: Lifepoint implemented evidence-based practices supported by robust analytics, process improvement, and change management.
Speaker Change: Lifepoint provided physicians with clear evidence of which interventions had the most significant impact using their own data, enabling data driven decision making and accelerating the adoption of best practices.
Speaker Change: These initiatives drove measurable results, with life-point reporting more than 650 lives saved through reduced subsistence and heart failure mortality.
1200 fewer blood-product transfusions. [inaudible]
and 22,000 additional patient days at home.
Speaker Change: With the help of Ignite, life point improved quality of care, decreased unwarranted care variation, decreased costs, and enabled the organization to achieve its quality improvement financial goals.
Speaker Change: Lifepoint continues to advance its mission of making communities healthier to a data-driven approach.
Speaker Change: Building on this momentum, life point is expanding at night across the enterprise system.
Speaker Change: to improve patient outcomes, reduce readmissions, and ensure clinical documentation reflects true patient acuity.
Speaker Change: We are grateful for life points, partnership and trust and health catalyst as we expand and deepen the relationship between our organizations.
Speaker Change: We're also excited to highlight several important new client wins that reflect the evolving strength of our platform.
Speaker Change: Most notably, we secured new Ignite wins with a Midwest health information exchange client.
Speaker Change: and Canopy Cancer Collective, as well as a large new patient engagement opportunity.
Speaker Change: These winds showcase the unique combination of ignite and are acquired technologies.
Speaker Change: They also underscore the growing value proposition of our integrated portfolio and demonstrate how our ability to deliver differentiated and impactful solutions is resonating in the market.
Speaker Change: We look forward to continuing to unlock new opportunities by combining Ignite's flexibility and modularity with the targeted capabilities of our acquired assets.
Speaker Change: Additionally, we're happy to share that the acquirer of one of our long-standing U.S. health system client partners reaffirmed its relationship with us by choosing to extend our relationship and migrate to the Ignite platform.
Speaker Change: We view their decision as a strong validation of ignite value proposition.
and its ability to deliver sustainable impact.
even through period of quiet transition and change.
Speaker Change: It also positioned us well for future opportunities to deepen this relationship over time.
Speaker Change: Next, we see some constructive elements as well as some challenging elements about the overall sales environment and demand backdrop.
Speaker Change: On the positive side, recent public data, including Kauffman Hall's flash reports, show that health system operating margins remain strong and relatively stable, which aligns with what we are hearing directly from clients and prospective clients.
Speaker Change: We are also continuing to monitor the implications of any policy developments around potential Medicaid and research funding reductions.
as well as implications of the evolving tariff landscape.
Speaker Change: These uncertainties in our end market could cause potential delays in client decisions.
Speaker Change: However, we expect a lower initial cost of the Ignite platform, and the direct ROI of our app solutions will be durable in the face of this uncertainty.
Speaker Change: While we are encouraged to see our pipeline continue grow, which supports our 20-25 bookings expectations, we still recognize that this is a dynamic environment with some uncertainty.
Speaker Change: As such, we are staying actively engaged with our clients and assessing potential impacts to ensure we remain responsive and well-positioned under a range of scenarios.
Speaker Change: In this environment, we expect ignite to the meaningfully more resilient than legacy dots due to several key advantages including ignite modularity its ability to begin with a single use case
Speaker Change: It's lower price point and it's ability to meet clients where they are as it integrates seamlessly with our wide range of applications.
Speaker Change: Unlike in the past, we now have a more flexible technology platform and modules with Ignite, which can scale up and down to meet our client's needs and continue to provide a strong ROI, even in more uncertain budget environments.
Speaker Change: An example of this can be seen in the early traction with Ignite Spark, a purpose-built solution designed for the mid-market.
These mid-sized community, regional and specialty health system segments
previously lacked access.
to Enterprise Great Analytics due to lean resources. [inaudible]
Speaker Change: But can now tap into the enterprise-grade analytics infrastructure of Ignite Spark at a price point they can afford?
Speaker Change: Additionally, even in pockets of market uncertainty, we've seen increased interest in products like power costing.
Speaker Change: which helps organizations better understand and manage their cost structure and vitalware, which supports compliance and price transparency in a shifting regulatory landscape.
Speaker Change: These solutions give us continued confidence in our ability to deliver value to clients in a range of economic conditions.
Speaker Change: With this backdrop, I will now share some updated perspectives on our anticipated 2025 bookings levels.
Speaker Change: which largely aligned with what we shared a few months ago. [inaudible]
Speaker Change: We continue to expect approximately 40 net new platform client additions for 2025. Importantly, we delivered 10 net new platform client wins in Q1 2025, which as a reminder has historically been a quieter quarter for bookings.
Speaker Change: The primary driver to the accelerated bookings performance is Ignite, which has helped shorten
Speaker Change: We are also reiterating our expectations for the average ARR plus non-recurring revenue range of 300,000 to 700,000 and we saw our additions from Q1 2025 come in roughly the midpoint of this range.
Speaker Change: As a reminder, on our February earrings call, and our 10K filing earlier this year, we updated the definition of platform clients to apply a higher, more stringent threshold, including a requirement of at least $100,000.
of new or incremental ARR plus non-recurring revenue.
