Health Catalyst, Inc. (NASDAQ:HCAT) Q3 2021 Earnings Conference Call November 9, 2021 5:00 PM ET Company Participants Adam Brown - Investor Relations Dan Burton - Chief Executive Officer Bryan Hunt - Chief Financial Officer Conference Call Participants Anne Samuel - JPMorgan Jessica Tassan - Piper Sandler Stephanie Davis - SVB Leerink David Grossman - Stifel Daniel Grosslight - Citi Thomas Keller - RBC Capital Markets Iris Long - Berenberg David Larsen - BTIG Operator Thank you for standing by and welcome t ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 10-Q ________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number: 001-38993 HEALTH CATALYST, INC. (Exact name of registrant as specified in its cha ...

Health Catalyst, Inc. (NASDAQ:HCAT) Q2 2021 Earnings Conference Call August 5, 2021 5:00 PM ET Company Participants Adam Brown - Senior Vice President, Investor Relations & Financial Planning & Analysis Dan Burton - Chief Executive Officer Bryan Hunt - Chief Financial Officer Conference Call Participants Anne Samuel - JPMorgan Ryan Daniels - William Blair Sean Wieland - Piper Sandler Elizabeth Anderson - Evercore Stephanie Davis - SVB Leerink Richard Close - Canaccord Genuity John Ransom - Raymond James Dav ...

```markdown [Part I. Financial Information](index=5&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents Health Catalyst, Inc.'s unaudited condensed consolidated financial statements for periods ending June 30, 2021, and December 31, 2020, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed accounting notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $205,095 | $91,954 | $113,141 | 123.04% | | Short-term investments | $57,661 | $178,917 | $(121,256) | -67.77% | | Total current assets | $321,050 | $329,799 | $(8,749) | -2.65% | | Total assets | $562,956 | $577,740 | $(14,784) | -2.56% | | Convertible senior notes, net (current) | $174,811 | $0 | $174,811 | N/A | | Convertible senior notes, net (non-current) | $0 | $168,994 | $(168,994) | -100.00% | | Total liabilities | $287,052 | $301,641 | $(14,589) | -4.84% | | Total stockholders' equity | $275,904 | $276,099 | $(195) | -0.07% | - The reclassification of Convertible Senior Notes from non-current to current liabilities significantly impacted the balance sheet, reflecting their convertibility at the option of holders during the fiscal quarter ending September 30, 2021[18](index=18&type=chunk)[122](index=122&type=chunk) [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | % Change (YoY) | | :-------------------- | :------------------------------- | :------------------------------- | :------------- | | Technology Revenue | $35,529 | $25,487 | 39.40% | | Professional Services Revenue | $24,098 | $17,772 | 35.59% | | Total Revenue | $59,627 | $43,259 | 37.84% | | Net Loss | $(35,834) | $(27,183) | 31.82% | | Net Loss Per Share (Basic & Diluted) | $(0.80) | $(0.71) | 12.68% | | Metric (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | % Change (YoY) | | :-------------------- | :----------------------------- | :----------------------------- | :------------- | | Technology Revenue | $69,368 | $50,186 | 38.23% | | Professional Services Revenue | $46,105 | $38,189 | 20.73% | | Total Revenue | $115,473 | $88,375 | 30.67% | | Net Loss | $(64,204) | $(44,673) | 43.77% | | Net Loss Per Share (Basic & Diluted) | $(1.45) | $(1.19) | 21.85% | - Total revenue increased significantly year-over-year for both the three and six-month periods, driven by growth in both technology and professional services, including contributions from new customers and acquired entities[22](index=22&type=chunk)[176](index=176&type=chunk) - Net loss widened for both periods, primarily due to increased operating expenses, including sales and marketing, research and development, general and administrative, and depreciation and amortization, partly influenced by acquisition-related costs and stock-based compensation[22](index=22&type=chunk)[176](index=176&type=chunk)[234](index=234&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) | Metric (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | % Change (YoY) | | :-------------------- | :------------------------------- | :------------------------------- | :------------- | | Net Loss | $(35,834) | $(27,183) | 31.82% | | Other comprehensive income (loss) | $1 | $136 | -99.26% | | Comprehensive loss | $(35,833) | $(27,047) | 32.48% | | Metric (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | % Change (YoY) | | :-------------------- | :----------------------------- | :----------------------------- | :------------- | | Net Loss | $(64,204) | $(44,673) | 43.77% | | Other comprehensive income (loss) | $(29) | $103 | -128.16% | | Comprehensive loss | $(64,233) | $(44,570) | 44.12% | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric (in thousands) | Balance as of March 31, 2021 | Balance as of June 30, 2021 | Change (in thousands) | | :-------------------- | :--------------------------- | :-------------------------- | :-------------------- | | Common Stock Amount | $44 | $46 | $2 | | Additional Paid-In Capital | $1,022,781 | $1,065,680 | $42,899 | | Accumulated Deficit | $(754,020) | $(789,854) | $(35,834) | | Total Stockholders' Equity | $268,836 | $275,904 | $7,068 | | Metric (in thousands) | Balance as of December 31, 2020 | Balance as of June 30, 2021 | Change (in thousands) | | :-------------------- | :------------------------------ | :-------------------------- | :-------------------- | | Common Stock Amount | $43 | $46 | $3 | | Additional Paid-In Capital | $1,001,645 | $1,065,680 | $64,035 | | Accumulated Deficit | $(725,650) | $(789,854) | $(64,204) | | Total Stockholders' Equity | $276,099 | $275,904 | $(195) | - Additional Paid-In Capital increased significantly due to stock-based compensation, exercise of stock options, and issuance of common stock for contingent consideration settlement[27](index=27&type=chunk)[29](index=29&type=chunk) - The accumulated deficit grew due to net losses incurred during the periods[27](index=27&type=chunk)[29](index=29&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Net cash used in operating activities | $(7,988) | $(17,520) | $9,532 | | Net cash provided by (used in) investing activities | $109,799 | $(56,684) | $166,483 | | Net cash provided by financing activities | $11,335 | $160,366 | $(149,031) | | Net increase in cash and cash equivalents | $113,141 | $86,153 | $26,988 | - Operating cash outflow improved, primarily due to non-cash adjustments like depreciation, amortization, stock-based compensation, and changes in contingent consideration liabilities[31](index=31&type=chunk)[267](index=267&type=chunk) - Investing activities shifted from a net use of cash in 2020 to a significant net provision of cash in 2021, mainly driven by proceeds from the sale and maturity of short-term investments[31](index=31&type=chunk)[269](index=269&type=chunk) - Financing activities provided less cash in 2021 compared to 2020, as 2020 included substantial proceeds from convertible senior notes and a credit facility repayment[31](index=31&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [1. Description of Business and Summary of Significant Accounting Policies](index=13&type=section&id=1.%20Description%20of%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's business as a provider of data and analytics technology and services to healthcare organizations, detailing financial statement presentation, accounting policies, segment reporting, and revenue recognition - Health Catalyst operates in two reportable segments: Technology (cloud-based data platform, analytics software, support) and Professional Services (data and analytics, domain expertise, outsourcing, implementation)[34](index=34&type=chunk)[39](index=39&type=chunk)[166](index=166&type=chunk) - Revenue is primarily derived from technology subscriptions (recognized ratably over contract term) and professional services (recognized as provided)[41](index=41&type=chunk)[42](index=42&type=chunk)[45](index=45&type=chunk) - The company capitalizes sales commissions and certain fulfillment costs, amortizing them over an estimated benefit period of four years for commissions[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) - ASU 2020-06, simplifying accounting for convertible instruments, will be adopted in Q1 2022, expected to reduce reported interest expense and reclassify conversion feature-related balance sheet amounts from equity to liabilities for convertible senior notes[86](index=86&type=chunk) [2. Business Combinations](index=23&type=section&id=2.