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What changed in Health Catalyst, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Health Catalyst, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+429 added−411 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-28)

Top changes in Health Catalyst, Inc.'s 2023 10-K

429 paragraphs added · 411 removed · 343 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

63 edited+3 added−12 removed135 unchanged
Biggest changeWe prioritize innovations that accelerate improvement • We attract, develop, and retain experts who know best practices in their domain, leverage analytics for insight, and accelerate adoption for sustained improvement Ownership • We are accountable, as owners, to enable our clients’ measurable improvements • We make decisions that balance and optimize the interests of our teammates, clients, patients, and owners • We avoid an entitlement mentality and are good stewards of our assets • We don’t micro-manage and we encourage autonomy while also supporting scalable consistency Respect • We recognize the immeasurable value of every individual • We listen carefully to one another and learn from each of our colleagues • We care deeply about our colleagues, including teammates, clients, patients, and owners • We benefit from one another’s diverse backgrounds and experiences Transparency • We courageously tell the truth and we face the truth • We are the same company, culture, and people in all settings • We treat confidential information appropriately, and we protect the private data of our clients’ patients • We recommend the best solutions for our clients, whether or not those solutions come from Health Catalyst Our Cultural Attributes The attributes we prioritize in hiring, retention, and promotion include: Continuous learner • I can learn from anyone • I love to learn, and I am a lifelong student 7 Table of Contents • I recognize my mistakes and correct them quickly; I fail fast • I am open to and respond favorably to feedback and coaching • I value my autonomy and use it to gain new knowledge and skills • I recognize that diversity of perspectives leads to better decisions • I am self-aware and seek improvement, personally and professionally • I watch, listen, and learn from others; thank them for their teachings; and apply the teachings to the mastery of my profession Hard working • I have a deep commitment to massive healthcare improvement • I stick to the task until the job is completed, then take on new work • I lead a balanced, healthy life that enables me to sustain my pace • I am willing to contribute more than my fair share to a project • I make personal sacrifices, as needed, to get the work done • I recognize that not every part of my job will be fun Humble • I listen first • I assume positive intent • I ask for help when I need it • I serve others without looking for recognition • I am secure in my own abilities (quiet self-confidence) • I seek to improve myself before trying to improve others • I am excited when others succeed and I offer sincere praise • I often acknowledge others for their contributions to my success • I frequently express gratitude and appreciation to those around me World-class • I strive to be the best in the world at what I do by continuously learning • I recognize the importance of excellence in pursuit of our mission • I am well informed about events and trends in healthcare, data, and analytics • I actively contribute to the company’s pursuit of excellence - in the data and analytics technology we build, in the domain expertise we provide, and in the functions that support this important work 8 Table of Contents Business Overview Healthcare organizations operate in an environment that is characterized by waste, changing economics, and data complexity.
Biggest changeWe 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. 6 Table of Contents Our Operating Principles The principles that govern our daily interactions include: Improvement • We are deeply committed to enabling our clients to achieve and sustain measurable clinical, financial, and operational improvements • We nurture deep, long-term client partnerships because achieving and sustaining improvement is a transformational journey (not a quick trip) • We pragmatically prioritize innovations that accelerate improvement • We attract, develop, and retain experts who know best practices in their domain, leverage analytics for insight, and accelerate adoption for sustained improvement Accountability • We are all accountable to ourselves and to one another to proactively show up every day in support of our company’s mission • We make decisions that balance and optimize the interests of our teammates, clients, patients, and owners • We avoid an entitlement mentality and are good stewards of our assets • We don’t micro-manage and we show trust while also having high expectations of ourselves and of one another Respect • We recognize the immeasurable value of every individual • We listen carefully to one another and learn from each of our colleagues • We care deeply about our colleagues, including teammates, clients, patients, and owners • We benefit from one another’s diverse backgrounds and experiences, and are unified by our company’s mission Transparency • We are honest and compassionate in our interactions with others and with ourselves, even if the truth is hard • We strive to live up to the Health Catalyst Way in all settings • We treat confidential information appropriately, and we protect the private data of our clients’ patients • We recommend the best solutions for our clients, whether or not those solutions come from Health Catalyst Our Cultural Attributes The attributes we prioritize in hiring, retention, and promotion include: Continuous learning • I can share with and learn from others • I love to learn, and I am a lifelong student • I recognize my mistakes and correct them quickly 7 Table of Contents • I seek and respond favorably to feedback and coaching • I value my autonomy and use it to gain new knowledge and skills • I recognize that diversity of perspectives leads to better decisions • I am self-aware and seek improvement, personally and professionally • I watch, listen, and learn from others; thank them for their teachings; and apply the teachings to the mastery of my profession; and I do the same for others Commitment • I have a deep, long-term commitment to healthcare improvement • I stick to the task until the job is completed • I lead a balanced, healthy life that enables me to sustain my pace • I am willing to contribute more than my fair share to a project • I make personal sacrifices, as needed, to get the work done • I recognize that not every part of my job will be fun Humility • I listen first • I serve others without looking for recognition • My first assumption with others is positive intent • I am secure in my own abilities (quiet self-confidence) • I seek to improve myself before trying to improve others • I am excited when others succeed, and I offer sincere praise • I often acknowledge others for their contributions • I frequently express gratitude and appreciation to those around me • I empower others to do their best and give proper credit to others Excellence • I strive for excellence and quality in all aspects of my work; I show up to fulfill my role in the company's mission to the bets of my ability • I recognize the importance of excellence in pursuit of our mission • I strive to be well informed about events and trends in healthcare, data and analytics, and improvement • I actively contribute to the company’s pursuit of excellence - in the technology we build, in the services we provide, and in the functions that support this important work • I recognize and ask for help when I need it 8 Table of Contents Our Governing Principle: The Golden Rule Treat others as we would wish to be treated—with kindness, humility, and respect.
Item 1. Business Overview We are a leading provider of data and analytics technology and services to healthcare organizations. Our Solution comprises a cloud-based data platform, software analytics applications, and professional services expertise.
Item 1. Business Overview We are a leading provider of data and analytics technology and services to healthcare organizations. Our Solution comprises our cloud-based data and analytics platform, software applications, and professional services expertise.
The Data Operating System (DOS) is a healthcare-specific, cloud-based, open, flexible, scalable and self-service platform for analytics, app development & interoperability that provides clients a single comprehensive environment to integrate and organize data from their disparate software systems.
The Data Operating System (DOS) is a healthcare-specific, cloud-based, open, flexible, scalable and self-service platform for analytics, app development and interoperability that provides clients a single comprehensive environment to integrate and organize data from their disparate software systems.
Uses artificial intelligence to proactively identify where a client is performing relative to benchmark sets composed of proprietary and publicly-available data; subsequently recommends and prioritizes opportunities for improvement. • AI (Healthcare.AI). Transformational suite of healthcare-specific, self-service AI products distinguished by capabilities in analytics integration, predictive modeling, retrospective comparisons, and prescriptive optimization. • Analytics (Pop Analyzer).
Uses artificial intelligence to proactively identify where a client is performing relative to benchmark sets composed of proprietary and publicly-available data, and subsequently recommends and prioritizes opportunities for improvement. • AI (Healthcare.AI). Transformational suite of healthcare-specific, self-service AI products distinguished by capabilities in analytics integration, predictive modeling, retrospective comparisons, and prescriptive optimization. • Analytics (Pop Analyzer).
Enables CFOs, physicians, service line leaders, and clinical and financial analysts to understand the true cost of providing care and relate those costs to patient outcomes. 14 Table of Contents • Revenue improvement & chargemaster analytics (VitalCDM).
Enables CFOs, physicians, service line leaders, and clinical and financial analysts to understand the true cost of providing care and relate those costs to patient outcomes. 14 Table of Contents • Revenue improvement and chargemaster analytics (VitalCDM).
A labor management solution that allows healthcare decision makers to predict labor needs, plan for changes in staffing, and optimize staff-to-patient ratios. • Revenue integrity & auditing (VitalIntegrity).
A labor management solution that allows healthcare decision makers to predict labor needs, plan for changes in staffing, and optimize staff-to-patient ratios. • Revenue integrity and auditing (VitalIntegrity).
The principal competitive factors in our industry include: • level of client satisfaction; • ease of deployment and use of solutions and applications; • breadth and depth of solution and application functionality; • access to, and ability to glean insights from, large data sets; • brand awareness and reputation; 17 Table of Contents • modern and adaptive technology platform; • capability for customization, configurability, integration, security, scalability, and reliability of applications; • total cost of ownership; • ability to innovate and respond to client needs rapidly; • size of client base and level of user adoption; • regulatory compliance verification and functionality; • domain expertise with respect to healthcare; and • ability to integrate with legacy enterprise infrastructures and third-party applications.
The principal competitive factors in our industry include: • level of client satisfaction; • ease of deployment and use of solutions and applications; • breadth and depth of solution and application functionality; • access to, and ability to glean insights from, large data sets; • brand awareness and reputation; • modern and adaptive technology platform; 17 Table of Contents • capability for customization, configurability, integration, security, scalability, and reliability of applications; • total cost of ownership; • ability to innovate and respond to client needs rapidly; • size of client base and level of user adoption; • regulatory compliance verification and functionality; • domain expertise with respect to healthcare; and • ability to integrate with legacy enterprise infrastructures and third-party applications.
In addition, FDCA excludes certain types of software from the definition of a medical device, including certain medical-related software, including software used for administrative support functions at a healthcare facility, software intended for maintaining or encouraging a healthy lifestyle, software designed to store electronic health records, software for transferring, storing, or displaying medical device data or in vitro diagnostic data, and certain clinical decision support software.
In addition, FDCA excludes certain types of software from the definition of a medical device, including certain medical-related software functions used for administrative support at a healthcare facility, software intended for maintaining or encouraging a healthy lifestyle, software designed to store electronic health records, software for transferring, storing, or displaying medical device data or in vitro diagnostic data, and certain clinical decision support software.
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 clients to measurably improve.
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 clients to measurably improve.
Additionally, the introduction of new services may require us to comply with additional, yet undetermined, laws and regulations. U.S. Food and Drug Administration (FDA) The FDA regulates medical or health-related software, including machine learning functionality and predictive algorithms, if such software falls within the definition of a “medical device” under the Federal Food, Drug, and Cosmetic Act (FDCA).
Additionally, the introduction of new services may require us to comply with additional, yet undetermined, laws and regulations. U.S. Food and Drug Administration (FDA) The FDA regulates certain medical or health-related software, including machine learning functionality and predictive algorithms, if such software falls within the definition of a “medical device” under the Federal Food, Drug, and Cosmetic Act (FDCA).
We believe that competing point solutions vendors will have difficulty in growing their offerings into sustainable businesses, which we believe translates into a robust mergers and acquisitions pipeline for us. We have a track record of identifying and integrating new and complementary capabilities, including our acquisitions of Medicity, Able Health, Healthfinch, Vitalware, Twistle, ARMUS, and KPI Ninja.
We believe that competing point solutions vendors will have difficulty in growing their offerings into sustainable businesses, which we believe translates into a robust mergers and acquisitions pipeline for us. We have a track record of identifying and integrating new and complementary capabilities, including our acquisitions of Medicity, Able Health, Healthfinch, Vitalware, Twistle, KPI Ninja, ARMUS, and ERS.
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.
This process includes delivering on the three components of our Solution: data and analytics platform, applications, and 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.
We will continue to invest in helping clients identify additional uses for our Solution, ensuring they achieve measurable improvements throughout our relationship with them, including through our Tech-enabled Managed Services offering.
We will continue to invest in helping clients identify additional uses for our Solution, ensuring they achieve measurable improvements throughout our relationship with them, including through our Tech-Enabled Managed Services (TEMS) offering.
Our services are comprised of data & analytics services, domain expertise & education services, Tech-enabled Managed Services, and implementation services. Our services team members leverage our technology to help our clients shorten time-to-value and achieve sustainable measurable improvements.
Our services are comprised of data and analytics services, domain expertise and education services, Tech-enabled Managed Services (TEMS), and implementation services. Our services team members leverage our technology to help our clients shorten time-to-value and achieve sustainable measurable improvements.
A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. • The federal civil and criminal false claims laws, such as the federal False Claims Act, and civil monetary penalties laws impose criminal and civil penalties and authorize civil whistleblower or qui tam actions, against individuals or entities for, among other things: knowingly presenting, or causing to be presented, to a federal government healthcare program, claims for payment that are false or fraudulent; making, using or causing to be made or used, a false statement or record material to payment of a false or fraudulent claim or obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government.
A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. 18 Table of Contents • The federal civil and criminal false claims laws, such as the federal False Claims Act, and civil monetary penalties laws impose criminal and civil penalties and authorize civil whistleblower or qui tam actions, against individuals or entities for, among other things: knowingly presenting, or causing to be presented, to a federal government healthcare program, claims for payment that are false or fraudulent; making, using or causing to be made or used, a false statement or record material to payment of a false or fraudulent claim or obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government.
These diversity and inclusion efforts – spearheaded by our Chief Diversity & Inclusion Officer and our six affinity groups in partnership with hundreds of our team members – focus on diversity and inclusion in our workforce, in our workplace and in healthcare.
These diversity and inclusion efforts spearheaded by our Chief People Officer and our six affinity groups in partnership with hundreds of our team members focus on diversity and inclusion in our workforce, in our workplace and in healthcare.
Our approach to integrate data, analytics, and expertise into a holistic Solution is differentiated and parts of our Solution have historically been recognized as among the best in the industry by multiple third parties, including KLAS, Chilmark Research, and others. We have generated over 1,500 documented, client-verified improvements across clinical, financial, and operational domains.
Our approach to integrate data, analytics, and expertise into a holistic Solution is differentiated and parts of our Solution have historically been recognized as among the best in the industry by multiple third parties, including KLAS, Chilmark Research, and others. We have generated over 1,600 documented, client-verified improvements across clinical, financial, and operational domains.
For example, our Chargemaster Management product, a revenue analytics product addition through the Vitalware acquisition, was ranked Best in KLAS for 2019, 2020, 2021, and 2022.
For example, our Chargemaster Management product, a revenue analytics product addition through the Vitalware acquisition, was ranked Best in KLAS for 2019, 2020, 2021, 2022, and 2023.
Accordingly, we believe our currently marketed products are not currently regulated by the FDA as medical devices, or are otherwise subject to FDA’s current enforcement discretion policies.
We believe our currently marketed products are not currently regulated by the FDA as medical devices, or are otherwise subject to FDA’s current enforcement discretion policies.
The scalable, cloud-based infrastructure enables quicker product iteration and deployment. Integrated and comprehensive nature of our Solution creates measurable improvements. Through the delivery of our comprehensive and integrated Solution of data, analytics, and services expertise, we enable measurable improvements for our clients. Our Solution has generated over 1,500 documented, client-verified improvements across clinical, financial, and operational domains. Attractive operating model.
The scalable, cloud-based infrastructure enables quicker product iteration and deployment. Integrated and comprehensive nature of our Solution creates measurable improvements. Through the delivery of our comprehensive and integrated Solution of data, analytics, and services expertise, we enable measurable improvements for our clients. Our Solution has generated over 1,600 documented, client-verified improvements across clinical, financial, and operational domains. Attractive operating model.
From our perspective, discussions regarding data and analytics strategy have oftentimes transitioned from a discussion with members of the IT department to an enterprise-wide, strategic discussion with the C-suite and other leadership members. No client represented more than 10% of our total revenue for the years ended December 31, 2022, 2021, and 2020.
From our perspective, discussions regarding data and analytics strategy have oftentimes transitioned from a discussion with members of the IT department to an enterprise-wide, strategic discussion with the C-suite and other leadership members. No client represented more than 10% of our total revenue for the years ended December 31, 2023, 2022, and 2021.
Our clients, which are primarily healthcare providers, use our Solution to manage their data, derive analytical insights to operate their organizations, 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.
Our clients, which are primarily healthcare providers, use our Solution to manage their data, derive analytical insights to operate their organization, and produce measurable clinical, financial, and operational improvements. We envision a future where all healthcare decisions are data-informed. The Health Catalyst Way Our Mission Our mission is to be the catalyst for massive, measurable, data-informed healthcare improvement.
Team Members and Culture We currently employ more than 1,200 team members. We believe that we have good relationships with our team members. None of our team members are subject to collective bargaining agreements or are represented by a union. Our corporate culture is a critical component of our success.
Team Members and Culture We currently employ more than 1,300 team members. We believe that we have good relationships with our team members. None of our team members are subject to collective bargaining agreements or are represented by a union. Our corporate culture is a critical component of our success.
In total, we have been recognized 76 times as a “best place to work” by Glassdoor, Gallup, and Modern Healthcare, among others. Additionally, we have received multiple awards for client satisfaction and excellence from KLAS, Chilmark Research, and others.