This update, along with our Q1 performance.
Speaker Change: Helps provide increased visibility and gives us added confidence to achieve our targets. Likewise, we are reiterating our expectations for dollar-based retention rate for 2025 of approximately 103 percent.
Speaker Change: Lastly, as part of our ongoing commitment to discipline capital allocation, we recently executed a $5 million share of repurchase in March, representing approximately 1.1 million shares
Speaker Change: We will continue to be thoughtful about potential delusion and we view additional acquisitions as unlikely in the near term with our focus on continuing to drive profitable organic growth.
Speaker Change: including driving value from our existing capabilities and recently acquired assets.
Speaker Change: We're pleased with the integration progress of our recent acquisitions, including upfront, which continues to align well with our Ignite platform strategy.
Speaker Change: We are encouraged with early successes we've seen, like the ones we highlighted earlier.
Speaker Change: From an operational perspective, we've made meaningful strides in expanding our India-based footprint, particularly within R&D, where we are executing an India-first approach to new development resources.
Speaker Change: We are strategically exploring further offshoring within SGNA to drive long-term operational efficiency and believe that these and other efforts will continue to deliver meaningful additional operating leverage in 2026 and beyond.
Jason Alger: With that, let me turn the call over to Jason. Jason?
Jason Alger: 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 performance.
Jason Alger: I will now comment on our strategic objective category of scale. For the first quarter of 2025, we generated $79.4 million in total revenue.
Jason Alger: This total represents an outperformance relative to our quarterly guidance and is an increase of 6% year-over-year
Jason Alger: Technology Revenue for the first quarter of 2025 was 51.5 million, representing a 10% increase year over year. This year over year growth was primarily driven by recurring revenue from new and acquired clients.
Jason Alger: Professional Services Revenue for Q1 2025 was 27.9 million and increased 1% compared to Q1 2024.
Jason Alger: For the first quarter 2025, total adjusted gross margin was 49%, representing a decrease of approximately 210 basis points year over year. In the technology segment, our Q1 2025 adjusted technology gross margin was 67%,
Jason Alger: A decrease of approximately 120 basis points relative to the same period last year and an increase of approximately 260 basis points relative to Q4, 2024.
Jason Alger: This quarterly performance was ahead of the expectations we shared on our last earnings call, mainly driven by lower technology cost of revenue than initially expected.
Jason Alger: In the professional services segment, RQ-1 2025 adjusted professional services gross margin was 16 percent.
Jason Alger: representing a decrease of approximately 630 basis points year over year and an increase of approximately 240 basis points relative to Q4 2024.
Jason Alger: This quarterly performance was mainly driven by a recent reduction in force that occurred in Q1 2025.
Jason Alger: In Q1 2025, adjusted total operating expenses were 32.8 million, as a percentage of revenue adjusted total operating expenses were 41 percent, which compares favorably to 47 percent in Q1 2024.
Jason Alger: Adjusted EBITDA for Q1 2025 with $6.3 million exceeding our Q1 guidance of approximately $4 million.
Jason Alger: Our adjusted net income per share in Q1 2025 was $1.00. The weighted average number of shares used in calculating adjusted basic net income per share in Q1 was approximately $68.6 million shares.
Jason Alger: Turning to the balance sheet, we ended Q1 2025 with 342 million of cash, cash equivalent and short-term investments.
Jason Alger: compared to $392 million as of year-end 2024. In terms of liabilities, the face value of our term loan is $162 million. The face value of our convertible notes is a principal amount of $230 million.
Jason Alger: We are happy to share that on April 14, 2025, we paid off these convertible notes in full at maturity with cash from the balance sheet.
Jason Alger: We've reduced our total leverage by retiring these convertible notes and we do not anticipate drawing on the delayed draw feature of our term loan at this time.
Jason Alger: As it relates to our financial guidance, we would highlight that the following outlook is based on current market conditions and expectations
Jason Alger: and what we know today. The guidance does not include any impact from new tariff actions or changes in the Medicaid and research funding environment.
Jason Alger: For the second quarter of 2025, we expect total revenue of approximately 80.5 million and a wee bit of approximately 8 million.
Jason Alger: and for the full year 2025, we continue to expect total revenue of approximately $335 million, tech revenue of approximately $220 million, and adjusted EBITDA of approximately $41 million.
Jason Alger: Now let me provide a few additional details related to our 2025 guidance. First, as it relates to our Q2 2025 expectations, we anticipate that our technology revenue segment will be up sequentially an upgrade than 10% year-over-year.
Jason Alger: For our professional services segment, we anticipate Q2 Revenue will be slightly down sequentially in year-over-year, primarily driven by implementation delays with some of our health information exchange clients. Thank you very much.
Jason Alger: We do not expect this will result in a loss of revenue for the full year, but these delays will push some revenue into the back half of 2025.
Jason Alger: Additionally, we experienced a few instances of delays in anticipated bookings wins, specifically in the sub-segments of health information exchanges and life sciences.
Jason Alger: that we believe were tied to uncertainty in the Medicaid and research funding environment respectively. We believe we can win these late-stage pipeline opportunities once there's more certainty in the funding environment.