%20Business%20Combinations) This note details the acquisitions of Healthfinch, Inc. (July 2020) and Vitalware, LLC (September 2020), including consideration, acquired assets, goodwill, and unaudited pro forma financial information Healthfinch Acquisition (July 31, 2020) | Consideration Component | Fair Value (in thousands) | | :---------------------- | :------------------------ | | Net cash consideration | $16,900 | | Health Catalyst common shares | $27,800 | | Contingent consideration | $5,800 | | **Total Consideration Transferred** | **$50,500** | Key Acquired Assets (in thousands) | Asset Type | Fair Value | | :------------------------ | :--------- | | Developed technologies | $8,100 | | Customer relationships & contract backlog | $10,000 | | Trademarks | $200 | | Goodwill | $32,960 | Vitalware Acquisition (September 1, 2020) | Consideration Component | Fair Value (in thousands) | | :---------------------- | :------------------------ | | Net cash consideration | $69,600 | | Health Catalyst common shares | $41,300 | | Contingent consideration | $8,300 | | **Total Consideration Transferred** | **$119,200** | Key Acquired Assets (in thousands) | Asset Type | Fair Value | | :------------------------ | :--------- | | Developed technologies | $18,000 | | Customer relationships & contract backlog | $43,000 | | Trademarks | $1,400 | | Goodwill | $56,443 | - The Vitalware earn-out contingent consideration liability was settled during Q2 2021 for **$15.0 million cash** and **309,458 common shares**[93](index=93&type=chunk) Unaudited Pro Forma Financial Information (as if acquisitions took place Jan 1, 2019) | Metric (in thousands) | Year Ended December 31, 2020 | Year Ended December 31, 2019 | | :-------------------- | :--------------------------- | :--------------------------- | | Total pro forma revenues | $209,409 | $173,973 | | Pro forma net loss | $(124,485) | $(90,850) | [3. Revenue](index=25&type=section&id=3.%20Revenue) This note disaggregates revenue by type of arrangement, including recurring technology, one-time technology, and professional services, for the three and six months ended June 30, 2021 and 2020, noting that most revenue is from U.S. customers | Revenue Type (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | % Change (YoY) | | :-------------------------- | :------------------------------- | :------------------------------- | :------------- | | Recurring technology | $35,529 | $25,487 | 39.40% | | Professional services | $24,098 | $17,772 | 35.59% | | **Total revenue** | **$59,627** | **$43,259** | **37.84%** | | Revenue Type (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | % Change (YoY) | | :-------------------------- | :----------------------------- | :----------------------------- | :------------- | | Recurring technology | $69,096 | $50,186 | 37.69% | | One-time technology | $272 | $0 | N/A | | Professional services | $46,105 | $38,189 | 20.73% | | **Total revenue** | **$115,473** | **$88,375** | **30.67%** | - Revenue from customers in the United States constituted over **99% of total revenue** for both periods[98](index=98&type=chunk) [4. Goodwill and Intangible Assets](index=26&type=section&id=4.%20Goodwill%20and%20Intangible%20Assets) This note provides a breakdown of goodwill by reporting unit and details intangible assets, including developed technologies, customer relationships, software licenses, and trademarks, along with their net carrying value and amortization expense Goodwill by Reporting Unit (in thousands) | Reporting Unit | June 30, 2021 | December 31, 2020 | | :------------------ | :------------ | :---------------- | | Technology | $107,040 | $107,040 | | Professional services | $782 | $782 | | **Total goodwill** | **$107,822** | **$107,822** | Intangible Assets, Net (in thousands) | Asset Type | June 30, 2021 | December 31, 2020 | | :------------------------------ | :------------ | :---------------- | | Developed technologies | $37,671 | $44,436 | | Customer relationships and contracts | $44,207 | $50,282 | | Computer software licenses | $2,878 | $2,744 | | Trademarks | $1,154 | $1,459 | | **Total intangible assets, net** | **$85,910** | **$98,921** | - Amortization expense for acquired intangible assets significantly increased year-over-year, reaching **$14.1 million** for the six months ended June 30, 2021, up from **$4.5 million** in the prior year, primarily due to 2020 business combinations[101](index=101&type=chunk) [5. Property and Equipment](index=27&type=section&id=5.%20Property%20and%20Equipment) This note details property and equipment, including computer equipment, leasehold improvements, furniture, capitalized internal-use software, and computer software, along with their net carrying value and depreciation expense Property and Equipment, Net (in thousands) | Asset Type | June 30, 2021 | December 31, 2020 | | :------------------------------ | :------------ | :---------------- | | Computer equipment | $10,018 | $8,576 | | Leasehold improvements | $11,238 | $8,089 | | Furniture and fixtures | $3,612 | $1,734 | | Capitalized internal-use software costs | $5,635 | $3,489 | | Computer software | $212 | $947 | | Capital lease equipment | $37 | $37 | | **Total property and equipment, net** | **$20,198** | **$12,863** | - Capitalized internal-use software costs increased significantly, with **$2.1 million** capitalized for the six months ended June 30, 2021, compared to **$0.3 million** in the prior year[103](index=103&type=chunk) [6. Short-term Investments](index=27&type=section&id=6.%20Short-term%20Investments) This note describes the company's available-for-sale short-term investments and cash equivalents, summarizing their fair value by security type for June 30, 2021, and December 31, 2020 Cash Equivalents and Short-term Investments (in thousands) as of June 30, 2021 | Security Type | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | | :---------------- | :------------- | :--------------- | :---------------- | :--------- | | Money market funds | $197,286 | $0 | $0 | $197,286 | | Commercial paper | $50,042 | $0 | $0 | $50,042 | | Corporate bonds | $7,621 | $0 | $(2) | $7,619 | | **Total** | **$254,949** | **$0** | **$(2)** | **$254,947** | Cash Equivalents and Short-term Investments (in thousands) as of December 31, 2020 | Security Type | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | | :---------------- | :------------- | :--------------- | :---------------- | :--------- | | Money market funds | $79,387 | $0 | $0 | $79,387 | | US treasury notes | $59,382 | $7 | $0 | $59,389 | | Commercial paper | $68,018 | $0 | $0 | $68,018 | | Corporate bonds | $48,494 | $8 | $(1) | $48,501 | | Asset-backed securities | $3,009 | $0 | $0 | $3,009 | | **Total** | **$258,290** | **$15** | **$(1)** | **$258,304** | - The company had no material unrealized losses due to credit-related factors and does not intend to sell investments in an unrealized loss position before recovery of their amortized cost basis[106](index=106&type=chunk) [7. Fair Value of Financial Instruments](index=29&type=section&id=7.%20Fair%20Value%20of%20Financial%20Instruments) This note details fair value measurements of financial instruments, categorizing them by input observability (Level 1, 2, 3), and discusses the fair value of convertible senior notes and changes in Level 3 contingent consideration liabilities Assets and Liabilities Measured at Fair Value (in thousands) as of June 30, 2021 | Instrument | Level 1 | Level 2 | Level 3 | Total | | :------------------------------ | :--------- | :--------- | :--------- | :--------- | | Money market funds | $197,286 | $0 | $0 | $197,286 | | Commercial paper | $0 | $50,042 | $0 | $50,042 | | Corporate bonds | $0 | $7,619 | $0 | $7,619 | | Contingent consideration liabilities | $0 | $0 | $(9,452) | $(9,452) | | **Total** | **$197,286** | **$57,661** | **$(9,452)** | **$245,495** | Assets and Liabilities Measured at Fair Value (in thousands) as of December 31, 2020 | Instrument | Level 1 | Level 2 | Level 3 | Total | | :------------------------------ | :--------- | :--------- | :--------- | :--------- | | Money market funds | $79,387 | $0 | $0 | $79,387 | | U.S. Treasury notes | $59,389 | $0 | $0 | $59,389 | | Commercial paper | $0 | $68,018 | $0 | $68,018 | | Corporate bonds | $0 | $48,501 | $0 | $48,501 | | Asset-backed securities | $0 | $3,009 | $0 | $3,009 | | Contingent consideration liabilities | $0 | $0 | $(31,264) | $(31,264) | | **Total** | **$138,776** | **$119,528** | **$(31,264)** | **$227,040** | - The estimated fair value of convertible senior notes (principal **$230.0 million**) was **$441.5 million** as of June 30, 2021, based on Level 2 inputs[109](index=109&type=chunk) - Contingent consideration liabilities, categorized as Level 3, decreased from **$31.3 million** at December 31, 2020, to **$9.5 million** at June 30, 2021, primarily due to settlement of contingent consideration[114](index=114&type=chunk) [8. Accrued liabilities](index=30&type=section&id=8.%20Accrued%20liabilities) This note provides a breakdown of accrued liabilities, primarily consisting of accrued compensation and benefit expenses and other accrued liabilities, for June 30, 2021, and December 31, 2020 Accrued Liabilities (in thousands) | Type of Accrued Liability | June 30, 2021 | December 31, 2020 | | :------------------------ | :------------ | :---------------- | | Accrued compensation and benefit expenses | $7,682 | $9,838 | | Other accrued liabilities | $6,297 | $6,672 | | **Total accrued liabilities** | **$13,979** | **$16,510** | [9. Convertible Senior Notes](index=31&type=section&id=9.