In total, we have been recognized 87 times as a “best place to work” by Glassdoor, Gallup, and Modern Healthcare, among others. Additionally, we have received multiple awards for client satisfaction and excellence from KLAS, Chilmark Research, and others.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced, and provides adequate directions for use and that all claims are substantiated, and also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; FDA guidance on off-label dissemination of information and responding to unsolicited requests for information; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal, and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • complying with requirements governing Unique Device Identifiers on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and 21 Table of Contents • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced, and provides adequate directions for use and that all claims are substantiated, and also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal, and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • complying with requirements governing Unique Device Identifiers on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
Example clients include Acuitas Health, Allina Health, AlohaCare, Carle Health, Children's Hospital of Orange County, Community Health Network, Lifepoint Health, Mass General Brigham, Steward Health Care, Temple University Health System, UnityPoint Health, and UPMC. 9 Table of Contents Our Strengths Our operational and financial success is based on the following key strengths: Healthcare-specific, flexible, open, and scalable data platform.
Example clients include Allina Health, AlohaCare, Carle Health, Children’s Hospital of Orange County, Community Health Network, INTEGRIS Health, Lifepoint Health, Mass General Brigham, Queen's Health System, Steward Health Care, Temple University Health System, UnityPoint Health, and UPMC. 9 Table of Contents Our Strengths Our operational and financial success is based on the following key strengths: Healthcare-specific, flexible, open, and scalable data platform.
We have prebuilt connectors to the most common transactional software systems used by healthcare organizations. The DOS data management console enables clients to manage robust ETL processes and scheduling. 12 Table of Contents • Cloud-based. Modern cloud-based architecture is secure and scalable. Being cloud-based enables quicker product iteration and innovation. • Reusable data logic.
We have prebuilt connectors to the most common transactional software systems used by healthcare organizations. The DOS data management console enables clients to manage robust Extract Transform Load (ETL) processes and scheduling. 12 Table of Contents • Cloud-based. Modern cloud-based architecture is secure and scalable. Being cloud-based enables quicker product iteration and innovation. • Reusable data logic.
Our team member engagement scores, as measured by Gallup, have consistently ranked in the 95th to 99th percentile and our KLAS Customer Satisfaction Score for Relationship is above the Data and Analytics Platform average.
Our team member engagement scores, as measured by Gallup, have consistently ranked in the 94th to 99th percentile and our KLAS Customer Satisfaction Score for Relationship is above the Data and Analytics Platform average.
Violations of the FCPA can also result in violations of other U.S. laws, including anti-money laundering, mail and wire fraud, and conspiracy laws. There are severe penalties for violating the FCPA. In addition, the Company may also be subject to other non-U.S. anti-corruption or anti-bribery laws, such as the U.K. Bribery Act 2010. Export controls .
Violations of the FCPA can also result in violations of other U.S. laws, including anti-money laundering, mail and wire fraud, and conspiracy laws. There are severe penalties for violating the FCPA. In addition, the Company may also be subject to other non-U.S. anti-corruption or anti-bribery laws, such as the U.K. Bribery Act 2010. 21 Table of Contents Export controls .
The contents of any website referred to in this Annual Report on Form 10-K are not intended to be incorporated into this Annual Report on Form 10-K or in any other report or document we file. 24 Table of Contents
The contents of any website referred to in this Annual Report on Form 10-K are not intended to be incorporated into this Annual Report on Form 10-K or in any other report or document we file. 23 Table of Contents
We have achieved DOS Subscription Client growth in part due to strong client retention and client referrals. This is evidenced by our positive Dollar-based Retention Rates for DOS Subscription Clients of 100%, 112%, and 102% for the years ended December 31, 2022, 2021, and 2020, respectively.
We have achieved DOS Subscription Client growth in part due to strong client retention and client referrals. This is evidenced by our positive Dollar-based Retention Rates for DOS Subscription Clients of 100%, 100%, and 112% for the years ended December 31, 2023, 2022, and 2021, respectively.
If the FDA determines that we failed to comply with applicable regulatory requirements, including a determination that our software products require prior FDA clearance or approval to be legally marketed in the United States, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: warning letters, untitled letters, fines, injunctions, consent decrees, and civil penalties; recalls, withdrawals, or administrative detention or seizure of our products; operating restrictions or partial suspension or total shutdown of production; refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products; withdrawing 510(k) clearances or PMA approvals that have already been granted; refusal to grant export or import approvals for our products; or criminal prosecution.
If the FDA determines that a company has failed to comply with applicable regulatory requirements, including a determination that medical software products require prior FDA clearance or approval to be legally marketed in the United States, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: warning letters, untitled letters, fines, injunctions, consent decrees, and civil penalties; recalls, withdrawals, or administrative detentions or seizure of products; operating restrictions or partial suspension or total shutdown of production; refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products; withdrawing 510(k) clearances or PMA approvals that have already been granted; refusal to grant export or import approvals; or criminal prosecution.
We have implemented and continue to develop many programs designed to achieve these priorities, some of which are further described below. As of December 31, 2022, we had more than 1,200 team members, almost all of whom are located in the United States. We have not experienced any work stoppages, and we consider our team member relations to be good.
We have implemented and continue to develop many programs designed to achieve these priorities, some of which are further described below. As of December 31, 2023, we had more than 1,300 team members, almost all of whom are located in the United States. We have not experienced any work stoppages, and we consider our team member relations to be good.
Corporate practice of medicine regulations and other similar laws may also prevent fee-splitting, or the sharing of professional service income with non-professional or business interests. Overseeing a care coordination or care management team could be alleged in some cases to involve treatment or diagnosis of patients which requires a clinic license or other state license or permission.
Corporate practice of medicine regulations and other similar laws may also prevent fee-splitting, or the sharing of professional service income with non-professional or business interests. Overseeing care coordination, care management, or ambulatory operations teams could be alleged in some cases to involve treatment or diagnosis of patients which requires a clinic license or other state license or permission.
We have demonstrated an elite, consistent level of team member engagement over time as demonstrated by a 95th to 99th percentile ranking, as measured by Gallup.
We have demonstrated an elite, consistent level of team member engagement over time as demonstrated by a 94th to 99th percentile ranking, as measured by Gallup.
Some pre-amendment devices are unclassified, but are subject to the FDA’s premarket notification and clearance process in order to be commercially distributed. Post-market regulation - After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply.
Some pre-amendment devices are unclassified, but are subject to the FDA’s premarket notification and clearance process in order to be commercially distributed. 20 Table of Contents Post-market regulation - After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply.
We are committed to fair compensation and opportunity in our workplace. Pay equity We are committed to ensuring our team members receive equal pay for equal work. We establish components and ranges of compensation based on market and benchmark data.
We are committed to fair compensation and opportunity in our workplace. 22 Table of Contents Pay equity We are committed to ensuring our team members receive equal pay for equal work. We establish components and ranges of compensation based on market and benchmark data.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report on Form 10-K for more information regarding the definitions of Dollar-based Retention Rate and DOS Subscription Clients. • Add new analytics applications and services offerings.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for more information regarding the definitions of Dollar-based Retention Rate and DOS Subscription Clients. • Add new analytics applications and services offerings.
Our team is comprised of over 495 analytics experts and over 70 domain experts, including several nationally-recognized healthcare and analytics leaders. Our domain experts provide services across a range of specialties, including: Infrastructure, data, and analytics services expertise: • Data engineering services.
Our team is comprised of over 1,000 analytics experts and domain experts, including several nationally-recognized healthcare and analytics leaders. Our domain experts provide services across a range of specialties, including: Infrastructure, data, and analytics services expertise: • Data engineering services.
Client renewal, expansion, and referral produce growing, scalable, and predictable financial performance. 22 Table of Contents Our key human capital management objectives include, among others: (i) attracting, developing, and retaining a diverse and talented workforce; (ii) providing opportunities for learning, development, career growth, and movement within Health Catalyst; (iii) evaluating compensation and benefits, and rewarding performance; (iv) investing in physical, emotional, and financial health of team members; (v) obtaining team member feedback; (vi) maintaining and enhancing our culture and mission; and (vii) communicating with our board of directors on a routine basis on key topics.
Our key human capital management objectives include, among others: (i) attracting, developing, and retaining a diverse and talented workforce; (ii) providing opportunities for learning, development, career growth, and movement within Health Catalyst; (iii) evaluating compensation and benefits, and rewarding performance; (iv) investing in physical, emotional, and financial health of team members; (v) obtaining team member feedback; (vi) maintaining and enhancing our culture and mission; and (vii) communicating with our board of directors on a routine basis on key topics.
In response to the COVID-19 pandemic, we allowed all team members to be remote to protect the health, safety, and wellness of our team members. We continue to support our workforce with the technology and infrastructure necessary to work from a remote location, including a work equipment and utilities reimbursement program to help our team member improve their dynamic workspaces.
Since the COVID-19 pandemic, we have allowed all team members to work remotely to protect their health, safety, and wellness, and we continue to support our workforce with the technology and infrastructure necessary to work from a remote location, including a work equipment and utilities reimbursement program to help our team members improve their dynamic workspaces.
Lastly, our agreements with clients include confidentiality and non-disclosure provisions. Competition We have experienced, and expect to continue to experience, intense competition from a number of companies. Our primary competitors are industry-agnostic analytics companies, EHR companies, point solution vendors, as well as healthcare organizations that perform their own analytics. Industry-agnostic analytics companies include IBM, Tableau CRM, and Qlik.
Lastly, our agreements with clients include confidentiality and non-disclosure provisions. Competition We have experienced, and expect to continue to experience, intense competition from a number of companies. Our primary competitors are industry-agnostic analytics companies, EHR companies, point solution vendors, and healthcare organizations that perform their own analytics using homegrown solutions.
These patents and patent applications seek to protect proprietary inventions relevant to our business. We intend to pursue additional patent protection to the extent we believe it would be beneficial to our business and cost-effective. We have registered “Health Catalyst” and our flame design logo as trademarks in the United States and certain other jurisdictions.
We intend to pursue additional patent protection to the extent we believe it would be beneficial to our business and cost-effective. We have registered “Health Catalyst” and our flame design logo as trademarks in the United States and certain other jurisdictions.
As clients 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 clients.
As clients 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 clients. Client renewal, expansion, and referral produce growing, scalable, and predictable financial performance.
Our research and development organization is responsible for the design, development, and testing of the technology portion of our Solution. Based on client feedback and needs, we focus our efforts on developing new products, functionality, applications, and core technologies and further enhancing the usability, functionality, reliability, performance, and flexibility of our Solution.
Based on client feedback and needs, we focus our efforts on developing new products, functionality, applications, and core technologies and further enhancing the usability, functionality, reliability, performance, and flexibility of our Solution.
ONC continues to modify and refine these standards. We may incur increased software development and administrative expense and delays in delivering technology and services if we need to update our services to conform to these varying and evolving requirements. In addition, delays in interpreting these standards may result in postponement or cancellation of our clients’ decisions to purchase our services.
ONC continues to modify and refine these standards. 19 Table of Contents We may incur increased software development and administrative expense and delays in delivering technology and services if we need to update our services to conform to these varying and evolving requirements.
Organizations that leverage analytics to make data-informed decisions will be better positioned to succeed in this environment. Our clients, which are primarily healthcare providers, use our Solution to manage their data, derive analytical insights to operate their organizations, and produce measurable clinical, financial, and operational improvements. The core elements of our Solution include: • DOS data platform.
Our clients, which are primarily healthcare providers, use our Solution to manage their data, derive analytical insights to operate their organizations, and produce measurable clinical, financial, and operational improvements. The core elements of our Solution include: • DOS data platform.
We also offer annual continuing education reimbursement to allow team members to be continuous learners and seek new challenges. 23 Table of Contents Flexible work environment We help our team members succeed by providing flexibility in where and how they work.
We also offer annual continuing education reimbursement to allow team members to be continuous learners and seek new challenges. Flexible work environment We help our team members succeed by providing flexibility in where and how they work. For many years, we have enabled team members to have flexible work arrangements, including a large percentage of remote team members.
In addition to the positive ROI of clients utilizing our Solution compared to a costly homegrown solution, each of these documented improvements is highly valuable to our clients, enabling them to realize substantial clinical improvements, financial savings, or operational efficiencies. As we deliver measurable improvements, trust builds, and our clients engage with us more broadly and refer new business.
Each of these documented improvements is highly valuable to our clients, enabling them to realize substantial clinical improvements, financial savings, or operational efficiencies. As we deliver measurable improvements, trust builds, and our clients engage with us more broadly and refer new business. This is evidenced by a continued increase in improvements achieved by our clients over time.
For many years, we have enabled team members to have flexible work arrangements, including a large percentage of remote team members. We believe these arrangements can increase team member’s ownership, satisfaction and productivity, as well as enable us to hire from a broader, more diverse pool of talent.
We believe these arrangements can increase team member’s ownership, satisfaction and productivity, as well as enable us to hire from a broader, more diverse pool of talent.
Work with client teams to apply scientific methods, processes, algorithms, and systems to ask and answer questions using data. In addition, build software tools to enable self-service capabilities for clients. • Analytics strategy services.
Work with client teams to apply scientific methods, processes, algorithms, and systems to ask and answer questions using data. In addition, build software tools to enable self-service capabilities for clients. • Analytics strategy services. Provide agile development workshops, continued data architecture and ETL support, documentation and training, measure reporting efficiency, and prioritization and staff augmentation. • Data governance services.
Our dedicated sales team identifies healthcare organizations that would benefit from our Solution. Our sales team works closely with our subject matter experts to foster long-term relationships with our clients’ and sales prospects’ leadership teams.
Our dedicated sales team identifies healthcare organizations that would benefit from our Solution. Our sales team works closely with our subject matter experts to foster long-term relationships with our clients’ and sales prospects’ leadership teams. In February 2024 we will hold our annual Healthcare Analytics Summit (HAS), an event showcasing data-informed improvements in healthcare.
This is evidenced by a continued increase in improvements achieved by our clients over time. Clients who have recently contracted with us have already started achieving measurable improvements, while longer-standing clients have seen the number of annual improvements meaningfully grow. We serve the majority of our clients through a subscription-based contract model.
Clients who have recently contracted with us have already started achieving measurable improvements, while longer-standing clients have seen the number of annual improvements meaningfully grow. We serve the majority of our clients through a subscription-based contract model. As of December 31, 2023, we served 109 DOS Subscription Clients and over 525 other clients.
As of December 31, 2022, we had thirteen issued U.S. patents, four issued Canadian patents, one issued Great Britain patent, and one issued European patent, which expire between 2026 and 2037, one provisional patent issued in the United States and one patent application pending in the United States.
As of December 31, 2023, we had fourteen issued U.S. patents, four issued Canadian patents, one issued Great Britain patent, and one issued European patent, which expire between 2026 and 2037, as well as one utility patent application pending in the United States. These patents and patent applications seek to protect proprietary inventions relevant to our business.
Our clients include academic medical centers, integrated delivery networks, community hospitals, large physician practices, Accountable Care Organizations (ACOs), health information exchanges, health insurers, and other risk-bearing entities.
The majority of our clients who are not DOS Subscription Clients are technology clients resulting from our business acquisitions and are also generally on subscription contracts. Our clients include academic medical centers, integrated delivery networks, community hospitals, large physician practices, Accountable Care Organizations (ACOs), health information exchanges, health insurers, and other risk-bearing entities.
We fulfill our mission through a confluence of the following elements: • Data Platform : integrate data in a flexible, open, and scalable platform to power healthcare’s digital transformation; • Analytics Applications : deliver insights on how to measurably improve through the use of analytics applications; • Services Expertise : enable data-informed improvement by providing analytical, clinical, financial, and operational experts; and • Engagement : attract, develop, and retain world-class team members by being a best place to work. 5 Table of Contents The Health Catalyst Flywheel We accomplish our mission with each of our clients by following a process and strategy we call the Health Catalyst Flywheel (the Flywheel).
We fulfill our mission through a confluence of the following elements: • Data and Analytics Platform : integrate data in a flexible, open, scalable, and modular platform to power insights; • Applications : deliver analytics insights on how to measurably improve and automate processes to drive efficiency; • Expertise : enable data-informed improvement by providing expertise and managed services; • Measurable Improvement: Trust builds, client engagement increases, and learnings expand across the ecosystem; and • Engagement : attract, develop, retain, and empower extraordinary team members deeply engaged and committed to the mission of improvement. 5 Table of Contents The Health Catalyst Flywheel We accomplish our mission with each of our clients by following a process and strategy we call the Health Catalyst Flywheel (the Flywheel).
Managed services solution that enables healthcare organizations to boost efficiencies, capabilities, and savings—and optimize employee experience—through outsourcing specific functions, such as data abstraction or analytics, to Health Catalyst.