Jason Alger: Also, as a reminder, our bookings generally take a few months to ramp into revenue, and we anticipate we will see our Q1 2025 bookings begin to ramp into revenue in the second half of 2025.
Jason Alger: Next, in terms of our adjusted gross margin, we expect that our adjusted technology gross margin will be roughly flat to slightly down quarter over quarter.
Jason Alger: In the professional services segment, we anticipate that our Q2 2025 adjusted professional services gross margin will be approximately flat to slightly down compared to Q1 2025.
Jason Alger: Lastly, we anticipate that operating expenses will be down between 1 and 2 million in Q2 2025 relative to Q1 2025 as we start to see the full impact from the reduction in force we mentioned on our February call.
Jason Alger: Now let me provide a few additional details related to our four-year 2025 guidance.
Jason Alger: which is consistent with what we shared on our February earnings call. We continue to anticipate that our technology year-over-year revenue growth will outpace professional services year-over-year growth, as technology growth remains the top priority for health catalyst.
Jason Alger: Key drivers include momentum from ignite cells, as well as cross-selling additional solutions throughout our client base, contribution from acquisitions completed over the last year, and lower than anticipated professional services bookings in 2024, primarily in terms.
Jason Alger: Next, related to our adjusted gross margin, we continue to expect that adjusted technology gross margin in the second half of 2025 will be higher than the first half of 2025.
Jason Alger: as we continue to make progress on the Ignite migration effort, as well as see revenue ramp from our health information exchange clients as we make additional headway on these implementations.
Jason Alger: Consistent with our prior expectations, we anticipate that our adjusted professional services Gross margin will be in the high teens for 2025.
Jason Alger: Also, we expect continued operating leverage with adjusted optics declining as a percentage of revenue in 2025 compared to 2024. We believe there are several points of additional operating leverage to realize in 2026.
Jason Alger: Finally, we expect we will see a few hundred basis points reduction in our stock base compensation as a percentage of revenue in 2025 relative to 2024.
Jason Alger: We anticipate making accelerated progress towards our stated target of mid to high single digits stock based compensation as a percentage of revenue with our updated timeline being 2026.
Jason Alger: Two years ahead of our previously communicated time frame of 2028. With that, I will conclude my prepared remarks, Dan.
Dan Burton: Thanks, Jason. In conclusion, I would like to recognize and thank our committed and mission-aligned clients and our highly engaged team members for their dedication and contributions to these results and this progress, as well as express my optimism for our future.
Jason Alger: And with that, I will turn the call back to the operator for questions.
Speaker Change: Thank you, Mr. Burton. The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered and you may remove yourself from the queue by pressing star two. Again, we kindly ask that you limit yourself to one question and that you pick up your handset when posing your questions to provide optimal quality.
Speaker Change: Thank you. Our first question will come from Anne Samuel of JP Morgan. Please go ahead.
Anne Samuel: Hi guys, a great, a great, a great print and thanks for the question.
Speaker Change: You know, you spoke to the more modular approach making you a little bit more resilient here to some of the challenges in the demand environment and within your customer base. I was hoping maybe you could just provide a little bit more color here. [inaudible]
Yeah, great questions, Annie.
So there are a few meaningful differences because of
Speaker Change: The modularity, the lower price point of Ignite versus what we used to experience with DOS.
Speaker Change: I think, specifically, as we mentioned in our prepared remarks, our ability to meet clients where they are to focus on a single use case.
Speaker Change: and for those use cases to have specific hard-dollar ROI associated with them.
Speaker Change: I think make our opportunity to provide real tangible value quickly and at a lower price point much more doable with Ignite than what we used to have to experience with us as you may recall.
Speaker Change: Doss had an average starting price point of about $1.5 million.
Speaker Change: which especially in an uncertain macro environment with potential funding cuts looming.
Speaker Change: It's just a very, very high price point to begin a new relationship or expand an existing app-layer relationship.
and so we found that that cross-cell motion especially.
from app clients into platform clients was really, really difficult.
virtually impossible in economic uncertainty.
Headwinds.
Speaker Change: whereas with Ignite we have a very different opportunity especially with our app clients and that's one of the reasons why we believe in Q1 we saw such a strong performance as it relates to net new platform client additions.
and yet, especially having two-thirds of...
Speaker Change: of those net new platform clients come from, our app layer client base, where we already have a relationship. They've had a good experience with us.
Speaker Change: We're able to go to that next adjacent area that offers a specific card dollar ROI and is at a price point that is...
Speaker Change: A lot less of a leap than where we were with Doss. [inaudible]
Speaker Change: I think the one other thing I would highlight and then see if Daniel or Jason would add anything [inaudible]
That would be that... [inaudible]
Speaker Change: whereas in a few years ago when we faced some similar headwinds as it relates to economic uncertainty and potential economic pressures.
Speaker Change: We relied more on terms as a response to those economic difficulties.
Speaker Change: Today we have a much better technology response to any potential downside scenarios where there could be Medicaid cuts, there could be research funding cuts.
Speaker Change: that by virtue of a much stronger appletter portfolio, based on what we've built over the last few years and what we've acquired as well.
