Prospectus Summary
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes and the information set forth under the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case, included elsewhere in this prospectus. Unless the context otherwise requires, we use the terms “Health Catalyst,” “company,” “our,” “us,” and “we” in this prospectus to refer to Health Catalyst, Inc. and, where appropriate, our consolidated subsidiaries.
Overview
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. We envision a future where all healthcare decisions are data informed.
The Health Catalyst Way
Our Mission
Our mission is to be the catalyst for massive, measurable, data-informed healthcare improvement. We fulfill our mission through a confluence of the following elements:
The Health Catalyst Flywheel
We accomplish our mission with each of our customers by following a process we call the Health Catalyst Flywheel or the Flywheel. This process includes delivering on the three components of our Solution: data platform, analytics applications, and services expertise, which together drive measurable improvements. At the center of the Flywheel is the engagement of our team members. Team member engagement is foundational to everything we do and is the #1 priority of our CEO and broader leadership team. When team members feel connected to our mission and are listened to, cared for, and respected at an extraordinary level, they produce outstanding work, which enables our customers to measurably improve. As customers realize improvements, their trust in Health Catalyst builds, their engagement in our shared work increases, and they choose to renew and expand their relationship with us, while also referring Health Catalyst to key decision-makers at other potential customers. Customer renewal, expansion, and referral produce growing, scalable, and predictable financial performance.
The virtuous cycle described above creates momentum for our business and is encapsulated in the following diagram:
Given the central importance of team member engagement to our company’s long-term success, we have been purposeful in defining and emphasizing operating principles and cultural attributes that reinforce the commitment to our mission and to team member engagement. We consistently focus on our operating principles and cultural attributes, as well as our mission and Flywheel (collectively, the Health Catalyst Way), which we review in all new hire orientations, company-wide meetings, and board of directors’ meetings. Furthermore, we regularly measure our team member engagement and adjust our practices based on team member feedback. We have demonstrated an elite, consistent level of team member engagement over time as demonstrated by a 95th to 99th percentile ranking by Gallup.
We will continue to emphasize the Health Catalyst Way, including our operating principles and cultural attributes, which we believe will be central to our long-term success.
Our Operating Principles
The principles that govern our daily interactions include:
Improvement
Ownership
Respect
Transparency
Our Cultural Attributes
The attributes we prioritize in hiring, retention, and promotion include:
Continuous Learner
Hard Working
Humble
World-Class
Business Overview
Healthcare organizations operate in an environment that is characterized by waste, changing economics, and data complexity. Organizations that leverage analytics to make data-informed decisions will be better positioned to succeed in this environment. 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.
The core elements of our Solution include:
Our approach to integrate data, analytics, and expertise into a holistic Solution is differentiated and has been recognized as among the best in the industry by multiple third parties, including KLAS, Chilmark Research, and Black Book. Our customers achieve sustainable measurable improvements through our Solution. Example improvements include:
Since 2015, we have generated more than 650 documented, customer-verified improvements across clinical, financial, and operational domains. In addition to the positive ROI of customers utilizing our Solution versus a homegrown solution, each of these documented improvements is highly valuable to our customers, enabling them to realize substantial clinical improvements, financial savings, or operational efficiencies. As we deliver measurable improvements, trust builds, and our customers engage with us more broadly and refer new business to us. This is evidenced by the continued increase in documented improvements achieved by our customers over time. Customers who have recently contracted with us have already started achieving measurable improvements, while longer-standing customers have seen the number of annual improvements meaningfully grow. For the 12 months ended March 31, 2019, customers who contracted with us in 2017 and 2018 experienced approximately one improvement on average, customers who contracted with us in 2015 and 2016 experienced approximately six improvements on average, and customers who contracted with us prior to 2015 experienced more than 15 improvements on average.