%20Convertible%20Senior%20Notes) This note details the **$230.0 million** 2.50% Convertible Senior Notes due 2025, covering their terms, interest, maturity, redemption, conversion features, accounting treatment, and related Capped Call transactions - The **$230.0 million** Convertible Senior Notes due 2025 were issued in April 2020 with a **2.50% annual interest rate**, maturing on April 15, 2025[117](index=117&type=chunk)[118](index=118&type=chunk) - As of June 30, 2021, the Notes were classified as current liabilities because the common stock price exceeded **130% of the conversion price** for at least 20 trading days, making them convertible at the option of holders during Q3 2021[121](index=121&type=chunk)[122](index=122&type=chunk) Interest Expense Related to Notes (in thousands) | Type of Expense | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Contractual interest expense | $1,438 | $1,198 | $2,875 | $1,198 | | Amortization of debt issuance costs and discount | $2,947 | $2,211 | $5,817 | $2,211 | | **Total** | **$4,385** | **$3,409** | **$8,692** | **$3,409** | - Capped Call transactions, costing **$21.7 million**, were entered into concurrently with the Notes issuance to reduce potential dilution and/or offset cash payments upon conversion, and are equity-classified[128](index=128&type=chunk)[129](index=129&type=chunk) [10. Stockholders' Equity](index=33&type=section&id=10.%20Stockholders'%20Equity) This note outlines the company's authorized and outstanding shares of preferred and common stock, including those subject to restriction agreements, and confirms no preferred stock has been issued or dividends paid on common stock - As of June 30, 2021, **45,687,722 shares of common stock** were legally issued and outstanding, with **76,497 shares** subject to restriction agreements and unvested for accounting purposes[131](index=131&type=chunk) - No preferred stock has been issued, and no dividends have been declared or paid on common stock through June 30, 2021[130](index=130&type=chunk)[131](index=131&type=chunk) [11. Net Loss Per Share](index=34&type=section&id=11.%20Net%20Loss%20Per%20Share) This note presents the calculation of basic and diluted net loss per share for the three and six months ended June 30, 2021 and 2020, and lists potentially dilutive securities excluded due to their anti-dilutive effect Net Loss Per Share (Basic and Diluted) | Metric (in thousands, except per share) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(35,834) | $(27,183) | $(64,204) | $(44,673) | | Weighted-average shares outstanding | 44,886,489 | 38,130,932 | 44,381,196 | 37,619,965 | | **Net loss per share** | **$(0.80)** | **$(0.71)** | **$(1.45)** | **$(1.19)** | Potentially Dilutive Securities (as of June 30) | Security Type | 2021 | 2020 | | :------------------------------------------ | :---------- | :---------- | | Common stock options | 2,660,759 | 5,882,786 | | Restricted stock units | 2,813,051 | 2,104,713 | | Performance-based restricted stock units | 318,737 | — | | Shares related to convertible senior notes | 3,198,928 | — | | Shares issuable as acquisition-related contingent consideration | 93,100 | — | | Restricted shares | 76,497 | 179,392 | | **Total potentially dilutive securities** | **9,161,072** | **8,166,891** | - All potentially dilutive securities were excluded from diluted EPS calculations due to the company incurring net losses, making their effect anti-dilutive[133](index=133&type=chunk) [12. Stock-Based Compensation](index=35&type=section&id=12.%20Stock-Based%20Compensation) This note details the company's stock incentive plans and ESPP, providing a breakdown of total stock-based compensation expense by award type and its allocation across cost of revenue and operating expenses Total Stock-Based Compensation Expense (in thousands) | Award Type | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Options | $1,721 | $1,934 | $3,115 | $4,476 | | Restricted stock units | $10,460 | $5,293 | $18,462 | $10,410 | | Performance-based restricted stock units | $3,519 | $0 | $4,848 | $0 | | Employee stock purchase plan | $393 | $476 | $810 | $968 | | Restricted shares | $1,634 | $1,343 | $4,002 | $1,933 | | **Total** | **$17,727** | **$9,046** | **$31,237** | **$17,787** | - Unrecognized compensation expense for stock options was **$4.9 million** (weighted-average period of **1.2 years**), for RSUs was **$107.3 million** (**3.0 years**), and for PRSUs was **$9.0 million** (**0.8 years**) as of June 30, 2021[141](index=141&type=chunk)[142](index=142&type=chunk)[145](index=145&type=chunk) - The company granted PRSUs in H1 2021 with service and company-wide performance conditions, vesting through March 1, 2022, and some executive PRSUs with an extended four-year service condition[144](index=144&type=chunk) [13. Income Taxes](index=38&type=section&id=13.%20Income%20Taxes) This note discusses the company's income tax provision, estimated effective tax rate, and the full valuation allowance against net deferred tax assets due to cumulative losses, also mentioning the impact of the CARES Act and ARPA Estimated Effective Tax Rate | Period | 2021 | 2020 | | :---------------------------- | :---- | :---- | | Three Months Ended June 30, | 0.5% | 0.0% | | Six Months Ended June 30, | 0.1% | 2.7% | - A full valuation allowance is provided for net deferred tax assets due to uncertainty regarding future realization and cumulative losses[155](index=155&type=chunk) - The income tax benefit of **$1.2 million** for H1 2020 was primarily due to the release of a valuation allowance related to the Able Health acquisition, which generated deferred tax liabilities[156](index=156&type=chunk) [14. Commitments and Contingencies](index=39&type=section&id=14.%20Commitments%20and%20Contingencies) This note states that the company is involved in legal proceedings but had no significant outstanding claims as of June 30, 2021, and December 31, 2020, with legal costs expensed as incurred - No significant outstanding legal claims were present as of June 30, 2021, or December 31, 2020[160](index=160&type=chunk) [15. Deferred Revenue and Performance Obligations](index=39&type=section&id=15.%20Deferred%20Revenue%20and%20Performance%20Obligations) This note explains deferred revenue as advance customer payments and billings in excess of recognized revenue, providing information on the percentage of revenue recognized from deferred revenue and expected recognition from unsatisfied performance obligations - For Q2 2021, **45% of revenue** recognized was included in deferred revenue at the beginning of the period; for H1 2021, this was **29%**[161](index=161&type=chunk) - The company expects to recognize **$81.3 million** of revenue from unsatisfied performance obligations as of June 30, 2021, with approximately **80%** recognized over the next 24 months[162](index=162&type=chunk) [16. Related Parties](index=40&type=section&id=16.%20Related%20Parties) This note discusses past arrangements with Mass General Brigham, a former related party customer, clarifying its current status and providing revenue figures from prior periods - Mass General Brigham is no longer considered a related party as of Q2 2021, following the resignation of a former director from both the company's board and the customer's executive position[163](index=163&type=chunk) Revenue from Former Related Party (in thousands) | Period | Revenue | | :---------------------------- | :------ | | Three Months Ended March 31, 2021 | $900 | | Three Months Ended June 30, 2020 | $400 | | Six Months Ended June 30, 2020 | $1,100 | [17. Segments](index=40&type=section&id=17.%20Segments) This note defines the company's two reportable segments: Technology and Professional Services, providing a breakdown of segment revenue and Adjusted Gross Profit for the three and six months ended June 30, 2021 and 2020, along with a reconciliation to loss before income taxes - The company operates in two segments: Technology (data platform, analytics, support) and Professional Services (data and analytics, domain expertise, outsourcing, implementation)[166](index=166&type=chunk) Segment Revenue (in thousands) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Technology | $35,529 | $25,487 | $69,368 | $50,186 | | Professional Services | $24,098 | $17,772 | $46,105 | $38,189 | | **Total** | **$59,627** | **$43,259** | **$115,473** | **$88,375** | Adjusted Gross Profit (in thousands) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Technology | $24,256 | $17,493 | $47,644 | $34,462 | | Professional Services | $8,174 | $3,730 | $15,103 | $8,801 | | **Total** | **$32,430** | **$21,223** | **$62,747** | **$43,263** | [18. Subsequent Events](index=41&type=section&id=18.