Company Quick10K Filing
Health Catalyst
Price31.65 EPS-1
Shares36 P/E-36
MCap1,154 P/FCF-211
Net Debt-4 EBIT-32
TEV1,150 TEV/EBIT-36
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-13
10-K 2019-12-31 Filed 2020-02-28
10-Q 2019-09-30 Filed 2019-11-13
10-Q 2019-06-30 Filed 2019-08-23
S-1 2019-06-27 Public Filing
8-K 2020-05-12 Earnings, Exhibits
8-K 2020-05-07 Other Events, Exhibits
8-K 2020-04-08 Other Events, Exhibits
8-K 2020-04-08 Earnings
8-K 2020-04-08 Enter Agreement, Leave Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2020-03-25 Enter Agreement, Off-BS Arrangement
8-K 2020-02-27 Earnings, Exhibits
8-K 2020-02-12 Sale of Shares
8-K 2019-11-12 Earnings, Exhibits
8-K 2019-11-12 Officers, Other Events, Exhibits
8-K 2019-08-22 Earnings, Exhibits

HCAT 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 ex101hcatriverpark6lea.htm
EX-31.1 exhibit311-q1202010qxc.htm
EX-31.2 exhibit312-q1202010qxc.htm
EX-32.1 exhibit321-q1202010qxc.htm

Health Catalyst Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
0.40.20.0-0.2-0.4-0.62018201820192020
Assets, Equity
0.10.10.0-0.0-0.1-0.12018201820192020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22018201820192020
Ops, Inv, Fin

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       .
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 March 31, 2020
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 charter)
________________
Delaware45-3337483
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
3165 Millrock Drive #400
Salt Lake City, UT 84121
(Address of principal executive offices, including zip code)

(801) 708-6800
(Registrant’s telephone number, including area code)
________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, par value $0.001 per shareHCATThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated FilerEmerging growth company
Non-accelerated FilerSmaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of April 30, 2020, the Registrant had 38,008,474 shares of common stock outstanding.




HEALTH CATALYST, INC.

Table of Contents

Page

Special Note Regarding Forward-looking Statements
As used in this Quarterly Report on Form 10-Q, unless expressly indicated or the context otherwise requires, references to “Health Catalyst,” “we,” “us,” “our,” “the Company,” and similar references refer to Health Catalyst, Inc. and its consolidated subsidiaries. This Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the “Securities Act”, and the Securities Exchange Act of 1934, as amended, or the “Exchange Act”. These forward-looking statements, which are subject to a number of risks, uncertainties, and assumptions, generally relate to future events or our future financial or operating performance. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would,” “target,” “project,” “contemplate,” or the negative version of these words and other comparable terminology that concern our expectations, strategy, plans, intentions, or projections. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about our: 
ability to attract new customers and retain and expand our relationships with existing customers;
ability to expand our service offerings and develop new platform features;
future financial performance, including trends in revenue, costs of revenue, gross margin, and operating expenses;

1


ability to compete successfully in competitive markets;
ability to respond to rapid technological changes;
expectations and management of future growth;
ability to enter new markets and manage our expansion efforts, particularly internationally;
ability to attract and retain key employees, whom we refer to as team members;
ability to effectively and efficiently protect our brand;
ability to timely scale and adapt our infrastructure;
ability to maintain, protect, and enhance our intellectual property and not infringe upon others’ intellectual property;
ability to successfully identify, acquire, and integrate companies and assets; and
expectations regarding the impact of any natural disasters or public health emergencies, such as the COVID-19 outbreak on our business and results of operations.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors” in this Quarterly Report on Form 10-Q and as well as other documents that may be filed by us from time to time with the Securities and Exchange Commission (the SEC). Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements and you should not place undue reliance on our forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
You should read this Quarterly Report on Form 10-Q in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2019, included in our Annual Report on Form 10-K.

