Health Catalyst, Inc. [HCAT] Filings

10-Q 1 hcat-20240930.htm 10-Q hcat-20240930

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 September 30, 2024

☐ 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)

________________


Delaware						45-3337483
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

10897 South River Front Parkway #300

South Jordan UT 84095

(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 class

Trading Symbol(s)

Name of exchange on which registered

Common Stock, par value $0.001 per share

HCAT

The 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 Filer

☐

Emerging growth company

☐

Non-accelerated Filer

☐

Smaller 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 November 1, 2024, the Registrant had 60,847,658 shares of common stock outstanding.

HEALTH CATALYST, INC.

Table of Contents


		Page
Part I. Financial Information
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023	4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	6
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	7
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	8
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (unaudited)	10
	Notes to the Condensed Consolidated Financial Statements (unaudited)	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	71
Item 4.	Controls and Procedures	72
Part II. Other Information
Item 1.	Legal Proceedings	74
Item 1A.	Risk Factors	74
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	112
Item 5.	Other Information	112
Item 6.	Exhibits	113
	Signatures

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 (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements are only predictions based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including those relating to future events or our future financial performance and financial guidance. 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,” or “contemplate,” the negative of terms like these or other comparable terminology, and other words or terms of similar meaning in connection with any discussion of expectations, projections, plans, strategy, intentions, or future results of operations or financial performance. 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 clients and retain and expand our relationships with existing clients;

•ability to expand our service offerings, develop new platform features, and rollout and migrate existing DOS Subscription Clients to our new platform, Health Catalyst Ignite;

•future financial performance, including trends in revenue, costs of revenue, gross margin, and operating expenses;

•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 highly-qualified 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;

•expectations regarding our key financial metrics; and

•expectations regarding the impact of any macroeconomic challenges (including high inflationary and/or high interest rate environments or market volatility and measures taken in response thereto) and any new public health crisis, 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 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, 2023, included in our Annual Report on Form 10-K.

Summary of Risk Factors

•We operate in a highly competitive industry, and if we are not able to compete effectively, our business and results of operations will be harmed.

•We may be unable to successfully execute on our growth initiatives, business strategies, or operating plans as well as cost reduction and restructuring initiatives.

•If we fail to effectively manage our growth and organizational change, our business and results of operations could be harmed.

•Macroeconomic challenges (including high inflationary and/or high interest rate environments, or market volatility and measures taken in response thereto) and any new public health crisis could harm our business, results of operations, and financial condition.

•If we do not continue to innovate and provide services that are useful to clients and users, we may not remain competitive, and our revenue and results of operations could suffer.

•Our business could be adversely affected if our clients are not satisfied with our cloud-based data platform, software analytics applications, and professional services expertise (our Solution).

•If our existing clients do not continue or renew their contracts with us, renew at lower fee levels, or decline to purchase additional technology and services from us, it could have a material adverse effect on our business, financial condition, and results of operations.

•Our business and operations may suffer in the event of information technology system failures, cyberattacks, or deficiencies in our cybersecurity.

•Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could adversely affect our business, results of operations, and financial condition.

•Our Solution is dependent on our ability to source data from third parties, and such third parties could take steps to block our access to data, or increase fees or impose fees for such access, which could impair our ability to provide our Solution, limit the effectiveness of our Solution, or adversely affect our financial condition and results of operations.

•Our results of operations have in the past fluctuated and may continue to fluctuate significantly, and if we fail to meet the expectations of securities analysts or investors, our stock price and the value of an investment in our common stock could decline substantially.

•Our term loan facility exposes us to interest rate risks, contains covenants and other provisions that restrict our ability to take certain actions, and may limit our ability to operate or grow our business in the future.

•Our pricing may change over time and our ability to efficiently price our Solution will affect our results of operations and our ability to attract or retain clients.

•If our Solution fails to provide accurate and timely information, or if our content or any other element of our Solution is associated with faulty clinical decisions or treatment, we could be exposed to litigation, investigations or have liability to clients, clinicians, patients, or others, which could adversely affect our results of operations.

•We rely on third-party providers, including Microsoft Azure, for computing infrastructure, network connectivity, and other technology-related services needed to deliver our Solution. Any disruption in the services provided by such third-party providers could adversely affect our business and subject us to liability.

•We rely on Internet infrastructure, bandwidth providers, data center providers, other third parties, and our own systems for providing our Solution to our users, and any failure or interruption in the services provided by these third parties or our own systems could expose us to litigation, potentially require us to issue credits to our clients, and negatively impact our relationships with users or clients, adversely affecting our brand and our business.

•Failure by our clients to obtain proper permissions and waivers may result in claims against us or may limit or prevent our use of data, which could harm our business.

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 September 30,		As of December 31,
	2024		2023
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	328,327	$	106,276
Short-term investments	58,929		211,452
Accounts receivable, net(1)	51,648		60,290
Prepaid expenses and other assets	18,510		15,379
Total current assets	457,414		393,397
Property and equipment, net	27,908		25,712
Intangible assets, net	76,463		73,384
Operating lease right-of-use assets	11,222		13,927
Goodwill	234,387		190,652
Other assets	5,656		4,742
Total assets	$	813,050	$	701,814
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	14,278	$	6,641
Accrued liabilities	23,548		23,282
Deferred revenue(1)	52,202		55,753
Operating lease liabilities	3,329		3,358

Current portion of long-term debt	230,423		—
Total current liabilities	323,780		89,034
Long-term debt, net of current portion	114,611		228,034
Deferred revenue, net of current portion	258		77
Operating lease liabilities, net of current portion	15,969		17,676

Other liabilities	3,395		74
Total liabilities	458,013		334,895
Commitments and contingencies (Note 15)




Stockholders’ equity:
Preferred stock, $0.001 par value per share; 25,000,000 shares authorized and no shares issued and outstanding as of September 30, 2024 and December 31, 2023	—		—


Common stock, $0.001 par value per share, and additional paid-in capital; 500,000,000 shares authorized as of September 30, 2024 and December 31, 2023; 60,847,658 and 58,295,491 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	1,521,146		1,484,056

Accumulated deficit	(1,165,999)		(1,117,170)
Accumulated other comprehensive income (loss)	(110)		33
Total stockholders’ equity	355,037		366,919
Total liabilities and stockholders’ equity	$	813,050	$	701,814

__________________

(1) Includes amounts attributable to related party transactions. See Note 17 for further details.