We serve the majority of our customers through a subscription-based contract model. As of December 31, 2018, we served 126 customers, including 50 customers with a DOS subscription contract (DOS Subscription Customers). The majority of our customers not on a DOS subscription contract are interoperability subscription customers resulting from our recent acquisition of Medicity LLC (Medicity). We have achieved rapid DOS Subscription customer growth in part due to strong customer retention and customer referrals. We have achieved Dollar-based Retention Rates of 108% and 107% for the years ended December 31, 2017 and 2018, respectively. As of May 2019, our last 12 months average KLAS Evangelism score, similar to a net promoter score, for our Solution was 62, which is twice the industry average of 30. Our customers include academic medical centers, integrated delivery networks, community hospitals, large physician practices, ACOs, health information exchanges, health insurers, and other risk-bearing entities. Example customers include Acuitas Health, Allina Health, AlohaCare, Children's Hospital of Orange County, Community Health Network, Partners HealthCare, UnityPoint Health, and UPMC.
We currently employ more than 700 team members including over 200 analytics experts and over 65 domain experts. For the years ended December 31, 2017 and 2018, and for the three months ended March 31, 2018 and 2019, our total revenue was $73.1 million, $112.6 million, $20.6 million, and $35.2 million, respectively. For the years ended December 31, 2017 and 2018, and for the three months ended March 31, 2018 and 2019, we incurred net losses of $47.0 million, $62.0 million, $12.2 million, and $13.7 million, respectively. For the years ended December 31, 2017 and 2018, and for the three months ended March 31, 2018 and 2019, our Adjusted EBITDA was $(35.4) million, $(38.1) million, $(9.3) million, and $(6.7) million, respectively. See “Selected Consolidated Financial and Other Data - Reconciliation of Non-GAAP Financial Measures” for more information about Adjusted EBITDA, including the limitations of such measure and a reconciliation to the most directly comparable measure calculated in accordance with GAAP.
Industry Overview
A number of important industry challenges and market dynamics are transforming the way data and analytics are used by healthcare organizations. We believe the current confluence of healthcare waste, changing economics, and data complexity create a unique opportunity for meaningful clinical, financial, and operational improvements in healthcare.
Unprecedented waste amidst unsustainably high and rising healthcare costs
Research estimates 30% of U.S. healthcare spending is wasteful in nature, implying more than $1 trillion of waste amongst $3.6 trillion of total healthcare expenditure in 2018. For the healthcare system to operate more sustainably and thrive in the long term, constituents must be data informed to reduce excess utilization, unnecessary variation, and inefficiency.
Changing economics due to financial pressure and the move to value-based care
Over the past several years, public- and private-sector payors have reduced fee-for-service reimbursement rates, increasing pressure on healthcare providers’ profitability. At the same time, providers are experiencing a shift from volume to value-based payment models, impacting reimbursement. Increasing margin pressure coupled with the move to value-based care models present economic complexity and uncertainty for healthcare providers that can be better managed through the use of data and analytics.
Proliferation and increasing complexity of healthcare data
The U.S. healthcare system has invested billions of dollars to collect vast amounts of detailed information in digital format. Examples of major areas of this investment include electronic transactional systems that digitize clinical information (e.g., Electronic Health Record (EHR) systems, pharmacy, laboratory, imaging, patient satisfaction, and healthcare information exchanges), financial information (e.g., general ledger, costing, and billing), and operational information (e.g., supply chain, human resources, time and attendance, IT support, and patient engagement). These investments have led to a proliferation of healthcare data, which is expected to exceed 10 zettabytes by 2025, and will include socioeconomic, genomic, and remote patient monitoring information.
Collecting, storing, and using healthcare data is complicated by the breadth and depth of disparate sources, the multitude of formats, and increasing regulatory requirements. Legacy clinical software and industry-agnostic horizontal data vendors have attempted to enter the healthcare data space but have been unsuccessful due to the healthcare-specific content, logic, and advanced analytics capabilities required. In addition, many healthcare organizations have attempted to develop their own analytics solutions but have found them to be too costly to develop and maintain. They have also looked to traditional EHR vendors; however, these vendors lack the capabilities needed to compile and derive analytics insights from the vast number of available data sources in a flexible manner that drives time-to-value.