2


Part I. Financial Information

Item 1.  Financial Statements

HEALTH CATALYST, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
As of
March 31,
As of
December 31,
20202019
(unaudited)
Assets
Current assets:
Cash and cash equivalents$60,965  $18,032  
Short-term investments143,595  210,245  
Accounts receivable, net(1)
35,367  27,570  
Deferred costs493  937  
Prepaid expenses and other assets9,439  7,455  
Total current assets249,859  264,239  
Property and equipment, net3,943  4,295  
Intangible assets, net31,753  25,535  
Operating lease right-of-use assets3,105  3,787  
Goodwill18,419  3,694  
Other assets1,678  810  
Total assets$308,757  $302,360  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$2,736  $3,622  
Accrued liabilities6,830  8,944  
Acquisition-related consideration payable(1)
3,107  2,192  
Deferred revenue(1)
35,454  30,653  
Operating lease liabilities2,301  2,806  
Total current liabilities50,428  48,217  
Long-term debt48,485  48,200  
Acquisition-related consideration payable, net of current portion(1)
  1,860  
Deferred revenue, net of current portion1,356  1,459  
Operating lease liabilities, net of current portion1,375  1,654  
Contingent consideration liability2,666    
Other liabilities326  326  
Total liabilities104,636  101,716  
Commitments and contingencies (Note 14)

3


Stockholders’ equity:
Preferred stock, $0.001 par value per share; 25,000,000 shares authorized as of March 31, 2020 and December 31, 2019; no shares issued and outstanding as of March 31, 2020 and December 31, 2019
    
Common stock, $0.001 par value per share; 500,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 37,838,276 and 36,678,854 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
38  37  
Additional paid-in capital832,167  811,049  
Accumulated deficit(628,123) (610,514) 
Accumulated other comprehensive income39  72  
Total stockholders’ equity204,121  200,644  
Total liabilities and stockholders’ equity
$308,757  $302,360  
____________________
(1)Includes amounts attributable to related party transactions. See Note 16 for further details.
The accompanying notes are an integral part of these condensed consolidated financial statements

4


HEALTH CATALYST, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
20202019
Revenue(1):
Technology$24,699  $20,148  
Professional services20,417  15,065  
Total revenue45,116  35,213  
Cost of revenue, excluding depreciation and amortization:
Technology7,906  6,752  
Professional services16,162  10,574  
Total cost of revenue, excluding depreciation and amortization
24,068  17,326  
Operating expenses:
Sales and marketing13,487  10,473  
Research and development13,088  10,022  
General and administrative9,701  6,174  
Depreciation and amortization2,877  2,312  
Total operating expenses39,153  28,981  
Loss from operations(18,105) (11,094) 
Loss on extinguishment of debt  (1,670) 
Interest and other expense, net(621) (945) 
Loss before income taxes(18,726) (13,709) 
Income tax (benefit) provision(1,236) 11  
Net loss$(17,490) $(13,720) 
Less: accretion of redeemable convertible preferred stock
  64,015  
Net loss attributable to common stockholders$(17,490) $(77,735) 
Net loss per share attributable to common stockholders, basic and diluted
$(0.47) $(16.21) 
Weighted-average shares outstanding used in calculating net loss per share attributable to common stockholders, basic and diluted
37,109  4,795  
__________________
(1)Includes amounts attributable to related party transactions. See Note 16 for further details.
The accompanying notes are an integral part of these condensed consolidated financial statements

5


HEALTH CATALYST, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)

Three Months Ended
March 31,
20202019
Net Loss$(17,490) $(13,720) 
Other comprehensive income (loss):
Change in unrealized gain (loss) on investments(3) 3  
Change in foreign currency translation adjustment(30)   
Comprehensive loss$(17,523) $(13,717) 
The accompanying notes are an integral part of these condensed consolidated financial statements

6


HEALTH CATALYST, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share data)
(unaudited)

Three Months Ended March 31, 2020
Preferred StockCommon StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance as of December 31, 2019  $  36,678,854  $37  $811,049  $(610,514) $72  $200,644  
Impact of adopting the current expected credit loss standard
—  —  —  —  —  (119) —  (119) 
Exercise of stock options—  —  1,048,760  1  9,045  —  —  9,046  
Stock-based compensation—  —  —  —  8,741  —  —  8,741  
Issuance of common stock for acquisition consideration
—  —  110,662  —  3,332  —  —  3,332  
Net loss—  —  —  —  —  (17,490) —  (17,490) 
Other comprehensive loss—  —  —  —  —  —  (33) (33) 
Balance as of March 31, 2020  $  37,838,276  $38  $832,167  $(628,123) $39  $204,121  