Speaker Change: and then the Ignite Glue being so much more modular, flexible and lower in price point.
than what we had with us. [inaudible]
We have a much stronger technology led.
Speaker Change: Response to clients that are facing that uncertainty, that need a hard dollar ROI.
Speaker Change: on that technology-based response, which has an obvious benefit to Health Catalyst in that revenue being much higher profit margin revenue.
Speaker Change: and much more profitable for Health Catalysts. So we do feel like this is a different chapter that Health Catalysts is in. Jason or Daniel, anything you got?
Speaker Change: The only thing I would add is this is an example that really showcases Ignite's flexibility as our early traction with Ignite Spark. That's a purpose-built solution designed for community, regional and specialty health systems.
Speaker Change: It allows us an entry point into this market that we wouldn't have been able to see historically with DOS
Speaker Change: and one of the things that prompted as well, you asked specifically about the decision-making process. I think when you have a lower price point as it relates to the offering,
Speaker Change: There are just fewer levels of approvals required, and we're seeing that manifest itself especially in the net new pop from client additions.
Speaker Change: that we shared in terms of a key one result, where we're seeing shortened...
Speaker Change: Sales Cycles because of that more streamlined decision making process because of that lower price point and that does feel encouraging to us moving forward. [inaudible]
Speaker Change: That's really helpful. And now I was going to be my next question was just, you know, should we expect, I guess, maybe given there's kind of fewer levels of decisions that need to be made that perhaps the cadence should it look different? I guess then, you know, the chunkier more aligned with the budget season cadence as you add new customers should be kind of more measured throughout the year. [inaudible]
Speaker Change: Yeah, great question, Annie. I think we're monitoring that. We were pleasantly surprised to see our Q1 be a more active quarter than what was historically seen in terms of that 10, 40, 10, 40 mix of
Speaker Change: of Bookings Activity in the 10% being Q1, Q3 and 40% being Q2, Q4. We do expect that to still be a dynamic that being aligned with budgets still matters.
Speaker Change: but perhaps there's a little bit more smoothing that may take place over time just because of the flexibility of our offering.
Really helpful, Collar. Thank you.
Thanks, Annie.
Unidentified Host: Thank you. We'll go next now to Jared Haase of William Blair.
Jared Haas: Yeah, guys, we've got tonight's quarter here and thanks for taking the questions.
Speaker Change: Dan, maybe you need to go back on something you mentioned in the prepared remarks. He talked a little bit about ignite subscribers, turning to have a higher weighting of tech versus services relative to what you experience with the legacy DOS platform. It would love to unpack that a little bit more just in terms of what's driving that. Is that really some of the novel functionality of the data layer, just makes it a little easier to consume, so it requires less of the sort of high touch delivery model. It was at a lower complexity use case that they're using the data platform for just to love to hear a bit more about it.
that.
Speaker Change: Great questions, Jared. I think you're on the right track there with those examples that you gave there at the end.
Speaker Change: at a lower price point, were often focused on a specific use case, and that specific use case
Speaker Change: is typically tapping into our portfolio of those five focus areas, each of which has a tangible ROI, and each of which just tends towards more of a technology driven solution.
Speaker Change: then where we were with Doss. I think with Doss, we didn't have quite as wide a portfolio at the app layer of tech solutions.
Speaker Change: There was more to do in terms of the level of integration that was required and that skewed towards more of a services component in that 50-50 range.
Speaker Change: with Ignite to your point. It is more modular and flexible and it's easier to install.
and what we're typically doing with clients.
Speaker Change: He's also something at the Aftler that's tapping into the technology that...
that is robust and requires less services.
Speaker Change: Attangible ROI. There will always still be a component of meaningful services, less about implementation and more about in some cases.
having the right domain expertise.
Speaker Change: to realize a measurable improvement like the life point example that we walk through in our prepared remarks required real depth of clinical improvement expertise as an example that will always be part of what we offer. But we're increasingly seeing that technology more and more can cover more of the space needed in order to get to measurable improvement. AI certainly expands that footprint as well. And that is all contributing to that, that 80-20 tech mix, so.
Speaker Change: that we're seeing that, you know, we view as very favorable, obviously that's higher profit margin mix and skews more towards tech growth, which is a top priority for us in terms of shareholder value creation. So, all of those factors I think are contributing as well.
Speaker Change: Perfect, that's great. I'll leave it there and hop back in cute. Thanks.
Thanks, Jared.
Speaker Change: Thank you. We're going next now to Jessica Tassan of Piper Samler.
Speaker Change: 34 to 800,000 in 25. And you just, how is that reflected in bookings, average ARR, per booking, and then net revenue retention?
Yeah, great questions.
So let me provide two categories of answers. There's a soak.
The example that you just walked through would be...
They don't add new applications, for example.
Speaker Change: In that scenario, that would be a headwind to our dollar-based retention metric that we've shared that it is the way of capturing that growth building block with existing platform clients. That's the first category of kind of how the accounting works.