%20Subsequent%20Events) This note discloses the acquisition of Twistle Inc., a healthcare patient engagement SaaS technology company, completed on July 1, 2021, detailing preliminary consideration and pending purchase price allocation - On July 1, 2021, Health Catalyst acquired Twistle Inc. for preliminary consideration of approximately **$104.5 million**, comprising **$57.5 million in cash** and **830,704 shares of common stock**[170](index=170&type=chunk)[171](index=171&type=chunk) - The acquisition is expected to enhance the company's population health offering with Twistle's patient engagement platform[170](index=170&type=chunk) - The final purchase price allocation and contingent consideration estimates for Twistle are pending and will be disclosed in the Q3 2021 Form 10-Q[171](index=171&type=chunk)[172](index=172&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting key metrics, COVID-19 impact, acquisitions, performance factors, and non-GAAP financial measure reconciliations [Overview](index=42&type=section&id=Overview) - Health Catalyst is a leading provider of data and analytics technology and services to healthcare organizations, aiming for data-informed healthcare decisions[174](index=174&type=chunk) Key Financial Highlights (in millions) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :------------ | :------ | :------ | :------ | :------ | | Total Revenue | $59.6 | $43.3 | $115.5 | $88.4 | | Net Loss | $(35.8) | $(27.2) | $(64.2) | $(44.7) | | Adjusted EBITDA | $1.7 | $(4.2) | $0.8 | $(10.2) | [COVID-19 Impact](index=43&type=section&id=COVID-19%20Impact) - The COVID-19 pandemic has disrupted healthcare operations, but Health Catalyst's highly recurring revenue model (over **90%**) has muted its near-term impact on total revenue[177](index=177&type=chunk)[178](index=178&type=chunk) - Customer usage of the data platform increased, with a shift from COVID-19 preparedness products to financial recovery and planning analytics[178](index=178&type=chunk) - The company anticipates the pandemic will serve as a medium-to-long term tailwind for data and analytics adoption in healthcare, highlighting the need for commercial-grade solutions[180](index=180&type=chunk) [Key Financial Metrics](index=44&type=section&id=Key%20Financial%20Metrics) Key Financial Metrics (in thousands, except percentages) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :---------------------------- | :---------- | :---------- | :---------- | :---------- | | Total revenue | $59,627 | $43,259 | $115,473 | $88,375 | | Adjusted Technology Gross Profit | $24,256 | $17,493 | $47,644 | $34,462 | | Adjusted Technology Gross Margin | 68 % | 69 % | 69 % | 69 % | | Adjusted Professional Services Gross Profit | $8,174 | $3,730 | $15,103 | $8,801 | | Adjusted Professional Services Gross Margin | 34 % | 21 % | 33 % | 23 % | | Total Adjusted Gross Profit | $32,430 | $21,223 | $62,747 | $43,263 | | Total Adjusted Gross Margin | 54 % | 49 % | 54 % | 49 % | | Adjusted EBITDA | $1,661 | $(4,188) | $824 | $(10,159) | [Reconciliation of Non-GAAP Financial Measures](index=44&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) [Adjusted Gross Profit and Adjusted Gross Margin](index=45&type=section&id=Adjusted%20Gross%20Profit%20and%20Adjusted%20Gross%20Margin) This section defines Adjusted Gross Profit and Adjusted Gross Margin, providing detailed reconciliations for technology and professional services segments for the three and six months ended June 30, 2021 and 2020, and explaining margin fluctuations - Adjusted Technology Gross Margin slightly decreased from **69%** in Q2 2020 to **68%** in Q2 2021, and remained consistent at **69%** for H1 2021 vs H1 2020, with expected near-term fluctuations due to Azure migration costs[187](index=187&type=chunk)[190](index=190&type=chunk) - Adjusted Professional Services Gross Margin significantly increased from **21%** in Q2 2020 to **34%** in Q2 2021, and from **23%** in H1 2020 to **33%** in H1 2021, driven by reduced prior-year COVID-19 discounts, higher non-recurring revenue, and improved utilization rates[188](index=188&type=chunk)[190](index=190&type=chunk) [Adjusted EBITDA](index=47&type=section&id=Adjusted%20EBITDA) This section defines Adjusted EBITDA as net loss adjusted for non-cash and non-recurring items, providing a reconciliation to net loss for the three and six months ended June 30, 2021 and 2020, and discussing contributing factors Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :---------------------------- | :---------- | :---------- | :---------- | :---------- | | Net loss | $(35,834) | $(27,183) | $(64,204) | $(44,673) | | Add: Interest and other expense, net | $3,707 | $3,025 | $7,659 | $3,646 | | Add: Loss on extinguishment of debt | $0 | $8,514 | $0 | $8,514 | | Add: Income tax provision (benefit) | $(192) | $4 | $(91) | $(1,232) | | Add: Depreciation and amortization | $8,139 | $3,094 | $15,953 | $5,971 | | Add: Stock-based compensation | $17,727 | $9,046 | $31,237 | $17,787 | | Add: Acquisition-related costs, net | $8,114 | $(813) | $10,270 | $(297) | | Add: Duplicate headquarters rent expense | $0 | $125 | $0 | $125 | | **Adjusted EBITDA** | **$1,661** | **$(4,188)**| **$824** | **$(10,159)** | - Adjusted EBITDA improved significantly, turning positive in Q2 2021 (**$1.7 million**) and H1 2021 (**$0.8 million**) from negative figures in the prior year, due to revenue growth, improved Adjusted Gross Margin, and cost containment[195](index=195&type=chunk) - Adjusted EBITDA is expected to decline in the near term due to factors like the annual Healthcare Analytics Summit, increased travel expenses, and anticipated losses from the Twistle acquisition[195](index=195&type=chunk) [Key Factors Affecting Our Performance](index=48&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) - Key factors include the ongoing impact of the COVID-19 pandemic, the ability to attract new customers, leverage new product and service offerings, successfully integrate acquisitions, manage changing revenue mix, and transition customers to Microsoft Azure[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) - The transition of customers to Azure-hosted environments is expected to increase technology cost of revenue and reduce Adjusted Technology Gross Margin due to higher hosting costs[199](index=199&type=chunk) - Acquisitions, such as Medicity, Able Health, Healthfinch, Vitalware, and Twistle, impact overall growth rates and operating costs due to varying revenue profiles and integration expenses[198](index=198&type=chunk) [Recent Acquisitions](index=49&type=section&id=Recent%20Acquisitions) - Twistle Inc. was acquired on July 1, 2021, for approximately **$104.5 million** (cash and stock), aiming to enhance patient engagement and population health offerings[200](index=200&type=chunk) - Vitalware, LLC was acquired on September 1, 2020, for **$119.2 million** (cash, stock, contingent consideration), providing revenue workflow optimization and analytics SaaS solutions[201](index=201&type=chunk) - Healthfinch, Inc. was acquired on July 31, 2020, for **$50.5 million** (cash, stock, contingent consideration), strengthening population health capabilities with EMR workflow integration[202](index=202&type=chunk) [Components of Our Results of Operations](index=50&type=section&id=Components%20of%20Our%20Results%20of%20Operations) - Technology revenue primarily consists of cloud-based subscription fees with annual escalators, while professional services revenue includes analytics, domain expertise, outsourcing, and implementation services[204](index=204&type=chunk)[205](index=205&type=chunk) - Cost of technology revenue is expected to increase in absolute dollars due to headcount and cloud computing costs, but potentially decrease as a percentage of revenue long-term, with near-term increases from Azure migration[207](index=207&type=chunk)[208](index=208&type=chunk) - Operating expenses (Sales & Marketing, R&D, G&A) are expected to increase in absolute dollars but decrease as a percentage of revenue over the long term, with fluctuations due to timing and extent of investments[211](index=211&type=chunk)[213](index=213&type=chunk)[215](index=215&type=chunk) - Interest and other expense, net, is primarily driven by interest on convertible senior notes and amortization of debt discounts, with ASU 2020-06 adoption expected to reduce reported interest expense[217](index=217&type=chunk) [Results of Operations](index=52&type=section&id=Results%20of%20Operations) [Discussion of the Three Months Ended June 30, 2021 and 2020](index=55&type=section&id=Discussion%20of%20the%20Three%20Months%20Ended%20June%2030,%202021%20and%202020) This section provides a detailed comparison of the company's financial performance for the three months ended June 30, 2021, versus the same period in 2020, covering revenue, cost of revenue, and operating expenses, highlighting significant increases and expense drivers Revenue (in thousands) | Revenue Type | Q2 2021 | Q2 2020 | $ Change | % Change | | :------------------ | :---------- | :---------- | :------- | :------- | | Technology | $35,529 | $25,487 | $10,042 | 39 % | | Professional services | $24,098 | $17,772 | $6,326 | 36 % | | **Total revenue** | **$59,627** | **$43,259** | **$16,368** | **38 %** | - Technology revenue growth was driven by new DOS Subscription Customers, acquired technology customers, contractual annual escalators, and expanded support services[227](index=227&type=chunk) - Professional services revenue growth was due to implementation, analytics, outsourcing, and other improvement services for new customers, including higher non-recurring services, partially offset by lower dollar-based retention and prior-year COVID-19 discounts[228](index=228&type=chunk) Operating Expenses (in thousands) | Expense Category | Q2 