Three Months Ended March 31, 2019
Redeemable Convertible Preferred StockCommon StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Deficit
SharesAmountSharesAmount
Balance as of December 31, 201822,713,694  $409,845  4,779,356  $5  $  $(374,772) $(1) $(374,768) 
Issuance of Series F redeemable convertible preferred stock, net of issuance costs of $115
437,787  12,073  —  —  —  —  —  —  
Exercise of stock options—  —  94,558  —  808  —  —  808  
Stock-based compensation—  —  —  —  1,656  —  —  1,656  
Accretion of redeemable convertible preferred stock—  64,015  —  —  (2,464) (61,551) —  (64,015) 
Net loss—  —  —  —  —  (13,720) —  (13,720) 
Other comprehensive income—  —  —  —  —  —  3  3  
Balance as of March 31, 201923,151,481  $485,933  4,873,914  $5  $  $(450,043) $2  $(450,036) 


7


HEALTH CATALYST, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended
March 31,
20202019
Cash flows from operating activities
Net loss$(17,490) $(13,720) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization2,877  2,312  
Loss on extinguishment of debt  1,670  
Amortization of debt discount and issuance costs285  144  
Investment discount and premium amortization(6) (83) 
Gain on sale of property and equipment(2) (11) 
Stock-based compensation expense8,741  1,656  
Deferred tax benefit(1,280)   
Change in fair value of contingent consideration liability(359)   
Other(2)   
Change in operating assets and liabilities:
Accounts receivable, net(7,284) (557) 
Deferred costs444  (109) 
Prepaid expenses and other assets(2,244) (185) 
Operating lease right-of-use assets682  130  
Accounts payable, accrued liabilities, and other liabilities
(4,283) (382) 
Deferred revenue3,936  4,012  
Operating lease liabilities(784) (101) 
Net cash used in operating activities(16,769) (5,224) 
Cash flows from investing activities
Purchases of property and equipment(506) (689) 
Proceeds from the sale of property and equipment6  14  
Purchase of short-term investments  (30,726) 
Proceeds from the sale and maturity of short-term investments
66,653  3,147  
Purchase of intangible assets(758) (402) 
Acquisition of business, net of cash acquired(15,249)   
Net cash provided by (used in) investing activities50,146  (28,656) 
Cash flows from financing activities
Proceeds from the issuance of redeemable convertible preferred stock, net of issuance costs
  12,073  
Proceeds from exercise of stock options9,046  808  
Proceeds from employee stock purchase plan1,289    
Payment of SVB line of credit and mezzanine loan
  (21,821) 

8


Proceeds from credit facilities, net of debt issuance costs
  47,169  
Payments of acquisition-related consideration(748) (390) 
Payments of deferred offering costs  (182) 
Net cash provided by financing activities9,587  37,657  
Effect of exchange rate changes(31)   
Net increase in cash and cash equivalents42,933  3,777  
Cash and cash equivalents at beginning of period18,032  28,431  
Cash and cash equivalents at end of period$60,965  $32,208  
Supplemental disclosures of non-cash investing and financing information
Redeemable convertible preferred stock accretion
$  $64,015  
Deferred offering costs included in accounts payable and accrued liabilities
427  1,066  
Purchase of intangible assets included in accounts payable and accrued liabilities
132  1,114  
Purchase of property and equipment included in accounts payable and accrued liabilities
77  20  
Supplemental disclosures of cash flow information related to leases
Cash paid for operating lease liabilities in operating cash flows
$843  $778  
Operating lease right-of-use assets obtained in exchange for operating lease obligations
  581  
The accompanying notes are an integral part of these condensed consolidated financial statements

9

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)

1. Description of Business and Summary of Significant Accounting Policies
Nature of operations
Health Catalyst, Inc. (Health Catalyst) was incorporated under the laws of Delaware in September 2011. We are a leading provider of data and analytics technology and services to healthcare organizations. Our Solution comprises a cloud-based data platform, analytics software, and professional services expertise. Our customers, 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.
Basis of presentation
Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and the applicable regulations of the U.S. Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2019 included in our Annual Report on Form 10-K.
Interim Unaudited Condensed Consolidated Financial Statements
Our accompanying interim condensed consolidated balance sheet as of March 31, 2020, the interim condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019, our interim condensed consolidated statements of redeemable convertible preferred stock and stockholders' equity (deficit) for the three months ended March 31, 2020 and 2019, and our interim condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 are unaudited. Our condensed consolidated balance sheet as of December 31, 2019 was derived from audited financial statements, but does not include all disclosures required by GAAP. Our interim unaudited condensed consolidated financial statements have been prepared on a basis consistent with our annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company's financial position, its operations and cash flows for the periods presented. The historical results are not necessarily indicative of future results, and the results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year or any other period.
Initial Public Offering
On July 29, 2019, we closed our initial public offering of common stock (IPO) in which we issued and sold 8,050,000 shares (inclusive of the underwriters’ over-allotment option to purchase 1,050,000 shares, which was exercised on July 25, 2019) of common stock at $26.00 per share. We received net proceeds of $194.6 million after deducting underwriting discounts and commissions and before deducting offering costs of $4.6 million. Upon the closing of our IPO, all shares of our outstanding redeemable convertible preferred stock converted into 23,151,481 shares of common stock on a one-for-one basis.
Stock Split
On July 10, 2019, we effected a 1-for-2 reverse stock split of our capital stock. We have adjusted all references to share and per share amounts in the accompanying condensed consolidated financial statements and notes to reflect the reverse stock split.