Offer advisory services related to leveraging clients’ unique, strategic data assets, managing data access and security, and establishing cross-functional governance structures. • Tech-enabled Managed Services . Managed services solution that enables healthcare organizations to boost efficiencies, capabilities, and savings—and optimize employee experience—through outsourcing specific functions, such as data abstraction or analytics, to Health Catalyst.
Similarly, the federal false statements statute prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services. 19 Table of Contents In addition, many states have similar fraud and abuse statutes and regulations that apply regardless of the payor, including commercial payors and self-pay patients.
Similarly, the federal false statements statute prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services.
EHR companies include Cerner Systems and Epic Systems. Point solution companies include Optum Analytics, Premier, Arcadia.io, Strata Decision Technology, Craneware, Innovaccer, and Intersystems.
Industry-agnostic analytics companies that help healthcare organizations develop homegrown solutions include IBM, Snowflake, Microsoft, Tableau CRM, and Qlik. EHR companies include Cerner Systems and Epic Systems. Point solution companies include Optum Analytics, Premier, Arcadia.io, Strata Decision Technology, Craneware, Innovaccer, and Intersystems.
The FDCA and related regulations govern the conditions of safety, efficacy, clearance, approval, manufacturing, quality system requirements, labeling, packaging, distribution, storage, recordkeeping, reporting, marketing, advertising, and promotion of medical devices. 20 Table of Contents However, historically, the FDA has exercised enforcement discretion for certain low-risk software functions, and has issued several guidance documents outlining its approach to the regulation of software as a medical device.
However, historically, the FDA has exercised enforcement discretion for certain low-risk software functions, and has issued several guidance documents outlining its approach to the regulation of software as a medical device.
If our services are not compliant with these evolving standards, our market position and sales could be impaired, and we may have to invest significantly in changes to our technology and services. The 21 st Century Cures Act includes provisions related to data interoperability, information blocking, and patient access.
In addition, delays in interpreting these standards may result in postponement or cancellation of our clients’ decisions to purchase our services. If our services are not compliant with these evolving standards, our market position and sales could be impaired, and we may have to invest significantly in changes to our technology and services.
Historically, in the third quarter of each year (including in September 2022), we have held the Healthcare Analytics Summit (HAS), an event showcasing data-informed improvement in healthcare. Research and Development Our ability to compete depends in large part on our continuous commitment to research and development and our ability to rapidly introduce and refine new applications, technologies, features, and functionality.
Research and Development Our ability to compete depends in large part on our continuous commitment to research and development and our ability to rapidly introduce and refine new applications, technologies, features, and functionality. Our research and development organization is responsible for the design, development, and testing of the technology portion of our Solution.
Medical devices are subject to extensive and rigorous regulation by the FDA and by other federal, state, and local authorities.
Medical devices are subject to extensive and rigorous regulation by the FDA and by other federal, state, and local authorities. The FDCA and related regulations govern the conditions of safety, efficacy, clearance, approval, manufacturing, quality system requirements, labeling, packaging, distribution, storage, recordkeeping, reporting, marketing, advertising, and promotion of medical devices.
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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. 6 Table of Contents Our Operating Principles The principles that govern our daily interactions include: Improvement • We are deeply committed to enabling our clients to achieve and sustain measurable clinical, financial, and operational improvements • We nurture deep, long-term client partnerships because achieving and sustaining improvement is a transformational journey • We pragmatically balance the vision, priority, and pace of innovation for data and analytics technology.
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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.
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As of December 31, 2022, we served 98 clients with a DOS subscription contract and over 425 other clients. The majority of our clients who are not on a DOS subscription contract are technology clients resulting from our business acquisitions.
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In addition, many states have similar fraud and abuse statutes and regulations that apply regardless of the payor, including commercial payors and self-pay patients.
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Provide agile development workshops, continued data architecture and Extract Transform Load support, documentation and training, measure reporting efficiency, and prioritization and staff augmentation. • Data governance services. Offer advisory services related to leveraging clients’ unique, strategic data assets, managing data access and security, and establishing cross-functional governance structures. • Tech-enabled Managed Services .
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The 21 st Century Cures Act includes provisions related to data interoperability, information blocking, and patient access.
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Cybersecurity In the normal course of business, we may collect and store PHI, personal information and certain sensitive company information, including proprietary and confidential business information, trade secrets, intellectual property, information regarding trial participants in connection with clinical trials, sensitive third-party information, and employee information.
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To protect this information, our existing cybersecurity policies require monitoring and detection programs, network security measures, encryption of critical data, and security assessment of certain vendors. We maintain various protections designed to safeguard against cyberattacks, including firewalls and virus detection software.
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We have established and test our disaster recovery plan and we protect against business interruption by backing up our major systems. In addition, we periodically scan our environment for vulnerabilities, perform penetration testing, engage third parties to assess effectiveness of our data security practices, and run simulations of breach protocols and phishing scenarios against our team members.
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A third party security consultant conducts regular network security reviews, scans, and audits. In addition, we maintain insurance that includes cybersecurity coverage. 18 Table of Contents Our cybersecurity program is led by our chief information security officer and includes a team of cybersecurity and security compliance professionals.
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The program is further strengthened through support of our General Counsel and Chief Compliance and Data Privacy Officer. These two teams work closely together to support and bolster our cybersecurity program. The program incorporates industry-standard frameworks (including third-party certification), policies, and practices designed to protect the privacy and security of our sensitive information.
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Our third-party certifications for certain offerings (including our DOS platform) include a HITRUST Common Security Framework certification (which includes standards from frameworks such as HIPAA, ISO, EU, GDPR, NIST, and PCI to provide risk-based certification for companies in the healthcare supply chain) and a System and Organization Control (SOC) 2 - Type II report that evaluates our security program.
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Our cybersecurity team reports to our Audit Committee quarterly on information security and cybersecurity matters, or as needed. Our Audit Committee has oversight responsibility for our data security practices and we believe the committee has the requisite skills and visibility into the design and operation of our data security practices to fulfill this responsibility effectively.
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Certain members from our board of directors have cybersecurity experience. Despite the implementation of our cybersecurity program, our security measures cannot guarantee that a significant cyberattack will not occur. A successful attack on our information technology systems could have significant consequences to the business.
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While we devote resources to our security measures to protect our systems and information, these measures cannot provide absolute security. See “Risk Factors—Risks Related to Data and Intellectual Property” for additional information about the risks to our business associated with a breach or compromise to our information technology systems.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

140 edited+43 added−19 removed355 unchanged
Biggest changeWe expect that there will continue to be new proposed laws, regulations, and industry standards concerning privacy, data protection, and information security in the United States, including the CCPA and CPRA, and we cannot yet determine the impact such laws, regulations, and standards may have on our business. 42 Table of Contents Future laws, regulations, standards, and other obligations, and changes in the interpretation of existing laws, regulations, standards, and other obligations could impair our or our clients’ ability to collect, use, or disclose information relating to consumers, which could decrease demand for our Solution, increase our costs, and impair our ability to maintain and grow our client base and increase our revenue.
Biggest changeWe expect that there will continue to be new proposed laws, regulations, and industry standards concerning privacy, data protection, and information security in the United States, including the CCPA and CPRA, and we cannot yet determine the impact such laws, regulations, and standards may have on our business.
If any of our contracts with our clients are terminated, we may not be able to recover all fees due under the terminated contract and we will lose future revenue from that client, which may adversely affect our results of operations. We expect that future contracts will contain similar provisions.
We expect that future contracts will contain similar provisions. If any of our contracts with our clients are terminated, we may not be able to recover all fees due under the terminated contract and we will lose future revenue from that client, which may adversely affect our results of operations.
The Final Rule requires certain electronic health record technology to incorporate standardized application programming interfaces (APIs) to allow individuals to securely and easily access structured EHI using smartphone applications, provides patients with certain rights to electronic access to their EHI (structured and/or unstructured) at no cost and implements the information blocking provisions of the 21st Century Cures Act, subject to eight exceptions that will not be considered information blocking as long as specific conditions are met.
The Final Rule requires certain electronic health record technology to incorporate standardized application programming interfaces to allow individuals to securely and easily access structured EHI using smartphone applications, provides patients with certain rights to electronic access to their EHI (structured and/or unstructured) at no cost and implements the information blocking provisions of the 21st Century Cures Act, subject to eight exceptions that will not be considered information blocking as long as specific conditions are met.
On April 14, 2020, we issued $230.0 million in aggregate principal amount of 2.50% Convertible Senior Notes due 2025, pursuant to an Indenture dated April 14, 2020, with U.S. Bank National Association, as trustee, in a private offering to qualified institutional buyers.
On April 14, 2020, we issued $230.0 million in aggregate principal amount of 2.50% Convertible Senior Notes due 2025, pursuant to an Indenture dated April 14, 2020, with U.S. Bank National Association, as trustee, in a private offering to qualified institutional buyers (the Notes).
We must continue to maintain, and may need to enhance, our information technology infrastructure and financial and accounting systems and controls, as well as manage expanded operations in geographically distributed locations, which may include offshore and near shore, which will place additional demands on our resources and operations.
In addition, we must continue to maintain, and may need to enhance, our information technology infrastructure and financial and accounting systems and controls, as well as manage expanded operations in geographically distributed locations, which may include offshore and near shore, which will place additional demands on our resources and operations.
Our future success depends in part on not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, including so-called non-practicing entities (NPEs), may own or claim to own intellectual property relating to our Solution.
Our future success depends in part on not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, including so-called non-practicing entities, may own or claim to own intellectual property relating to our Solution.
The sales cycle for a new DOS Subscription Client, from the time of prospect qualification to the completion of the first sale, we estimate to be approximately one year and in some cases has exceeded two years.
The sales cycle for a new DOS Subscription Client, from the time of prospect qualification to the completion of the first sale, we estimate to typically be approximately one year and in some cases has exceeded two years.
We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including, but not limited to: • inability to integrate or benefit from acquired technologies or services in a profitable manner; • unanticipated costs or liabilities associated with the acquisition; • difficulty integrating the accounting systems, operations, and personnel of the acquired business; • difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business; • difficulty converting the clients of the acquired business onto our DOS platform and contract terms, including disparities in the revenue, licensing, support, or professional services model of the acquired business; • diversion of management’s attention from other business concerns; • adverse effects on our existing business relationships with business partners and clients as a result of the acquisition; • the potential loss of key employees; • use of resources that are needed in other parts of our business; and • use of substantial portions of our available cash to consummate the acquisition.
We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including, but not limited to: • inability to integrate or benefit from acquired technologies or services in a profitable manner; • unanticipated costs or liabilities associated with the acquisition; • difficulty integrating the accounting systems, operations, and personnel of the acquired business; • difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business; 32 Table of Contents • difficulty converting the clients of the acquired business onto our DOS platform and contract terms, including disparities in the revenue, licensing, support, or professional services model of the acquired business; • diversion of management’s attention from other business concerns; • adverse effects on our existing business relationships with business partners and clients as a result of the acquisition; • the potential loss of key employees; • use of resources that are needed in other parts of our business; and • use of substantial portions of our available cash to consummate the acquisition.
If these trends continue, we cannot assure you that we will be able to continue to maintain or expand our client base, negotiate contracts with acceptable terms, or maintain our current pricing structure, and our revenue may decrease. 25 Table of Contents General reductions in expenditures by healthcare organizations, or reductions in such expenditures within market segments that we serve, could have similar impacts with regard to our Solution.
If these trends continue, we cannot assure you that we will be able to continue to maintain or expand our client base, negotiate contracts with acceptable terms, or maintain our current pricing structure, and our revenue may decrease. 24 Table of Contents General reductions in expenditures by healthcare organizations, or reductions in such expenditures within market segments that we serve, could have similar impacts with regard to our Solution.
Our analytics services may be used by our clients to inform clinical decision-making, provide access to patient medical histories, and assist in creating patient treatment plans.
In addition, our analytics services may be used by our clients to inform clinical decision-making, provide access to patient medical histories, and assist in creating patient treatment plans.
Our amended and restated bylaws include an exclusive forum provision that provides that the Court of Chancery of the State of Delaware will be the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: • any derivative action or proceeding brought on our behalf; • any action asserting a breach of fiduciary duty owed to us or our stockholders by any of our current or former directors, officers or other employees; • any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; or • any action that is governed by the internal affairs doctrine and asserts a claim against us or any of our current or former directors, officers or other employees or stockholders.
Our amended and restated bylaws include an exclusive forum provision that provides that the Court of Chancery of the State of Delaware will be the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: • any derivative action or proceeding brought on our behalf; 53 Table of Contents • any action asserting a breach of fiduciary duty owed to us or our stockholders by any of our current or former directors, officers or other employees; • any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; or • any action that is governed by the internal affairs doctrine and asserts a claim against us or any of our current or former directors, officers or other employees or stockholders.
We also had twenty-nine registered trademarks in the United States, Singapore, United Arab Emirates, and China. We also rely on copyright and trademark laws, trade secret protection, and confidentiality or license agreements with our employees, clients, partners, and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate.
We also had twenty-eight registered trademarks in the United States, Singapore, United Arab Emirates, and China. We also rely on copyright and trademark laws, trade secret protection, and confidentiality or license agreements with our employees, clients, partners, and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate.
Additionally, the CPRA generally went into effect on January 1, 2023 and significantly amends the CCPA. It imposes additional data protection obligations on companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.
Additionally, the CPRA generally went into effect on January 1, 2023 and significantly amends the CCPA. It imposed additional data protection obligations on companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.
Beginning in 2022, the Tax Act eliminated the option to currently deduct research and development expenditures in the period incurred and requires taxpayers to capitalize and amortize such domestic and foreign expenditures over five or fifteen years, respectively, pursuant to Section 174 of the Internal Revenue Code.
Beginning in 2022, the Tax Act eliminated the option to currently deduct research and development expenditures in the period incurred and requires taxpayers to capitalize and amortize such domestic and foreign expenditures over five or fifteen years, respectively, pursuant to Section 174 of the Code.
It also creates a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. Additional compliance investment and potential business process changes may be required.
It also created a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. Additional compliance investment and potential business process changes may be required.
If we do not use the net proceeds that we received in our IPO, the Note Offering, and our Secondary Public Equity Offering effectively, our business, results of operations, and financial condition could be harmed. Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans, or otherwise will dilute all other stockholders.
If we do not use the net proceeds that we received in our IPO, the Note Offering, and our Secondary Public Equity Offering effectively, our business, results of operations, and financial condition could be harmed. 51 Table of Contents Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans, or otherwise will dilute all other stockholders.
Many of the companies with which we compete for management personnel have greater financial and other resources than we do. We have not entered into term-based employment agreements with our executive officers. All of our employees are “at-will” employees, and their employment can be terminated by us or them at any time, for any reason.
Many of the companies with which we compete for management personnel have greater financial and other resources than we do. We have not entered into term-based employment agreements with our executive officers. 33 Table of Contents All of our employees are “at-will” employees, and their employment can be terminated by us or them at any time, for any reason.
However, there is a risk that the FDA could disagree with our determination, or that the FDA could alter its enforcement discretion policies, and in each case, subject our software to more stringent medical device regulations.
However, there is a risk that the FDA could disagree with our determination, or that the FDA could alter its enforcement discretion policies, and in either case, subject our software to more stringent medical device regulations.
For these reasons, we may not be able to utilize a material portion of our NOLs, even if we attain profitability, which could potentially result in increased future tax liability to us and could adversely affect our results of operations and financial condition. Comprehensive tax reform legislation could adversely affect our business and financial condition.
For these reasons, we may not be able to utilize a material portion of our NOLs, even if we attain profitability, which could potentially result in increased future tax liability to us and could adversely affect our results of operations and financial condition. 47 Table of Contents Comprehensive tax reform legislation could adversely affect our business and financial condition.
The costs incurred in correcting any defects, vulnerabilities, or errors or in responding to resulting claims or liability may be substantial and could adversely affect our results of operations. 27 Table of Contents If we are not able to maintain and enhance our reputation and brand recognition, our business and results of operations will be harmed.
The costs incurred in correcting any defects, vulnerabilities, or errors or in responding to resulting claims or liability may be substantial and could adversely affect our results of operations. If we are not able to maintain and enhance our reputation and brand recognition, our business and results of operations will be harmed.
Our future growth will depend, in part, on our ability to grow our revenue from existing clients, to complete sales to potential future clients, to expand our client and member bases, and to develop new solutions. Our future growth may also be driven by expansion into adjacent markets and/or international expansion.
Our future growth will depend, in part, on our ability to grow our revenue from existing clients, to complete sales to potential future clients, to expand our client and member bases, to prevent churn of existing clients, and to develop new solutions. Our future growth may also be driven by expansion into adjacent markets and/or international expansion.
