Health Catalyst Inc

Previous wording

We are a leading provider of data and analytics technology and services to healthcare organizations. Our Solution comprises our cloud-based data platform, software analytics applications, and professional services expertise. Our clients, which are primarily healthcare providers, use our Solution to manage their data, derive analytical insights to operate their organization, and produce measurable clinical, financial, and operational improvements. We envision a future where all healthcare decisions are data-informed.

Current wording

We are a leading provider of data and analytics technology and services to healthcare organizations. Our Solution comprises our cloud-based data platform, applications, and expertise. Our clients, which are primarily healthcare providers, use our Solution to manage their data, derive analytical insights to operate their organization, and produce measurable clinical, financial, and operational improvements. We envision a future where all healthcare decisions are data-informed.

Previous wording

Health Catalyst was founded in 2008 by healthcare analytics industry pioneers. Our founders and team developed the initial version of our Solution, consisting of an early version of our data platform, select analytics accelerators, and professional services expertise. From the beginning, our Solution has been focused on enabling our mission: to be the catalyst for massive, measurable, data-informed healthcare improvement. We currently employ more than 1,300 team members.

Current wording

Health Catalyst was founded in 2008 by healthcare analytics industry pioneers. Our founders and team developed the initial version of our Solution, consisting of an early version of our data platform, select analytics accelerators, and professional services expertise. From the beginning, our Solution has been focused on enabling our mission: to be the catalyst for massive, measurable, data-informed healthcare improvement. We currently employ more than 1,500 team members.

Previous wording

•For the years ended December 31, 2023, 2022, and 2021, our total revenue was $295.9 million, $276.2 million, and $241.9 million, respectively. The growth in revenue was primarily due to revenue from new clients, including clients of our recent acquired entities, and existing clients paying higher technology access fees from contractual, annual escalators.

Current wording

•For the years ended December 31, 2024, 2023, and 2022, our total revenue was $306.6 million, $295.9 million, and $276.2 million, respectively. The growth in revenue was primarily due to revenue from new clients, including clients of our recent acquired entities, and existing clients paying higher technology access fees from contractual, annual escalators.

Previous wording

•For the years ended December 31, 2023, 2022, and 2021, we incurred net losses of $118.1 million, $137.4 million, and $153.2 million, respectively.

Current wording

•For the years ended December 31, 2024, 2023, and 2022, we incurred net losses of $69.5 million, $118.1 million, and $137.4 million, respectively.

Previous wording

•For the years ended December 31, 2023, 2022, and 2021, our Adjusted EBITDA was $11.0 million, $(2.5) million, and $(11.2) million, respectively.

Current wording

•For the years ended December 31, 2024, 2023, and 2022, our Adjusted EBITDA was $26.1 million, $11.0 million, and $(2.5) million, respectively.

Previous wording

Recent macroeconomic challenges (including high levels of inflation and high interest rates) and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally. These factors have disrupted the normal operations of many businesses, including our business. These factors have also placed the national healthcare system under significant operational and budgetary strain, and will likely continue to do so in the near term.

Current wording

Recent macroeconomic challenges (including high levels of inflation and high interest rates) and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally. These factors have disrupted the normal operations of many businesses, including our business. These factors have also placed the national healthcare system under significant operational and budgetary strain.

Previous wording

While we have seen that this financial strain has continued to pressure health system budgets, we have continued to hear a strong acknowledgement that our offering includes solutions that directly reduce health systems’ current financial pressure, especially related to the segments of our offering that have a clear, near-term financial ROI, such as our TEMS offering, our Financial Empowerment technology suite, and some components of our Population Health technology suite.

Current wording

While we have seen that this financial strain has continued to pressure health system budgets, we have continued to hear a strong acknowledgement that our offering includes solutions that directly reduce health systems’ financial pressure, especially related to the segments of our offering that have a clear, near-term financial return on investment (ROI). With the improvement in the end market in 2024, we have started to see interest throughout our broader portfolio as clients and prospective clients were more open to discussing solutions that might not offer a clear near-term financial ROI. We anticipate this trend will continue in 2025.

Previous wording

With respect to other near-term implications of the challenging macroeconomic environment, we continue to anticipate that a higher proportion of our gross bookings will come from our existing client base as compared to historical levels, inclusive of upsells to both our DOS client base, as well as upsells to our over 525 other more modular non-DOS clients. This expectation is driven by our belief that many existing clients that have already realized a strong ROI, and are aligned on a long-term partnership framework, will be more receptive to expansion conversations, as compared to discussions with prospective clients. Additionally, the elevated technology down-sell and churn levels for DOS Subscription Clients, primarily for the parts of our Solution that do not offer near-term, financial ROI, inclusive of some smaller, more modular DOS relationships, and our aggregate churn levels in 2023 were more heavily weighted toward the first half of 2023.

Current wording

With respect to other near-term implications of the challenging macroeconomic environment, we continue to anticipate that a higher proportion of our gross bookings will come from our existing client base as compared to historical levels, inclusive of upsells to both our Platform Client base, as well as upsells to our over 900 App Clients. This expectation is driven by our belief that many existing clients that have already realized a strong ROI, and are aligned on a long-term partnership framework, will be more receptive to expansion conversations, as compared to discussions with prospective clients. We have collected data internally that shows we are more than twice as effective at selling into organizations where we have an existing relationship compared to those where there is no prior relationship, which gives us additional confidence in our ability to drive cross-selling within our broad client base.