10

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Principles of consolidation
Our condensed consolidated financial statements include the accounts of Health Catalyst and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, provisions for expected credit losses, useful lives of property and equipment, capitalization and estimated useful life of internal-use software and other intangible assets, fair value of financial instruments, deferred tax assets, stock-based compensation, contingent consideration, and tax uncertainties. Actual results could differ from those estimates.
Segment reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is evaluated by the chief operating decision maker (the CODM) in assessing performance and making decisions regarding resource allocation. We operate our business in two operating segments that also represent our reportable segments. Our segments are (1) technology and (2) professional services. The CODM uses Adjusted Gross Profit (defined as revenue less cost of revenue that excludes depreciation, amortization, stock-based compensation expense, and certain other operating expenses) as the measure of our profit.
Net loss per share
Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding. Net loss attributable to common stockholders is computed as net loss less accretion of redeemable convertible preferred stock. Diluted net loss per share attributable to common stockholders is calculated by giving effect to all potentially dilutive common stock equivalents outstanding for the period. For purposes of this calculation, stock options, restricted stock units (RSUs), and purchase rights committed under the employee stock purchase plan are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as the effect is antidilutive.
Prior to our IPO, we computed basic and diluted net loss per share in conformity with the two-class method required for participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to holders of common stock. Redeemable convertible preferred stock and common stock were considered participating securities for purposes of this calculation. However, the two-class method did not impact the net loss per common share attributable to common stockholders as we were in a loss position for each of the periods presented and the redeemable convertible preferred stockholders did not have a contractual obligation to participate in losses.
Revenue recognition
We recognize revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606). We derive our revenues primarily from technology subscriptions and professional services. We determine revenue recognition by applying the following steps:
Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;

11

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when, or as, we satisfy the performance obligation.
We recognize revenue net of any taxes collected from customers and subsequently remitted to governmental authorities.
Technology revenue
Technology revenue primarily consists of subscription fees charged to customers for access to use our technology. We provide customers access to our technology through either an all-access or limited-access, modular subscription. The majority of our subscription arrangements are cloud-based and do not provide customers the right to take possession of the technology or contain a significant penalty if the customer were to take possession of the technology. Revenue from cloud-based subscriptions is recognized ratably over the contract term beginning on the date that the service is made available to the customer. Most of our subscription contracts have up to a three-year term, of which the vast majority are terminable after one year upon 90 days’ notice.
Subscriptions that allow the customer to take software on-premise without significant penalty are treated as time-based licenses. These arrangements generally include access to technology, access to unspecified future products, and maintenance and support. Revenue for upfront access to our technology library is recognized at a point in time when the technology is made available to the customer. Revenue for access to unspecified future products included in time-based license subscriptions is recognized ratably over the contract term beginning on the date that the access is made available to the customer.
We also have certain perpetual license arrangements. Revenue from these arrangements is recognized at a point in time upon delivery of the software.
Technology revenue also includes maintenance and support revenue which generally includes bug fixes, updates, and support services. Revenue related to maintenance and support is recognized over the contract term beginning on the date that the service is made available to the customer.
Professional services revenue
Professional services revenue primarily includes data and analytics services, domain expertise services, outsourcing services, and implementation services. Professional services arrangements typically include a fee for making full-time equivalent (FTE) services available to our customers on a monthly basis. FTE services generally consist of a blend of analytic engineers, analysts, and data scientists based on the domain expertise needed to best serve our customer. Professional services are typically considered distinct from the technology offerings and revenue is generally recognized as the service is provided using the “right to invoice” practical expedient.
Contracts with multiple performance obligations
Many of our contracts include multiple performance obligations. We account for performance obligations separately if they are capable of being distinct within the context of the contract. In these circumstances, the transaction price is allocated to separate performance obligations on a relative standalone selling price basis.