To the extent that we are deemed to have enabled such activities, we could be subject to fines and penalties imposed by the U.S. Department of Justice or the FTC and be required to curtail or terminate the services that permitted such collusion. • Foreign Corrupt Practices Act (FCPA) and foreign anti-bribery laws .
To the extent that we are deemed to have enabled such activities, we could be subject to fines and penalties imposed by the U.S. Department of Justice or the FTC and be required to curtail or terminate the services that permitted such collusion. • FCPA and foreign anti-bribery laws .
In addition, the terms of any future credit facility or financing we obtain may contain, terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. As a result, common stockholders may only receive a return on investment if the market price of our common stock increases.
In addition, the terms of any future credit facility or financing we obtain may contain, terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. As a result, common stockholders may only receive a ROI if the market price of our common stock increases.
If we fail to satisfy the expectations of investors, employees, and other stakeholders, or, if our initiatives are not executed as planned, our reputation and business, operating results, and financial condition could be adversely impacted. Item 1B. Unresolved Staff Comments None.
If we fail to satisfy the expectations of investors, employees, and other stakeholders, or, if our initiatives are not executed as planned, our reputation and business, operating results, and financial condition could be adversely impacted. Item 1B. Unresolved Staff Comments None. 55 Table of Contents
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, financial condition, and results of operations. 44 Table of Contents The healthcare regulatory and political framework is uncertain and evolving.
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, financial condition, and results of operations. The healthcare regulatory and political framework is uncertain and evolving.
We face competition from industry-agnostic analytics companies, electronic health record (EHR) companies, such as Epic Systems and Cerner, point solution vendors, and healthcare organizations that perform their own analytics. These competitors include large, well-financed, and technologically sophisticated entities.
We face competition from industry-agnostic analytics companies, EHR companies, such as Epic Systems and Cerner, point solution vendors, and healthcare organizations that perform their own analytics. These competitors include large, well-financed, and technologically sophisticated entities.
The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. • State data protection laws .
The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.
Further, the sales cycle for a new DOS Subscription Client, which we estimate to typically be approximately one year, could lengthen, as we have experienced in 2022, resulting in a potentially longer delay between increasing operating expenses and the generation of corresponding revenue, if any.
Further, the sales cycle for a new DOS Subscription Client, which we estimate to typically be approximately one year, could lengthen, as we started to experience in 2022, resulting in a potentially longer delay between increasing operating expenses and the generation of corresponding revenue, if any.
Compliance with applicable regulatory requirements regarding the provision of our Solution, including with respect to new applications, may delay the introduction of our Solution in various markets or, in some cases, prevent the provision of our Solution to some countries altogether. 45 Table of Contents • Regulatory certification .
Compliance with applicable regulatory requirements regarding the provision of our Solution, including with respect to new applications, may delay the introduction of our Solution in various markets or, in some cases, prevent the provision of our Solution to some countries altogether. • Regulatory certification .
To operate without interruption, both we and our service providers must guard against: • damage from fire, power loss, and other natural disasters; • communications failures; • software and hardware errors, failures, and crashes; • security breaches, computer viruses, ransomware, and similar disruptive problems; and • other potential interruptions.
To operate without interruption, both we and our service providers must guard against: • damage from fire, power loss, and other natural disasters; • communications failures; • software and hardware errors, failures, and crashes; 37 Table of Contents • security breaches, computer viruses, ransomware, and similar disruptive problems; and • other potential interruptions.
If we face limitations on the development of data interfaces and other information blocking practices, our data access and ability to download relevant data may be limited, which could adversely affect our ability to provide our Solution as effectively as possible.
If we face limitations on the development of data interfaces and other information blocking practices, including the imposition of increased fees, our data access and ability to download relevant data may be limited, which could adversely affect our ability to provide our Solution as effectively as possible.
We launched operations in 2008 and we acquired Able Health, Healthfinch, Vitalware, Twistle, KPI Ninja, and ARMUS between February 2020 and April 2022. Our limited operating history, in particular with respect to the businesses we have recently acquired, makes it difficult to effectively assess or forecast our future prospects.
We launched operations in 2008 and we acquired Able Health, Healthfinch, Vitalware, Twistle, ARMUS, KPI Ninja, and ERS between February 2020 and October 2023. Our limited operating history, in particular with respect to the businesses we have recently acquired, makes it difficult to effectively assess or forecast our future prospects.
We may from time to time be subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our clients in connection with commercial disputes and employment claims made by our current or former employees.
We may from time to time be subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our clients or vendors in connection with commercial disputes, litigation related to intellectual property, and employment claims made by our current or former employees.
We began repurchasing shares of common stock under this program during the third quarter of 2022 and had $31.6 million available to purchase under the Share Repurchase Plan as of December 31, 2022.
We began repurchasing shares of common stock under this program during the third quarter of 2022 and had $29.8 million available to purchase under the Share Repurchase Plan as of December 31, 2023.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • overall performance of the equity markets and/or publicly-listed technology companies; • actual or anticipated fluctuations in our net revenue or other operating metrics; • changes in the financial projections we provide to the public or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet the estimates or the expectations of investors; • the economy as a whole and market conditions in our industry; • rumors and market speculation involving us or other companies in our industry; • announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • lawsuits or investigations threatened or filed against us; • recruitment or departure of key personnel; and • other events or factors, including those resulting from macroeconomic challenges (including inflation and high interest rate environments), war, incidents of terrorism, public health crises, or responses to these events.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • overall performance of the equity markets and/or publicly-listed technology companies; • actual or anticipated fluctuations in our net revenue or other operating metrics; • changes in the financial projections we provide to the public or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet the estimates or the expectations of investors; • the economy as a whole and market conditions in our industry; • rumors and market speculation involving us or other companies in our industry; • announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • lawsuits or investigations threatened or filed against us; • recruitment or departure of key personnel; and • other events or factors, including those resulting from macroeconomic challenges (including high inflationary and/or high interest rate environments), war, bank or financial institution failures, incidents of terrorism, public health crises, or responses to these events. 50 Table of Contents In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect many technology companies’ stock prices.
Some of the factors that could cause our financial performance and results of operations to fluctuate from quarter to quarter include: • the extent to which our Solution achieves or maintains market acceptance; • our ability to introduce new applications, updates, and enhancements to our existing applications on a timely basis; • new competitors and the introduction of enhanced products and services from new or existing competitors; • the length of our contracting and implementation cycles and our fulfillment periods for our Solution; • the mix of revenue generated from professional services as compared to technology subscriptions; 29 Table of Contents • clients reducing or eliminating their spend with us in response to macroeconomic factors or otherwise; • the financial condition of our current and future clients; • changes in client budgets and procurement policies; • changes in regulations or marketing strategies; • the impact of macroeconomic challenges, including the high inflationary and/or high interest rate environments, and public health crises, such as the COVID-19 pandemic, on our clients, partners, and business; • the amount and timing of our investment in research and development activities; • the amount and timing of our investment in sales and marketing activities; • technical difficulties or interruptions to our Solution, including related to updates to our technology or technology migrations; • our ability to hire and retain qualified personnel; • changes in the regulatory environment related to healthcare; • regulatory compliance costs; • the timing, size, and integration success of potential future acquisitions; • unforeseen legal expenses, including litigation and settlement costs; and • buying patterns of our clients and the related seasonality impacts on our business.
Moreover, our stock price may be based on expectations of our future performance that may be unrealistic or that may not be met. 28 Table of Contents Some of the factors that could cause our financial performance and results of operations to fluctuate from quarter to quarter include: • the extent to which our Solution achieves or maintains market acceptance; • our ability to introduce new applications, updates, and enhancements to our existing applications on a timely basis; • new competitors and the introduction of enhanced products and services from new or existing competitors; • the length of our contracting and implementation cycles and our fulfillment periods for our Solution; • the mix of revenue generated from professional services as compared to technology subscriptions; • clients reducing or eliminating their spend with us in response to macroeconomic factors or otherwise; • the financial condition of our current and future clients; • changes in client budgets and procurement policies; • changes in regulations or marketing strategies; • the impact of macroeconomic challenges, including the high inflationary and/or high interest rate environments, market volatility caused by bank failures and measures taken in response thereto, and public health crises, such as the COVID-19 pandemic, on our clients, partners, and business; • the amount and timing of our investment in research and development activities; • the amount and timing of our investment in sales and marketing activities; • technical difficulties or interruptions to our Solution, including related to updates to our technology or technology migrations; • our ability to hire and retain qualified personnel; • changes in the regulatory environment related to healthcare; • regulatory compliance costs; • the timing, size, and integration success of potential future acquisitions; • unforeseen legal expenses, including litigation and settlement costs; and • buying patterns of our clients and the related seasonality impacts on 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.
Risks Related to Data and Intellectual Property 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.
We have experienced significant net losses since inception, we expect to incur losses in the future, and we may not be able to generate sufficient revenue to achieve and maintain profitability. We have incurred significant net losses in the past, including net losses of $137.4 million and $153.2 million in the years ended December 31, 2022 and 2021, respectively.
We have experienced significant net losses since inception, we expect to incur losses in the future, and we may not be able to generate sufficient revenue to achieve and maintain profitability. We have incurred significant net losses in the past, including net losses of $118.1 million and $137.4 million in the years ended December 31, 2023 and 2022, respectively.
If our sales cycle lengthens, as we experienced in 2022, or we invest substantial resources pursuing unsuccessful sales opportunities, our results of operations and growth would be harmed.
If our sales cycle lengthens, as we started to experience in 2022, or we invest substantial resources pursuing unsuccessful sales opportunities, our results of operations and growth would be harmed.
Additionally, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, are unable to assert that our internal controls over financial reporting are effective, identify material weaknesses in our internal controls over financial reporting, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources. 32 Table of Contents Future litigation against us could be costly and time consuming to defend and could result in additional liabilities.
Additionally, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, are unable to assert that our internal controls over financial reporting are effective, identify material weaknesses in our internal controls over financial reporting, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
Our amended and restated certificate of incorporation and amended and restated bylaws, include provisions that: • provide that our board of directors is classified into three classes of directors with staggered three-year terms; • permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships; • require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws; • authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • provide that only a majority of our board of directors will be authorized to call a special meeting of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and • advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. 52 Table of Contents Moreover, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of our company.
Our amended and restated certificate of incorporation and amended and restated bylaws, include provisions that: • provide that our board of directors is classified into three classes of directors with staggered three-year terms; • permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships; • require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws; • authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • provide that only a majority of our board of directors will be authorized to call a special meeting of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and • advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
Further, challenging economic conditions may impair the ability of our clients to pay for the applications and services they already have purchased from us and, as a result, our write-offs of accounts receivable could increase. We cannot predict the timing, strength, or duration of any economic slowdown or recovery.
If that were to occur, our financial results could be harmed. Further, challenging economic conditions may impair the ability of our clients to pay for the applications and services they already have purchased from us and, as a result, our write-offs of accounts receivable could increase. We cannot predict the timing, strength, or duration of any economic slowdown or recovery.
As of December 31, 2022, we had filed applications for a number of patents, and we have thirteen issued U.S. patents, four issued Canadian patents, one issued Great Britain patent, and one issued European patent, as well as one patent application pending in the United States and one provisional patent issued in the United States.
As of December 31, 2023, we had filed applications for a number of patents, and we have fourteen issued U.S. patents, four issued Canadian patents, one issued Great Britain patent, and one issued European patent, as well as one utility patent application pending in the United States.
If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility by subjecting us to customary affirmative and negative covenants, indemnification provisions, and events of default.
If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business. If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility by subjecting us to customary affirmative and negative covenants, indemnification provisions, and events of default.
As of December 31, 2022, we had net operating loss (NOL) carryforwards for federal and state income tax purposes of approximately $591.6 million and $462.9 million, respectively, which may be available to offset taxable income in the future, and which expire in various years beginning in 2032 for federal purposes if not utilized.
As of December 31, 2023, we had net operating loss (NOL) carryforwards for federal and state income tax purposes of approximately $602.6 million and $505.5 million, respectively, which may be available to offset taxable income in the future, and which expire in various years beginning in 2032 for federal purposes if not utilized.
We had an accumulated deficit of $999.0 million as of December 31, 2022. We expect our costs will increase over time as we continue to invest to grow our business and build relationships with clients, develop our Solution, develop new solutions, and operate as a public company.
We had an accumulated deficit of $1,117.2 million as of December 31, 2023. We expect our costs will increase over time as we continue to invest to grow our business and build relationships with clients, develop our Solution, develop new solutions, and operate as a public company.
In addition, upon a default by any option counterparty, we may suffer adverse tax consequences and dilution with respect to our common stock. We can provide no assurance as to the financial stability or viability of any option counterparty. 48 Table of Contents The Capped Calls may affect the value of our common stock.
In addition, upon a default by any option counterparty, we may suffer adverse tax consequences and dilution with respect to our common stock. We can provide no assurance as to the financial stability or viability of any option counterparty.
During challenging economic times, our clients may have difficulty gaining timely access to sufficient credit or obtaining credit on reasonable terms, increased costs, and/or other negative financial impacts, each of which could impair their ability to make timely payments to us, reduce client expansion and new client acquisition, increase client churn, and adversely affect our revenue. 53 Table of Contents If that were to occur, our financial results could be harmed.
During challenging economic times, our clients may have difficulty gaining timely access to sufficient credit or obtaining credit on reasonable terms, increased costs, and/or other negative financial impacts, each of which could impair their ability to make timely payments to us, reduce client expansion and new client acquisition, increase client churn, and adversely affect our revenue.
For example, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure can constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act.
According to the FTC, failing to take appropriate steps to keep consumers’ personal information secure can also constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the FTC Act.
Further, it is not possible for us to predict the duration or magnitude of the adverse results of public health crises (including the COVID-19 pandemic), and macroeconomic challenges (including the high inflationary environment and rising interest rates), and their effects on our business, results of operations, or financial condition at this time.
Further, it is not possible for us to predict the duration or magnitude of the adverse results of public health crises, and macroeconomic challenges (including the high inflationary and/or high interest rate environments), and their effects on our business, results of operations, or financial condition at this time.
Examples of such regulatory schema include: • Antitrust laws . Our national cloud-based network allows us access to cost and pricing data for a large number of providers in most regional markets, as well as to the contracted rates for third-party payors.
Our national cloud-based network allows us access to cost and pricing data for a large number of providers in most regional markets, as well as to the contracted rates for third-party payors.
During 2020 we acquired Able Health, Healthfinch, and Vitalware, during 2021 we acquired Twistle, and during 2022 we acquired KPI Ninja and ARMUS. We may have difficulty cross-selling our Solution to acquired clients, and we may have difficulty integrating, or incur integration-related costs associated with, newly acquired team members. We have limited experience in acquiring other businesses.
During 2020 we acquired Able Health, Healthfinch, and Vitalware, during 2021 we acquired Twistle, during 2022 we acquired ARMUS and KPI Ninja, and during 2023 we acquired ERS. We may have difficulty cross-selling our Solution to acquired clients, and we may have difficulty integrating, or incur integration-related costs associated with, newly acquired team members.
Our ability to execute on our existing sales pipeline, create additional sales pipelines, and expand our client base depends on, among other things, the attractiveness of our Solution relative to those offered by our competitors, our ability to demonstrate the value of our existing and future services, and our ability to attract and retain a sufficient number of qualified sales and marketing leadership and support personnel.
Our historical results may not be indicative of future performance. 34 Table of Contents Our ability to execute on our existing sales pipeline, create additional sales pipelines, and expand our client base depends on, among other things, the attractiveness of our Solution relative to those offered by our competitors, our ability to demonstrate the value of our existing and future services, and our ability to attract and retain a sufficient number of qualified sales and marketing leadership and support personnel.
If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations, and technologies successfully, or effectively manage the combined business following the acquisition.
We have limited experience in acquiring other businesses. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations, and technologies successfully, or effectively manage the combined business following the acquisition.
If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or to pay cash upon conversion or at maturity of the Notes. We are subject to counterparty risk with respect to the Capped Calls.
If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or to pay cash upon conversion or at maturity of the Notes.
For example, California adopted the CCPA, which went into effect on January 1, 2020. 41 Table of Contents The CCPA establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for consumers in the state of California, imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
The CCPA establishes a privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for consumers in the state of California, imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
We expect to derive a significant portion of our revenue from the renewal of existing client contracts and sales of additional technology and services to existing clients. As part of our growth strategy, for instance, we have recently focused on expanding our Solution among current clients.
We expect to derive a significant portion of our revenue from the renewal of existing client contracts and sales of additional technology and services to existing clients. As part of our growth strategy, for instance, we have recently focused on expanding our Solution among current clients, including Solutions with a more limited operating history such as TEMS.