Previous wording

Our 2023 net new DOS Subscription Clients had a lower average starting annual recurring revenue (ARR) as compared to historical levels. Our average subscription revenue for net new DOS Subscription Clients signed in the year ended December 31, 2023 (new 2023 DOS Subscription Clients), was toward the low end of the average expected range of $500,000 to $1,500,000, driven primarily by greater demand of stand-alone DOS module components, such as Healthcare.AI, which resulted in subscription revenue that is significantly lower than subscription revenue derived from a contract that includes access to all of the DOS platform components and analytic applications. This average ARR range is comprised of new 2023 DOS Subscription Clients with (i) subscription revenue in the expected average range or significantly above the expected average range driven by the size of the client organization and the bundle of technology and services included in their subscription and (ii) subscription revenue meaningfully below the low-end of the expected range driven by sales of stand-alone DOS module components, which provided greater deal certainty in a more challenging macroeconomic environment, and which we believe will provide an opportunity to expand our relationship with these DOS Subscription Clients in the future.

Current wording

Our 2024 net new Platform Clients had a lower average starting annual recurring revenue (ARR) and non-recurring revenue as compared to historical levels. Our average ARR and non-recurring revenue for net new Platform Clients signed in the year ended December 31, 2024 (new 2024 Platform Clients), was toward the low end of the historical average expected range of $400,000 to $1,000,000, driven primarily by Platform module components, such as Healthcare.AI, that result in ARR that is significantly lower than ARR derived from a contract that includes access to all of the Platform components and analytic applications. This average ARR and non-recurring revenue range is comprised of new 2024 Platform Clients with (i) ARR and non-recurring revenue in the expected average range or significantly above the expected average range driven by the size of the client organization and the bundle of technology and services included in their subscription and (ii) ARR and non-recurring revenue meaningfully below the low-end of the expected range driven by stand-alone Platform module components, which we believe may provide an opportunity to expand our relationship with these Platform Clients in the future.

Previous wording

We benefit from a highly recurring revenue model, in which greater than 90% of our revenue is recurring in nature, and a high level of technology revenue predictability, especially within our DOS Subscription Clients whose contracts, when sold as a bundle with our analytics applications, often have built-in, contractual technology revenue escalators.

Current wording

We benefit from a highly recurring revenue model, in which greater than 90% of our revenue is recurring in nature, and a high level of technology revenue predictability, especially within our Platform Clients whose contracts, when sold as a bundle with our analytics applications, often have built-in, contractual technology revenue escalators.

Previous wording

We believe this focus will enable us to move forward in a position of continued competitive and financial strength. We will continue to refine this strategic operating plan and are continuing to make several investments in research and development, primarily in enhancing the capabilities within our DOS platform, in order to maintain our position as a market-leading data platform over the long term.

Current wording

We continue to proactively respond to the challenging macroeconomic environment with a strategic operating plan that emphasizes our offerings and go-to-market approach in the areas where we have the most competitive differentiation and where clients are most likely to achieve measurable financial and operational ROI both in the near term and over time. We believe this focus will enable us to move forward in a position of continued competitive and financial strength. We will continue to refine this strategic operating plan and are continuing to make several investments in research and development, primarily in enhancing the capabilities within Health Catalyst Ignite, in order to maintain our position as a market-leading data platform over the long term.

Previous wording

We offer our Solution to a variety of healthcare organizations, primarily in the United States, including academic medical centers, integrated delivery networks, community hospitals, large physician practices, ACOs, health information exchanges, health insurers, and other risk-bearing entities. We categorize our client count into two primary categories: DOS Subscription Clients and Other Clients. DOS Subscription Clients are defined as clients who directly or indirectly access our DOS platform via a technology subscription contract. Indirect access to the DOS platform may include DOS module components such as Healthcare.AI, Pop Analyzer, IDEA, and other DOS platform components. See “Key Business Metrics and Non-GAAP Financial Measures” below for more information about our DOS Subscription Clients. Other Clients generally include DOS non-subscription clients and other clients from historical acquisitions. As of December 31, 2023, 2022, and 2021, we had 109, 98, and 90 DOS Subscription Clients with active subscriptions, respectively. As of December 31, 2023, we served over 525 Other Clients compared to over 425 as of December 31, 2022. The increase in Other Clients from 2022 to 2023 was primarily due to our acquisition of ERS.