The accompanying notes are an integral part of these condensed consolidated financial statements.

HEALTH CATALYST, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue(1):
Technology	$	48,653	$	45,973	$	143,254	$	140,483
Professional services	27,700		27,800		83,724		80,371
Total revenue	76,353		73,773		226,978		220,854
Cost of revenue, excluding depreciation and amortization:
Technology	17,609		15,169		48,991		45,755
Professional services	24,704		26,618		71,899		73,774
Total cost of revenue, excluding depreciation and amortization	42,313		41,787		120,890		119,529
Operating expenses:
Sales and marketing	11,342		15,084		43,145		50,050
Research and development	14,193		17,667		42,948		52,339
General and administrative	12,209		13,625		41,136		61,129
Depreciation and amortization	9,983		10,190		31,165		31,919
Total operating expenses	47,727		56,566		158,394		195,437
Loss from operations	(13,687)		(24,580)		(52,306)		(94,112)

Interest and other income (expense), net	(1,514)		2,607		3,185		6,490
Loss before income taxes	(15,201)		(21,973)		(49,121)		(87,622)
Income tax provision (benefit)	(475)		59		(292)		213
Net loss	$	(14,726)	$	(22,032)	$	(48,829)	$	(87,835)


Net loss per share, basic and diluted	$	(0.24)	$	(0.39)	$	(0.82)	$	(1.57)

Weighted-average shares outstanding used in calculating net loss per share, basic and diluted	60,441		56,711		59,449		56,062

__________________

(1) Includes amounts attributable to related party transactions. See Note 17 for further details.

The accompanying notes are an integral part of these condensed consolidated financial statements.

HEALTH CATALYST, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net loss	$	(14,726)	$	(22,032)	$	(48,829)	$	(87,835)

Other comprehensive income (loss):
Change in net unrealized gains (losses) on available for sale investments	105		35		(63)		490
Change in foreign currency translation adjustment	(53)		(1)		(80)		(12)
Comprehensive loss	$	(14,674)	$	(21,998)	$	(48,972)	$	(87,357)

The accompanying notes are an integral part of these condensed consolidated financial statements.

HEALTH CATALYST, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)


		Three Months Ended September 30, 2024
	Common Stock and Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
		Shares			Amount
Balance as of June 30, 2024		60,075,178	$	1,508,437		$	(1,151,273)	$	(162)	$	357,002
Vesting of restricted stock units		379,584	—			—		—		—

Exercise of stock options		5,904	39			—		—		39
Stock-based compensation		—	9,818			—		—		9,818
Issuance of common stock related to acquisitions		386,992	2,852			—		—		2,852
Net loss		—	—			(14,726)		—		(14,726)
Other comprehensive income		—	—			—		52		52
Balance as of September 30, 2024		60,847,658	$	1,521,146		$	(1,165,999)	$	(110)	$	355,037


		Three Months Ended September 30, 2023
	Common Stock and Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
		Shares			Amount
Balance as of June 30, 2023		56,541,641	$	1,454,897		$	(1,064,826)	$	(204)	$	389,867
Vesting of restricted stock units and restricted shares		497,789	—			—		—		—

Exercise of stock options		4,682	40			—		—		40
Stock-based compensation		—	14,485			—		—		14,485
Net loss		—	—			(22,032)		—		(22,032)
Other comprehensive income		—	—			—		34		34
Balance as of September 30, 2023		57,044,112	$	1,469,422		$	(1,086,858)	$	(170)	$	382,394

The accompanying notes are an integral part of these condensed consolidated financial statements.

HEALTH CATALYST, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)


		Nine Months Ended September 30, 2024
	Common Stock and Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
		Shares			Amount
Balance as of December 31, 2023		58,295,491	$	1,484,056		$	(1,117,170)	$	33	$	366,919
Vesting of restricted stock units and restricted shares		1,486,435	—			—		—		—
Issuance of common stock under employee stock purchase plan		263,482	1,431			—		—		1,431
Exercise of stock options		26,668	169			—		—		169
Stock-based compensation		—	30,054			—		—		30,054
Issuance of common stock related to acquisitions		775,582	5,436			—		—		5,436
Net loss		—	—			(48,829)		—		(48,829)
Other comprehensive loss		—	—			—		(143)		(143)
Balance as of September 30, 2024		60,847,658	$	1,521,146		$	(1,165,999)	$	(110)	$	355,037


		Nine Months Ended September 30, 2023
	Common Stock and Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
		Shares			Amount
Balance as of December 31, 2022		55,261,922	$	1,424,681		$	(999,023)	$	(648)	$	425,010
Vesting of restricted stock units and restricted shares		1,554,641	—			—		—		—
Issuance of common stock under employee stock purchase plan		244,133	2,206			—		—		2,206
Exercise of stock options		128,443	937			—		—		937
Stock-based compensation		—	43,406			—		—		43,406
Repurchase of common stock		(145,027)	(1,808)			—		—		(1,808)
Net loss		—	—			(87,835)		—		(87,835)
Other comprehensive income		—	—			—		478		478
Balance as of September 30, 2023		57,044,112	$	1,469,422		$	(1,086,858)	$	(170)	$	382,394

The accompanying notes are an integral part of these condensed consolidated financial statements.