These factors have and could further decrease healthcare industry spending, adversely affect demand for our Solution, cause one or more of our clients to file for bankruptcy protection or go out of business, cause one or more of our clients to fail to renew, terminate, or renegotiate their contracts, affect the ability of our sales team to travel to potential clients and the ability of our professional services teams to conduct in-person services and trainings, impact expected spending from new clients, negatively impact collections of accounts receivable, and harm our business, results of operations, and financial condition.
These factors have and could further decrease healthcare industry spending, adversely affect demand for our Solution, cause one or more of our clients to file for bankruptcy protection or go out of business, cause one or more of our clients to fail to renew, terminate, or renegotiate their contracts, impact expected spending from new clients, negatively impact collections of accounts receivable, and harm our business, results of operations, and financial condition.
We may not grow at the rates we historically have achieved or at all, even if our key metrics may indicate growth. We have experienced significant growth in the last five years. Future revenue may not grow at these same rates or may decline.
We may not grow at the rates we historically have achieved or at all, even if our key metrics may indicate growth. We have experienced periods of significant growth, including in the last five years. At times, our growth has moderated. Future revenue may not grow at the same rates experienced during times of significant growth or may decline.
They are also subject to break-ins, sabotage, intentional acts of vandalism, and similar misconduct. 37 Table of Contents Their systems and servers could also be subject to hacking, spamming, ransomware, computer viruses or other malicious software, denial of service attacks, service disruptions, including the inability to process certain transactions, phishing attacks, and unauthorized access attempts, including third parties gaining access to users’ accounts using stolen or inferred credentials or other means, and may use such access to prevent use of users’ accounts.
Their systems and servers could also be subject to hacking, spamming, ransomware, computer viruses or other malicious software, denial of service attacks, service disruptions, including the inability to process certain transactions, phishing attacks, and unauthorized access attempts, including third parties gaining access to users’ accounts using stolen or inferred credentials or other means, and may use such access to prevent use of users’ accounts.
Limitations of liability and disclaimers that purport to limit our liability for damages related to defects in our software or content which we may include in our subscription and services agreements may not be enforced by a court or other tribunal or otherwise effectively protect us from related claims.
Limitations of liability and disclaimers that purport to limit our liability for damages related to defects in our software or content which we may include in our subscription and services agreements may not be enforced by a court or other tribunal or otherwise effectively protect us from related claims. 26 Table of Contents In most cases, we maintain liability insurance coverage, including coverage for errors and omissions.
We have never declared or paid any dividends on our capital stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future.
You should not rely on an investment in our common stock to provide dividend income. We have never declared or paid any dividends on our capital stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future.
Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If any option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the Capped Calls.
If any option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the Capped Calls.
As a result, selling additional technology and services is critical to our future business, revenue growth, and results of operations. 28 Table of Contents Factors that may affect our ability to sell additional technology and services include, but are not limited to, the following: • the price, performance, and functionality of our Solution; • the availability, price, performance, and functionality of competing solutions; • our ability to develop and sell complementary technology and services; • the stability, performance, and security of our hosting infrastructure and hosting services; • our ability to continuously deliver measurable improvements; • health systems’ demand for professional services to augment their internal data analytics function; • changes in healthcare laws, regulations, or trends; • the business environment of our clients and, in particular, our clients' financial performance and headcount reductions by our clients; and • the impact of macroeconomic challenges, including the impact of the high inflationary environment and high interest rates, and the impact of any natural disasters or public health emergencies, such as the COVID-19 pandemic, upon our clients.
Factors that may affect our ability to sell additional technology and services include, but are not limited to, the following: • the price, performance, and functionality of our Solution; • the availability, price, performance, and functionality of competing solutions; • our ability to develop and sell complementary technology and services; • the stability, performance, and security of our hosting infrastructure and hosting services; • our ability to continuously deliver measurable improvements; • health systems’ demand for professional services to augment their internal data analytics function; • changes in healthcare laws, regulations, or trends; • the business environment of our clients and, in particular, our clients’ financial performance and headcount reductions by our clients; and • the impact of macroeconomic challenges, including the impact of the high inflationary and/or high interest rate environments, market volatility caused by bank failures and measures taken in response thereto, and the impact of any natural disasters or public health emergencies, such as the COVID-19 pandemic, upon our clients.
To continue to execute on our growth plan, we must attract and retain highly qualified personnel. Competition for such personnel is intense, especially for senior sales executives and software engineers with high levels of experience in designing and developing applications and consulting and analytics services. We may not be successful in attracting and retaining qualified personnel.
To continue to execute on our growth and operating plan, we must attract and retain highly qualified personnel, and we may modify our compensation program and practices for our team members. Competition for such personnel is intense, especially for senior sales executives and software engineers with high levels of experience in designing and developing applications and consulting and analytics services.
Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period.
In addition to the services we provide from our offices, we serve our clients primarily from third-party data-hosting facilities. These facilities are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures, and similar events.
In addition to the services we provide from our offices, we serve our clients primarily from third-party data-hosting facilities. These facilities are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures, and similar events. They are also subject to break-ins, sabotage, intentional acts of vandalism, and similar misconduct.
We can provide no assurances that we will be successful in executing on these growth strategies or that we will continue to grow our revenue or to generate net income. Our historical results may not be indicative of future performance.
We can provide no assurances that we will be successful in executing on these growth strategies or that we will continue to grow our revenue or to generate net income.
In most cases, we maintain liability insurance coverage, including coverage for errors and omissions. However, it is possible that claims could exceed the amount of our applicable insurance coverage or that this coverage may not continue to be available on acceptable terms or in sufficient amounts.
However, it is possible that claims could exceed the amount of our applicable insurance coverage or that this coverage may not continue to be available on acceptable terms or in sufficient amounts.
We cannot predict with any certainty whether and to what degree the disruption caused by the ongoing effects of the COVID-19 pandemic, any new public health crisis, the high inflationary environment, rising interest rates, and reactions to any of the foregoing will continue and expect to face difficulty accurately predicting our internal financial forecasts.
We cannot predict with any certainty whether and to what degree the disruption caused by any new public health crisis, the high inflationary environment, rising interest rates, market volatility caused by bank failures and measures taken in response thereto, and reactions to any of the foregoing will continue and expect to face difficulty accurately predicting our internal financial forecasts.
In the ordinary course of business, we engage in active discussions and renegotiations with our clients in respect of our Solution and the terms of our client agreements, including our fees. 31 Table of Contents As our clients’ businesses respond to market dynamics and financial pressures, and as our clients make strategic business decisions in respect of the lines of business they pursue and programs in which they participate, we expect that certain of our clients will, from time to time, seek to restructure their agreements with us.
As our clients’ businesses respond to market dynamics and financial pressures, and as our clients make strategic business decisions in respect of the lines of business they pursue and programs in which they participate, we expect that certain of our clients will, from time to time, seek to restructure their agreements with us.
We are subject to income taxes in the United States and are expanding into various foreign jurisdictions that are subject to income tax. Our domestic and international tax liabilities are subject to the allocation of expenses in differing jurisdictions and complex transfer pricing regulations administered by taxing authorities in various jurisdictions.
Our domestic and international tax liabilities are subject to the allocation of expenses in differing jurisdictions and complex transfer pricing regulations administered by taxing authorities in various jurisdictions.
Any failure to maintain high-quality professional services, or a market perception that we do not maintain high-quality professional services, could harm our reputation, adversely affect our ability to sell our Solution to existing and prospective clients, and harm our business, results of operations, and financial condition.
Furthermore, we provide professional services to clients to support their use of our Solution and to achieve measurable clinical, financial, and operational improvements. 27 Table of Contents Any failure to maintain high-quality professional services, or a market perception that we do not maintain high-quality professional services, could harm our reputation, adversely affect our ability to sell our Solution to existing and prospective clients, and harm our business, results of operations, and financial condition.
The lingering effects of the COVID-19 pandemic, recent macroeconomic challenges (including high levels of inflation and high interest rates) and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally and have disrupted the normal operations of many businesses, including our business.
Recent macroeconomic challenges (including the high inflationary and/or high interest rate environments), and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally and have disrupted the normal operations of many businesses, including our business.
However, nonetheless, in addition to direct enforcement action against us, if our advisory services or our Solution offered to clients are associated with action by clients that is determined or alleged to be in violation of these laws and regulations, it is possible that an enforcement agency would also try to hold us liable and, as a result of such attempt to hold us liable, our results of operations and financial condition may be negatively impacted, even if we are ultimately found not liable.
We do not believe we directly order or provide healthcare services that are reimbursable by Medicare, Medicaid or other third-party payors or submit claims or receive reimbursement from any such payor. 43 Table of Contents However, nonetheless, in addition to direct enforcement action against us, if our advisory services or our Solution offered to clients are associated with action by clients that is determined or alleged to be in violation of these laws and regulations, it is possible that an enforcement agency would also try to hold us liable and, as a result of such attempt to hold us liable, our results of operations and financial condition may be negatively impacted, even if we are ultimately found not liable.
Alternatively, if a court were to find the choice of forum provision which will be contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
Alternatively, if a court were to find the choice of forum provision which will be contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition. 54 Table of Contents General Risks Changes in accounting principles may cause previously unanticipated fluctuations in our financial results, and the implementation of such changes may impact our ability to meet our financial reporting obligations.
Risks Related to Tax Regulation Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value-added or similar transactional taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.
The failure to comply with these certification requirements could result in the loss of certification, which could restrict our Solution offerings and cause us to lose clients. 46 Table of Contents Risks Related to Tax Regulation Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value-added or similar transactional taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.
Our results of operations are likely to fluctuate, and if we fail to meet or exceed the expectations of securities analysts or investors, the trading price of our common stock could decline. Moreover, our stock price may be based on expectations of our future performance that may be unrealistic or that may not be met.
Our results of operations are likely to fluctuate, and if we fail to meet or exceed the expectations of securities analysts or investors, the trading price of our common stock could decline.
Data protection authorities of the different EEA member states may also interpret GDPR differently, and guidance on implementation and compliance practices are often updated or otherwise revised, which adds to the complexity of processing personal data in the EEA.
As a result, we may have to make certain operational changes and we will have to implement revised standard contractual clauses. Data protection authorities of the different EEA member states may also interpret GDPR differently, and guidance on implementation and compliance practices are often updated or otherwise revised, which adds to the complexity of processing personal data in the EEA.
We will continue to examine the impact the Tax Act and CARES Act may have on our results of operations and financial condition. 47 Table of Contents Risks Related to Our Outstanding Convertible Notes Servicing our Notes may require a significant amount of cash, and we may not have sufficient cash or the ability to raise the funds necessary to settle conversions of the Notes in cash, repay the Notes at maturity, or repurchase the Notes as required.
Risks Related to Our Outstanding Convertible Notes Servicing our Notes may require a significant amount of cash, and we may not have sufficient cash or the ability to raise the funds necessary to settle conversions of the Notes in cash, repay the Notes at maturity, or repurchase the Notes as required.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate any such expansion of our operations.
Biggest changeWe also lease offices elsewhere for sales, research and development, professional services, and other personnel, including offices in Minneapolis, Minnesota and Hyderabad, India. We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate any such expansion of our operations.
Item 2. Properties Our principal executive offices are located in South Jordan, Utah where we lease facilities totaling approximately 118,207 square feet under a lease agreement that expires on December 31, 2031, of which 54,419 square feet is currently subleased. We use this facility for administration, sales and marketing, technology and development, and professional services.
Item 2. Properties Our principal executive offices are located in South Jordan, Utah where we lease facilities totaling approximately 128,037 square feet under a lease agreement that expires on December 31, 2031, of which 54,399 square feet is currently subleased. We use this facility for administration, sales and marketing, technology and development, and professional services.
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We also lease offices elsewhere in the United States for sales, professional services, and other personnel, including offices in Minneapolis, Minnesota, Foster City, California, and Dallas, Texas.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeOther than the matter described in Note 16, "Contingencies" to the Consolidated Financial Statements in Item 8, we are not presently party to any other legal proceedings that in the opinion of management, if determined to adversely affect us, may individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows.
Biggest changeWe are not presently party to any other legal proceedings that in the opinion of management, if determined to adversely affect us, may individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows.
For information regarding legal proceedings in which we are involved, refer to Note 16, "Contingencies" to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 54 Table of Contents PART II
For information regarding a recent legal proceeding that was dismissed with prejudice on June 20, 2023, refer to Note 16, “Contingencies” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 57 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeCompany/Index Jul 25, 2019 (1) Dec 31, 2019 Jun 30, 2020 Dec 31, 2020 Jun 30, 2021 Dec 31, 2021 Jun 30, 2022 Dec 31, 2022 Health Catalyst, Inc. 100 89 74 111 142 101 37 27 S&P 500 100 108 103 125 143 159 126 128 Nasdaq Healthcare 100 114 128 149 160 143 103 114 __________________ (1) Base period Unregistered Sales of Equity Securities and Use of Proceeds Unregistered sales of equity securities During the year ended December 31, 2022, we did not issue or sell any unregistered securities not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Biggest changeCompany/Index Jul 25, 2019 (1) Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 Dec 31, 2022 Dec 31, 2023 Health Catalyst, Inc. $ 100 $ 89 $ 111 $ 101 $ 27 $ 24 S&P 500 $ 100 $ 108 $ 125 $ 159 $ 128 $ 159 Nasdaq Healthcare $ 100 $ 114 $ 149 $ 143 $ 114 $ 122 __________________ (1) Base period Unregistered Sales of Equity Securities and Use of Proceeds Unregistered sales of equity securities During the year ended December 31, 2023, we did not issue or sell any unregistered securities not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
The graph set forth below compares the cumulative total return to stockholders on our common stock relative to the cumulative total returns of the S&P 500 Index and Nasdaq Healthcare Index between July 25, 2019 (the date our common stock commenced trading) through December 31, 2022. All values assume a $100 initial investment at market close on July 25, 2019.
The graph set forth below compares the cumulative total return to stockholders on our common stock relative to the cumulative total returns of the S&P 500 Index and Nasdaq Healthcare Index between July 25, 2019 (the date our common stock commenced trading) through December 31, 2023. All values assume a $100 initial investment at market close on July 25, 2019.
Holders of record As of December 31, 2022, there were 147 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Holders of record As of December 31, 2023, there were 128 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Securities authorized for issuance under equity compensation plans The information required by this item with respect to our equity compensation plans is incorporated by reference in our proxy statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ended December 31, 2022. 55 Table of Contents Stock performance graph The following performance graph and related information is "furnished" and shall not be deemed to be "soliciting material" or "filed" for purposes of Section 18 of the Exchange Act and Regulation 14A under the Exchange Act nor shall such information be incorporated by reference into any filing of Health Catalyst, Inc. under the Exchange Act or the Securities Act, except to the extent we specifically incorporate it by reference in such filing.
Securities authorized for issuance under equity compensation plans The information required by this item with respect to our equity compensation plans is incorporated by reference in our proxy statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ended December 31, 2023. 58 Table of Contents Stock performance graph The following performance graph and related information is “furnished” and shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act and Regulation 14A under the Exchange Act nor shall such information be incorporated by reference into any filing of Health Catalyst, Inc. under the Exchange Act or the Securities Act, except to the extent we specifically incorporate it by reference in such filing.