Current wording

We offer our Solution to a variety of healthcare organizations, primarily in the United States, including academic medical centers, integrated delivery networks, community hospitals, large physician practices, ACOs, health information exchanges, health insurers, and other risk-bearing entities among others. We categorize our client count into two primary categories: Platform Clients and App Clients. As discussed further in “Key Business Metrics and Non-GAAP Financial Measures” below, we are shifting from what we formerly called DOS Subscription Clients to Platform Clients, and what we formerly referred to as other clients to App Clients, which include all other clients that are not Platform Clients. Platform Clients are defined as: (i) all Platform Clients as of December 31, 2024 under our historical definition (formerly referred to as DOS Subscription Clients, which we also referred to as Platform Subscription Clients), and (ii) going forward in 2025 and beyond, any technology client that signs contracts with at least $100,000 of incremental total ARR and non-recurring revenue in a given calendar year, inclusive of clients that come through acquisition if we first begin recognizing revenue for the client post-acquisition and that total ARR and non-recurring revenue exceeds $100,000 in that calendar year, so long as such client maintains an active subscription as of the end of the period. See “Key Business Metrics and Non-GAAP Financial Measures” below for more information about our Platform Clients. App Clients generally include technology clients and other clients from historical acquisitions and typically operate under subscription contracts. As of December 31, 2024, 2023, and 2022, we had 130, 109, and 98 Platform Clients with active subscriptions, respectively. As of December 31, 2024, we served over 900 App Clients compared to over 525 other clients as of December 31, 2023. The increase in other clients from December 31, 2023 to App Clients as of December 31, 2024 was primarily due to our 2024 acquisitions.

Previous wording

We derive substantially all of our revenue through subscriptions for use of our technology and professional services on a recurring basis. In 2023, greater than 90% of our total revenue was recurring in nature. Clients pay for our technology primarily on a subscription basis for our entire technology suite or for pieces of our technology (e.g., DOS-only or modular portions of DOS, which we have sometimes referred to as DOS Lite). We generally provide access to our technology and deliver professional services to clients on a recurring basis, with our technology invoiced upfront annually or quarterly and our professional services invoiced monthly. Most of our technology and professional services contracts with DOS Subscription Clients have a three or five-year term, of which many are terminable after one year upon 90 days’ notice. As we increase the use cases we address at a given client, we have the opportunity to upsell incremental technology and services. We have demonstrated an ability to upsell technology and services to our client base over time as evidenced by a Dollar-based Retention Rate of 100%, 100%, and 112% for the years ended December 31, 2023, 2022, and 2021, respectively.

Current wording

We derive substantially all of our revenue through subscriptions for use of our technology and professional services on a recurring basis. In 2024, greater than 90% of our total revenue was recurring in nature. Clients pay for our technology primarily on a subscription basis for our entire technology suite or for pieces of our technology (e.g., Platform-only or modular portions of the Platform). We generally provide access to our technology and deliver professional services to clients on a recurring basis, with our technology invoiced upfront annually or quarterly and our professional services invoiced monthly. As we increase the use cases we address at a given client, we have the opportunity to upsell incremental technology and services. We have demonstrated an ability to upsell technology and services to our client base over time. We saw a Dollar-based Retention Rate of 100% for each of the years ended December 31, 2024, 2023, and 2022, respectively, based on our legacy definition. Under an updated Dollar-based Retention rate described in more detail in the "Key Business Metrics and Non-GAAP Financial Measures" section the rate was 102% for the year ended December 31, 2024.

Previous wording

The primary costs incurred to deliver our technology are hosting fees and headcount-related costs associated with our cloud services and support teams. Hosting fees are related to providing our technology through a cloud-based environment hosted primarily by Microsoft Azure. However, we also have deployed DOS on-premise to a small number of clients. Over time, we plan to continue to migrate our on-premise clients to Azure-hosted environments, increasing our technology cost of revenue. We have experienced and expect to continue to experience operational inefficiencies associated with managing multiple hosting providers, resulting in a headwind against Adjusted Technology Gross Margin. Additionally, we are in the early phases of migrating our DOS platform client base to a single-instance, multi-tenant data platform architecture that includes enhanced elastic compute capabilities supported by Snowflake and Databricks database technologies. We expect that these investments in our DOS platform will provide additional capabilities for our clients as well as improve our ability to drive cost efficiencies in our hosting and support costs per client over time. However, in the medium-term, we will incur some migration costs associated with deploying the updated architecture across DOS platform clients, resulting in a headwind for our Technology Gross Margin. The primary costs incurred to deliver our professional services are the salaries, benefits, and other headcount-related costs of our team members.

Current wording

The primary costs incurred to deliver our technology are hosting fees and headcount-related costs associated with our cloud services and support teams. Hosting fees are related to providing our technology through a cloud-based environment hosted primarily by Microsoft Azure. We have experienced and expect to continue to experience operational inefficiencies associated with managing multiple hosting providers, resulting in a headwind against Adjusted Technology Gross Margin. Additionally, we are in the process of migrating our Platform Client base to Health Catalyst Ignite. We expect that these investments in our Platform will provide additional capabilities for our clients as well as improve our ability to drive cost efficiencies in our hosting and support costs per client over time. However, in the near-to-medium-term, we will incur some migration costs associated with deploying the updated architecture across Platform Clients, resulting in a headwind for our Technology Gross Margin. The primary costs incurred to deliver our professional services are the salaries, benefits, and other headcount-related costs of our team members.