Speaker Change: where two-thirds of our Q1 ads and two-thirds of last year's ads...
came from the app-layer. [inaudible]
Speaker Change: In these cases, that 300 to 700K is all incremental. So think of a vital work client at the app layer. Maybe they're spending, you know, 200K with us just on vitalware and they decide to expand their relationship with us, including Ignite.
that average of call it 500K. [inaudible]
is all incremental in that kind of a transaction and...
Speaker Change: and that, in that example, the 200K Vitoworld client would grow into a 700K relationship with...
with that 500k being incremental. [inaudible]
Speaker Change: and that's where we're seeing a lot of traction and that's what that metric is really representing both in terms of the number of net new platform clients.
Speaker Change: with Tannen in Q1, and that 500K average incremental ARR plus non-recurring revenue, kind of a proxy for what kind of next year revenue growth will that new platform client building block contribute.
Speaker Change: Thank you, that's actually so helpful. And then just maybe a follow-up is the timeline on implementations different between, you know, the two thirds of the net new bookings that you described as coming from App Clients versus the one third that are brand new to the platform. And maybe you could just give us a sense of like the respective implementation timelines. And then my quick follow-up would be, was there any upfront acquisition, contribution in one queue? Thanks for the question. Thank you again.
Yes, absolutely, so I'll speak to the first…
Jason Alger: The first category of questions then, Jason, if you want to take the upfront acquisition specific question.
The timeline on the implementations for...
Jason Alger: for the two-thirds of net new platform clients that came from the app layer, and the one-third that came in as just net new relationships to Health Catalyst have about the same implementation timeline. It's usually about a few months.
Jason Alger: Implementation before we start recognizing revenues. So very similar whether they're an existing client or a new client. There's slight advantages to the existing Appler client, but they're not huge and...
Jason Alger: One of the benefits of Ignite versus DOS is it's just much easier to implement and so that's generally going to only be a few months before between signing the contract and starting to recognize revenue. Jason.
Jason Alger: From an upfront standpoint, there was a slight contribution in one queue related to upfront from an EBITDA standpoint and they were burning.
Jason Alger: on EBITDA, so it was a slight headwind for EBITDA, and we expect over the course of 2025 that that headwind
Jason Alger: We'll turn into a tailwind for us where we're able to continue revenue expansion and manage costs effectively to where it is generating EBITDA in 2025.
Awesome. Thanks again.
Thanks, Jeff.
Speaker Change: Thank you for the next now to Elizabeth Anderson of Evercore ISI.
Looking towards sort of the evolved model. Thank you.
Yeah, thanks for the question, Elizabeth.
Speaker Change: The mix does shift much more towards tech, and we like that we're proactively driving towards that. There is still a services component, there's still some implementation services, and in some use cases there's some domain expertise services as well that can exist, but it is shifting.
Speaker Change: and for those new Ignite customers, we're typically seeing about an 80-20 mix of tech versus services, which is considerably different from, you know, when we were in public six years ago, with DOS, we were more of a 50-50 mix and so we continue to see that mix shift more and more towards tech.
Speaker Change: God it, that's super helpful. And apologies if I missed this if you've mentioned before, but in terms of the length of those contracts, we think of you having a partnership model with your customers and having many multi-year contracts, does that element, is there any change in that element with these new contracts, or should we think of those in those similar types of periods? Yeah, that's a good one.
Speaker Change: Yeah, very similar. So, still that long-term partnership mindset, still often, you know, three or five-year contracts that we're locking in which is obviously very positive and favorable, but able to start at a lower price point with Ignite.
Cut it, thank you so much.
Thanks, Elizabeth.
Speaker Change: Thank you. We go next now to Richard Close of Canacord Genuity.
Richard Close: Yeah, thanks for the questions, congratulations. We've seen a couple quarters here of delays on the health exchange deals.
Speaker Change: You know, deals in the pipeline to get to the 40 new platform clients that you're reiterating here today if you don't close these exchange deals.
Speaker Change: Yeah, great question, Richard. Let me answer in two parts. So there's a...
Speaker Change: There's an existing health information exchange client kind of answer to the question and there's a new client, a new pipeline kind of an answer. So on the existing client answer...
Speaker Change: We did share in our prepared remarks and as you pointed out, this has been a trend for a couple of quarters now. I think one of the real challenges in working with health information exchange clients is the complexity of the implementations.
They're really an implementation that often. [inaudible]
Cutts across hundreds of different organizations that are all...
Speaker Change: relying on the ability to share data in an interoperable way through our infrastructure, so they're very complex.
Speaker Change: And one of the dynamics that's been a real challenge for us is...
the scoping in a number of these cases.
keeps expanding and...
Speaker Change: you know, the complexity keeps expanding and that requires more time.
and more execution and...
Speaker Change: That is a challenge that we're facing. It's one of the reasons why.
Speaker Change: some of our original forecasts for when we would recognize revenue with existing clients.
has been delayed, and we're making progress.
on those implementations, but...
that trend towards expanding scope and...
Speaker Change: and complexity is a real challenge for us to manage, and so that is one of the factors in terms of our revenue.
We've continued the system increased. The system increased.
Speaker Change: Scope that has delayed them getting to specific milestones that then would result in revenue recognition and that's pushing.
Speaker Change: Some of the revenue a little bit further into the year than what we had originally forecasted. That's the first.