Issuer purchases of equity securities None. Item 6. [Reserved] 56 Table of Contents
Issuer purchases of equity securities None. Item 6. [Reserved] 59 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe do not expect the tax provisions of the IRA to have a material impact on our consolidated financial statements. 69 Table of Contents Results of Operations The following tables set forth our consolidated results of operations data and such data as a percentage of total revenue for each of the periods indicated: Year Ended December 31, 2022 2021 2020 (in thousands) Revenue: Technology $ 176,288 $ 147,718 $ 110,467 Professional services 99,948 94,208 78,378 Total revenue 276,236 241,926 188,845 Cost of revenue, excluding depreciation and amortization shown below: Technology (1)(2)(3) 56,642 47,516 35,604 Professional services (1)(2)(3) 86,407 76,838 62,473 Total cost of revenue, excluding depreciation and amortization 143,049 124,354 98,077 Operating expenses: Sales and marketing (1)(2)(3) 87,514 75,027 55,411 Research and development (1)(2)(3) 75,680 62,733 53,517 General and administrative (1)(2)(3)(4) 61,701 85,934 59,240 Depreciation and amortization 48,297 37,528 18,725 Total operating expenses 273,192 261,222 186,893 Loss from operations (140,005) (143,650) (96,125) Loss on extinguishment of debt — — (8,514) Interest and other expense, net (1,678) (16,458) (11,572) Loss before income taxes (141,683) (160,108) (116,211) Income tax benefit (4,280) (6,898) (1,194) Net loss $ (137,403) $ (153,210) $ (115,017) __________________ (1) Includes stock-based compensation expense, as follows: Year Ended December 31, 2022 2021 2020 Stock-Based Compensation Expense: (in thousands) Cost of revenue, excluding depreciation and amortization: Technology $ 2,058 $ 2,063 $ 803 Professional services 8,230 8,047 3,453 Sales and marketing 28,082 22,698 13,093 Research and development 12,938 10,213 8,069 General and administrative 20,796 22,124 12,539 Total $ 72,104 $ 65,145 $ 37,957 (2) Includes acquisition-related costs, net, as follows: Year Ended December 31, 2022 2021 2020 Acquisition-related costs, net: (in thousands) Cost of revenue, excluding depreciation and amortization: Technology $ 351 $ 61 $ — Professional services 655 127 — Sales and marketing 1,894 592 — Research and development 3,045 901 — General and administrative (1,051) 26,248 16,758 Total $ 4,894 $ 27,929 $ 16,758 70 Table of Contents (3) Includes restructuring costs, as follows: Year Ended December 31, 2022 2021 2020 Restructuring costs: (in thousands) Cost of revenue, excluding depreciation and amortization: Technology $ 229 $ — $ — Professional services 1,139 — — Sales and marketing 3,023 — — Research and development 3,410 — — General and administrative 624 — — Total $ 8,425 $ — $ — (4) Includes non-recurring lease-related charges, as follows: Year Ended December 31, 2022 2021 2020 Non-recurring lease-related charges: (in thousands) General and administrative $ 3,798 $ 1,800 $ 1,398 Year Ended December 31, 2022 2021 2020 Revenue: Technology 64 % 61 % 58 % Professional services 36 39 42 Total revenue 100 100 100 Cost of revenue, excluding depreciation and amortization shown below: Technology 21 20 19 Professional service 31 32 33 Total cost of revenue, excluding depreciation and amortization 52 52 52 Operating expenses: Sales and marketing 32 31 29 Research and development 27 26 28 General and administrative 22 36 31 Depreciation and amortization 18 16 10 Total operating expenses 99 109 98 Loss from operations (51) (61) (50) Loss on extinguishment of debt — — (5) Interest and other expense, net (1) (7) (6) Loss before income taxes (52) (68) (61) Income tax benefit (2) (3) (1) Net loss (50) % (65) % (60) % 71 Table of Contents Discussion of the Years Ended December 31, 2022 and 2021 Revenue Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) Revenue: Technology $ 176,288 $ 147,718 $ 28,570 19 % Professional services 99,948 94,208 5,740 6 % Total revenue $ 276,236 $ 241,926 $ 34,310 14 % Percentage of revenue: Technology 64 % 61 % Professional services 36 39 Total 100 % 100 % Total revenue was $276.2 million for the year ended December 31, 2022, compared to $241.9 million for the year ended December 31, 2021, an increase of $34.3 million, or 14%.
Biggest changeResults of Operations The following tables set forth our consolidated results of operations data and such data as a percentage of total revenue for each of the periods indicated: Year Ended December 31, 2023 2022 2021 (in thousands) Revenue: Technology $ 187,583 $ 176,288 $ 147,718 Professional services 108,355 99,948 94,208 Total revenue 295,938 276,236 241,926 Cost of revenue, excluding depreciation and amortization shown below: Technology (1)(2)(3) 62,474 56,642 47,516 Professional services (1)(2)(3) 101,631 86,407 76,838 Total cost of revenue, excluding depreciation and amortization 164,105 143,049 124,354 Operating expenses: Sales and marketing (1)(2)(3) 67,321 87,514 75,027 Research and development (1)(2)(3) 72,627 75,680 62,733 General and administrative (1)(2)(3)(4)(5) 76,559 61,701 85,934 Depreciation and amortization 42,223 48,297 37,528 Total operating expenses 258,730 273,192 261,222 Loss from operations (126,897) (140,005) (143,650) Interest and other income (expense), net 9,106 (1,678) (16,458) Loss before income taxes (117,791) (141,683) (160,108) Income tax provision (benefit) 356 (4,280) (6,898) Net loss $ (118,147) $ (137,403) $ (153,210) __________________ (1) Includes stock-based compensation expense, as follows: 72 Table of Contents Year Ended December 31, 2023 2022 2021 Stock-Based Compensation Expense: (in thousands) Cost of revenue, excluding depreciation and amortization: Technology $ 1,866 $ 2,058 $ 2,063 Professional services 7,369 8,230 8,047 Sales and marketing 20,982 28,082 22,698 Research and development 11,213 12,938 10,213 General and administrative 14,326 20,796 22,124 Total $ 55,756 $ 72,104 $ 65,145 (2) Includes acquisition-related costs, net, as follows: Year Ended December 31, 2023 2022 2021 Acquisition-related costs, net: (in thousands) Cost of revenue, excluding depreciation and amortization: Technology $ 273 $ 351 $ 61 Professional services 391 655 127 Sales and marketing 697 1,894 592 Research and development 787 3,045 901 General and administrative 3,609 (1,051) 26,248 Total $ 5,757 $ 4,894 $ 27,929 (3) Includes restructuring costs, as follows: Year Ended December 31, 2023 2022 2021 Restructuring costs: (in thousands) Cost of revenue, excluding depreciation and amortization: Technology $ 496 $ 229 $ — Professional services 1,832 1,139 — Sales and marketing 2,415 3,023 — Research and development 3,337 3,410 — General and administrative 742 624 — Total $ 8,822 $ 8,425 $ — (4) Includes litigation costs, as follows: Year Ended December 31, 2023 2022 2021 Litigation costs: (in thousands) General and administrative $ 21,279 $ — $ — (5) Includes non-recurring lease-related charges, as follows: Year Ended December 31, 2023 2022 2021 Non-recurring lease-related charges: (in thousands) General and administrative $ 4,081 $ 3,798 $ 1,800 73 Table of Contents Year Ended December 31, 2023 2022 2021 Revenue: Technology 63 % 64 % 61 % Professional services 37 36 39 Total revenue 100 100 100 Cost of revenue, excluding depreciation and amortization shown below: Technology 21 21 20 Professional services 34 31 32 Total cost of revenue, excluding depreciation and amortization 55 52 52 Operating expenses: Sales and marketing 23 32 31 Research and development 25 27 26 General and administrative 26 22 36 Depreciation and amortization 14 18 16 Total operating expenses 88 99 109 Loss from operations (43) (51) (61) Interest and other income (expense), net 3 (1) (7) Loss before income taxes (40) (52) (68) Income tax provision (benefit) — (2) (3) Net loss (40) % (50) % (65) % 74 Table of Contents Discussion of the Years Ended December 31, 2023 and 2022 Revenue Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) Revenue: Technology $ 187,583 $ 176,288 $ 11,295 6 % Professional services 108,355 99,948 8,407 8 % Total revenue $ 295,938 $ 276,236 $ 19,702 7 % Percentage of revenue: Technology 63 % 64 % Professional services 37 36 Total 100 % 100 % Total revenue was $295.9 million for the year ended December 31, 2023, compared to $276.2 million for the year ended December 31, 2022, an increase of $19.7 million, or 7%.
Investing activities Net cash used in investing activities for the year ended December 31, 2022 of $39.0 million was primarily due to $27.8 million used to acquire KPI Ninja and ARMUS, $13.0 million of capitalized internal-use software development costs, and $4.4 million in purchases of property, equipment, and intangible assets.
Net cash used in investing activities for the year ended December 31, 2022 of $39.0 million was primarily due to $27.8 million used to acquire KPI Ninja and ARMUS, $13.0 million of capitalized internal-use software development costs, and $4.4 million in purchases of property, equipment, and intangible assets.
On February 24, 2022, we acquired KPI Ninja, a leading provider of interoperability, enterprise analytics, and value-based care solutions based in Lincoln, Nebraska. KPI Ninja is known for its powerful capabilities, flexible configurations, and comprehensive applications designed to fulfill the promise of data-driven healthcare.
KPI Ninja, Inc. On February 24, 2022, we acquired KPI Ninja, a leading provider of interoperability, enterprise analytics, and value-based care solutions based in Lincoln, Nebraska. KPI Ninja is known for its powerful capabilities, flexible configurations, and comprehensive applications designed to fulfill the promise of data-driven healthcare.
Depreciation and amortization expenses are primarily attributable to our capital investment and consist of fixed asset depreciation, amortization of intangibles considered to have definite lives, and amortization of capitalized internal-use software costs. Interest and other income (expense), net Interest and other income (expense), net primarily consists of interest expense partially offset by income from our investment holdings.
Depreciation and amortization expenses are primarily attributable to our capital investment and consist of fixed asset depreciation, amortization of intangibles considered to have definite lives, and amortization of capitalized internal-use software costs. Interest and other income (expense), net Interest and other income (expense), net primarily consists of income from our investment holdings offset by interest expense.
Recent Accounting Pronouncements See “Description of Business and Summary of Significant Accounting Policies” in Note 1 to our audited consolidated financial statements included within Item 8 in this Annual Report on Form 10-K for more information.
Recent Accounting Pronouncements See “Description of Business and Summary of Significant Accounting Policies” in Note 1 to our audited consolidated financial statements included within Item 8 in this Annual Report on Form 10-K for more information. 82
Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expense in our consolidated statements of operations and comprehensive loss. 78 Table of Contents 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.
Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expense in our consolidated statements of operations and comprehensive loss. 81 Table of Contents 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.
Overview We are a leading provider of data and analytics technology and services to healthcare organizations. Our Solution comprises our cloud-based data platforms, 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.
Overview 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.
Our subscription contracts generally have a three or five-year term, of which many are terminable after one year upon 90 days’ notice. 77 Table of Contents 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.
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.
Over the past few years, we have invested in growth infrastructure by adding to our sales operations and marketing teams, which are built to help us scale over the long term. We have demonstrated a consistent track record of innovation through research and development over time as evidenced by our new product features and new product offerings.
Over the past few years, we have invested in growth infrastructure by adding to our sales operations and marketing teams, which are built to help us scale over the long term. 62 Table of Contents We have demonstrated a consistent track record of innovation through research and development over time as evidenced by our new product features and new product offerings.
The acquisition consideration transferred was $21.4 million and was comprised of net cash consideration of $18.5 million and Health Catalyst common shares with a fair value of $2.9 million, net of shares subject to revesting that are accounted for as post-acquisition stock-based compensation. 66 Table of Contents Twistle, Inc. On July 1, 2021 , we acquired Twistle, Inc.
The acquisition consideration transferred was $21.4 million and was comprised of net cash consideration of $18.5 million and Health Catalyst common shares with a fair value of $2.9 million, net of shares subject to revesting that are accounted for as post-acquisition stock-based compensation. Twistle, Inc. On July 1, 2021 , we acquired Twistle, Inc.
From the beginning, our Solution has been focused on enabling our mission: to be the catalyst for massive, measurable, data-informed healthcare improvement. We currently employ more than 1,200 team members.
From the beginning, our Solution has been focused on enabling our mission: to be the catalyst for massive, measurable, data-informed healthcare improvement. We currently employ more than 1,300 team members.
It is not possible for us to predict the duration or magnitude of the adverse results of the challenging macroeconomic environment and its effects on our business, results of operations, or financial condition at this time. • Add new clients. We believe our ability to increase our client base will enable us to drive growth.
It is not possible for us to predict the duration or magnitude of the adverse results of the challenging macroeconomic environment and its effects on our business, results of operations, or financial condition at this time. 68 Table of Contents • Add new clients. We believe our ability to increase our client base will enable us to drive growth.
Our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the nature, timing, and extent of these expenses. 68 Table of Contents General and administrative. General and administrative expenses primarily include salary and related personnel costs for our legal, finance, people operations, IT, and other administrative teams, including certain executives.
Our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the nature, timing, and extent of these expenses. General and administrative. General and administrative expenses primarily include salary and related personnel costs for our legal, finance, people operations, IT, and other administrative teams, including certain executives.
However, 2022 proved to be a more challenging year than anticipated as a result of the inflationary macroeconomic environment and the meaningful financial strain that our health system end market faced, which contributed to a lower Dollar-based Retention Rate compared to 2021.
However, 2022 and 2023 proved to be more challenging years than anticipated as a result of the inflationary macroeconomic environment and the meaningful financial strain that our health system end market faced, which contributed to a lower Dollar-based Retention Rate compared to 2021.
We have demonstrated an ability to upsell technology and services to our client base over time as evidenced by a Dollar-based Retention Rate of 100%, 112%, and 102% for the years ended December 31, 2022, 2021, and 2020, respectively.
We have demonstrated an ability to upsell technology and services to our client base over time as evidenced by a Dollar-based Retention Rate of 100%, 100%, and 112% for the years ended December 31, 2023, 2022, and 2021, respectively.
However, our technology Dollar-based Retention Rate decreased as of December 31, 2022 compared to December 31, 2021 primarily due to the loss of a large enterprise DOS platform client, a decline in our sales pipeline with respect to parts of our Solution that do not offer near-term ROI, such as our clinically-focused technology offerings, and a few clients reducing their near-term spend with us in an effort to meet their short-term budget requirements.
However, our technology Dollar-based Retention Rate decreased as of December 31, 2023 and 2022 compared to December 31, 2021 primarily due to the loss of a large enterprise DOS platform client, a decline in our sales pipeline with respect to parts of our Solution that do not offer near-term ROI, such as our clinically-focused technology offerings, and some clients reducing their near-term DOS and analytics application spend with us in an effort to meet their short-term budget requirements.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 is presented below.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 is presented below.
Additionally, with our increased focus on driving expansion within our existing client base through our Tech-enabled Managed Services offering, we believe that our sales and marketing infrastructure is positioned well to generate meaningful leverage and growth within our services offerings without the need for the same level of incremental investment as in prior years.
Additionally, with our increased focus on driving expansion within our existing client base through our TEMS offering, we believe that our sales and marketing infrastructure is positioned well to generate meaningful leverage and growth within our services offerings without the need for the same level of incremental investment as in prior years.
We have acquired multiple companies over the last few years, including Medicity in June 2018, Able Health in February 2020, Healthfinch in July 2020, Vitalware in September 2020, Twistle in July 2021, KPI Ninja in February 2022, and ARMUS in April 2022.
We have acquired multiple companies over the last few years, including Medicity in June 2018, Able Health in February 2020, Healthfinch in July 2020, Vitalware in September 2020, Twistle in July 2021, KPI Ninja in February 2022, ARMUS in April 2022, and ERS in October 2023.
Sales and marketing expenses primarily include salary and related personnel costs for our sales, marketing, and account management teams, lead generation, marketing events, including our Healthcare Analytics Summit (HAS), marketing programs, and outside contractor costs associated with the sale and marketing of our offerings.
Sales and marketing expenses primarily include salary and related personnel costs for our sales, marketing, and account management teams, lead generation, marketing events, including our HAS, marketing programs, and outside contractor costs associated with the sale and marketing of our offerings.
Also included in technology revenue is the maintenance and support we provide, which generally includes updates and support services. Professional services revenue. Professional services revenue primarily includes analytics services, domain expertise services, Tech-enabled Managed Services, and implementation services. Professional services arrangements typically include a fee for making FTE services available to our clients on a monthly basis.
Also included in technology revenue is the maintenance and support we provide, which generally includes updates and support services. Professional services revenue. Professional services revenue primarily includes analytics services, domain expertise services, TEMS, and implementation services. Professional services arrangements typically include a fee for making FTE services available to our clients on a monthly basis.
Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections titled “Risk Factors” and "Special Note Regarding Forward-Looking Statements" included elsewhere in this Annual Report on Form 10-K.
Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K.
Recent macroeconomic challenges (including the high levels of inflation and high interest rates), the tight labor market, and the lingering effects of the COVID-19 pandemic continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally, leading to an economic downturn and increased market volatility. They have also disrupted the normal operations of many businesses, including ours.
Recent macroeconomic challenges (including the high levels of inflation and high interest rates) and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally, leading to an economic downturn and increased market volatility. They have also disrupted the normal operations of many businesses, including ours.
While there will likely be a headwind to gross margin from these Tech-enabled Managed Services in the near term, we believe this model will benefit our mid and long-term Adjusted EBITDA and profitability targets due to improved direct margin on these services over time, our ability to drive operating leverage with lower relative incremental operating expense investment required, and the fact that these contracts typically result in long-term technology subscription contract renewals or expansion.
While there will be a headwind to gross margin from these TEMS in the near term, we believe this model will benefit our mid and long-term Adjusted EBITDA and profitability targets due to improved direct margin on these services over time, our ability to drive operating leverage with lower relative incremental operating expense investment required, and the fact that these contracts typically result in long-term technology subscription contract renewals or expansions.
We often provide a client with a near-term discount relative to their existing costs for the scope of the Tech-enabled Managed Services opportunity, and we drive incremental gross margin over time by leveraging our technology and know-how to make processes more efficient and reduce the client's labor costs.