Previous wording

We delineate our sales organization by new client acquisition and existing client retention and expansion. Selling efforts to new clients vary. Many of our new clients engage with us broadly for multiple use cases, requiring buy-in during the sales cycle across the C-suite. Alternatively, in some instances, we engage with a client in a single-use case. After we demonstrate measurable improvements, we work with our clients to expand the utilization of our Solution to other use cases or enterprise-wide. The average sales cycle for a new DOS Subscription Client is estimated to be approximately one year, but that timeline can vary materially. Because of our vertical focus on the healthcare industry, we believe our sales and marketing resources can be deployed more efficiently than at horizontally-focused companies that provide technology and services to multiple industries. Additionally, with our increased focus on driving expansion within our existing client base through our TEMS offering, we believe that our sales and marketing infrastructure is positioned well to generate meaningful leverage and growth within our services offerings without the need for the same level of incremental investment as in prior years. This operating leverage primarily stems from the fact that we already have an existing relationship with the client, inclusive of having invested in client success initiatives and having provided account management services to the client since the beginning of our contractual relationship. Over the past few years, we have invested in growth infrastructure by adding to our sales operations and marketing teams, which are built to help us scale over the long term.

Current wording

We delineate our sales organization by new client acquisition and existing client retention and expansion. Selling efforts to new clients vary. Many of our new clients engage with us broadly for multiple use cases, requiring buy-in during the sales cycle across the C-suite. Alternatively, in some instances, we engage with a client in a single-use case. After we demonstrate measurable improvements, we work with our clients to expand the utilization of our Solution to other use cases or enterprise-wide. The average sales cycle for a new Platform Client is estimated to be approximately one year, but that timeline can vary materially. Because of our vertical focus on the healthcare industry, we believe our sales and marketing resources can be deployed more efficiently than at horizontally-focused companies that provide technology and services to multiple industries. Additionally, with our increased focus on driving expansion within our existing client base through our TEMS offering, we believe that our sales and marketing infrastructure is positioned well to generate meaningful leverage and growth within our services offerings without the need for the same level of incremental investment as in prior years. This operating leverage primarily stems from the fact that we already have an existing relationship with the client, inclusive of having invested in client success initiatives and having provided account management services to the client since the beginning of our contractual relationship. Over the past few years, we have invested in growth infrastructure and our sales operations and marketing teams are built to help us scale over the long term.

Previous wording

Adjusted Gross Profit is a non-GAAP financial measure that we define as revenue less cost of revenue, excluding depreciation and amortization, adding back stock-based compensation, acquisition-related costs, net, and restructuring costs as applicable. We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We believe Adjusted Gross Profit and Adjusted Gross Margin are useful to investors as they eliminate the impact of certain non-cash expenses, as well as certain other non-recurring operating expenses, and allow a direct comparison of these measures between periods without the impact of non-cash expenses and certain other non-recurring operating expenses. We present both of these measures for our technology and professional services business. We believe these non-GAAP measures are useful in evaluating our operating performance compared to that of other companies in our industry, as these metrics generally eliminate the effects of certain items that may vary from company to company for reasons unrelated to overall profitability.

Current wording

Gross profit is a GAAP financial measure that is calculated as revenue less cost of revenue, including depreciation and amortization of capitalized software development costs and acquired technology. We calculate gross margin as gross profit divided by our revenue. Adjusted Gross Profit is a non-GAAP financial measure that we define as gross profit, adjusted for (i) depreciation and amortization, (ii) stock-based compensation, (iii) acquisition-related costs, net, and (iv) restructuring costs, as applicable. We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We believe Adjusted Gross Profit and Adjusted Gross Margin are useful to investors as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses, as well as certain other non-recurring operating expenses.

Previous wording

See “Reconciliation of Non-GAAP Financial Measures” below for information regarding the limitations of using our Adjusted Gross Profit and Adjusted Gross Margin as financial measures and for a reconciliation of revenue to our Adjusted Gross Profit, the most directly comparable financial measure calculated in accordance with GAAP.

Current wording

We present both of these measures for our technology and professional services business. We believe these non-GAAP measures are useful in evaluating our operating performance compared to that of other companies in our industry, as these metrics generally eliminate the effects of certain items that may vary from company to company for reasons unrelated to overall profitability. See “Reconciliation of Non-GAAP Financial Measures” below for information regarding the limitations of using our Adjusted Gross Profit and Adjusted Gross Margin as financial measures and for a reconciliation of revenue to our Adjusted Gross Profit, the most directly comparable financial measure calculated in accordance with GAAP.

Previous wording

We believe Adjusted EBITDA provides investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial performance. We believe Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.

Current wording

We believe Adjusted EBITDA provides investors with useful information on period-to-period performance as evaluated by management and a comparison with our past financial performance, and is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.

Previous wording

We also regularly monitor and review the number of DOS Subscription Clients and Dollar-based Retention Rate as shown in the following tables:

Current wording

We also regularly monitor and review the number of Platform Clients and Dollar-based Retention Rate as shown in the following tables:

Previous wording

Since 2016, our primary contracting model is a subscription-based contract to our DOS platform, analytics applications, and professional services. Given how fundamental DOS is to our Solution and because the vast majority of our total revenue is derived from DOS Subscription Clients, we believe our DOS Subscription Client count is a representation of our market penetration and the growth of our business. We have updated the name of this key metric to DOS Subscription Clients from DOS Subscription Customers used in prior filings as we feel that the client reference more fully depicts the deep, long-standing, multi-faceted relationships we strive to build with the entities we serve.