Category of Answer
Speaker Change: Then the second category would be as it relates to our new client pipeline, the new platform client additions. And as you mentioned, that is inclusive of
Speaker Change: Some pipeline opportunities that come from the health information exchange sub-segment. I would characterize that as a small fraction of our pipeline.
Speaker Change: and that the large majority of the pipeline is really more traditional health systems, and that we feel very good as we mentioned in our prepared remarks.
that we have a really robust and growing pipeline.
Speaker Change: It gives us confidence and our ability to hit that 40 net new platform client.
Speaker Change: Editions, and we also shared that even in some times of uncertainty as it relates to the macro environment, as it relates to the tariff, and potential, you know, funding changes to Medicaid or research funding as an example, we still see a number of ways.
Speaker Change: where we can stay on track as it relates to those net new platform client additions, and we're certainly encouraged by a strong Q1 performance, which is usually a light quarter for us, and a growing and robust pipeline where part of that confidence that we have is our ability with ignite.
Speaker Change: to attach to specific use cases that have hard-dollar ROI.
Speaker Change: and our ability to do that and not have such a huge jump in the size of the relationship among our app clients.
Speaker Change: to cross sell them on that next adjacent opportunity that has a hard dollar ROI that often helps them navigate through these uncertainties like with power of costing, like with vital wear.
Speaker Change: It gives us increased confidence that even in uncertain macro environments we still have many ways to get to that 40 net new platform client edition goal that we've said and as we mentioned in the prepared remarks we expect to be roughly halfway to that goal by the end of Q2.
Speaker Change: Okay, that's helpful. And then just with respect to tech margins, with ignite being higher.
Speaker Change: I guess what is the timing where we really see the tech-adjusted gross profit margin really begin to, you know, lift here I'm just curious because the first quarter was down year over year and I guess you're looking at second quarter down again so just curious on that.
Richard Close: Yeah, great question, Richard. We believe we'll start to see some of that uplift in the second half of this year.
and Stan L. mentions.
Richard Close: We do expect to be about two-thirds of the way through the migration process by the end of this year and largely complete [inaudible]
Richard Close: with the migration process by mid-next year. So, I would expect you'll see Gross margins start to see some of that uplift in the second half of this year that should continue in the first half of next year and continue even further towards the back half of 2026.
Okay, thank you.
Unidentified Host: Thank you. We go next now to Daniel Grosslight of City.
Daniel Grosslight: Hi, thanks for taking the question. I just had a quick one on the cadence of professional services revenue for the remainder of the year. I just did some back of the envelope math and it looks like when you take into account some of the shifting dynamics into. Thank you.
Daniel Grosslight: Product. You kind of have to assume an increase in revenue of about 17 million bucks from the first half of the year to the second half.
Daniel Grosslight: I was just hoping you could comment and put a little bit of a finer point on where that sequential from one half to second half uplift is really going to come from because typically you just don't see that type of seasonality of the business. Thanks.
Jason Alger: Yeah, I appreciate that question, Daniel, and I'll share a few thoughts on the Jason, please share. So in terms of bridging from the first half to the second half.
Speaker Change: There are a couple of factors that I think will cause some of that revenue ramp that you're asking about in the second half.
Speaker Change: First, as we mentioned in our prepared remarks, we have seen just a couple of specific
instances where...
Speaker Change: We had a few late stage opportunities that were delayed at least partially due to some uncertainty.
Speaker Change: in the funding environment. We noted that there were two. One was a life sciences opportunity. One was in the health information exchange, sub segment.
Speaker Change: Both have some uncertainty. In the life sciences space, it's tied to more of the research funding uncertainty and in the health information exchange space, it's more tied to the Medicaid funding uncertainty.
Speaker Change: We believe we can win both of those deals, but they were delayed as folks were waiting for a little bit more clarity on what the funding environment will look like.
Speaker Change: and as a note in those life sciences opportunities in particular, they can tend to be fairly large even seven figures.
in one case, in our pipeline, .
Speaker Change: and they tend to be fairly rapid as it relates to revenue recognition. And so...
that delay in that late stage opportunity. [inaudible]
Speaker Change: Pushes, you know, some meaningful revenue into the second half that could have otherwise happened earlier.
Speaker Change: in the year, but we believe we have a great opportunity to still close that business and just see that revenue ramp in the second half.
A second element that I would highlight would be...
I mentioned a few minutes ago . . .
Speaker Change: that increased scoping in some of our health information exchange client implementations has just taken longer as the scope has increased and the complexity has increased. And so that revenue we believe will still be recognized but it's just pushing out a little bit further into the year than what we had originally forecasted.
and then finally...
Speaker Change: We were encouraged to see strong Q1 as it relates to our bookings performance, but it does typically take a few months.
Speaker Change: for those Q1 bookings to turn into revenue, and so we would expect
Speaker Change: to really see that materializing in the second half of the year. And finally, along those same lines, Q2 is normally a busy bookings quarter. We expect that it will be this year as well, which is exciting and positive for us. [inaudible]
Speaker Change: But those bookings really will translate into revenue late in 2025. So those are a few of the items that will cause more of a ramp in 2025 in the back half of 2025 from the revenue perspective.