We often provide a client with a near-term discount relative to their existing costs for the scope of the TEMS opportunity, and we drive incremental gross margin over time by leveraging our technology and know-how to make processes more efficient and reduce the client’s labor costs.
While these factors present significant opportunities for us, they also represent the challenges that we must successfully address in order to grow our business and improve our results of operations. • Impact of challenging macroeconomic environment, including high inflation and high interest rates, and the lingering effects of the COVID-19 pandemic.
While these factors present significant opportunities for us, they also represent the challenges that we must successfully address in order to grow our business and improve our results of operations. • Impact of challenging macroeconomic environment, including high inflation and high interest rates.
Within our professional services segment, a subset of clients have reduced the number of FTEs engaged in their initiatives, while in the technology segment, a small subset of modular clients and smaller DOS platform clients have lowered their application and analytics spend.
As previously described, within our professional services segment, a subset of clients have reduced the number of FTEs engaged in their initiatives, while in the technology segment, a subset of modular clients and smaller DOS platform clients have lowered their application and analytics spend.
Our health system end market is currently experiencing meaningful financial strain from significant inflation with increases in labor and supply costs without a commensurate increase in revenue, leading to significant margin pressure.
Our health system end market is currently experiencing meaningful financial strain from significant inflation. In particular, they are experiencing increases in labor and supply costs without a commensurate increase in revenue, leading to significant margin pressure.
Our clients are large, complex organizations who typically have long procurement cycles which may lead to declines in the pace of our new client additions. 65 Table of Contents • Leverage recent product and services offerings to drive expansion. We believe that our ability to expand within our client base will enable us to drive growth.
Our clients are large, complex organizations who typically have long procurement cycles which may lead to declines in the pace of our new client additions, which also included small clients. • Leverage recent product and services offerings to drive expansion. We believe that our ability to expand within our client base will enable us to drive growth.
The growth in revenue was primarily due to revenue from new clients, including clients of our recent acquired entities, and existing clients paying higher technology access fees from contractual, annual escalators. • For the years ended December 31, 2022, 2021, and 2020, we incurred net losses of $137.4 million, $153.2 million, and $115.0 million, respectively. • For the years ended December 31, 2022, 2021, and 2020, our Adjusted EBITDA was $(2.5) million, $(11.2) million, and $(21.3) million, respectively.
The growth in revenue was primarily due to revenue from new clients, including clients of our recent acquired entities, and existing clients paying higher technology access fees from contractual, annual escalators. • For the years ended December 31, 2023, 2022, and 2021, we incurred net losses of $118.1 million, $137.4 million, and $153.2 million, respectively. • For the years ended December 31, 2023, 2022, and 2021, our Adjusted EBITDA was $11.0 million, $(2.5) million, and $(11.2) million, respectively.
Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for (i) interest and other expense, net, (ii) loss on extinguishment of debt, (iii) income tax benefit, (iv) depreciation and amortization, (v) stock-based compensation, (vi) acquisition-related costs, net, (vii) restructuring costs, and (viii) non-recurring lease-related charges.
Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for (i) interest and other (income) expense, net, (ii) income tax provision (benefit), (iii) depreciation and amortization, (iv) stock-based compensation, (v) acquisition-related costs, net, (vi) litigation costs, (vii) restructuring costs, and (viii) non-recurring lease-related charges.
See “Reconciliation of Non-GAAP Financial Measures” below for more information about this financial measure, including the limitations of such measure and a reconciliation to the most directly comparable measure calculated in accordance with GAAP.
See “Reconciliation of Non-GAAP Financial Measures” below for more information about Adjusted EBITDA, including the limitations of Adjusted EBITDA and a reconciliation to the most directly comparable measure calculated in accordance with GAAP.
Year Ended December 31, 2021 (in thousands, except percentages) Technology Professional Services Total Revenue $ 147,718 $ 94,208 $ 241,926 Cost of revenue, excluding depreciation and amortization (47,516) (76,838) (124,354) Gross profit, excluding depreciation and amortization 100,202 17,370 117,572 Add: Stock-based compensation 2,063 8,047 10,110 Acquisition-related costs, net (1) 61 127 188 Adjusted Gross Profit $ 102,326 $ 25,544 $ 127,870 Gross margin, excluding depreciation and amortization 68 % 18 % 49 % Adjusted Gross Margin 69 % 27 % 53 % __________________ (1) Acquisition-related costs, net includes deferred retention expenses following the acquisition of Twistle.
(2) Restructuring costs include severance and other team member costs from workforce reductions. 66 Table of Contents Year Ended December 31, 2021 (in thousands, except percentages) Technology Professional Services Total Revenue $ 147,718 $ 94,208 $ 241,926 Cost of revenue, excluding depreciation and amortization (47,516) (76,838) (124,354) Gross profit, excluding depreciation and amortization 100,202 17,370 117,572 Add: Stock-based compensation 2,063 8,047 10,110 Acquisition-related costs, net (1) 61 127 188 Adjusted Gross Profit $ 102,326 $ 25,544 $ 127,870 Gross margin, excluding depreciation and amortization 68 % 18 % 49 % Adjusted Gross Margin 69 % 27 % 53 % __________________ (1) Acquisition-related costs, net includes deferred retention expenses following the Twistle acquisition.
See “Key Factors Affecting Our Performance” for more information about important opportunities and challenges related to our business. 57 Table of Contents Challenging Macroeconomic Environment Recent macroeconomic challenges (including high levels of inflation and high interest rates), the tight labor market, and the lingering effects of the COVID-19 pandemic continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally.
See “Key Factors Affecting Our Performance” for more information about important opportunities and challenges related to our business. 60 Table of Contents Challenging Macroeconomic Environment Recent macroeconomic challenges (including high levels of inflation and high interest rates) and the tight labor market continue to adversely affect workforces, organizations, governments, clients, economies, and financial markets globally.
See above for information regarding the limitations of using our Adjusted Gross Profit and Adjusted Gross Margin as financial measures and for a reconciliation of revenue to our Adjusted Gross Profit, the most directly comparable financial measure calculated in accordance with GAAP.
See “Reconciliation of Non-GAAP Financial Measures” below for information regarding the limitations of using our Adjusted Gross Profit and Adjusted Gross Margin as financial measures and for a reconciliation of revenue to our Adjusted Gross Profit, the most directly comparable financial measure calculated in accordance with GAAP.
While our professional services offerings help our clients achieve measurable improvements and make them stickier, they have lower gross margins than our technology revenue. In 2022, our technology revenue and professional services revenue represented 64% and 36% of total revenue, respectively. Changes in our percentage of revenue attributable to Technology and Professional Services would impact future Total Adjusted Gross Margin.
While our professional services offerings help our clients achieve measurable improvements and make them stickier, they have lower gross margins than our technology revenue. In 2023, our technology revenue and professional services revenue represented 63% and 37% of total revenue, respectively. Changes in our percentage of revenue attributable to Technology and Professional Services would impact future Total Adjusted Gross Margin.
For example, in 2023 we expect professional services revenue to become a higher percentage of total revenue as a result of increased demand for Tech-enabled Managed Services that tend to provide an immediate return on investment for clients, including in the form of cost savings for the client.
For example, in 2024, we expect professional services revenue to become a higher percentage of total revenue as a result of increased demand for Tech-enabled Managed Services that tend to provide an immediate ROI for clients, including in the form of cost savings for the client.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020 is included under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our prior year Form 10-K filed on March 1, 2022.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 is included under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our prior year Form 10-K filed on February 28, 2023.
Specifically, in the near term we expect our mix of services to include more Tech-enabled Managed Services, which have minimal initial services gross margins that gradually increase over time as the company drives efficiencies in service delivery through the use of our technology.
Specifically, in the near term, we expect our mix of services to include more TEMS which have minimal initial services gross margins that gradually increase over time as we drive efficiencies in service delivery through the use of our technology.
Dollar-based Retention Rate Year Ended December 31, 2022 2021 2020 Dollar-based Retention Rate 100 % 112 % 102 % We calculate our Dollar-based Retention Rate as of a period end by starting with the sum of the technology and professional services Annual Recurring Revenue (ARR) from our DOS Subscription Clients as of the date 12 months prior to such period end (prior period ARR).
Dollar-based Retention Rate Year Ended December 31, 2023 2022 2021 Dollar-based Retention Rate 100 % 100 % 112 % 64 Table of Contents We calculate our Dollar-based Retention Rate as of a period end by starting with the sum of the technology and professional services ARR from our DOS Subscription Clients as of the date 12 months prior to such period end (prior period ARR).
Highlights from the years ended December 31, 2022, 2021, and 2020 include: • For the years ended December 31, 2022, 2021, and 2020, our total revenue was $276.2 million, $241.9 million, and $188.8 million, respectively.
Highlights from the years ended December 31, 2023, 2022, and 2021 include: • For the years ended December 31, 2023, 2022, and 2021, our total revenue was $295.9 million, $276.2 million, and $241.9 million, respectively.
We expect Adjusted Technology Gross Margin to fluctuate and potentially decline in the near term, primarily due to additional costs associated with the ongoing transition of a small number of clients from on-premise and our managed data centers to third-party hosted data centers with Microsoft Azure and the migration of a subset of clients to our multi-tenant, Snowflake and Databricks-enabled data platform environment, as well as a small subset of modular clients reducing their software analytics application costs, which tend to be higher margin offerings.
We expect Adjusted Technology Gross Margin to fluctuate and potentially decline in the near term, primarily due to additional costs associated with the ongoing transition of a small number of clients from our managed data centers or on-premise to third-party hosted data centers with Microsoft Azure as well as the migration of a subset of clients to our multi-tenant, Snowflake and Databricks-enabled data platform environment.
Refer to Note 10 of our consolidated financial statements for additional details regarding the private offering of the Notes and the Capped Calls. 75 Table of Contents Cash Flows The following table summarizes our cash flows for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, 2022 2021 2020 (in thousands) Net cash used in operating activities $ (35,270) $ (23,123) $ (26,148) Net cash used in investing activities (39,021) (139,678) (82,565) Net cash provided by financing activities (2,613) 264,084 182,609 Effect of exchange rate changes on cash and cash equivalents (11) (10) 26 Net increase (decrease) in cash and cash equivalents $ (76,915) $ 101,273 $ 73,922 Operating activities Our largest source of operating cash flows is cash collections from our clients for technology and professional services arrangements.
Refer to Note 10 of our consolidated financial statements for additional details regarding the private offering of the Notes and the Capped Calls. 78 Table of Contents Cash Flows The following table summarizes our cash flows for the years ended December 31, 2023, 2022, and 2021: Year Ended December 31, 2023 2022 2021 (in thousands) Net cash used in operating activities $ (33,080) $ (35,270) $ (23,123) Net cash provided by (used in) investing activities 20,293 (39,021) (139,678) Net cash provided by (used in) financing activities 2,730 (2,613) 264,084 Effect of exchange rate changes on cash and cash equivalents 21 (11) (10) Net (decrease) increase in cash and cash equivalents $ (10,036) $ (76,915) $ 101,273 Operating activities Our largest source of operating cash flows is cash collections from our clients for technology and professional services arrangements.
As part of our Tech-enabled Managed Services contracts, we often re-badge existing health system team members within the applicable functional area as Health Catalyst team members.
As part of our TEMS contracts, we often re-badge existing health system team members within the applicable functional area as Health Catalyst team members.
For the years ended December 31, 2022, 2021, and 2020, technology revenue represented 64%, 61%, and 58% of total revenue, respectively, and professional services revenue represented 36%, 39%, and 42% of total revenue, respectively. 67 Table of Contents Technology revenue. Technology revenue primarily consists of subscription fees charged to clients for access to use our data platform and analytics applications.
For the years ended December 31, 2023, 2022, and 2021, technology revenue represented 63%, 64%, and 61% of total revenue, respectively, and professional services revenue represented 37%, 36%, and 39% of total revenue, respectively. Technology revenue. Technology revenue primarily consists of subscription fees charged to clients for access to use our data platform and analytics applications.
We benefit from a highly recurring revenue model, in which greater than 90% of our revenue is recurring in nature, and a high level of technology revenue predictability, especially within our DOS Subscription Clients whose contracts typically have built-in, contractual technology revenue escalators.
We benefit from a highly recurring revenue model, in which greater than 90% of our revenue is recurring in nature, and a high level of technology revenue predictability, especially within our DOS Subscription Clients whose contracts, when sold as a bundle with our analytics applications, often have built-in, contractual technology revenue escalators.
We believe Adjusted Gross Profit and Adjusted Gross Margin are useful to investors as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses and certain other non-recurring operating expenses. We present both of these measures for our technology and professional services business.
We believe Adjusted Gross Profit and Adjusted Gross Margin are useful to investors as they eliminate the impact of certain non-cash expenses, as well as certain other non-recurring operating expenses, and allow a direct comparison of these measures between periods without the impact of non-cash expenses and certain other non-recurring operating expenses.
During the year ended December 31, 2022, we repurchased and retired 709,139 shares of our common stock for $8.4 million at an average purchase price of $11.81 per share. The total remaining authorization for future shares of common stock repurchases under our Share Repurchase Plan is $31.6 million as of December 31, 2022.
This is in addition to the 709,139 shares of common stock we repurchased and retired for $8.4 million at an average purchase price of $11.81 per share during the third quarter of 2022. The total remaining authorization for future shares of common stock repurchases under our Share Repurchase Plan is $29.8 million as of December 31, 2023.
The health system end market, in particular, is experiencing meaningful financial strain, in which it has realized significant increases in labor and supply costs without a commensurate increase in revenue, leading to a deterioration in operating margins across many of our clients and prospective clients. We anticipate this dynamic to persist for at least the next few quarters.
The health system end market, in particular, is experiencing meaningful financial strain, in which it has realized significant increases in labor and supply costs without a commensurate increase in revenue, leading to a deterioration in operating margins across many of our clients and prospective clients.
Our primary uses of cash from operating activities are for employee-related expenses, marketing expenses, and technology costs. For the year ended December 31, 2022, net cash used in operating activities was $35.3 million, which included a net loss of $137.4 million.
Our primary uses of cash from operating activities are for employee-related expenses, marketing expenses, and technology costs. For the year ended December 31, 2023, net cash used in operating activities was $33.1 million, which included a net loss of $118.1 million.
Because of the uncertainty of the realization of the deferred tax assets, we have a full valuation allowance for our net deferred tax assets, including net operating loss carryforwards (NOLs) and tax credits related primarily to research and development.
Income tax benefit Income tax benefit consists of U.S. federal, state, and foreign income taxes. Because of the uncertainty of the realization of the deferred tax assets, we have a full valuation allowance for our net deferred tax assets, including net operating loss carryforwards (NOLs) and tax credits related primarily to research and development.
Although subscription revenue from individual DOS Subscription Client arrangements may vary dramatically, we generally expect average subscription revenue for new DOS Subscription Clients in a calendar year will range between $500,000 and $1,500,000.
Although subscription revenue from individual DOS Subscription Client arrangements may vary dramatically based on the type and number of DOS modules and applications included in new contracts, we generally expect average subscription revenue for new DOS Subscription Clients in a calendar year will range between $500,000 and $1,500,000.
While this expected change in revenue mix will likely lead to lower Adjusted Professional Services Gross Margin and Total Adjusted Gross Margin in 2023 as compared to prior years, we expect that we will continue to achieve improvements in our Adjusted EBITDA as a result of the minimal incremental operating expense required to support our Tech-enabled Managed Services growth.
While this change in bookings mix will lead to lower Adjusted Professional Services Gross Margin and Total Adjusted Gross Margin in future years, we expect that we will achieve improvements in Adjusted EBITDA as a result of the minimal incremental operating expense required to support our TEMS growth.
This margin pressure along with the lingering effects the COVID-19 pandemic could continue to decrease healthcare industry spending, adversely affect demand for our technology and services, cause one or more of our clients to file for bankruptcy protection or go out of business, cause one or more of our clients to fail to renew, terminate, or renegotiate their contracts, affect the ability of our sales team to travel to potential clients and the ability of our professional services teams to conduct in-person services and trainings, impact expected spending from new clients, negatively impact collections of accounts receivable, and harm our business, results of operations, and financial condition.
This margin pressure could continue to decrease healthcare industry spending, adversely affect demand for our technology and services, cause one or more of our clients to file for bankruptcy protection or go out of business, cause one or more of our clients to fail to renew, terminate, or renegotiate their contracts, impact expected spending from new clients, negatively impact collections of accounts receivable, and harm our business, results of operations, and financial condition.