2021 | Q2 2020 | $ Change | % Change | | :-------------------------- | :---------- | :---------- | :------- | :------- | | Sales and marketing | $16,705 | $12,502 | $4,203 | 34 % | | Research and development | $14,524 | $12,061 | $2,463 | 20 % | | General and administrative | $22,525 | $8,113 | $14,412 | 178 % | | Depreciation and amortization | $8,139 | $3,094 | $5,045 | 163 % | - General and administrative expenses saw a substantial **178% increase**, primarily due to an **$8.1 million** change in fair value of contingent consideration liabilities and a **$3.7 million** increase in stock-based compensation[234](index=234&type=chunk) [Discussion of the Six Months Ended June 30, 2021 and 2020](index=58&type=section&id=Discussion%20of%20the%20Six%20Months%20Ended%20June%2030,%202021%20and%202020) This section provides a detailed comparison of the company's financial performance for the six months ended June 30, 2021, versus the same period in 2020, covering revenue, cost of revenue, and operating expenses, highlighting significant increases and expense drivers Revenue (in thousands) | Revenue Type | H1 2021 | H1 2020 | $ Change | % Change | | :------------------ | :---------- | :---------- | :------- | :------- | | Technology | $69,368 | $50,186 | $19,182 | 38 % | | Professional services | $46,105 | $38,189 | $7,916 | 21 % | | **Total revenue** | **$115,473**| **$88,375** | **$27,098** | **31 %** | - Cost of technology revenue increased by **41%**, driven by higher salary and personnel costs, increased cloud computing and hosting costs (Microsoft Azure), and dues and subscriptions[244](index=244&type=chunk)[245](index=245&type=chunk) Operating Expenses (in thousands) | Expense Category | H1 2021 | H1 2020 | $ Change | % Change | | :-------------------------- | :---------- | :---------- | :------- | :------- | | Sales and marketing | $32,356 | $25,989 | $6,367 | 24 % | | Research and development | $28,869 | $25,149 | $3,720 | 15 % | | General and administrative | $37,540 | $17,814 | $19,726 | 111 % | | Depreciation and amortization | $15,953 | $5,971 | $9,982 | 167 % | - Interest and other expense, net, increased by **110%**, primarily due to a **$3.6 million** increase in non-cash interest expense from convertible senior notes and a **$1.0 million** decrease in interest income[255](index=255&type=chunk) [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) - As of June 30, 2021, the company had **$262.8 million** in cash, cash equivalents, and short-term investments, held for working capital and potential acquisitions[259](index=259&type=chunk) - The company believes existing cash and investments will be sufficient for working capital and capital expenditures for at least the next 12 months, but may require additional capital for acquisitions[264](index=264&type=chunk) - Net cash used in operating activities improved to **$8.0 million outflow** in H1 2021 from **$17.5 million outflow** in H1 2020[265](index=265&type=chunk)[267](index=267&type=chunk) - Net cash provided by investing activities was **$109.8 million** in H1 2021, a significant shift from a **$56.7 million use** in H1 2020, primarily due to short-term investment sales and maturities[265](index=265&type=chunk)[269](index=269&type=chunk) - Net cash provided by financing activities decreased to **$11.3 million** in H1 2021 from **$160.4 million** in H1 2020, as the prior year included substantial proceeds from convertible senior notes[265](index=265&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) [Critical Accounting Policies and Estimates](index=63&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The company's financial statements rely on estimates and assumptions, which are continuously evaluated, including those related to revenue recognition, credit losses, useful lives of assets, fair value, deferred taxes, and stock-based compensation[275](index=275&type=chunk) - No material changes to critical accounting policies and estimates were reported since the Annual Report on Form 10-K[277](index=277&type=chunk) [Recent Accounting Pronouncements](index=64&type=section&id=Recent%20Accounting%20Pronouncements) - Refer to Note 1 for details on recently issued accounting pronouncements, including ASU 2020-06 on convertible instruments, which is expected to impact interest expense and balance sheet classification[86](index=86&type=chunk)[278](index=278&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=64&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the company's exposure to market risks, primarily from interest rate fluctuations, and to a lesser extent, foreign currency exchange risk and inflation, detailing their potential impact on financial instruments and operations - The company's primary market risk exposure is interest rate fluctuations, affecting its **$262.8 million** in cash, cash equivalents, and short-term investments as of June 30, 2021[279](index=279&type=chunk)[280](index=280&type=chunk) - A hypothetical **100 basis point change** in interest rates would not have a material impact on the value of the company's cash equivalents or investment portfolio[282](index=282&type=chunk) - Foreign currency exchange risk is limited due to the small scale of international operations, with most international sales contracts denominated in U.S. dollars[284](index=284&type=chunk)[285](index=285&type=chunk) - Inflation has not had a material effect on the business, but significant inflationary pressures could harm financial condition if not offset[286](index=286&type=chunk) [Item 4. Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2021, and states no material changes in internal control over financial reporting occurred, despite COVID-19's impact on remote work - Disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of June 30, 2021[288](index=288&type=chunk) - No material changes in internal control over financial reporting occurred during the period, and the company continues to monitor the impact of the COVID-19 pandemic on these controls[289](index=289&type=chunk) - Management acknowledges the inherent limitations of control systems, which can only provide reasonable, not absolute, assurance against errors and fraud[291](index=291&type=chunk) [Part II. Other Information](index=67&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=67&type=section&id=Item%201.%20Legal%20Proceedings) This section states the company is subject to legal proceedings and claims in the normal course of business, with unpredictable outcomes that could materially affect its financial condition, incurring significant costs and diverting management resources - The company is subject to legal proceedings and claims arising in the normal course of business, with unpredictable outcomes[294](index=294&type=chunk)[295](index=295&type=chunk) - Litigation can incur substantial costs, divert management attention, and potentially harm business, regardless of the outcome[295](index=295&type=chunk) [Item 1A. Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) This section outlines various risks that could materially and adversely affect the company's business, operating results, and financial condition, categorized by business, data, intellectual property, governmental regulation, tax, convertible notes, and common stock ownership [Summary Risk Factors](index=67&type=section&id=Summary%20Risk%20Factors) - Key risks include intense industry competition, challenges in executing growth initiatives, managing rapid growth, the adverse impact of the COVID-19 pandemic, and the need for continuous innovation[298](index=298&type=chunk) - Operational risks involve customer satisfaction, contract renewals, reliance on third-party data and infrastructure (Microsoft Azure), security breaches, and potential liabilities from inaccurate information or faulty clinical decisions[298](index=298&type=chunk)[300](index=300&type=chunk) - Financial and regulatory risks include fluctuating results, pricing changes, compliance with data protection laws (HIPAA, CCPA, GDPR), government healthcare regulations, and tax liabilities[298](index=298&type=chunk)[385](index=385&type=chunk)[388](index=388&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[393](index=393&type=chunk)[394](index=394&type=chunk)[395](index=395&type=chunk)[396](index=396&type=chunk)[402](index=402&type=chunk)[403](index=403&type=chunk)[404](index=404&type=chunk)[405](index=405&type=chunk)[406](index=406&type=chunk)[407](index=407&type=chunk)[408](index=408&type=chunk)[409](index=409&type=chunk)[410](index=410&type=chunk)[411](index=411&type=chunk)[412](index=412&type=chunk)[413](index=413&type=chunk)[414](index=414&type=chunk) - Risks related to capital structure and ownership include servicing convertible notes, counterparty risk from capped calls, potential dilution from additional capital stock issuance, and stock price