HEALTH CATALYST, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)(unaudited)


	Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities
Net loss	$	(48,829)	$	(87,835)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation expense	29,316		42,745
Depreciation and amortization	31,165		31,919
Impairment of long-lived assets	2,200		2,681
Non-cash operating lease expense	1,981		2,272
Amortization of debt discount, issuance costs, and deferred financing costs	2,078		1,132
Investment discount and premium accretion	(3,899)		(6,816)
Provision for expected credit losses	3,433		1,626
Deferred tax provision (benefit)	(517)		6
Change in fair value of contingent consideration liabilities	(1,642)		—
Other	87		101
Change in operating assets and liabilities:
Accounts receivable, net	6,304		259

Prepaid expenses and other assets	(617)		385
Accounts payable, accrued liabilities, and other liabilities	4,810		1,847
Deferred revenue	(5,259)		(1,688)

Operating lease liabilities	(2,525)		(2,673)
Net cash provided by (used in) operating activities	18,086		(14,039)

Cash flows from investing activities
Proceeds from the sale and maturity of short-term investments	206,488		256,101
Purchase of short-term investments	(50,197)		(254,448)
Acquisition of businesses, net of cash acquired	(54,889)		—
Capitalization of internal-use software	(9,858)		(9,331)
Purchase of intangible assets	(504)		(986)
Purchases of property and equipment	(1,203)		(981)
Proceeds from the sale of property and equipment	10		21
Net cash provided by (used in) investing activities	89,847		(9,624)

Cash flows from financing activities
Proceeds from issuance of long-term debt, net of issuance costs	115,472		—
Payment of deferred financing costs	(3,000)		—
Proceeds from employee stock purchase plan	2,061		3,206
Proceeds from exercise of stock options	169		937
Repurchase of common stock	—		(1,808)
Repayment of seller-financed debt	(646)		—


Net cash provided by financing activities	114,056		2,335
Effect of exchange rate changes on cash and cash equivalents	62		(13)
Net increase (decrease) in cash and cash equivalents	222,051		(21,341)


Cash and cash equivalents at beginning of period	106,276		116,312
Cash and cash equivalents at end of period	$	328,327	$	94,971


Supplemental disclosures of non-cash investing and financing information
Common stock issued in connection with acquisitions	$	5,436	$	—
Stock-based compensation capitalized as internal-use software	738		622
Purchase of property and equipment included in accounts payable and accrued liabilities	310		21
Capitalized internal-use software included in accounts payable and accrued liabilities	(322)		88

Operating lease right-of-use assets obtained in exchange for operating lease obligations	—		2,033
Purchase of intangible assets included in accounts payable and accrued liabilities	—		1,310

The accompanying notes are an integral part of these condensed consolidated financial statements.

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 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.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (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, 2023 included in our Annual Report on Form 10-K.

Interim unaudited condensed consolidated financial statements

The accompanying interim condensed consolidated balance sheet as of September 30, 2024, the interim condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023, our interim condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2024 and 2023, and our interim condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 are unaudited. Our condensed consolidated balance sheet as of December 31, 2023 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 and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year or any other period.

Principles of consolidation

The 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 GAAP 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 revenue and expenses during the reporting period. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, reserves for expected credit losses, useful lives of property and equipment, capitalization and estimated useful life of internal-use software, impairment assessments of goodwill, intangible assets, and other long-lived assets, fair value of financial instruments, deferred tax assets, stock-based compensation, contingent consideration, the period of benefit for deferred contract acquisition costs, the incremental borrowing rate used for operating leases, and tax uncertainties. Actual results could differ significantly from those estimates.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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 (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 by the weighted average number of shares of common stock outstanding. Diluted net loss per share is calculated by giving effect to all potentially dilutive common stock equivalents outstanding for the period, when dilutive. For purposes of this calculation, stock options, restricted stock units (RSUs), performance-based restricted stock units (PRSUs), convertible senior notes, restricted shares, 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 anti-dilutive.

Revenue recognition

We derive our revenue primarily from technology subscriptions and professional services. We determine revenue recognition by applying the following steps:

•Identification of the contract, or contracts, with a client;

•Identification of the performance obligations in the contract;

•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 clients and subsequently remitted to governmental authorities.

Technology revenue

Technology revenue primarily consists of subscription fees charged to clients for access to use our technology. We provide clients 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 clients the right to take possession of the technology or contain a significant penalty if the client 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 client. Our subscription contracts generally have a three- or five-year term, of which many are terminable after one year upon 90 days’ notice.

Subscriptions that allow the client 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 client. 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 client.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Professional services revenue

Professional services revenue primarily includes data and analytics services, domain expertise services, Tech-enabled Managed Services, and implementation services. Professional services arrangements typically include a fee for making full-time equivalent (FTE) services available to our clients 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 clients. 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. 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 client 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 generally use the residual 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 clients whereby we receive variable consideration based on the achievement of measurable improvements that 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 clients 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 September 30, 2024 and December 31, 2023, the unbilled accounts receivable included in accounts receivable on our condensed consolidated balance sheets was $8.3 million and $4.7 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 client. As of September 30, 2024 and December 31, 2023, the total of current and non-current deferred revenue on our condensed consolidated balance sheets was $52.5 million and $55.8 million, respectively.

Deferred costs

We capitalize sales commissions and associated fringe costs, such as benefits and payroll taxes, paid to direct sales personnel and other incremental costs of obtaining contracts with clients, provided we expect to recover those costs. We determine that costs should be deferred based on our sales compensation plans when the commissions are incremental and would not have occurred absent the client contract.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

As of September 30, 2024 and December 31, 2023, $2.2 million and $2.2 million, respectively, of deferred contract acquisition costs are expected to be amortized within the next 12 months and are included in prepaid expenses and other assets on the condensed consolidated balance sheets. As of September 30, 2024 and December 31, 2023, the remaining $2.9 million and $3.3 million, respectively, of deferred contract acquisition costs are included in non-current other assets.

Commissions paid upon the initial acquisition of a contract are amortized on a straight-line basis over an estimated period of benefit of four years. Amortization is recognized on a straight-line basis commensurate with the pattern of revenue recognition. The period of benefit was estimated by considering factors such as estimated average client life, the rate of technological change in our subscription service, and the impact of competition in our industry. As our average client life significantly exceeded the rate of change in our technology, we concluded that the rate of change in the technology underlying our subscription service was the most significant factor in determining the period of benefit for which the asset relates. In evaluating the rate of change in our technology, we considered the competition in our industry, our commitment to continuous innovation, and the frequency of product, platform, and technology updates. We determined that the impact of competition in our industry is reflected in the period of benefit through the rate of technological change. Amortization of deferred contract acquisition costs was $0.7 million and $0.6 million for the three months ended September 30, 2024 and 2023, respectively, and $2.0 million and $1.6 for the nine months ended September 30, 2024 and 2023, respectively, and is included within sales and marketing expense in the condensed consolidated statements of operations.

