Health Catalyst, Inc. Q4 FY2024 earnings call

• Client Improvement: IHCI leveraged Health Catalyst's platform for cost savings and improved patient outcomes. - External Recognition: Recognized by Black Book Research and Frost & Sullivan, and team member engagement awards. - Growth: 21 net new platform client additions in 2024, with two-thirds from cross-selling existing app clients. Updated dollar-based retention rate definition to include technology and TEMs platform clients. Anticipate 40 net new platform client additions in 2025. - Ignite Migration: Progress in migrating clients to Ignite, with temporary impact on dollar-based retention rate, expected to subside by mid-2026. - Acquisitions: Acquisition of Upfront Healthcare closed, focusing on realizing profitability from acquisitions. - Leadership Updates: Welcome of new board members and promotions of internal team members.

For the full year 2024, total revenue was $307 million. The Technology segment had revenue of $195 million, representing 4% year-over-year growth, with $52 million in revenue for the fourth quarter of 2024, a 10% year-over-year growth. Professional services revenue for the full year 2024 was $112 million, a 3% year-over-year growth, with Q4 2024 professional services revenue at $28 million, roughly flat year-over-year. Technology revenue in Q4 2024 was $52 million, 10% year-over-year growth. Full year 2024 total adjusted gross margin was 49%, an increase of approximately 10 basis points year-over-year. Technology segment adjusted gross margin for full year 2024 was 66%, a decrease of approximately 180 basis points year-over-year. Professional services segment adjusted gross margin for full year 2024 was 18%, an increase of approximately 320 basis points year-over-year.

• 2025 total revenue expected to be approximately $335 million, tech revenue approximately $220 million, and adjusted EBITDA approximately $41 million. - Q1 2025 total revenue expected ~$79 million, adjusted EBITDA ~$4 million. - Technology revenue expected to grow ~13% year-over-year in 2025. - Adjusted technology gross margin in 2025 expected to be roughly in line with 2024, with second half expected higher due to Ignite migration progress. - Adjusted professional services gross margin expected in high teens, driven by exiting lower-margin ambulatory TEMS pilots. - Operating leverage anticipated as top line growth reaccelerates.

• Macro factors: Impact of inflation, interest rates, tight labor market. - Pipeline and conversions: Uncertainty in pipeline conversion rates. - Ignite Migration: Temporary negative impact on dollar-based retention rate. - M&A Integration: Challenges in integrating acquisitions and realizing expected profitability.

Q: What's driving the acceleration in platform bookings in 2025?

A: End market improvement, Ignite's lower price point and modularity, and cross-selling to existing app clients.

Q: Differences in new Ignite platform vs DOS regarding annual escalators?

A: Ignite has more modest annual escalators, low to mid-single-digit range, and consumption-based pricing model.

Q: Extent of control over Ignite migration pace and when full migration complete?

A: Working closely with clients, on track to be largely complete by mid-2026.

Q: Cadence of EBITDA throughout 2025?

A: Q1 lower due to Upfront acquisition, base salary increases, and restructuring, with revenue ramp and HAS in Q3 positively impacting later quarters.

Q: M&A environment and valuations in 2025?

A: Focus on getting return on recent acquisitions, less likely to pursue other acquisitions near term.

Q: Pricing model change with Ignite migration and confidence in persuading clients to add apps?

A: Shift to modular and consumption-based pricing, confidence from client interest in app portfolio and Ignite's modularity.

Q: Visibility into technology revenue growth after 1Q?

A: Good visibility from recurring revenue and signed contracts, with new client additions ramping into revenue.

Q: New platform net new clients and sales cycle shortening?

A: Sales cycle shorter due to Ignite's lower price point, existing app clients providing higher conversion rate.

Q: Priorities for sales reps given different monetization angles?

A: First focus on new client growth from existing app clients, second on nurturing platform client relationships and cross-selling apps.