volatility[298](index=298&type=chunk)[415](index=415&type=chunk)[416](index=416&type=chunk)[417](index=417&type=chunk)[418](index=418&type=chunk)[419](index=419&type=chunk)[420](index=420&type=chunk)[421](index=421&type=chunk)[422](index=422&type=chunk)[423](index=423&type=chunk)[424](index=424&type=chunk)[425](index=425&type=chunk)[426](index=426&type=chunk)[427](index=427&type=chunk)[428](index=428&type=chunk)[429](index=429&type=chunk)[430](index=430&type=chunk)[431](index=431&type=chunk)[432](index=432&type=chunk)[433](index=433&type=chunk)[434](index=434&type=chunk)[435](index=435&type=chunk)[436](index=436&type=chunk)[437](index=437&type=chunk)[438](index=438&type=chunk)[439](index=439&type=chunk)[440](index=440&type=chunk)[441](index=441&type=chunk)[442](index=442&type=chunk)[443](index=443&type=chunk)[444](index=444&type=chunk)[445](index=445&type=chunk) [Risks Related to Our Business and Industry](index=68&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) This section details risks inherent to the company's business model and the healthcare industry, covering competition, COVID-19 impact, growth execution, customer support, sales cycles, software malfunctions, brand reputation, customer retention, reliance on large customers, and acquisition integration - The healthcare solutions market is intensely competitive, with rivals including industry-agnostic analytics companies, EHR companies (Epic, Cerner), and large, well-financed entities (Optum Analytics, IBM)[299](index=299&type=chunk)[300](index=300&type=chunk) - The COVID-19 pandemic poses risks of decreased healthcare spending, reduced demand for services, contract terminations, and operational disruptions, with unpredictable duration and magnitude[305](index=305&type=chunk)[306](index=306&type=chunk) - Long and unpredictable sales cycles (averaging one year, sometimes over two) require significant investment without guaranteed sales, potentially harming results and growth[309](index=309&type=chunk)[310](index=310&type=chunk) - Software defects or errors could damage reputation, lead to liability claims, and divert resources, especially given the reliance on accurate data for clinical decision-making[311](index=311&type=chunk)[312](index=312&type=chunk)[313](index=313&type=chunk) - Reliance on a limited number of large customers (top three accounted for **14.1% of 2020 revenue**) makes the company vulnerable to contract loss, termination, or renegotiation, and customer creditworthiness[336](index=336&type=chunk)[337](index=337&type=chunk) - Acquisitions (e.g., Able Health, Healthfinch, Vitalware, Twistle) present integration challenges, potential dilution, and risks of not realizing anticipated benefits, diverting management attention and incurring costs[344](index=344&type=chunk)[345](index=345&type=chunk)[346](index=346&type=chunk) [Risks Related to Data and Intellectual Property](index=81&type=section&id=Risks%20Related%20to%20Data%20and%20Intellectual%20Property) This section addresses risks associated with data sourcing, privacy, security, and intellectual property, highlighting dependence on third-party data, implications of data privacy laws, potential for security breaches, reliance on third-party computing infrastructure, and challenges in protecting intellectual property - The company's solution relies on sourcing data from third parties, and information blocking practices or regulatory changes (like the Final Rule on interoperability) could impair data access and effectiveness[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk) - Failure to comply with data protection, privacy, and security laws (HIPAA, CCPA, GDPR) or security breaches could lead to significant liabilities, fines, reputational damage, and loss of customer trust[359](index=359&type=chunk)[385](index=385&type=chunk)[388](index=388&type=chunk)[389](index=389&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[392](index=392&type=chunk) - Reliance on third-party computing infrastructure providers like Microsoft Azure creates risks of service disruptions, outages, increased costs during customer transitions, and potential liability if service levels are not met[361](index=361&type=chunk)[362](index=362&type=chunk)[363](index=363&type=chunk)[364](index=364&type=chunk)[365](index=365&type=chunk) - Failure to protect intellectual property rights (patents, trademarks, trade secrets) could impair the ability to protect proprietary technology and brand, while defending against infringement claims can be costly and distracting[377](index=377&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk)[380](index=380&type=chunk)[381](index=381&type=chunk)[382](index=382&type=chunk)[383](index=383&type=chunk)[384](index=384&type=chunk) [Risks Related to Governmental Regulation](index=87&type=section&id=Risks%20Related%20to%20Governmental%20Regulation) This section details the regulatory landscape affecting the company, including healthcare and data privacy laws, anti-kickback and false claims statutes, potential FDA regulation of medical software, evolving healthcare regulations, antitrust laws, foreign corrupt practices, economic sanctions, export controls, and regulatory certifications - The company is subject to complex federal and state health information privacy and security laws, including HIPAA, with potential for significant penalties for non-compliance[385](index=385&type=chunk)[386](index=386&type=chunk)[387](index=387&type=chunk) - Compliance with consumer protection regulations like CCPA and CPRA, and foreign data privacy laws such as GDPR and UK GDPR, adds complexity and potential for significant fines and business disruption[388](index=388&type=chunk)[389](index=389&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[392](index=392&type=chunk) - Arrangements with healthcare professionals could be deemed improper rendering of medical services or fee splitting under state laws, potentially impacting business operations[398](index=398&type=chunk) - The FDA may modify enforcement policies for medical software, potentially subjecting the company's products to extensive regulatory requirements, increasing costs and harming business[399](index=399&type=chunk)[400](index=400&type=chunk)[401](index=401&type=chunk) - Additional government regulations, including antitrust laws, FCPA, economic sanctions, and export controls, could create liabilities, increase costs, or restrict operations[403](index=403&type=chunk)[404](index=404&type=chunk) [Risks Related to Internet Regulation](index=93&type=section&id=Risks%20Related%20to%20Internet%20Regulation) This section discusses risks related to changes in internet laws and regulations, including potential taxes or fees for internet access, the repeal of net neutrality rules, and the impact of internet performance issues, which could increase operating expenses, degrade service, or harm the business - Changes in internet laws or regulations, or new taxes/fees for internet access, could require platform modifications, incur substantial costs, or expose the company to liability[405](index=405&type=chunk)[406](index=406&type=chunk) - The repeal of net neutrality rules could lead to higher operating expenses or adversely affect customer use of the platform[407](index=407&type=chunk) - Internet performance issues (viruses, outages, delays) could harm business, reduce demand for internet-based platforms, and potentially lead to service level credit claims or contract terminations[408](index=408&type=chunk)[409](index=409&type=chunk)[370](index=370&type=chunk) [Risks Related to Tax Regulation](index=94&type=section&id=Risks%20Related%20to%20Tax%20Regulation) This section addresses tax-related risks, including potential liabilities for uncollected sales and use taxes, unanticipated changes in the effective tax rate, limitations on the ability to use net operating losses (NOLs), and the impact of comprehensive tax reform legislation - The company may face liabilities for uncollected sales and use taxes if jurisdictions assert applicability, leading to assessments, penalties, and increased administrative burdens[409](index=409&type=chunk) - Unanticipated changes in the effective tax rate or additional tax liabilities could harm future results, influenced by earnings mix, non-deductible expenses, and changes in tax laws[410](index=410&type=chunk)[411](index=411&type=chunk) - The ability to use federal and state net operating loss (NOL) carryforwards (**$419.6M federal**, **$334.6M state** as of Dec 31, 2020) may be limited by ownership changes (Section 382 of the Code) or regulatory changes, potentially increasing future tax liability[412](index=412&type=chunk)[413](index=413&type=chunk) - Comprehensive tax reform, including the Tax Act and CARES Act, has introduced significant changes to corporate taxation, such as reduced corporate tax rates and limitations on NOL deductions, which could adversely affect financial condition[414](index=414&type=chunk) [Risks Related to Our Outstanding Convertible Notes](index=95&type=section&id=Risks%20Related%20to%20Our%20Outstanding%20Convertible%20Notes) This section details risks associated