Very helpful. Thank you
Unidentified Host: Thank you. We go next now to David Larsen of BTIG.
Speaker Change: Hi, this is Jenny Shen on for Dave. So I wanted to ask about price increases. I think in years in the past they've trended around 69% range. Where are they now? And how is client acceptance been for price increases lately with the uncertain macro environment? Thank you.
Yeah, thanks for the question, Jenny, so-
I would characterize a more typical...
Speaker Change: Technology Annual Increase to our contracts being more in that in the mid-single
that has been something that our clients have accepted.
and then supportive of... [inaudible]
Speaker Change: Our Tim's contractual relationships typically have a lower, more of a low single digit increase, but more of the contracts that we've been...
Speaker Change: signing recently in more of the growth that we're experiencing is really coming in those tech contracts and mid-single visits from a year over year increases a reasonable assumption.
Great, thank you
Thanks, Jenny.
Thank you for watching!
We'll go next now to Scott Schoenhaus of Keybank.
Speaker Change: Thanks to you. I wanted to follow up on the upfront acquisition. You mentioned very minimal revenue contribution this quarter, but kind of wanted to see how the
Speaker Change: Fraction has been going in terms of bookings, what your revenue growth ramp should look like, and when we should be expecting an inflection on the EBITDA property side for this business. Thank you
Speaker Change: Yeah, great question, Scott. I'll show a few thoughts, and then Jason, please add as well.
Speaker Change: We continue to feel good about the progress that we're seeing both from a sales pipeline and bookings perspective and one of the meaningful new wins that we highlighted in our prepared remarks was a patient engagement solution.
Speaker Change: that really combines the strength of ignite with the strength of our expanded patient engagement offering inclusive up front and that was encouraging. Now, like other ignite deals, as we mentioned a few minutes ago.
that
Speaker Change: That takes a few months to ramp into revenue, but we do expect to see some of that revenue ramping in the second half and contributing to the overall ramp that we described a few minutes ago.
as it relates to...
Speaker Change: Evita, as Jason mentioned in Q1, Front was a slight headwind as it relates to it to Evita contribution, but we're encouraged to see meaningful synergy and cost management efforts paying off and do expect
to see especially in the second half of this year.
that headwind turned into a tailwind. [inaudible]
as we realize those synergies. Thank you, Jason.
and Enable.
Speaker Change: that that particular part of our portfolio to perform in a consistent manner to where we look for the rest of the portfolio to perform as well. Anying it, Adjacent.
I think you covered it well down. Thanks.
Thank you.
Unidentified Host: Thank you the next now to Stan Berenshteyn at Wells Fargo [inaudible]
Stan Berenstein: Hi, thanks for taking my questions. I guess question. So in the prepared remarks related to modularity of the ignite platform creating some downpricing pressure from existing DOS clients, if we square that against
Speaker Change: Your Expectations for Ignite Re-platforming over the next two years. Is it reasonable to assume that the headlines you talked about will be greater in 2025 versus 2026? Thanks.
Speaker Change: Yeah, great question, Stan. I think so, given that we will be two-thirds of the way through by the end of this year and we anticipate being largely through by mid-2026. I think those dollar-based retention headwinds
Speaker Change: Well, primarily be factored in and absorbed in 2025, but still some affect in 2026, we're excited to get to the other side of that, really substantively by the second half of 2026.
Speaker Change: Great, if I can maybe squeeze a quick one in, would just love to get your take on the difference in win rates of the Ignite platform versus the DOS platform. Do you have any insight into how the win rates are squaring up against the all-in sales that you have previously? Thanks.
Yeah, another great question, Stan, so...
Speaker Change: One of the challenges that we had with DOS, especially in color of the late 2022 and 2023 timeline, was DOS was so expensive that we really couldn't cross sell our appliance in an effective way.
Speaker Change: to become platform clients with DOS. It was just too big a leap for 100k clients to become a 1.6 million dollar client with the addition of DOS and especially with...
Some financial pressure.
Speaker Change: that is totally different with Ignite and that's where you know this is a time of some market uncertainty and macro uncertainty and yet because we have Ignite
We can cross-sell with those existing App Layer clients.
Speaker Change: and as we've shared in the past, we see about a two to three X conversion rate advantage when we're cross-selling to an existing client versus
Speaker Change: kind of starting and cult calling with a new client. And so, that's a huge advantage to us.
Speaker Change: and that 2-3x conversion rate is a reasonable proxy especially for our cross-cell opportunity, which is massive now.
Speaker Change: with over 900 applier clients that all could become pop-up from clients.
Speaker Change: I just really wasn't open to us with DOS and today it's wide open and we see that 2-3X conversion rate pump being really positive and sustainable for us.
Awesome. Thanks so much.
Thanks, Dan.
Speaker Change: Thank you. We're going back now to Jeff Garro of Stevens.
Jeff Garrow: Yeah, good afternoon and thanks for taking my question. I want to ask about the Spark product and selling applications on the Azure Marketplace with Microsoft.
Speaker Change: So I want to ask if you're seeing a benefit from expanding the product portfolio and channels and maybe further to what extent is there overlap versus on those expansions being completely incremental. Thanks.
