Health Catalyst(US:HCAT)2025-05-07 22:02Financial Data and Key Metrics Changes - Total revenue for Q1 2025 was $79.4 million, representing a 6% year-over-year increase [25][26] - Adjusted EBITDA for Q1 2025 was $6.3 million, exceeding guidance of approximately $4 million [26][30] - Technology revenue was $51.5 million, reflecting a 10% year-over-year growth [26][30] - Professional services revenue was $27.9 million, a 1% increase compared to Q1 2024 [26] - Total adjusted gross margin was 49%, a decrease of approximately 210 basis points year-over-year [26] - Adjusted technology gross margin was 67%, down approximately 120 basis points year-over-year [26] - Adjusted professional services gross margin was 16%, down approximately 630 basis points year-over-year [26] Business Line Data and Key Metrics Changes - The technology segment showed strong performance with a 10% revenue growth year-over-year [26] - Professional services revenue growth was modest at 1% year-over-year [26] - The shift to the Ignite platform is expected to enhance profitability, with Ignite clients showing an 80/20 revenue mix favoring technology over services [9][51] Market Data and Key Metrics Changes - The company added 10 net new platform clients in Q1 2025, with two-thirds coming from existing app clients [7][22] - The average total ARR and non-recurring revenue per net new platform client was around the midpoint of $300,000 to $700,000 [7][22] - The company anticipates achieving approximately 40 net new platform clients for the full year 2025 [22][30] Company Strategy and Development Direction - The strategic shift to the Ignite platform is aimed at providing a more flexible, lower-cost solution compared to the legacy DOS model [8][9] - Ignite's modularity allows for quicker sales cycles and a more streamlined decision-making process for clients [41] - The company is focusing on cross-selling additional applications to existing clients to offset any reductions in total client spend [12][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the strong operating margins in health systems, despite potential uncertainties in Medicaid and research funding [18][20] - The company expects Ignite to be more resilient than the legacy DOS model in uncertain economic conditions [20] - Management anticipates that the majority of Ignite migrations will be completed by mid-2026, which should positively impact gross margins [11][81] Other Important Information - The company executed a $5 million share repurchase in March 2025, representing approximately 1.1 million shares [23] - Cash, cash equivalents, and short-term investments at the end of Q1 2025 were $342 million, down from $392 million at year-end 2024 [29] Q&A Session Summary Question: Can you provide more color on the decision-making process with the modular strategy? - Management noted that the lower price point of Ignite reduces the number of approvals needed, leading to shorter sales cycles and increased net new platform client additions [37][41] Question: Should we expect a different cadence in adding new customers? - Management indicated that while budget alignment still matters, the flexibility of Ignite may lead to a smoother cadence throughout the year [42] Question: What is driving the higher weighting of tech versus services with Ignite? - The modular and flexible nature of Ignite allows for easier implementation and a focus on specific use cases, resulting in a higher tech revenue mix [49][51] Question: How is the average starting ARR accounted for? - The $300,000 to $700,000 average applies to new net new platform clients, with existing clients migrating to Ignite potentially impacting dollar-based retention metrics [56][58] Question: What is the expected timing for tech adjusted gross profit margin uplift? - Management expects to see improvements in tech adjusted gross profit margins in the second half of 2025 as Ignite migrations progress [80][81] Question: How will professional services revenue ramp in the second half of the year? - Delays in health information exchange deals and late-stage opportunities are expected to push some revenue into the second half of 2025 [86][89]