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. Amortization of deferred fulfillment costs is included within cost of revenue in the condensed consolidated statements of operations. We periodically review these deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. There were no impairment losses recorded during the periods presented.

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, license and revenue share fees, 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 in the interim condensed consolidated statements of operations excludes costs related to depreciation and amortization.

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.

Short-term investments

Our investment policy limits investments to highly-rated instruments. We classify and account for our short-term investments as available for sale securities as we may sell these securities at any time for use in our current operations or for other purposes, even prior to maturity. As a result, we classify our short-term investments, including securities with contractual maturities beyond twelve months, within current assets in the condensed consolidated balance sheets.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Accounts receivable

Accounts receivable are non-interest bearing and are recorded at the original invoiced amount less an allowance for credit losses based on the probability of future collections. Our allowance is based on our estimate of expected credit losses for outstanding trade accounts receivables and unbilled receivables.

We determine expected credit losses based on historical write-off experience, an analysis of the aging of outstanding receivables, client payment patterns, the establishment of specific reserves for clients in an adverse financial condition, and our expectations of changes in macroeconomic conditions, including high interest rates and high inflation, that may impact the collectability of outstanding receivables. We reassess the adequacy of the allowance for credit losses each reporting period. The following table presents a rollforward of the allowance for credit losses (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(unaudited)				(unaudited)
Allowance for credit losses at the beginning of period	$	6,600	$	3,800	$	4,105	$	2,300
Provision for expected credit losses	(5)		112		3,433		1,626
Less: Write-offs, net of recoveries	5		(12)		(938)		(26)
Allowance for credit losses at the end of period	$	6,600	$	3,900	$	6,600	$	3,900

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities 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 the commencement date based on the present value of lease payments over the lease term. As our lease contracts do not have a readily determinable implicit rate, we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. The incremental borrowing rate is the estimated rate incurred to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

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. Variable costs related to our leased office space, such as maintenance and utilities based on actual usage, are not included in the measurement of right-of-use assets and lease liabilities, but are expensed as incurred.

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 fixtures			3-5 years
Leasehold improvements			Lesser of lease term or estimated useful life

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)


Computer software			2-5 years
Capitalized internal-use software costs			2-5 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 useful life of the primary asset, plus any terminal value, in the asset group. If the carrying amount of the asset group exceeds those estimated 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 the assets.

Intangible assets

Intangible assets include developed technologies, client relationships, client 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			3-10 years
Client relationships and contract backlog			2-7 years
Computer software licenses			1-5 years
Trademarks			1-5 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 includes the know-how of the assembled workforce, the ability of the workforce to further improve technology and product offerings, client relationships, and the expected cash flows resulting from these efforts. Goodwill may also include expected synergies resulting from the complementary strategic fit these businesses bring to existing operations. Goodwill is assessed for impairment annually on October 31 or more frequently if indicators of impairment are present or circumstances suggest that impairment may exist.

Our first step in the goodwill impairment test is a qualitative analysis of factors that could be indicators of potential impairment. Judgment in the assessment of qualitative factors of impairment may include changes in business climate, market conditions, or other events impacting the reporting unit. Next, if a quantitative analysis is necessary, we compare 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. Performing a quantitative goodwill impairment test includes the determination of the fair value of a reporting unit, which requires management to use significant judgment and estimation. The significant estimation is primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair value of the reporting units, as well as the sensitivity of the respective fair values to the underlying significant assumptions. Typical methods to derive the fair value of reporting units include using the income or market approaches.

The significant assumptions used to form the basis of the estimates include, among others, the selection of valuation methodologies, estimates of expected revenue, including revenue growth rates, and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and the selection of appropriate market comparable companies. Many of these significant assumptions are forward-looking and could be affected by future economic and market conditions. If a quantitative analysis is necessary, we typically engage the assistance of a valuation specialist in concluding on fair value measurements in connection with determining the fair values of our reporting units. 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 and nine months ended September 30, 2024 and 2023.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Business combinations

The results of businesses acquired in a business combination are included in our condensed consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair value on the acquisition date. Any excess consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed is recognized as goodwill.

We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination in order to record the tangible and intangible assets acquired and liabilities assumed based on our best estimate of fair value. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates, and selection of comparable companies. Significant estimation is required in determining the fair value of the client-related intangible assets and technology-related intangible assets. The significant estimation is primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair value of these intangible assets, as well as the sensitivity of the respective fair values to the underlying significant assumptions. We typically use the income approach or cost approach to measure the fair value of intangible assets. The significant assumptions used to form the basis of the estimates included the number of engineer hours required to develop technology, expected revenue including revenue growth rates, rate and timing of obsolescence, royalty rates and earnings before interest, taxes, depreciation and amortization (EBITDA) margin used in the estimate for client relationships, and backlog. Many of these significant assumptions were forward-looking and could be affected by future economic and market conditions. We engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of material assets acquired and liabilities assumed in a business combination.

For the three and nine months ended September 30, 2024, we expensed $1.7 million and $4.2 million, respectively, of transaction costs associated with business combinations. For the three and nine months ended September 30, 2023, we expensed $1.6 million of transaction costs associated with business combinations. The costs were expensed as incurred and are included in general and administrative expense in our condensed consolidated statements of operations.

Contingent consideration liabilities

Our acquisition consideration in business combinations may include an estimate for contingent consideration that will be paid if certain earn-out performance targets are met. The resulting contingent consideration liabilities are categorized as a Level 3 fair value measurement because we estimate projections during the earn-out period utilizing unobservable inputs, including various potential pay-out scenarios based on billings and revenue-related earn-out targets. Changes to the unobservable inputs could have a material impact on our condensed consolidated financial statements.

We generally value the expected contingent consideration and the corresponding liabilities using the Monte Carlo method or Black-Scholes model based on estimates of potential payment scenarios. Probabilities are applied to each potential scenario and the resulting values are discounted using a rate that considers weighted average cost of capital as well as a specific risk premium associated with the riskiness of the earn-out itself, the related projections, projected payment dates, and volatility in the fair value of our common stock. The fair value of the contingent consideration is remeasured each reporting period.