Financial Data and Key Metrics Changes - Total revenue for Q1 2021 was $55.8 million, representing a 24% increase year-over-year [10][29] - Adjusted EBITDA for Q1 2021 was a loss of $0.8 million, an improvement from a loss of $6 million in Q1 2020 [10][34] - Adjusted gross margin for Q1 2021 was 54.3%, an increase of 540 basis points year-over-year [10][32] - Adjusted net loss per share in Q1 2021 was $0.06, with approximately 43.9 million shares used in the calculation [35] Business Line Data and Key Metrics Changes - Technology revenue for Q1 2021 was $33.8 million, reflecting a 37% growth year-over-year, driven by new client additions and higher fees from existing clients [10][30] - Professional services revenue for Q1 2021 was $22 million, representing an 8% growth year-over-year [31] - Adjusted technology gross margin for Q1 2021 was 69.1%, an increase of 40 basis points year-over-year [32] - Adjusted professional services gross margin for Q1 2021 was 31.5%, an increase of 660 basis points year-over-year [33] Market Data and Key Metrics Changes - The operating environment remains affected by the COVID-19 pandemic, with both headwinds and tailwinds impacting growth [23][24] - The company anticipates continued operational and financial strain in the provider end market due to the pandemic [24] - There is an expectation of a meaningful consolidation opportunity in the applications layer of the solution stack [26] Company Strategy and Development Direction - The company aims to enable clients to achieve measurable improvements while maintaining high satisfaction levels [12][20] - There is a focus on expanding existing client relationships and beginning new ones, with a strong emphasis on data and analytics solutions [23][25] - The company has over $265 million in cash and short-term investments available for acquisitions, indicating a proactive approach to growth through consolidation [26][131] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the pace of vaccine rollout and its potential to serve as a tailwind for the industry [25] - There is a recognition of the need for commercial-grade data and analytics solutions, which has been highlighted by the pandemic [25] - The company expects total revenue for the full year 2021 to be between $228.1 million and $231.1 million, reflecting a positive outlook [38][39] Other Important Information - The company achieved certification for information security by HITRUST, emphasizing its commitment to data protection [22] - Dr. Tim Ferris concluded his service on the Board, with Jack Kane appointed as the new Chair [27][28] Q&A Session Summary Question: Professional services mix improvement - Management noted an uptick in higher-margin professional services in Q1, with expectations for normalization in the remainder of the year [46][47] Question: Technology growth expectations - Management expects continued robust technology growth for 2021, similar to the previous year’s growth rate of approximately 30% [51] Question: Demand for value-based care - There has been an increase in discussions around population health and value-based care, indicating a shift back to these topics post-COVID [53][80] Question: Nonrecurring services impact - Nonrecurring services contributed approximately $1 million in Q1, but this is a small portion of overall services [69] Question: M&A pipeline and strategy - The company has a robust pipeline for acquisitions, focusing on the applications layer and aiming to strengthen its offerings in areas like population health [128][130]

Revenue Performance - Total revenue for Q1 2021 was $55,846,000, representing a 24% increase from $45,116,000 in Q1 2020[22] - Total revenue for the three months ended March 31, 2021, was $55.8 million, an increase of $10.7 million, or 24%, compared to $45.1 million for the same period in 2020[213] - Total revenue for Q1 2021 was $55.8 million, up from $45.1 million in Q1 2020, representing a growth of 23.5%[167] - Technology revenue increased to $33,839,000 in Q1 2021, up 37% from $24,699,000 in Q1 2020[22] - Technology revenue was $33.8 million, representing 61% of total revenue, up from $24.7 million, or 55% of total revenue, in the prior year, reflecting a growth of 37%[214] - Professional services revenue increased to $22.0 million, or 39% of total revenue, compared to $20.4 million, or 45% of total revenue, in the previous year, marking an 8% growth[215] - Recurring technology revenue for Q1 2021 was $33.6 million, compared to $24.7 million in Q1 2020, reflecting a growth of approximately 36.9%[99] Financial Losses - Net loss for Q1 2021 was $28,370,000, compared to a net loss of $17,490,000 in Q1 2020, reflecting a 62% increase in losses[22] - The company incurred a net loss of $28.4 million for the three months ended March 31, 2021, compared to a net loss of $17.5 million for the same period in 2020, resulting in a net loss per share of $(0.65) for 2021[129] - Net losses increased to $(28.4) million in Q1 2021 from $(17.5) million in Q1 2020[167] - The company reported a loss from operations of $24.3 million, compared to a loss of $18.1 million in the prior year[212] Operating Expenses - Operating expenses totaled $52,825,000 in Q1 2021, a 35% increase from $39,153,000 in Q1 2020[22] - Operating expenses totaled $52.8 million, an increase of $13.7 million, or 35%, compared to $39.2 million in the same quarter of 2020[216] - Research and development expenses were $14.3 million, up from $13.1 million in the same quarter of 2020, reflecting a focus on innovation and new product development[216] Cash and Assets - Cash and cash equivalents as of March 31, 2021, were $132,627,000, up from $91,954,000 as of December 31, 2020[18] - Total assets decreased to $571,219,000 as of March 31, 2021, from $577,740,000 as of December 31, 2020[18] - Cash and cash equivalents at the end of the period increased to $132.6 million from $61.0 million[1] - As of March 31, 2021, total cash equivalents and short-term investments amounted to $259.185 million, with money market funds contributing $125.378 million[107] Liabilities and Equity - Total liabilities increased to $302,383,000 as of March 31, 2021, compared to $301,641,000 as of December 31, 2020[19] - Stockholders' equity decreased to $268,836,000 as of March 31, 2021, from $276,099,000 as of December 31, 2020[19] - The net carrying value of the liability component of the Notes as of March 31, 2021, was $171.9 million, after accounting for a principal of $230 million, unamortized debt discount of $53.6 million, and unamortized issuance costs of $4.6 million[124] Acquisitions - Health Catalyst acquired Able Health for a total consideration of $21.5 million, which included $15.2 million in cash and $3.3 million in common shares[88] - The acquisition of Healthfinch was completed for $50.5 million, consisting of $16.9 million in cash and $27.8 million in common shares[91] - Vitalware was acquired for $119.2 million, with $69.6 million in cash and $41.3 million in common shares[94] Revenue Recognition and Deferred Revenue - The company recognized revenue primarily from technology subscriptions and professional services, with a focus on cloud-based solutions[40] - Total deferred revenue as of March 31, 2021, was $52.8 million, up from $49.0 million as of December 31, 2020[50] - The company’s professional services revenue includes data and analytics services, with revenue recognized as the service is provided[45] Market and Strategic Insights - Over 90% of the company's revenue is recurring, indicating strong revenue predictability[169] - The company has seen increased usage of its data platform during the COVID-19 pandemic, shifting focus towards financial recovery and planning analytics[169] - The company anticipates that the pandemic will drive medium-to-long term growth in the adoption of data and analytics solutions in the healthcare industry[172] - The impact of COVID-19 has led to increased market volatility and potential declines in healthcare industry spending, affecting demand for technology and services[44] Stock-Based Compensation - Total stock-based compensation for the three months ended March 31, 2021, was $13.5 million, an increase from $8.7 million in the same period in 2020[137] - The company had $114.1 million of unrecognized stock-based compensation expense related to outstanding restricted stock units expected to be recognized over a remaining weighted-average period of 3.2 years[139] - The company had $10.3 million of unrecognized stock-based compensation expense related to outstanding PRSUs, expected to be recognized over a remaining weighted-average period of 1.0 year[141] Tax and Regulatory Matters - The estimated effective tax rate for the three months ended March 31, 2021, was (0.4)%, compared to 6.6% for the same period in 2020, primarily due to a full valuation allowance on net deferred tax assets[149] - The company evaluates uncertain tax positions regularly, with significant judgment required to assess potential outcomes[76]

| --- | --- | --- | --- | --- | --- | --- | |-----------------------|-------|-------|---------------|-------|-------------|---------------| | | | | | | | | | HealthCatalyst | | | | | | | | | | | | | | | | | | | | | | | | Overview Presentation | | | | | | 1 4 5 . 2 2 4 | | | | | | | | | | | | | 6 6 2 . 3 5 7 | 8 2 7 | 4 5 . 1 3 3 | | | March 2021 | | | | | | 8 6 . 5 2 | Disclaimer This presentation and the accompanying oral presentation, if any, contain forward-looking statements. All statements other than s ...