Current wording

Since 2016, our primary contracting model is a subscription-based contract for our platform, analytics applications, and professional services. Given how fundamental our platform is to our Solution and because the vast majority of our total revenue is derived from Platform Clients, we believe our Platform Client count is a strong indicator of our market penetration and the growth of our business. For 2025, we have updated the name and definition of this key metric to Platform Clients. In the past, we have referred to this metric as DOS Subscription Clients and Platform Subscription Clients.

Previous wording

Current period ARR includes any upsells and also reflects contraction or attrition over the trailing twelve months but excludes revenue from new DOS Subscription Clients added in the current period. We then divide the current period ARR by the prior period ARR to arrive at our Dollar-based Retention Rate. We calculate ARR for each DOS Subscription Client as the expected monthly recurring revenue of our clients as of the last day of a period multiplied by 12. Because our primary business model is to contract for our DOS platform, analytics applications, and professional services, our Dollar-Based Retention Rate calculated above only includes our DOS Subscription Clients. Other Clients that do not meet the definition of a DOS Subscription Client, which are primarily legacy Medicity, Able Health, Healthfinch, Vitalware, Twistle, KPI Ninja, ARMUS, and ERS clients, are not included in the Dollar-based Retention Rate metrics.

Current wording

We calculate our Dollar-based Retention Rate as of a period end by starting with the sum of the technology and Tech-Enabled Managed Services (TEMS) ARR from our Platform Clients as of the date 12 months prior to such period end (prior period ARR ). This calculation excludes professional services ARR and non-recurring revenue. We then calculate the sum of the ARR from these same clients as of the current period end (Current period ARR). Current period ARR includes any upsells and also reflects contraction or attrition over the trailing twelve months but excludes ARR from new Platform Clients added in the current period who were not clients at the beginning of such period. This Current period ARR may include acquired ARR from clients (i.e., through acquisition of a company) that overlap with the Platform Clients in a given calendar year. We then divide the Current period ARR by the prior period ARR to arrive at our Dollar-Based Retention Rate for Technology and TEMS. We calculate applicable ARR for each Platform Client as the expected monthly recurring revenue of our clients as of the last day of a period multiplied by 12. Because our primary business model is to contract for our Platform, analytics applications, and TEMS, our Dollar-Based Retention Rate calculated above only includes our Platform Clients. App Clients that do not meet the definition of a Platform Client, which are primarily legacy Medicity, Able Health, Healthfinch, Vitalware, Twistle, KPI Ninja, ARMUS, ERS, Carevive, Lumeon, and Intraprise clients, are not included in the Dollar-Based Retention Rate metrics. As it relates to TEMS, we define this cohort of clients as Platform Clients who subscribe to a Tech-Enabled Managed Services contract with the exception of our pilot ambulatory TEMS offering related to specific ambulatory services agreements, which we expect to sunset in 2025 and which will be excluded from Dollar-Based Retention Rate calculations in prior, current and future periods. This cohort of technology and TEMS ARR from our Platform Clients represents the majority of our ARR as of December 31, 2024.

Previous wording

Given the nature of our technology contracts, which, for many DOS Subscription Clients, are generally priced for multi-year periods and have built-in, contractual escalators, we would generally anticipate less variation within our Dollar-based Retention Rate for technology fees as a result of current challenging macroeconomic factors. However, our technology Dollar-based Retention Rate decreased as of December 31, 2023 and 2022 compared to December 31, 2021 primarily due to the loss of a large enterprise DOS platform client, a decline in our sales pipeline with respect to parts of our Solution that do not offer near-term ROI, such as our clinically-focused technology offerings, and some clients reducing their near-term DOS and analytics application spend with us in an effort to meet their short-term budget requirements. As noted, our Dollar-based Retention Rate Key Metric excludes Other Clients who are not DOS Subscription Clients, including clients added through acquisition, as the go-forward technology revenue growth profiles of these businesses may vary from our core DOS Subscription Clients. For example, Medicity clients have generated a lower Dollar-based Retention Rate than DOS Subscription Clients and we expect flat to declining revenue from Medicity clients in the foreseeable future.

Current wording

As noted, our Dollar-based Retention Rate Key Metric excludes App Clients who are not Platform Clients, including clients added through acquisition, as the go-forward technology revenue growth profiles of these businesses may vary from our core Platform Clients. For example, Medicity clients have generated a lower Dollar-based Retention Rate than Platform Clients and we expect flat to declining revenue from Medicity clients in the foreseeable future.

Previous wording

We calculate our Dollar-based Retention Rate as of a period end by starting with the sum of the technology and professional services ARR from our DOS Subscription Clients as of the date 12 months prior to such period end (prior period ARR). We then calculate the sum of the ARR from these same clients as of the current period end (current period ARR).

Current wording

Historically we have calculated our legacy Dollar-based Retention Rate as of a period end by starting with the sum of the technology and professional services ARR from our Platform Clients as of the date 12 months prior to such period end (prior period ARR). We then calculated the sum of the ARR from these same clients as of the current period end (Current period ARR).