As applicable, the portion of the contingent consideration liabilities that will be settled in shares of our common stock is classified as a component of non-current liabilities in our condensed consolidated balance sheets, while the portion to be paid in cash is classified as a component of current liabilities. Changes in the contingent consideration liabilities are reflected as part of general and administrative expense in our condensed consolidated statements of operations.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Advertising costs

All advertising costs are expensed as incurred. For each of the three months ended September 30, 2024 and 2023, we incurred $0.4 million of advertising costs, and $4.1 million and $1.6 million for the nine months ended September 30, 2024 and 2023, 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 clients 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 with amortization included in depreciation and amortization expense in our condensed consolidated statements of operations.

Stock-based compensation

Stock-based awards, including stock options, restricted stock units, performance-based restricted stock units, and restricted shares are measured and recognized in our condensed consolidated financial statements based on the fair value of the award on the grant date or, when applicable, the modification date. The grant date fair value of our stock-based awards is typically determined using the market closing price of our common stock on the date of grant; however, we also consider whether any adjustments are required when the market closing price does not reflect certain material non-public information that we know but is unavailable to marketplace participants on the date of grant. We record forfeitures of stock-based awards as the actual forfeitures occur.

For awards subject to performance conditions, we record expense when the performance condition becomes probable. Each reporting period we evaluate the probability of achieving the performance criteria, estimate the number of shares that are expected to vest, and adjust the related compensation expense accordingly. For awards subject to market conditions, we estimate the fair value as of the grant date using a Monte Carlo simulation valuation model which requires the use of various assumptions, including historic stock price volatility and risk-free interest rates as of the valuation date corresponding to the length of time remaining in the performance period. Stock-based compensation expense for awards with market conditions is recognized over the requisite service period using the accelerated attribution method and is not reversed if the market condition is not met.

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 measurement date for non-employee awards is the date of grant. 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.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Restructuring costs

We define restructuring costs as expenses directly associated with restructuring activities. Such costs include severance and related tax and benefit expenses from workforce reductions, impairment of discontinued capitalized software projects, and other miscellaneous charges. We record team member-related severance costs when there is a substantive plan in place and the related costs are probable and estimable. For one-time termination benefits for team members (i.e., no substantive plan or future service requirement), the cost is recorded when the terms of the one-time termination benefits are communicated to the impacted team members and the amount can be reasonably estimated.

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 tax 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 currently accrue interest and penalties related to unrecognized tax benefits within the provision for income taxes because the impact would be immaterial due to our net operating losses and tax credit carryforwards. 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, correspondence with tax authorities during the course of an audit, and effective settlement of audit issues. 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 operating lease liabilities and convertible senior notes approximate fair value based on interest rates available for debt with similar terms at September 30, 2024 and December 31, 2023. Money market funds and short-term investments are measured at fair value on a recurring basis.

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.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

•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 liabilities are categorized as a Level 3 fair value measurement because we estimate projections during the earn out period utilizing various potential pay-out scenarios.

Foreign currency

The functional currency of our international subsidiaries is generally their local currency. We translate these subsidiaries’ financial statements into U.S. dollars using month-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses. We record translation gains and losses in accumulated other comprehensive loss in stockholders’ equity. We record foreign exchange gains and losses in interest and other expense, net. Our net foreign exchange gains and losses were not material for the periods presented.

Recent accounting pronouncements not yet adopted

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the CODM and included within each reported measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending December 31, 2024. We expect that the disclosure changes that result from the adoption of this ASU will not have a material impact on our consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is permitted. This ASU will result in the required additional disclosures being included in our consolidated financial statements, once adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending December 31, 2025.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the provision of this ASU to determine the impact it may have on our consolidated financial statements and related disclosures, and we expect additional disclosures upon adoption.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

2. Business Combinations

The business acquisitions discussed below are included in our results of operations from the date of acquisition.

2024 Acquisitions

Lumeon Ltd.

On August 1, 2024, we acquired Lumeon Ltd. (Lumeon), a digital health company dedicated to helping provider organizations mend broken care coordination processes through automated care orchestration. We accounted for the acquisition of Lumeon as a business combination. The acquisition consideration transferred was $39.8 million and was comprised of estimated net cash consideration of $36.2 million, Health Catalyst common shares with a fair value of $2.9 million, and contingent consideration based on certain earn-out performance targets for Lumeon during an earn-out period ending on June 30, 2025, with an acquisition-date fair value of $0.7 million. The purchase resulted in Health Catalyst acquiring 100% ownership in Lumeon.

The following table summarizes the preliminary acquisition-date fair value of consideration transferred and the identifiable assets purchased and liabilities assumed as part of our acquisition of Lumeon (in thousands):


Assets acquired:
Accounts receivable, net	$	967
Prepaid expenses and other assets	795
Property and equipment, net	165
Client relationships	3,700
Developed technology	11,400
Trademarks	1,300
Total assets acquired	18,327
Less liabilities assumed:

Accrued and other current liabilities	1,151
Deferred revenue	1,759

Net deferred tax liabilities	3,679
Total liabilities assumed	6,589
Total assets acquired, net	11,738
Goodwill	28,092
Total consideration transferred, net of cash acquired	$	39,830

The acquired intangible assets were valued utilizing either an income approach or a cost approach as deemed most applicable, and include client relationships, developed technology, and trademarks that will be amortized on a straight-line basis over their estimated useful lives of seven years, four years, and five years, respectively. The resulting goodwill from the Lumeon acquisition was fully allocated to the technology reporting unit and is not deductible for income tax purposes.

The preliminary allocation of the consideration transferred is subject to potential adjustments. Balances subject to adjustment are primarily tax-related matters, including the tax basis of assets acquired and liabilities assumed. During the measurement period, we may record adjustments to the provisional amounts recognized in our initial accounting for the acquisition. We expect the allocation of the consideration transferred to be final within the measurement period (up to one year from the acquisition date). There were no measurement period adjustments recorded during the three months ended September 30, 2024.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

The amount of revenue attributable to the acquired business of Lumeon was not material to our condensed consolidated statement of operations for the three and nine months ended September 30, 2024. Income (loss) information for Lumeon after the acquisition date through September 30, 2024 is not presented as the Lumeon business was integrated into our operations immediately following the acquisition and is impracticable to quantify.