12

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
We determine standalone selling prices based on the observable price a good or service is sold for separately when available. In cases where standalone selling prices are not directly observable, based on information available, we utilize the expected cost plus a margin, adjusted market assessment, or residual estimation method. We consider all information available including our overall pricing objectives, market conditions, and other factors, which may include customer demographics and the types of users.
Standalone selling prices are not directly observable for our all-access and limited-access technology arrangements, which are composed of cloud-based subscriptions, time-based licenses, and perpetual licenses. For these technology arrangements, we use the residual estimation method due to a limited number of standalone transactions and/or prices that are highly variable.
Variable consideration
We have also entered into at-risk and shared savings arrangements with certain customers whereby we receive variable consideration based on the achievement of measurable improvements which may include cost savings or performance against metrics. For these arrangements, we estimate revenue using the most likely amount that we will receive. Estimates are based on our historical experience and best judgment at the time to the extent it is probable that a significant reversal of revenue recognized will not occur. Due to the nature of our arrangements, certain estimates may be constrained until the uncertainty is further resolved.
Contract balances
Contract assets resulting from services performed prior to invoicing customers are recorded as unbilled accounts receivable and are presented on our condensed consolidated balance sheets in aggregate with accounts receivable. Unbilled accounts receivable generally become billable at contractually specified dates or upon the attainment of contractually defined milestones. As of March 31, 2020 and December 31, 2019, the unbilled accounts receivable included in accounts receivable on our condensed consolidated balance sheets was $2.3 million and $2.9 million, respectively.
We record contract liabilities as deferred revenue when cash payments are received or due in advance of performance. Deferred revenue primarily relates to the advance consideration received from the customer. As of March 31, 2020 and December 31, 2019, the total of current and non-current deferred revenue on our condensed consolidated balance sheets was $36.8 million and $32.1 million, respectively.
Cost of revenue, excluding depreciation and amortization
Cost of technology revenue primarily consists of costs associated with hosting and supporting our technology, including third-party cloud computing and hosting costs, contractor costs, and salary and related personnel costs for our cloud services and support teams. Cost of professional services revenue primarily consists of salary and related personnel costs, travel-related costs, and independent contractor costs. Cost of revenue excludes costs related to depreciation and amortization.
We defer certain costs to fulfill a contract when the costs are expected to be recovered, are directly related to in-process contracts and enhance resources that will be used in satisfying performance obligations in the future. These deferred fulfillment costs primarily consist of employee compensation incurred as part of the implementation of new contracts. As of March 31, 2020 and December 31, 2019, we had deferred contract fulfillment costs of $0.5 million and $0.9 million, respectively.
Cash and cash equivalents
We consider all highly liquid investments purchased with a remaining maturity of three months or less at the time of acquisition to be cash equivalents.

13

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Short-term investments
Our investment policy limits investments to highly-rated instruments that mature in less than 12 months. We classify our short-term investments as available for sale.
Accounts receivable
Accounts receivable are non-interest bearing and are recorded at the original invoiced amount less an allowance for doubtful accounts based on the probability of future collections. We adopted ASU 2016-13 effective January 1, 2020. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates, which results in earlier recognition of credit losses. The allowance for doubtful accounts is based on our estimate of expected credit losses for outstanding trade accounts receivables. We determine expected credit losses based on historical write-off experience, an analysis of the aging of outstanding receivables, customer payment patterns, the establishment of specific reserves for customers in an adverse financial condition, and our expectations of changes in macro-economic conditions, including the current COVID-19 pandemic, that may impact the collectability of outstanding receivables. We reassess the adequacy of the allowance for doubtful accounts each reporting period. As of March 31, 2020 and December 31, 2019, we had an allowance for doubtful accounts of $0.6 million and $0.4 million, respectively.
Property and equipment
Property and equipment are stated at historical cost less accumulated depreciation. Repairs and maintenance costs that do not extend the useful life or improve the related assets are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful life of each asset category is as follows:
Computer equipment
2-3 years
Furniture and fixtures3 years
Leasehold improvementsLesser of lease term or estimated useful life
Computer software
2-3 years
Capitalized internal-use software costs3 years
When there are indicators of potential impairment, we evaluate the recoverability of the carrying values by comparing the carrying amount of the applicable asset group to the estimated undiscounted future cash flows expected to be generated by the asset group over the remaining life of the primary long-lived asset in that group plus any residual value. If the carrying amount of the asset group exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized based on the amount by which the carrying value of the long-lived assets exceeds the fair value of those assets. We did not incur any long-lived impairment charges for the three months ended March 31, 2020 and 2019.