Previous wording

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations, as a component in determining employee bonus compensation, and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, 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 GAAP. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

Current wording

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. For example, we exclude stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding our operational performance and allows investors the ability to make more meaningful comparisons between our operating results and those of other companies. We use the following non-GAAP financial information to evaluate our ongoing operations, as a component in determining employee bonus compensation, and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, 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 GAAP. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

Previous wording

Adjusted Gross Profit is a non-GAAP financial measure that we define as revenue less cost of revenue, excluding depreciation and amortization, adding back stock-based compensation, acquisition-related costs, net, and restructuring costs, as applicable. We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We believe Adjusted Gross Profit and Adjusted Gross Margin are useful to investors as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses and certain other non-recurring operating expenses.

Current wording

Gross profit is a GAAP financial measure that is calculated as revenue less cost of revenue, including depreciation and amortization of capitalized software development costs and acquired technology. We calculate gross margin as gross profit divided by our revenue. Adjusted Gross Profit is a non-GAAP financial measure that we define as gross profit, adjusted for (i) depreciation and amortization, (ii) stock-based compensation, (iii) acquisition-related costs, net, and (iv) restructuring costs, as applicable. We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We believe Adjusted Gross Profit and Adjusted Gross Margin are useful to investors as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses and certain other non-recurring operating expenses.

Previous wording

The following is a reconciliation of revenue to our Adjusted Gross Profit and Adjusted Gross Margin in total and for technology and professional services for the years ended December 31, 2023, 2022, and 2021:

Current wording

The following is a reconciliation of our Adjusted Gross Profit and Adjusted Gross Margin, in total and for technology and professional services, to gross profit and gross margin, the most directly comparable financial measures calculated in accordance with GAAP, for the years ended December 31, 2024, 2023, and 2022:

Previous wording

(1) Acquisition-related costs, net include deferred retention expenses following the ARMUS, KPI Ninja, and Twistle acquisitions.

Current wording

(1) Acquisition-related costs, net includes deferred retention expenses following the ARMUS, KPI Ninja, and Twistle acquisitions.

Previous wording

Adjusted Technology Gross Margin decreased slightly from 69% for the year ended December 31, 2022 to 68% for the year ended December 31, 2023. The year-over-year result was mainly driven by continued costs associated with transitioning a portion of our client base to Azure-hosted environments, as well as from costs associated with migrating a subset of our client base to our multi-tenant, Snowflake and Databricks-enabled data platform environment, partially offset by existing clients paying higher technology access fees from contractual, built-in escalators, without a corresponding increase in hosting costs.

Current wording

Technology gross margin remained constant at 52% for the years ended December 31, 2023 and 2024. Adjusted Technology Gross Margin decreased from 68% for the year ended December 31, 2023 to 66% for the year ended December 31, 2024. The year-over-year result was mainly driven by continued costs associated with transitioning a portion of our client base to Azure-hosted environments, as well as from costs associated with migrating Platform Clients to Health Catalyst Ignite, and Ninja Universe deployment costs incurred prior to the commencement of revenue recognition, partially offset by existing clients paying higher technology access fees from contractual, built-in escalators, without a corresponding increase in hosting costs.

Previous wording

We expect Adjusted Technology Gross Margin to fluctuate and potentially decline in the near term, primarily due to additional costs associated with the ongoing transition of a small number of clients from our managed data centers or on-premise to third-party hosted data centers with Microsoft Azure as well as the migration of a subset of clients to our multi-tenant, Snowflake and Databricks-enabled data platform environment. The potential decline is also attributable to a small subset of modular clients reducing their software analytics application costs, which tend to be higher margin offerings.

Current wording

We expect Adjusted Technology Gross Margin to fluctuate and potentially decline in the near term, primarily due to additional costs associated with the ongoing transition of Platform Clients to Health Catalyst Ignite and Ninja Universe deployment costs incurred prior to the commencement of revenue recognition, which typically begins six months or more following contract signing. The potential decline is also attributable to a small subset of App Clients reducing their software analytics application costs, which tend to be higher margin offerings.

Previous wording

We expect that the workforce reductions that are part of the 2023 Restructuring Plan will have a positive impact on Adjusted Professional Services Gross Margin; however, we still expect Adjusted Professional Services Gross Margin to fluctuate on a quarterly basis due to changes in the mix of services we provide, the amount of operational overhead required to deliver our services, and clients delaying or reducing services due to the uncertain and challenging macroeconomic environment. Specifically, in the near term, we expect our mix of services to include more TEMS which have minimal initial services gross margins that gradually increase over time as we drive efficiencies in service delivery through the use of our technology. As part of our TEMS contracts, we often re-badge existing health system team members within the applicable functional area as Health Catalyst team members. We often provide a client with a near-term discount relative to their existing costs for the scope of the TEMS opportunity, and we drive incremental gross margin over time by leveraging our technology and know-how to make processes more efficient and reduce the client’s labor costs. While there will be a headwind to gross margin from these TEMS in the near term, we believe this model will benefit our mid and long-term Adjusted EBITDA and profitability targets due to improved direct margin on these services over time, our ability to drive operating leverage with lower relative incremental operating expense investment required, and the fact that these contracts typically result in long-term technology subscription contract renewals or expansions.