In addition to the purchase price, we agreed to make cash retention payments in an aggregate amount of up to $5.0 million to continuing Lumeon team members, a portion of which is variable based upon the achievement of earn-out performance targets. The retention payments are generally subject to vesting based upon continued employment over a required service period. Such amounts are recorded as post-combination compensation expense and recognized on a straight-line basis over the relevant vesting terms. During the nine months ended September 30, 2024, we recognized compensation expense of $1.1 million related to these retention payments.

Carevive Systems, Inc.

On May 24, 2024, we acquired Carevive Systems, Inc. (Carevive), a leading oncology-focused health technology company centered on understanding and improving the experience of patients with cancer. We accounted for the acquisition of Carevive as a business combination. Oncology providers and life science researchers use Carevive’s flagship platform and/or Carevive data in routine clinical practice for treatment care planning, clinical trial screening, care coordination, remote patient monitoring, and/or post-treatment care. The acquisition consideration transferred was $22.1 million and was comprised of estimated net cash consideration of $18.6 million, Health Catalyst common shares with a fair value of $2.6 million, and contingent consideration based on certain earn-out performance targets for Carevive during an earn-out period ending on June 30, 2025, with an acquisition-date fair value of $0.9 million. The purchase resulted in Health Catalyst acquiring 100% ownership in Carevive.


Assets acquired:
Accounts receivable, net	$	96
Prepaid expenses and other assets	64

Client relationships	2,700
Developed technology	4,800
Trademarks	300
Total assets acquired	7,960
Less liabilities assumed:

Accrued and other current liabilities	1,389
Deferred revenue	76


Total liabilities assumed	1,465
Total assets acquired, net	6,495
Goodwill	15,643
Total consideration transferred, net of cash acquired	$	22,138

The acquired intangible assets were valued utilizing either an income approach or a cost approach as deemed most applicable, and include client relationships, developed technology, and trademarks that will be amortized on a straight-line basis over their estimated useful lives of seven years, four years, and three years, respectively. The resulting goodwill from the Carevive acquisition was fully allocated to the technology reporting unit and is not deductible for income tax purposes.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

The amount of revenue attributable to the acquired business of Carevive was not material to our consolidated statement of operations for the three and nine months ended September 30, 2024. Income (loss) information for Carevive after the acquisition date through September 30, 2024 is not presented as the Carevive business was integrated into our operations immediately following the acquisition and is impracticable to quantify.

In addition to the purchase price, we agreed to make cash retention payments in an aggregate amount of up to $1.8 million to continuing Carevive team members, a portion of which is variable based upon the achievement of earn-out performance targets. The retention payments are generally subject to vesting based upon continued employment over a required service period. Such amounts are recorded as post-combination compensation expense and recognized on a straight-line basis over the relevant vesting terms. During the nine months ended September 30, 2024, we recognized compensation expense of $0.8 million related to these retention payments.

Unaudited Pro Forma Financial Information

The following table reflects our unaudited pro forma combined results of operations for the three and nine months ended September 30, 2024 and 2023 as if the acquisitions of Carevive and Lumeon had taken place on January 1, 2023 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(unaudited)				(unaudited)

Pro forma net loss	$	(14,818)	$	(27,407)	$	(56,182)	$	(107,898)

The unaudited pro forma information is presented for informational purposes only and is not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2023 or to project potential results as of any future date or for any future periods. The unaudited pro forma information, including adjustments, are based upon available information and certain assumptions that we believe are reasonable. Pro forma revenue has not been presented for these 2024 acquisitions as the impact to our condensed consolidated financial statements was not material.

The nature and amount of material, nonrecurring pro forma adjustments directly attributable to these acquisitions which are included in the pro forma net loss, as applicable, are summarized as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(unaudited)				(unaudited)
Amortization of acquired intangible assets	$	(303)	$	(1,331)	$	(2,788)	$	(3,993)
Acquisition-related costs, net	1,487		—		5,731		(1,534)
Total pro forma adjustments	$	1,184	$	(1,331)	$	2,943	$	(5,527)

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

2023 Acquisition of Electronic Registry Systems, Inc.

On October 2, 2023, we acquired Electronic Registry Systems, Inc. (ERS), a cloud-based provider of clinical registry development and data management software based in Cincinnati, Ohio. We accounted for the acquisition of ERS as a business combination. ERS provides cancer registry compliance and informatics services to enable customers to achieve their cancer center clinical and business objectives with a goal of improving cancer care for every patient, including through its CRStar platform. The acquisition consideration transferred comprised of net cash consideration of $11.4 million. The purchase resulted in Health Catalyst acquiring 100% ownership in ERS.

An additional 175,901 shares of our common stock subject to a restriction agreement (restricted shares) were issued pursuant to the terms of the acquisition agreement. The vesting of these restricted shares was originally subject to eighteen months of continued employment with cliff vesting upon the eighteen-month anniversary of the acquisition close date.

The value of these restricted shares was originally scheduled to be recognized as post-combination stock-based compensation expense on a straight-line basis over the vesting term, but due to workforce reductions made as part of the 2023 Restructuring Plan (as defined below), the ERS restricted shares fully vested in February 2024, resulting in an acceleration of the related stock-based compensation expense. Refer to Note 13-Stock-Based Compensation for additional details related to our stock-based compensation.