Financial Data and Key Metrics Changes - Q4 2020 total revenue was $53.3 million, representing a 22% year-over-year increase [24] - Adjusted EBITDA for Q4 2020 was a loss of $4.7 million, an improvement from a loss of $6.5 million in Q4 2019 [30] - Full-year 2020 total revenue was $188.8 million, also reflecting a 22% growth year-over-year [24] - Adjusted net loss per share in Q4 2020 was $0.16, compared to a loss of $0.68 for the full year [31][32] Business Line Data and Key Metrics Changes - Technology revenue for Q4 2020 was $32.3 million, a 43% increase year-over-year; excluding the Vitalware acquisition, it was $28.1 million, representing 24% growth [25] - Professional services revenue for Q4 2020 was $21 million, flat compared to the same period last year [26] - Full-year 2020 technology revenue was $110.5 million, a 32% year-over-year increase, while professional services revenue was $78.4 million, reflecting a 10% growth [26][27] Market Data and Key Metrics Changes - The overall usage of the data platform increased by over 50% since the onset of the COVID-19 pandemic [14] - Full-year 2020 technology dollar-based retention was robust, at the high end of historical performance, expected to continue in 2021 at 107% to 109% [14][36] - Professional services dollar-based retention was in the mid-90s percent for 2020, lower than the historical range of 107% to 109% [15] Company Strategy and Development Direction - The company aims to support healthcare organizations in managing through the pandemic while also focusing on long-term growth opportunities in data and analytics solutions [12][18] - There is an emphasis on cross-selling opportunities from recent acquisitions, including Vitalware and healthfinch, to enhance the existing customer base [50][94] - The company anticipates a return to pre-pandemic growth rates in net new DOS subscription additions, likely in the mid-teens for 2021 [18][36] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the healthcare provider ecosystem becoming better equipped to respond to ongoing pandemic challenges [13] - There is recognition of the need for robust data and analytics solutions, which may drive future growth as the industry adapts post-pandemic [18][102] - The company expects continued operational distractions related to COVID-19 and vaccine rollout throughout 2021, impacting sales and implementations [60][101] Other Important Information - The company appointed Dr. Tim Ferris as chair of the Board of Directors effective March 1, 2021 [20] - The Vitalware acquisition is expected to contribute low $20 million in revenue for 2021, impacting year-over-year growth rates in Q3 and Q4 [36] Q&A Session Summary Question: Clarification on mid-teens DOS adds in 2021 amidst market distractions - Management acknowledged the mixed dynamics affecting guidance, noting some health systems remain hesitant due to ongoing pandemic uncertainties, while others recognize the need for data solutions [46][47] Question: Upside from cross-sell opportunities - Management confirmed active efforts in cross-selling applications from recent acquisitions to existing customers, with modest contributions included in the 2021 forecast [49][50] Question: Investment priorities beyond integration efforts - Key investment areas include financial optimization and enhancing data analytics capabilities, particularly in response to pandemic-driven market needs [56][57] Question: Changes in professional services post-pandemic - Management noted a shift back to traditional improvement work, alongside increased focus on financial performance and automation in service delivery [75][76] Question: Plans for resuming face-to-face sales activities - Management is monitoring vaccination progress and is optimistic about resuming in-person activities as conditions improve [64] Question: Insights on the Able Health acquisition and competitive landscape - The acquisition enhances capabilities in population health and regulatory measure submissions, positioning the company competitively against larger firms [67][72]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ Form 10-K _______________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Table of Contents For the transition period from _____ to _____ Commission File Number: 001-38993 HEALTH CATALYST, INC. (Exact name of registrant as specified in its ...

Financial Data and Key Metrics Changes - Total revenue for Q3 2020 was $47.2 million, with $46.3 million excluding the one-month contribution from the Vitalware acquisition, representing an 18% year-over-year increase [9][45] - Total technology revenue for Q3 2020 was $28 million, or $27.2 million excluding Vitalware, reflecting a 28% growth compared to the same period last year [10][46] - Adjusted gross margin for Q3 2020 was 50.7%, an increase of approximately 170 basis points from Q2 2020, but a decrease of about 300 basis points year-over-year [11][48] - Adjusted EBITDA for Q3 2020 was a loss of $6.4 million, an improvement from a loss of $8.4 million in Q3 2019 [11][52] - Cash and cash equivalents at the end of Q3 2020 were $275 million, up from $228 million at the end of 2019 [54] Business Line Data and Key Metrics Changes - Professional services revenue for Q3 2020 was $19.2 million, representing a 5% growth year-over-year, driven by services provided to new customers and expanded services with existing customers [47] - Adjusted gross margin for professional services was 25.1%, a decrease of approximately 1150 basis points year-over-year [50] Market Data and Key Metrics Changes - The company noted a 40% increase in the usage of foundational analytics applications since the onset of the COVID-19 pandemic [21] - The recurring revenue model accounts for over 90% of total revenue, which has helped mitigate the near-term impact of COVID-19 on top-line performance [20] Company Strategy and Development Direction - The company is focused on leveraging the COVID-19 pandemic as a tailwind for the adoption of data and analytics in healthcare [26][110] - Recent acquisitions, including Vitalware, Healthfinch, and Able Health, are expected to enhance the company's product offerings and market reach [28][99] - The introduction of a new President role aims to oversee growth functions and drive international expansion [30][31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the healthcare provider ecosystem's preparedness to respond to ongoing pandemic challenges [18] - The company anticipates a slower revenue growth rate of approximately 20% in 2021 due to the impact of COVID-19 on 2020 bookings [60][61] - Management emphasized the importance of data and analytics in the current environment, which is expected to drive future growth [84][110] Other Important Information - The company announced leadership promotions, including Patrick Nelli to President and Bryan Hunt to Chief Financial Officer, effective January 1, 2021 [30][36] - The company plans to continue investing in M&A opportunities, leveraging its strong cash position [97] Q&A Session Summary Question: Thoughts on 2021 new DOS adds and pipeline performance - Management noted that the second half of 2020 pipeline performance is similar to pre-COVID levels, but the impact of COVID-19 on new customer additions is still a concern [68][71] Question: International expansion opportunities - The company signed its first Middle East customer and is cautiously optimistic about future international growth, though it may take time to see material impacts [73][74] Question: Margins and revenue growth dynamics - Management expects technology revenue to grow faster than professional services revenue, which will positively impact overall gross margins [76][77] Question: Contribution from recent acquisitions - Vitalware contributed approximately $900,000 in Q3 and is expected to contribute around $4 million in Q4, with a projected $20 million impact in 2021 [78][99] Question: Professional services revenue outlook - Management indicated that professional services dollar-based net retention is expected to be lower than historical levels due to COVID-19, but technology revenue retention remains strong [104][105] Question: Role in vaccine distribution - The company anticipates providing analytics support for vaccine distribution, leveraging existing infrastructure [89]