14

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Intangible assets
Intangible assets include developed technologies, customer relationships, customer contracts, and trademarks that were acquired in business combinations and asset acquisitions. Intangible assets also include the purchase of third-party computer software. The intangible assets are amortized using the straight-line method over the assets’ estimated useful lives. The estimated useful life of each asset category is as follows:
Developed technologies
2-10 years
Customer relationships and contracts6 years
Computer software licenses
2-5 years
Trademarks2 years
Goodwill
We record goodwill as the difference between the aggregate consideration paid for a business combination and the fair value of the identifiable net tangible and intangible assets acquired. Goodwill is assessed for impairment annually or more frequently if indicators of impairment are present or circumstances suggest that impairment may exist. As of January 1, 2020, we adopted ASU 2017-04, which simplifies the goodwill impairment test by eliminating the second step from the goodwill impairment test. The first step of the goodwill impairment test compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, the goodwill of the reporting unit is not considered impaired. If the carrying amount of the reporting unit exceeds its fair value, we would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. There was no impairment of goodwill for the three months ended March 31, 2020 and 2019. 
Business combinations
We account for an acquisition as a business combination if we obtain control of a business. Assets and liabilities acquired in a business combination generally are recorded at fair value and any associated acquisition costs are expensed as incurred in general and administrative expenses.
Advertising costs
All advertising costs are expensed as incurred. We recorded advertising costs of $0.6 million and $0.6 million for the three months ended March 31, 2020 and 2019, respectively.
Development costs and internal-use software
For technology products that are developed to be sold externally, we determined that technological feasibility is reached shortly before the products are ready for general release. Any costs associated with software development between the time technological feasibility is reached and general release are inconsequential. We capitalize certain development costs incurred in connection with our internal-use software. These capitalized costs are primarily related to the software platforms that are hosted by us and accessed by our customers on a subscription basis. Costs incurred in the preliminary stages of development are expensed as incurred as research and development costs. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use.
We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized costs are recorded as part of property and equipment. Maintenance and training costs are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life.

15

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Stock-based compensation
Stock-based awards, including stock options and RSUs, are measured and recognized in our condensed consolidated financial statements based on the fair value of the award on the grant date. For awards subject to performance conditions, we record expense when the performance condition becomes probable. We record forfeitures of stock-based awards as the actual forfeitures occur.
We estimate the fair value of stock option awards on the grant date using the Black-Scholes option pricing model. We have issued two types of employee stock-based awards, standard and two-tier. Our standard stock-based awards vest solely on a service-based condition.  For these awards, we recognize stock-based compensation expense on a straight-line basis over the vesting period. Two-tier employee stock-based awards, contain both a service-based condition and performance condition, defined as the earlier of (i) an acquisition or change in control of the company or (ii) upon the occurrence of an initial public offering by the Company. A change in control event and effective registration event are not deemed probable until consummated; accordingly, no expense is recorded related to two-tier stock-based awards until the performance condition becomes probable of occurring. Awards that contain both service-based and performance conditions are recognized using the accelerated attribution method once the performance condition is probable of occurring. The service-based condition is generally a service period of four years.
Stock-based compensation expense related to purchase rights issued under the 2019 Health Catalyst Employee Stock Purchase Plan (ESPP) is based on the Black-Scholes option-pricing model fair value of the estimated number of awards as of the beginning of the offering period. Stock-based compensation expense is recognized using the straight-line method over the offering period.
The compensation expense for non-employees is recognized, without changes in the fair value of the award, in the same period and in the same manner as though we had paid cash for the services, which is typically the vesting period of the respective award.
Income taxes
Deferred income tax balances are accounted for using the asset and liability method and reflect the effects of temporary differences between the financial reporting and tax bases of our assets and liabilities using enacted tax rates expected to apply when taxes are actually paid or recovered. In addition, deferred tax assets and liabilities are recorded for net operating loss (NOL) and credit carryforwards.
A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized based on all available positive and negative evidence. Such evidence includes, but is not limited to, recent cumulative earnings or losses, expectations of future taxable income by taxing jurisdiction, and the carry-forward periods available for the utilization of deferred tax assets.
We use a two-step approach to recognize and measure uncertain income tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained upon audit. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. We do not accrue interest and penalties related to unrecognized tax benefits within the provision for income taxes because we have NOLs. Significant judgment is required to evaluate uncertain tax positions.
Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We evaluate our uncertain tax positions on a regular basis and evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, such as the Tax Cuts and Jobs Act of 2017, correspondence with tax authorities during the course of an audit, and effective settlement of audit issues.