Assets acquired:
Accounts receivable	$	478
Prepaid expenses and other assets	73

Client relationships	5,300
Developed technology	3,100
Trademarks	100
Total assets acquired	9,051
Less liabilities assumed:

Accrued and other current liabilities	78
Deferred revenue	2,251


Total liabilities assumed	2,329
Total assets acquired, net	6,722
Goodwill	4,670
Total consideration transferred, net of cash acquired	$	11,392

The acquired intangible assets were valued utilizing either an income approach or a cost approach as deemed most applicable, and include client relationships, developed technology, and trademarks that will be amortized on a straight-line basis over their estimated useful lives of seven years, four years, and two years, respectively. The resulting goodwill from the ERS acquisition was fully allocated to the technology reporting unit and is deductible for income tax purposes.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

3. Revenue

Disaggregation of Revenue

The following table represents Health Catalyst’s revenue disaggregated by type of arrangement (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(unaudited)				(unaudited)
Recurring technology	$	48,653	$	45,973	$	143,254	$	140,126
One-time technology (i.e., perpetual license)	—		—		—		357
Professional services	27,700		27,800		83,724		80,371
Total revenue	$	76,353	$	73,773	$	226,978	$	220,854

Revenue related to contracts with clients located in the United States was 96.9% and 98.5% for the three months ended September 30, 2024 and 2023, respectively, and 97.6% and 98.3% for the nine months ended September 30, 2024 and 2023, respectively.

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 September 30,		As of December 31,
	2024		2023
	(unaudited)
Technology	$	233,605	$	189,870
Professional services	782		782
Total goodwill	$	234,387	$	190,652

As of September 30, 2024, intangible assets consisted of the following (in thousands):


	Cost		Accumulated Amortization		Net
	(unaudited)
Developed technologies	$	120,129	$	(90,573)	$	29,556
Client relationships and contracts	96,464		(53,735)		42,729
Computer software licenses	11,144		(9,084)		2,060
Trademarks	4,420		(2,302)		2,118
Total intangible assets	$	232,157	$	(155,694)	$	76,463

Amortization expense of acquired intangible assets was $6.8 million and $7.1 million for the three months ended September 30, 2024 and 2023, respectively, and $21.6 million and $22.4 million for the nine months ended September 30, 2024 and 2023, respectively. Amortization expense for intangible assets is included in depreciation and amortization in our condensed consolidated statements of operations. We have not incurred any intangible asset impairment charges for the three and nine months ended September 30, 2024 and 2023.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

As of December 31, 2023, intangible assets consisted of the following (in thousands):


	Cost		Accumulated Amortization		Net
Developed technologies	$	103,929	$	(79,057)	$	24,872
Client relationships and contracts	90,064		(45,230)		44,834
Computer software licenses	10,680		(7,933)		2,747
Trademarks	2,820		(1,889)		931
Total intangible assets	$	207,493	$	(134,109)	$	73,384

5. Property and Equipment

Property and equipment consisted of the following (in thousands):


	As of September 30,		As of December 31,
	2024		2023
	(unaudited)
Computer equipment	$	10,532	$	9,638
Leasehold improvements	8,429		8,814
Furniture and fixtures	3,748		3,735
Capitalized internal-use software costs	41,526		30,771
Computer software	111		111

Total property and equipment	64,346		53,069
Less: accumulated depreciation	(36,438)		(27,357)
Property and equipment, net	$	27,908	$	25,712

Our long-lived assets are located in the United States. Depreciation expense totaled $3.1 million for each of the three months ended September 30, 2024 and 2023, respectively, and $9.5 million for each of the nine months ended September 30, 2024 and 2023, respectively. Depreciation expense includes the amortization of capitalized internal-use software costs.

During each of the nine months ended September 30, 2024 and 2023, we impaired $0.7 million of leasehold improvements related to our corporate office space designated for subleasing. Refer to Note 9 for additional details.

We capitalized $4.4 million and $3.0 million of internal-use software costs for the three months ended September 30, 2024 and 2023, respectively, and $10.8 million and $9.6 million for the nine months ended September 30, 2024 and 2023, respectively. We incurred $2.5 million and $2.1 million of capitalized internal-use software cost amortization expense for the three months ended September 30, 2024 and 2023, respectively, and $7.2 million and $6.4 million for the nine months ended September 30, 2024 and 2023, respectively.

6. Short-term Investments

We classify our short-term investments as available for sale. Available-for-sale securities are recorded on our condensed consolidated balance sheets at fair market value and any unrealized gains or losses are reported as part of other comprehensive loss on the condensed consolidated statements of comprehensive loss. We determine realized gains or losses on the sales of investments through the specific identification method and record such gains or losses as part of interest and other expense, net on the condensed consolidated statements of operations. We did not have any material realized gains or losses on investments during the three and nine months ended September 30, 2024 and 2023. We measure the fair value of investments on a recurring basis.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

The following table summarizes, by major security type, our cash equivalents and short-term investments that are measured at fair value on a recurring basis as of September 30, 2024 (in thousands):


	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash equivalents		Short-term Investments
	(unaudited)
Money market funds	$	322,989	$	—	$	—	$	322,989	$	322,989	$	—
U.S. treasury notes	19,397		9		—		19,406		—		19,406
Commercial paper	12,092		7		—		12,099		—		12,099
Corporate bonds	27,416		8		—		27,424		—		27,424

Total	$	381,894	$	24	$	—	$	381,918	$	322,989	$	58,929

The following table summarizes, by major security type, our cash equivalents and short-term investments that are measured at fair value on a recurring basis as of December 31, 2023 (in thousands):


	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash equivalents		Short-term Investments
Money market funds	$	99,779	$	—	$	—	$	99,779	$	99,779	$	—
U.S. treasury notes	65,856		68		—		65,924		—		65,924
Commercial paper	85,358		—		(18)		85,340		—		85,340
Corporate bonds	43,746		49		—		43,795		—		43,795
U.S. agency securities	16,405		—		(12)		16,393		—		16,393
Total	$	311,144	$	117	$	(30)	$	311,231	$	99,779	$	211,452

The following table presents the contractual maturities of our short-term investments as of September 30, 2024 and December 31, 2023 (in thousands):


	As of September 30, 2024				As of December 31, 2023
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(unaudited)
Due within one year	$	58,905	$	58,929	$	211,365	$	211,452

Total	$	58,905	$	58,929	$	211,365	$	211,452

Accrued interest receivables related to our available-for-sale securities of $1.4 million and $0.9 million as of September 30, 2024 and December 31, 2023, respectively, were included within prepaid expenses and other assets on our condensed consolidated balance sheets.