Current wording

Specifically, in the near term, we expect our mix of services to include more TEMS which have minimal initial services gross margins that gradually increase over time as we drive efficiencies in service delivery through the use of our technology. As part of our TEMS contracts, we often re-badge existing health system team members within the applicable functional area as Health Catalyst team members. We often provide a client with a near-term discount relative to their existing costs for the scope of the TEMS opportunity, and we drive incremental gross margin over time by leveraging our technology and know-how to make processes more efficient and reduce the client’s labor costs.

Previous wording

Our Adjusted EBITDA improved year-over-year as a result of our revenue growth and cost reduction initiatives as well as the timing of some non-headcount expenses, including the change in timing of our HAS event. We expect Adjusted EBITDA to continue to improve going forward, although it may fluctuate from quarter to quarter as a result of the timing of non-recurring revenue and the seasonality of certain operating costs, including costs related to our HAS event, which we plan to hold next during the first quarter of 2024.

Current wording

Our Adjusted EBITDA improved year-over-year as a result of our revenue growth and cost reduction initiatives as well as the timing of some non-headcount expenses. We generally expect Adjusted EBITDA to continue to improve going forward, although it may fluctuate from quarter to quarter as a result of the timing of non-recurring revenue and the seasonality of certain operating costs, including costs related to our HAS event, which we plan to hold next during the third quarter of 2025.

Previous wording

•Impact of challenging macroeconomic environment, including high inflation and high interest rates. Recent macroeconomic challenges (including the high levels of inflation and high interest rates) and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally, leading to an economic downturn and increased market volatility. They have also disrupted the normal operations of many businesses, including ours. Our health system end market is currently experiencing meaningful financial strain from significant inflation. In particular, they are experiencing increases in labor and supply costs without a commensurate increase in revenue, leading to significant margin pressure. This margin pressure could continue to decrease healthcare industry spending, adversely affect demand for our technology and services, cause one or more of our clients to file for bankruptcy protection or go out of business, cause one or more of our clients to fail to renew, terminate, or renegotiate their contracts, impact expected spending from new clients, negatively impact collections of accounts receivable, and harm our business, results of operations, and financial condition. It is not possible for us to predict the duration or magnitude of the adverse results of the challenging macroeconomic environment and its effects on our business, results of operations, or financial condition at this time.

Current wording

•Impact of challenging macroeconomic environment, including high inflation and high interest rates. Recent macroeconomic challenges (including the high levels of inflation and high interest rates, new tariffs or market volatility and measures taken in response thereto) and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally, leading to an economic downturn and increased market volatility. These challenges have also disrupted the normal operations of many businesses, including ours. Our health system end market recently experienced meaningful financial strain from significant inflation. In particular, the health system end market experienced increases in labor and supply costs without a commensurate increase in revenue, leading to significant margin pressure. We are encouraged that, in general, the operating margins of our health system end market improved in 2024 relative to 2022 and 2023. If this trend with the end-markets continues, we expect it to be a tailwind in the medium-to-long-term.

Previous wording

•Add new clients. We believe our ability to increase our client base will enable us to drive growth. Our potential client base is generally in the early stages of data and analytics adoption and maturity. We expect to further penetrate the market over time as potential clients invest in commercial data and analytics solutions. As one of the first data platform and analytics vendors focused specifically on healthcare organizations, we have an early-mover advantage and strong brand awareness. Our clients are large, complex organizations who typically have long procurement cycles which may lead to declines in the pace of our new client additions, which also included small clients.

Current wording

•Add new clients. We believe our ability to increase our client base will enable us to drive growth. Our potential client base is generally in the early stages of data and analytics adoption and maturity. We expect to further penetrate the market over time as potential clients invest in commercial data and analytics solutions. As one of the first data platform and analytics vendors focused specifically on healthcare organizations, we have an early-mover advantage and strong brand awareness. Our clients are large, complex organizations who typically have long procurement cycles, which, as a result, may lead to challenges with adding new Platform Clients.

Previous wording

•Impact of acquisitions. We have acquired multiple companies over the last few years, including Medicity in June 2018, Able Health in February 2020, Healthfinch in July 2020, Vitalware in September 2020, Twistle in July 2021, KPI Ninja in February 2022, ARMUS in April 2022, and ERS in October 2023. The historical and go-forward revenue growth profiles of these businesses may vary from our core DOS Subscription Clients, which can positively or negatively impact our overall growth rate. For example, Medicity clients have generated a lower dollar-based retention rate than DOS Subscription Clients and we expect declining revenue from Medicity clients in the foreseeable future. As we integrate the teams acquired via our recent acquisitions, we have also incurred integration-related costs and duplicative costs that could impact our operating cost profile in the near term.