16

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and results of operations.
Fair value of financial instruments
The carrying amounts reported in our condensed consolidated balance sheets for cash, receivables, accounts payable, and current accrued expenses approximate fair values because of the immediate or short-term maturity of these financial instruments. The carrying value of acquisition-related consideration payable, operating lease liabilities, and long-term debt approximate fair value based on interest rates available for debt with similar terms at March 31, 2020 and December 31, 2019. Money market funds and short-term investments are measured at fair value on a recurring basis. Our contingent consideration liability is measured at fair value on a recurring basis based primarily on significant inputs not observable in the market.
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1- Quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3- Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
All of our financial instruments are valued using quoted prices in active markets or based on other observable inputs. For Level 2 securities, we use a third-party pricing service which provides documentation on an ongoing basis that includes, among other things, pricing information with respect to reference data, methodology, inputs summarized by asset class, pricing application, and corroborative information. Our contingent consideration liability is categorized as a Level 3 fair value measurement because we estimate projections during the earn out period utilizing various potential pay-out scenarios.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets, operating lease liabilities, and operating lease liabilities, net of current portion in our condensed consolidated balance sheets. We have adopted the short-term lease recognition exemption policy. All of our leasing commitments are classified either as operating leases or otherwise qualify as short-term leases with lease terms of 12 months or less.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our lease contracts do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease executory costs. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise the applicable option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
We do not have lease agreements that contain non-lease components, which generally would be accounted for separately.

17

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Accounting pronouncements adopted
Goodwill impairment
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04, Intangibles-Goodwill and Other - Simplifying the Test for Goodwill Impairment (Topic 350), that simplifies how an entity is required to test goodwill for impairment by eliminating the second step of the impairment test. The first step measures a goodwill impairment loss by comparing the fair value of a reporting unit to the carrying amount. If the carrying amount of the reporting unit exceeds its fair value, the carrying amount of goodwill is reduced by the excess reporting unit carrying amount up to the carrying amount of the goodwill. We adopted ASU 2017-04 as of January 1, 2020. The guidance applies to our reporting requirements in performing goodwill impairment testing; however, the adoption of this guidance did not have an impact on our condensed consolidated financial statements and related disclosures.
Fair value measurements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information prospectively, including the ranges used to develop significant unobservable inputs for Level 3 fair value measurements, and modifies some disclosure requirements. We adopted ASU 2018-13 as of January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.
Credit losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which required the measurement and recognition of expected credit losses for certain financial instruments, which includes our accounts receivable and available-for-sale debt securities. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates, which results in earlier recognition of credit losses. We adopted ASU 2016-13 effective January 1, 2020. The adoption of the standard did not have a material impact on our condensed consolidated financial statements. The adoption adjustment was recorded to accumulated deficit, as seen in our condensed consolidated statements of redeemable convertible preferred stock and stockholders’ equity.
Implementation Costs Incurred in a Cloud Computing Arrangement
In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. We prospectively adopted ASU 2018-15 effective January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.


18

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Recent accounting pronouncements not yet adopted
Accounting for income taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The new standard is effective for fiscal years beginning after December 15, 2021. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We are currently evaluating the impacts of the provisions of this standard on our condensed consolidated financial statements and related disclosures.
Reference rate reform
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The update provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) contract modifications on financial reporting, caused by reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. We are still evaluating the impact, but do not expect the adoption of the standard to have a material impact on our condensed consolidated financial statements and related disclosures.

