Release Date: February 26, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Health Catalyst Inc (NASDAQ:HCAT) reported total revenue of $307 million for 2024, with a 137% year-over-year growth in adjusted IA.
• The technology segment showed strong performance with $195 million in revenue for the full year 2024, representing a 10% growth year-over-year for Q4.
• The company successfully added 21 net new platform clients in 2024, with a significant portion coming from cross-selling to existing app clients.
• Health Catalyst Inc (NASDAQ:HCAT) received external recognitions, including being named a leader in Frost and Sullivan's 2024 US Population Health Management Report.
• The company anticipates technology revenue to grow by 13% in 2025, driven by the momentum of the Ignite platform and cross-selling opportunities.

Negative Points

• The net new platform client additions in 2024 were at the lower end of the expected revenue range, indicating potential challenges in client acquisition.
• The transition to the Ignite platform may temporarily impact dollar-based retention rates, as increased app adoption does not always translate into proportional revenue increases.
• Adjusted technology gross margin decreased by approximately 200 basis points in Q4 2024 due to initial deployment costs and Ignite migration headwinds.
• Professional services revenue remained flat in Q4 2024, with lower than anticipated performance in certain segments.
• The company plans to exit certain unprofitable ambulatory operations, which may impact professional services revenue in the short term.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Signs with HCAT.

Q: What is driving the acceleration in platform bookings for 2025 compared to last year? A: Dan Burton, CEO, explained that the improvement in the end market, with operating margins approaching pre-pandemic levels, is a significant factor. Additionally, the Ignite platform's modularity and lower price point compared to DOS, along with the ability to cross-sell to over 900 app clients, are contributing to the acceleration. The sales cycle is also shorter, and they have already added six platform clients in Q1 2025, on pace for ten by the end of the quarter.

Q: How does the Ignite platform differ from DOS in terms of pricing and dollar-based retention? A: Dan Burton, CEO, noted that Ignite contracts typically have more modest annual escalators compared to DOS, which had larger ones. The modularity of Ignite allows for a more consumption-based pricing model, which can lead to increased pricing if clients increase their usage. This model is expected to be a tailwind for future growth. The transition to Ignite may temporarily impact dollar-based retention rates, but this is expected to subside by mid-2026.

Q: Can you control the pace of migrations to Ignite to manage revenue impact? A: Dan Burton, CEO, stated that they are working closely with clients to manage the migration pace responsibly. They aim to complete the majority of migrations by mid-2026, balancing incremental costs and retention benefits. They anticipate seeing improvements in tech gross margins as they progress through the migrations.

Q: What is the focus for M&A in 2025, and are there plans for additional acquisitions? A: Dan Burton, CEO, mentioned that the focus for 2025 is on realizing returns from recent acquisitions rather than pursuing new ones. They are seeing early signs of progress and have increased their adjusted EBITDA target due to successful integration efforts. While they remain open to opportunities, the primary focus is on maximizing returns from existing investments.

Q: How does the sales strategy prioritize different monetization opportunities with Ignite? A: Dan Burton, CEO, emphasized that the primary focus is on new client growth, particularly converting existing app clients to platform clients using Ignite. The sales team is also focused on nurturing existing platform-client relationships, ensuring they receive measurable improvements and ROI, and expanding app usage. The modularity of Ignite facilitates easier expansion into adjacent app opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.