On a quarterly basis we evaluate unrealized losses on our available-for-sale debt securities and the related accrued interest receivables to determine whether a decline in the fair value below the amortized cost basis is due to credit-related factors or noncredit-related factors. We do not intend to sell investments that are in an unrealized loss position and it is not likely that we will be required to sell any investments before recovery of their amortized cost basis. As of September 30, 2024 and December 31, 2023, there were no material unrealized losses due to expected credit loss-related factors.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

7. Fair Value of Financial Instruments

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 were as follows (in thousands):


	September 30, 2024
	Level 1		Level 2		Level 3		Total
	(unaudited)
Money market funds	$	322,989	$	—	$	—	$	322,989
U.S. Treasury notes	19,406		—		—		19,406
Commercial paper	—		12,099		—		12,099
Corporate bonds	—		27,424		—		27,424
Contingent consideration liabilities	—		—		—		—
Total	$	342,395	$	39,523	$	—	$	381,918

Assets measured at fair value on a recurring basis as of December 31, 2023 were as follows (in thousands):


	December 31, 2023
	Level 1		Level 2		Level 3		Total
Money market funds	$	99,779	$	—	$	—	$	99,779
U.S. Treasury notes	65,924		—		—		65,924
Commercial paper	—		85,339		—		85,339
Corporate bonds	—		43,796		—		43,796
U.S. agency securities	—		16,393		—		16,393

Total	$	165,703	$	145,528	$	—	$	311,231

There were no transfers between Level 1 and Level 2 of the fair value measurement hierarchy during the three and nine months ended September 30, 2024 and 2023.

Convertible senior notes

As of September 30, 2024 and December 31, 2023, the estimated fair value of our convertible senior notes, with aggregate principal totaling $230.0 million, was $227.9 million and $218.7 million, respectively. We estimate the fair value based on quoted market prices in an inactive market on the last trading day of the reporting period (Level 2). These convertible senior notes are recorded at face value less unamortized debt discount and transaction costs on our condensed consolidated balance sheets. Refer to Note 10—Debt for further information.

Nonrecurring fair value measurements

We recorded impairment charges of $2.2 million and $2.7 million related to the impairment of ROU assets and leasehold improvements associated with office space designated for subleasing during the nine months ended September 30, 2024 and 2023. These impairment charges were derived from the difference between the carrying value and the fair value of the relevant asset groups. The fair value of these asset groups was estimated using a discounted cash flow analysis of the office space designated for subleasing and included certain unobservable (Level 3) inputs, including the anticipated future sublease terms and rates.

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Level 3 fair value measurements

The Lumeon acquisition consideration included an initial estimate for contingent consideration based on certain revenue-based earn-out performance targets for Lumeon during an earn-out period that ends on June 30, 2025. The Lumeon contingent consideration is capped at $25.0 million and will be paid in cash to the extent achieved. We value Lumeon’s expected contingent consideration and the corresponding liability using the Black-Scholes valuation method based on estimates of potential pay-out scenarios.

The Carevive acquisition consideration included an initial estimate for contingent consideration based on certain revenue-based earn-out performance targets for Carevive during an earn-out period that ends on June 30, 2025. The Carevive contingent consideration is capped at $10.0 million and will be paid in cash to the extent achieved. We value Carevive’s expected contingent consideration and the corresponding liability using the Black-Scholes valuation method based on estimates of potential pay-out scenarios.

The outstanding contingent consideration liabilities are categorized as Level 3 fair value measurements and are remeasured as of each reporting period. The aggregate intrinsic value of the revenue-based earn-out contingent consideration liabilities is zero based on a point estimate of our internal forecasting of the ultimate earn-outs that will be earned as of September 30, 2024. The recurring Level 3 fair value measurements of the contingent consideration liabilities include the other following significant inputs used during the three months ended September 30, 2024:

Valuation Method

Market Price of Revenue Risk

Revenue Volatility

Expected Term (years)

Risk-free interest rate

(unaudited)

Revenue-based earn-out liabilities

Black-Scholes

8.4%

20%

1.2

5.0%

The following table sets forth a summary of the changes in the estimated fair value of the contingent consideration liabilities, which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	(unaudited)
Balance as of January 1, 2024	$	—
Acquisition-date contingent consideration liabilities from acquisitions (see Note 2)	1,642
Change in fair value of contingent consideration liabilities	(1,642)

Balance as of September 30, 2024	$	—

HEALTH CATALYST, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

8. Accrued Liabilities

As of September 30, 2024 and December 31, 2023, accrued liabilities consisted of the following (in thousands):


	As of September 30,		As of December 31,
	2024		2023
	(unaudited)
Accrued compensation and benefit expenses	$	9,838	$	11,680
Restructuring liabilities(1)	7		2,355
Other accrued liabilities	13,703		9,247
Total accrued liabilities	$	23,548	$	23,282

__________________

(1)Restructuring liabilities include severance and other team member costs from workforce reductions. For additional details, refer to Note 19 in these condensed consolidated financial statements.

9. Leases

We lease office space under operating leases that expire between 2024 and 2031. The terms of the leases provide for rental payments on a graduated scale, options to renew the leases (one to five years), landlord incentives or allowances, and periods of free rent. We subleased portions of our corporate headquarters to various sublessees with subleases commencing at various dates between 2021 and 2024.

Components of lease expense (income) are summarized as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(unaudited)				(unaudited)
Operating lease expense	$	692	$	760	$	1,986	$	2,334
Short-term lease expense	50		9		114		51
Sublease income	(414)		(

Health Catalyst, Inc. [HCAT] Filings
10-Q	[2024-11-07]
10-Q	[2024-08-08]
10-Q	[2024-05-10]
10-K	[2024-02-22]
10-Q	[2023-11-06]
10-Q	[2023-08-09]
10-Q	[2023-05-10]
10-K	[2023-02-28]
10-Q	[2022-11-09]
10-Q	[2022-08-05]
10-Q	[2022-05-10]
10-K	[2022-03-01]
10-Q	[2021-11-09]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-02-25]
10-Q	[2020-11-10]
10-Q	[2020-08-12]
10-Q	[2020-05-13]
10-K	[2020-02-28]
10-Q	[2019-11-13]
10-Q	[2019-08-23]
S-1	[2019-06-27]