2. Business Combinations
On February 21, 2020, we acquired Able Health, Inc. (Able Health), a leading software-as-a-service provider of quality and regulatory measurement tracking and reporting to healthcare providers and risk-bearing entities, in a transaction accounted for as a business combination. The acquisition consideration transferred was $21.5 million and was comprised of net cash consideration of $15.2 million, Health Catalyst common shares with a fair value of $3.3 million, and contingent consideration based on achievement of Able Health specified incremental customer billings for the year ending December 31, 2020, with an initial fair value of $3.0 million. The acquisition consideration is subject to certain working capital escrow adjustments. The purchase resulted in Health Catalyst acquiring 100% ownership in Able Health. We believe this acquisition will strengthen Health Catalyst’s Quality and Regulatory Measures capabilities.
An additional 179,392 shares of our common stock subject to restriction agreements, or restricted shares, were issued pursuant to the terms of the acquisition agreement and 60,000 restricted stock units were issued in connection with the acquisition agreement. The value of these restricted shares and restricted stock units will be recognized as post-combination stock-based compensation expense over their respective vesting terms. The vesting of the restricted shares is subject to one year of continuous service by the applicable team members and shall vest on the one-year anniversary of the acquisition closing date and the service-based condition for the restricted stock units issued pursuant to the terms of the acquisition agreement is satisfied over two years with a 50% cliff vesting period of one year and ratable quarterly vesting thereafter. Refer to Note 12 for additional details related to our stock-based compensation.
The fair value measurement of contingent consideration that may be payable to Able Health’s former stockholders and the measurement of the acquired Able Health assets and assumed liabilities are determined based on estimates and assumptions that are judgmental in nature, including the timing and amount of projected future cash flows and market-participant discount rates reflecting risks inherent in the future cash flows. Given the recent nature of the Able Health acquisition closing date and the March 31, 2020 reporting date, such measurements are preliminary and subject to measurement period adjustments under GAAP, as we complete our analysis of information that is available or obtainable as of the acquisition date that impacts the fair value and other acquisition date recognition and measurement purchase price allocation amounts.

19

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
The following table summarizes the acquisition-date fair value of consideration transferred and the identifiable assets purchased and liabilities assumed as part of our acquisition of Able Health (in thousands):
Assets acquired:
Accounts receivable$633  
Prepaid expenses and other assets57  
Developed technologies7,500  
Customer relationships600  
Trademarks100  
Total assets acquired8,890  
Less liabilities assumed:
Accounts payable and other current liabilities91  
Deferred revenue762  
Net deferred tax liabilities1,280  
Total liabilities assumed2,133  
Total assets acquired, net6,757  
Goodwill14,725  
Total consideration transferred, net of cash acquired$21,482  
The acquired intangible assets were valued utilizing either an income approach or a cost approach as deemed most applicable, and include customer relationships, developed technology, and trademarks that will be amortized on a straight-line basis over their estimated useful lives of six years, three years, and two years, respectively. The resulting goodwill from the Able Health acquisition was fully allocated to the technology reporting unit and is not deductible for income tax purposes. We expensed $0.9 million of acquisition transaction costs as incurred that are included in general and administrative expense in our condensed consolidated statements of operations.
Pro forma financial information has not been presented for this acquisition as the impact to our condensed consolidated financial statements was not material.
The amount of revenue attributable to the acquired business of Able Health that has been included in our condensed consolidated statement of operations subsequent to the February 21, 2020 acquisition date through March 31, 2020 is $0.4 million. Income (loss) information for Able Health after the acquisition date through March 31, 2020 is not presented as the Able Health business was integrated into our operations immediately following the acquisition and is impracticable to quantify.

3. Revenue
Disaggregation of revenue
The following table represents Health Catalyst’s revenue disaggregated by type of arrangement (in thousands):
Three Months Ended March 31,
20202019
Recurring technology$24,699  $20,148  
Professional services20,417  15,065  
Total revenue$45,116  $35,213  

20

HEALTH CATALYST, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
For the three months ended March 31, 2020 and 2019, 99.9% and 100%, respectively, of revenue was related to contracts with customers located in the United States.

4. Goodwill and Intangible Assets
We operate our business in two operating segments that also represent our reporting units. Our reporting units are organized based on our technology and professional services. We have not incurred any goodwill impairment charges.
Goodwill by reporting unit is as follows (in thousands):
As of
March 31,
As of
December 31,
20202019
Technology$17,637  $2,912  
Professional services782  782  
Total goodwill$18,419  $3,694  

As of March 31, 2020, intangible assets consisted of the following (in thousands):
GrossAccumulated AmortizationNet
Developed technologies$43,629  $(17,922) $25,707  
Customer relationships and contracts4,764  (2,964) 1,800  
Computer software licenses7,283  (3,141) 4,142