Speaker Change: Yeah, great questions, Jeff. We are really encouraged and we're excited about Spark for the mid-market. Interestingly, one of the motivations for us.
Speaker Change: To really focus on the mid-market is that there's a large chunk of those 900-applier clients that really fit that definition of mid-market.
Speaker Change: And this was a way of really reaching out to them and kind of getting the best of both worlds where we...
could share with them a very price competitive offering.
Speaker Change: and take advantage of the fact that we have an existing client relationship.
Knocking on the Door
Speaker Change: and so there is meaningful overlap, but there's also a broader mid-market outside of our client base of over a thousand existing clients that we're also tapping into and excited to expand and...
and Ignite makes that possible.
Speaker Change: and Spark is just a, you know, a tweak to the Ignite infrastructure that's actually quite easy because Ignite is so modular, we just couldn't have done that with DOS. And so it's another example of why Ignite is really a stronger platform for us and a much more flexible platform for us.
Speaker Change: to expand into the mid-market and to have lots of great tech-heavy answers even in a time of macro uncertainty.
Thank you. Bye.
Speaker Change: and then anything to add on the Microsoft Azure Marketplace and the opportunity there.
Speaker Change: Yeah, as you know, Jeff, I've had a long standing relationship with Microsoft but really excited about the expansion.
in that partnership, which includes the go-to-market expansion. And there's...
Speaker Change: There's a couple of components that go to market expansion. One is that we're on the Azure Marketplace.
and we have components of...
Speaker Change: of Ignite, like healthcare.ai that we make it really easy for someone to get started, which we really like. We're early in that process, but we really like having that as a new channel.
Speaker Change: We're also doing some joint-go-to-market activity with our combined sales.
Speaker Change: and also really excited about that partnership. We have a similar kind of partnership with Databricks and and have seen some really meaningful traction where we've come to the to the agreement that we're better together going to market jointly in the health care space and and believe that will be another tailwind for us moving forward.
Excellent. Thanks again.
Thanks Jeff.
We will go next now to Sarah James of Cantor.
Thank you.
Speaker Change: Can you provide any color on the mix of ignite converting clients that are taking in the savings from the conversion as opposed to applying them to expanded purchases?
Speaker Change: And if I take a step back, your overall company revenue retention is increasing year-to-year even through this conversion, maybe you could give us a breakdown of what average revenue retention looks like on converting clients and help us bridge that [inaudible]
Speaker Change: to the overall guide of 103% revenue retention for the total company.
Speaker Change: Yeah, great, great questions, Sarah. I'll share a few thoughts on them, Daniel, if you'd like to add anything as well.
Speaker Change: We do experience a spectrum of responses with clients. You know, our first focus is make sure that
Speaker Change: We win as it relates to this multi-year technology strategy, architecture strategy decision to migrate to ignite and we're really pleased to see
Speaker Change: The vast vast vast majority of our clients finding ignite really resonant
Speaker Change: and very, very positive. And that's where we expect almost all of our existing platform clients to have made that migration, which is fantastic. Then the second question is, how are we going to manage that? And...
Speaker Change: We do share some of the better, faster, cheaper savings with our clients.
Speaker Change: We keep some of that, and that's why Ignite is 10 points higher gross margin the dose was, but we share some of that as well.
Speaker Change: and we do everything we can to strive to help them see the benefit of adding an app or adding two apps so that we maintain.
and I think that's a reasonable proxy for how...
Speaker Change: Those clients that are migrating, given that by the end of this year we'll have two-thirds of them migrated to the United States.
on to Ignite.
Speaker Change: Target that we've said has a lot of the vast majority of what's being contributed there is coming from clients who have migrated to ignite.
Speaker Change: We do factor in some headwind though. There are plenty of cases where the clients are facing uncertainty or headwind or concerns about funding and environment and may choose to just pocket some of that savings.
Speaker Change: Still maintain the same use cases and the same level of engagement with us, but just take advantage of some of igniting better faster and cheaper and...
We have factor that in.
to that 103% dollar-based retention target for this year.
There could be in some negative case scenarios.
Speaker Change: There could be a little bit more headwind if there was a major cut to Medicaid funding, for example, that would impact many of our health system clients [inaudible]
Speaker Change: and one of the places you could see a little bit of headwind incremental to that 103 could be a few more of those clients kind of choosing to just pocket the savings for now, or if there's more uncertainty, we could see that in the near term.
Speaker Change: Currently, we feel good about 103%. We've already factored in kind of a couple of points of headwind as it relates to that dynamic of ignite being a better faster and cheaper. Daniel, anything you'd add? No, we'll send in.
Thank you.
Thanks, Sarah.
Unidentified Host: Thank you, and that is all the questions we have today. Mr. Burton, I'd like to turn things back to you, sir, for any closing comments.
Speaker Change: All right, thank you all for your continued interest in Health Catalyst and we look forward to staying in touch. Take care everyone.
Speaker Change: Thank you. This concludes today's Health Catalyst First Quarter 2025 earnings conference call. Please disconnect your line this time and have a wonderful day. Goodbye.
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