Current wording

•Impact of acquisitions. We have acquired multiple companies over the last few years, including Medicity in June 2018, Able Health in February 2020, Healthfinch in July 2020, Vitalware in September 2020, Twistle in July 2021, KPI Ninja in February 2022, ARMUS in April 2022, ERS in October 2023, Carevive in May 2024, Lumeon in August 2024, Intraprise in November 2024, and Upfront in January 2025. The historical and go-forward revenue growth profiles of these businesses may vary from our core Platform Clients, which can positively or negatively impact our overall growth rate. For example, Medicity clients have generated a lower dollar-based retention rate than Platform Clients and we expect declining revenue from Medicity clients in the foreseeable future. As we integrate the teams acquired via our recent acquisitions, we have also incurred integration-related costs and duplicative costs that could impact our operating cost profile in the near term.

Previous wording

•Changing revenue mix. Our technology and professional services offerings have materially different gross margin profiles. While our professional services offerings help our clients achieve measurable improvements and make them stickier, they have lower gross margins than our technology revenue. In 2023, our technology revenue and professional services revenue represented 63% and 37% of total revenue, respectively.

Current wording

•Changing revenue mix. Our technology and professional services offerings have materially different gross margin profiles. While our professional services offerings help our clients achieve measurable improvements and make them stickier, they have lower gross margins than our technology revenue. In 2024, our technology revenue and professional services revenue represented 64% and 36% of total revenue, respectively. Changes in our percentage of revenue attributable to Technology and Professional Services would impact future gross margin and Adjusted Gross Margin.

Previous wording

Changes in our percentage of revenue attributable to Technology and Professional Services would impact future Total Adjusted Gross Margin. For example, in 2024, we expect professional services revenue to become a higher percentage of total revenue as a result of increased demand for Tech-enabled Managed Services that tend to provide an immediate ROI for clients, including in the form of cost savings for the client. Furthermore, changes within the types of professional services we offer over time can have a material impact on our Adjusted Professional Services Gross Margin, impacting our future Total Adjusted Gross Margin. See “Reconciliation of Non-GAAP Financial Measures” above for more information.

Current wording

Furthermore, changes within the types of professional services we offer over time can have a material impact on our Adjusted Professional Services Gross Margin, impacting our future gross margin and Total Adjusted Gross Margin. See “Reconciliation of Non-GAAP Financial Measures” above for more information.

Previous wording

The acquisition consideration transferred was $9.4 million and was comprised of net cash consideration of $9.3 million and Health Catalyst common shares with a fair value of $0.1 million, net of shares subject to revesting that are accounted for as post-acquisition stock-based compensation.

Current wording

The acquisition consideration transferred was $9.4 million and was comprised of net cash consideration of $9.3 million and shares of Health Catalyst common stock with a fair value of $0.1 million, net of shares subject to revesting that are accounted for as post-acquisition stock-based compensation.

Previous wording

On February 24, 2022, we acquired KPI Ninja, a leading provider of interoperability, enterprise analytics, and value-based care solutions based in Lincoln, Nebraska. KPI Ninja is known for its powerful capabilities, flexible configurations, and comprehensive applications designed to fulfill the promise of data-driven healthcare. The acquisition consideration transferred was $21.4 million and was comprised of net cash consideration of $18.5 million and Health Catalyst common shares with a fair value of $2.9 million, net of shares subject to revesting that are accounted for as post-acquisition stock-based compensation.

Current wording

On February 24, 2022, we acquired KPI Ninja, a leading provider of interoperability, enterprise analytics, and value-based care solutions based in Lincoln, Nebraska. KPI Ninja is known for its powerful capabilities, flexible configurations, and comprehensive applications designed to fulfill the promise of data-driven healthcare. The acquisition consideration transferred was $21.4 million and was comprised of net cash consideration of $18.5 million and shares of Health Catalyst common stock with a fair value of $2.9 million, net of shares subject to revesting that are accounted for as post-acquisition stock-based compensation.

Previous wording

We derive our revenue from sales of technology and professional services. For the years ended December 31, 2023, 2022, and 2021, technology revenue represented 63%, 64%, and 61% of total revenue, respectively, and professional services revenue represented 37%, 36%, and 39% of total revenue, respectively.

Current wording

We derive our revenue from sales of technology and professional services. For the years ended December 31, 2024, 2023, and 2022, technology revenue represented 64%, 63%, and 64% of total revenue, respectively, and professional services revenue represented 36%, 37%, and 36% of total revenue, respectively.

Previous wording

Technology revenue. Technology revenue primarily consists of subscription fees charged to clients for access to use our data platform and analytics applications. We provide clients access to our technology through either an all-access or limited-access, modular subscription. Most of our subscription contracts are cloud-based and generally have a three or five-year term, of which many are terminable after one year upon 90 days’ notice. The vast majority of our DOS subscription contracts have built-in annual escalators for technology access fees. Also included in technology revenue is the maintenance and support we provide, which generally includes updates and support services.

Current wording

Technology revenue. Technology revenue primarily consists of subscription fees charged to clients for access to use our Platform and analytics applications. We provide clients access to our technology through either an all-access or limited-access, modular subscription. Most of our subscription contracts are cloud-based and generally have a three or five-year term, of which many are terminable after one year upon 90 days’ notice. The vast majority of our Platform Client subscription contracts have built-in annual escalators for technology access fees. Also included in technology revenue is the maintenance and support we provide, which generally includes updates and support services.