After decades of investing in EHR technology, the state of interoperability is insufficient and inhibits care coordination, health data exchange, clinical efficiency, and the quality of care provided to patients. Given that the EHR is the principal electronic interface used today at the point of care, the path to improved data-driven decision support will require integration between EHR systems and other data and analytics providers. Incidentally, the U.S. healthcare system is in the midst of an “open data wave,” with increasing focus and demand for patient data interoperability. Additionally, recent laws and regulations, such as the 21st Century Cures Act, promote and prioritize interoperability and the free exchange of health information.
Problems Our Customers Face
As the U.S. healthcare system continues to evolve due to the aforementioned waste, changing economics, and data complexity, healthcare organizations must undergo fundamental transformations to stay relevant, compliant, and competitive. To meaningfully change and improve, we believe healthcare organizations must solve key problems related to data, analytics, and expertise, which most have not solved today.
Only after healthcare organizations have resolved their data, analytics, and expertise challenges, can they focus on addressing key clinical, financial, and operational problems that are critical to realizing improvements. We believe our Solution enables our customers to solve these problems.
Our Solution
Our Solution empowers our customers to run a data-informed business, driving measurable clinical, financial, and operational improvements. The diagram below illustrates the three layers of our comprehensive Solution:
Our Opportunity
We believe the market opportunity for our Solution is large and rapidly growing with strong tailwinds. We estimate the addressable market for our data platform to be approximately $2 billion, our analytics applications portfolio to be approximately $3 billion, and our professional services offerings to be approximately $3 billion, which total an approximately $8 billion addressable market. We calculate our market opportunity from the number of health systems and risk-bearing entities that can benefit from our Solution using market pricing. We estimate our core market to include more than 1,200 U.S. health systems and risk-bearing entities. We intend to grow our addressable market through new product offerings, international expansion, market adjacencies such as life sciences, and growth of relationships with risk-bearing entities.
Our Strengths
Our operational and financial success is based on the following key strengths:
Our Growth Strategies
Our growth strategies reflect our mission to be the catalyst for massive, measurable, data-informed healthcare improvement. We believe our focus on multiple channels, as well as our collaborative company culture, will contribute to high levels of sustainable growth. Our strategic levers to drive growth include:
Risks Associated with Our Business and Government Regulation
Our business is subject to numerous risks, as more fully described in the “Risk Factors” immediately following this prospectus summary. You should read these risks before you invest in our common stock. In particular, risks we face include, but are not limited to, the following:
Corporate Information
We were incorporated under the laws of the State of Delaware in September 2011 under the name HQC Holdings, Inc. We changed our name to Health Catalyst, Inc. in March 2017.
Our principal executive offices are located at 3165 Millrock Drive #400, Salt Lake City, Utah 84121. Our telephone number is (801) 708-6800. Our website address is www.healthcatalyst.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.
“Health Catalyst” and other trademarks or service marks of Health Catalyst, Inc. appearing in this prospectus are the property of Health Catalyst, Inc. This prospectus contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols.
Implications of Being an Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). We will remain an emerging growth company until the earlier of (1) December 31, 2024 (the last day of the fiscal year following the fifth anniversary of our initial public offering), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” as defined in the rules under the Securities Exchange Act of 1934, as amended (the Exchange Act), and (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. Any reference herein to “emerging growth company” has the meaning ascribed to it in the JOBS Act.
An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
We have elected to take advantage of certain of the reduced disclosure obligations in this prospectus and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
The JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
The Offering
The number of shares of our common stock that will be outstanding after this offering is based on 56,156,484 shares of common stock (including our redeemable convertible preferred stock on an as-converted basis and 105,557 shares of common stock issued to former employees for non-recourse notes) outstanding as of March 31, 2019, and excludes:
Unless otherwise indicated, this prospectus reflects and assumes the following:
Summary Consolidated Financial and Other Data
We derived the summary consolidated statements of operations data for the years ended December 31, 2017 and 2018 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the selected consolidated statements of operations data for the three months ended March 31, 2018 and 2019 and our selected consolidated balance sheet data as of March 31, 2019 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of our unaudited interim consolidated financial statements.
Our historical results are not necessarily indicative of the results to be expected in the future. The following summary consolidated financial and other data should be read in conjunction with “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
___________________
___________________
___________________
Other Key Metrics
___________________
___________________