Although we expect cost of technology revenue to increase in absolute dollars as we increase headcount, cloud computing, and hosting costs to accommodate growth, and as we continue to transition clients to third-party hosted data centers with Microsoft Azure and the migration of clients to the next iteration of our DOS platform, we anticipate cost of technology revenue as a percentage of technology revenue will generally decrease over the long term.
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. 70 Table of Contents Although we expect cost of technology revenue to increase in absolute dollars as we increase headcount, cloud computing, and hosting costs to accommodate growth, and as we continue to transition clients to third-party hosted data centers with Microsoft Azure and the migration of clients to the next iteration of our DOS platform, we anticipate cost of technology revenue as a percentage of technology revenue will generally decrease over the long term.
The increase was primarily due to a $4.0 million increase in cloud computing and hosting costs largely from the expanded use of Microsoft Azure to serve existing and new clients, a $1.9 million increase in dues, subscriptions, and license and revenue share fees, a $1.8 million increase in salary and related personnel costs from an increase in cloud services and support headcount, and a $1.2 million increase in contractors and outside services.
The increase was primarily due to a $3.8 million increase in cloud computing and hosting costs largely from the expanded use of Microsoft Azure to serve existing and new clients, a $1.7 million increase in license and revenue share fees, a $0.5 million increase in salary and related personnel costs.
These investing cash outflows were partially offset by the sale and maturity of short-term investments of $219.1 million, reduced by the purchases of short-term investments of $189.5 million. 76 Table of Contents Financing activities Net cash used in financing activities for the year ended December 31, 2022 of $2.6 million was primarily the result of $8.4 million in repurchases of common stock and $1.3 million in payments of acquisition-related obligations, partially offset by $4.0 million in stock option exercise proceeds and $3.2 million in proceeds from our ESPP.
Net cash used in financing activities for the year ended December 31, 2022 of $2.6 million was primarily the result of $8.4 million in repurchases of common stock and $1.3 million in payments of acquisition-related obligations, partially offset by $4.0 million in stock option exercise proceeds and $3.2 million in proceeds from our ESPP.
We derive substantially all of our revenue through subscriptions for use of our technology and professional services on a recurring basis. In 2022, greater than 90% of our total revenue was recurring in nature.
The increase in Other Clients from 2022 to 2023 was primarily due to our acquisition of ERS. We derive substantially all of our revenue through subscriptions for use of our technology and professional services on a recurring basis. In 2023, greater than 90% of our total revenue was recurring in nature.
Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for (i) interest and other (income) expense, net, (ii) loss on extinguishment of debt, (iii) income tax provision (benefit), (iv) depreciation and amortization, (v) stock-based compensation, (vi) acquisition-related costs, net, including the change in fair value of contingent consideration liabilities for potential earn-out payments, (vii) restructuring costs, and (viii) non-recurring lease-related charges.
Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for (i) interest and other (income) expense, net, (ii) income tax provision (benefit), (iii) depreciation and amortization, (iv) stock-based compensation, (v) acquisition-related costs, net, (vi) litigation costs, (vii) restructuring costs, and (viii) non-recurring lease-related charges.
Technology revenue was $176.3 million, or 64% of total revenue, for the year ended December 31, 2022, compared to $147.7 million, or 61% of total revenue, for the year ended December 31, 2021.
Technology revenue was $187.6 million, or 63% of total revenue, for the year ended December 31, 2023, compared to $176.3 million, or 64% of total revenue, for the year ended December 31, 2022.
The year-over-year result was mainly driven by existing clients paying higher technology access fees from contractual, built-in escalators, without the corresponding increase in hosting costs. The increase was offset by headwinds due to the continued costs associated with transitioning a portion of our client base to Azure-hosted environments as well as increased support costs without a commensurate increase in revenue.
The year-over-year result was mainly driven by continued costs associated with transitioning a portion of our client base to Azure-hosted environments, as well as from costs associated with migrating a subset of our client base to our multi-tenant, Snowflake and Databricks-enabled data platform environment, partially offset by existing clients paying higher technology access fees from contractual, built-in escalators, without a corresponding increase in hosting costs.
Cost of professional services revenue was $86.4 million for the year ended December 31, 2022, compared to $76.8 million for the year ended December 31, 2021, an increase of $9.6 million, or 12%.
Cost of professional services revenue was $101.6 million for the year ended December 31, 2023, compared to $86.4 million for the year ended December 31, 2022, an increase of $15.2 million, or 18%.
The $9.1 million of payments in excess of the acquisition date fair value to settle the cash-based portion of contingent consideration liabilities was included in the net cash used in operating activities. For the year ended December 31, 2020, net cash used in operating activities was $26.1 million, which included a net loss of $115.0 million.
The $9.1 million of payments in excess of the acquisition date fair value to settle the cash-based portion of contingent consideration liabilities was included in the net cash used in operating activities.
We proactively responded to the challenging macroeconomic environment with a strategic operating plan that emphasizes our offerings and go-to-market approach on the areas where we have the most competitive differentiation and where clients are most likely to achieve measurable financial and operational ROI both in the near term and over time.
We continue to proactively respond to the challenging macroeconomic environment with a strategic operating plan that emphasizes our offerings and go-to-market approach in the areas where we have the most competitive differentiation and where clients are most likely to achieve measurable financial and operational ROI both in the near term and over time. 61 Table of Contents We believe this focus will enable us to move forward in a position of continued competitive and financial strength.
We expect Adjusted Professional Services Gross Margin to fluctuate on a quarterly basis and to decline in the near term due to changes in the mix of services we provide, the amount of operational overhead required to deliver our services, and clients delaying or reducing services due to the uncertain and challenging macroeconomic environment.
We expect that the workforce reductions that are part of the 2023 Restructuring Plan will have a positive impact on Adjusted Professional Services Gross Margin; however, we still expect Adjusted Professional Services Gross Margin to fluctuate on a quarterly basis due to changes in the mix of services we provide, the amount of operational overhead required to deliver our services, and clients delaying or reducing services due to the uncertain and challenging macroeconomic environment.
The average subscription revenue for DOS Subscription Clients signed in the twelve-month period ended December 31, 2022 (2022 DOS Subscription Clients), for instance, was towards the midpoint of the average expected range, in part driven by some heightened interest in stand-alone DOS module components, such as Healthcare.AI, which results in subscription revenue that is significantly lower than subscription revenue derived from a contract that includes direct access to all of the DOS platform components.
The average subscription revenue for DOS Subscription Clients signed in the twelve-month period ended December 31, 2023 (2023 DOS Subscription Clients), for instance, was below the midpoint of the average expected range noted in the preceding paragraph, driven primarily by greater growth opportunity through stand-alone DOS module components, such as Healthcare.AI, which resulted in subscription revenue that is significantly lower than subscription revenue derived from a contract that includes enterprise access to all of the DOS platform components and analytic applications.
For additional details refer to Notes 1, 2, and 7 in our consolidated financial statements. (2) Restructuring costs include severance and other team member costs from workforce reductions, impairment of discontinued capitalized software projects, and other miscellaneous charges. For additional details, refer to Note 11 in our consolidated financial statements.
(3) Restructuring costs include severance and other team member costs from workforce reductions, impairment of discontinued capitalized software projects, and other miscellaneous charges. For additional details, refer to Note 11 in our consolidated financial statements. (4) Non-recurring lease-related charges includes lease-related impairment charges for the subleased portion of our corporate headquarters.
Key Factors Affecting Our Performance We believe that our future growth, success, and performance are dependent on many factors, including those set forth below.
For additional details refer to Note 9 in our consolidated financial statements. Key Factors Affecting Our Performance We believe that our future growth, success, and performance are dependent on many factors, including those set forth below.
We believe these non-GAAP measures are useful in evaluating our operating performance compared to that of other companies in our industry, as these metrics generally eliminate the effects of certain items that may vary from company to company for reasons unrelated to overall profitability. 62 Table of Contents The following is a reconciliation of revenue to our Adjusted Gross Profit and Adjusted Gross Margin in total and for technology and professional services for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, 2022 (in thousands, except percentages) Technology Professional Services Total Revenue $ 176,288 $ 99,948 $ 276,236 Cost of revenue, excluding depreciation and amortization (56,642) (86,407) (143,049) Gross profit, excluding depreciation and amortization 119,646 13,541 133,187 Add: Stock-based compensation 2,058 8,230 10,288 Acquisition-related costs, net (1) 351 655 1,006 Restructuring costs (2) 229 1,139 1,368 Adjusted Gross Profit $ 122,284 $ 23,565 $ 145,849 Gross margin, excluding depreciation and amortization 68 % 14 % 48 % Adjusted Gross Margin 69 % 24 % 53 % __________________ (1) Acquisition-related costs, net include deferred retention expenses following the ARMUS, KPI Ninja, and Twistle acquisitions.
Year Ended December 31, 2022 (in thousands, except percentages) Technology Professional Services Total Revenue $ 176,288 $ 99,948 $ 276,236 Cost of revenue, excluding depreciation and amortization (56,642) (86,407) (143,049) Gross profit, excluding depreciation and amortization 119,646 13,541 133,187 Add: Stock-based compensation 2,058 8,230 10,288 Acquisition-related costs, net (1) 351 655 1,006 Restructuring costs (2) 229 1,139 1,368 Adjusted Gross Profit $ 122,284 $ 23,565 $ 145,849 Gross margin, excluding depreciation and amortization 68 % 14 % 48 % Adjusted Gross Margin 69 % 24 % 53 % __________________ (1) Acquisition-related costs, net includes deferred retention expenses following the ARMUS, KPI Ninja, and Twistle acquisitions.
The purchase resulted in Health Catalyst acquiring 100% ownership in Able Health. The earn-out contingent consideration liability was settled during the first quarter of 2021. Components of Our Results of Operations Revenue We derive our revenue from sales of technology and professional services.
The earn-out contingent consideration liability was settled during the third quarter of 2022. Components of Our Results of Operations Revenue We derive our revenue from sales of technology and professional services.
Other Clients that do not meet the definition of a DOS Subscription Client, which are primarily legacy Medicity, Able Health, Healthfinch, Vitalware, Twistle, KPI Ninja, and ARMUS clients, are not included in the Dollar-based Retention Rate metrics. 61 Table of Contents Given the nature of our technology contracts, which, for many DOS platform clients, are generally priced for multi-year periods and have built-in, contractual escalators, we would generally anticipate less variation within our Dollar-based Retention Rate for technology fees as a result of current challenging macroeconomic factors.
Given the nature of our technology contracts, which, for many DOS Subscription Clients, are generally priced for multi-year periods and have built-in, contractual escalators, we would generally anticipate less variation within our Dollar-based Retention Rate for technology fees as a result of current challenging macroeconomic factors.
For these technology arrangements, we generally use the residual estimation method due to a limited number of standalone transactions and/or prices that are highly variable.
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 estimation method due to a limited number of standalone transactions and/or prices that are highly variable.
General and administrative Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) General and administrative $ 61,701 $ 85,934 $ (24,233) (28) % Percentage of total revenue 22 % 36 % General and administrative expenses were $61.7 million for the year ended December 31, 2022, compared to $85.9 million for the year ended December 31, 2021, a decrease of $24.2 million, or (28)%.
General and administrative Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) General and administrative $ 76,559 $ 61,701 $ 14,858 24 % Percentage of total revenue 26 % 22 % General and administrative expenses were $76.6 million for the year ended December 31, 2023, compared to $61.7 million for the year ended December 31, 2022, an increase of $14.9 million, or 24%.
This increase was primarily due to a $6.0 million increase in salary and related personnel costs from additional headcount, a $2.2 million increase in contractor and outside service fees, and a $1.1 million increase in restructuring costs. 72 Table of Contents Operating Expenses Sales and marketing Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) Sales and marketing $ 87,514 $ 75,027 $ 12,487 17 % Percentage of total revenue 32 % 31 % Sales and marketing expenses were $87.5 million for the year ended December 31, 2022, compared to $75.0 million for the year ended December 31, 2021, an increase of $12.5 million, or 17%.
This increase was primarily due to a $14.2 million increase in salary and related personnel costs from additional professional services headcount, including new TEMS headcount, a $1.4 million increase in contractor and outside service fees, and a $0.7 million increase in restructuring costs, which were partially offset by a $0.9 million decrease in stock-based compensation. 75 Table of Contents Operating Expenses Sales and marketing Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) Sales and marketing $ 67,321 $ 87,514 $ (20,193) (23) % Percentage of total revenue 23 % 32 % Sales and marketing expenses were $67.3 million for the year ended December 31, 2023, compared to $87.5 million for the year ended December 31, 2022, a decrease of $20.2 million, or 23%.
Income tax benefit Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) Income tax benefit $ (4,280) $ (6,898) $ 2,618 (38) % __________________________ (1) Not meaningful. Income tax benefit decreased $2.6 million, or 38%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Income tax provision (benefit) Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) Income tax provision (benefit) $ 356 $ (4,280) $ 4,636 n/m (1) __________________________ (1) Not meaningful. Income tax provision (benefit) increased by $4.6 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Since inception, we have financed our operations primarily from the proceeds we received through private sales of equity securities, payments received from clients under technology and professional services arrangements, borrowings under our loan and security agreements, our IPO, the Note Offering, and the Secondary Public Equity Offering.
Our cash equivalents and short-term investments are comprised primarily of money market funds, U.S. treasury notes, commercial paper, corporate bonds, and U.S. agency securities. 77 Table of Contents Since inception, we have financed our operations primarily from the proceeds we received through private sales of equity securities, payments received from clients under technology and professional services arrangements, borrowings under our loan and security agreements, our IPO, the Note Offering, and the Secondary Public Equity Offering.
The increase was primarily due to a $5.4 million increase in stock-based compensation, a $3.0 million increase in restructuring costs, a $2.0 million increase in salary and related personnel costs from additional headcount, and a $1.2 million increase from travel and entertainment.
The decrease was primarily due to a $8.4 million decrease in salary and related personnel costs from a reduction in headcount in connection with the 2022 Restructuring Plan, a $7.1 million decrease in stock-based compensation, a $3.5 million decrease in HAS event costs related to a change in timing of the event, and a $0.5 million decrease in travel and entertainment expenses.
We categorize our client count into two primary categories: DOS Subscription Clients and Other Clients. DOS Subscription Clients are defined as clients who directly or indirectly access our DOS platform via a technology subscription contract. Indirect access to the DOS platform may include DOS module components such as Healthcare.AI, Pop Analyzer, IDEA, and other DOS platform components.
DOS Subscription Clients are defined as clients who directly or indirectly access our DOS platform via a technology subscription contract. Indirect access to the DOS platform may include DOS module components such as Healthcare.AI, Pop Analyzer, IDEA, and other DOS platform components. See “Key Business Metrics and Non-GAAP Financial Measures” below for more information about our DOS Subscription Clients.
See “Reconciliation of Non-GAAP Financial Measures” below for information regarding the limitations of using our Adjusted EBITDA as a financial measure and for a reconciliation of our net loss to Adjusted EBITDA, the most directly comparable financial measure calculated in accordance with GAAP. 60 Table of Contents Other Key Metrics We also regularly monitor and review the number of DOS Subscription Clients and Dollar-based Retention Rate as shown in the following tables: DOS Subscription Clients As of December 31, 2022 2021 2020 DOS Subscription Clients 98 90 74 Since 2016, our primary contracting model is a subscription-based contract to our DOS platform, analytics applications, and professional services.
Other Key Metrics We also regularly monitor and review the number of DOS Subscription Clients and Dollar-based Retention Rate as shown in the following tables: DOS Subscription Clients As of December 31, 2023 2022 2021 DOS Subscription Clients 109 98 90 Since 2016, our primary contracting model is a subscription-based contract to our DOS platform, analytics applications, and professional services.
Cost of revenue, excluding depreciation and amortization Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) Cost of revenue, excluding depreciation and amortization: Technology $ 56,642 $ 47,516 $ 9,126 19 % Professional services 86,407 76,838 9,569 12 % Total cost of revenue, excluding depreciation and amortization $ 143,049 $ 124,354 $ 18,695 15 % Percentage of total revenue 52 % 51 % Cost of technology revenue, excluding depreciation and amortization, was $56.6 million for the year ended December 31, 2022, compared to $47.5 million for the year ended December 31, 2021, an increase of $9.1 million, or 19%.
Cost of revenue, excluding depreciation and amortization Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) Cost of revenue, excluding depreciation and amortization: Technology $ 62,474 $ 56,642 $ 5,832 10 % Professional services 101,631 86,407 15,224 18 % Total cost of revenue, excluding depreciation and amortization $ 164,105 $ 143,049 $ 21,056 15 % Percentage of total revenue 55 % 52 % Cost of technology revenue, excluding depreciation and amortization, was $62.5 million for the year ended December 31, 2023, compared to $56.6 million for the year ended December 31, 2022, an increase of $5.8 million, or 10%.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeTherefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars. 80 Inflation risk The recently high inflationary environment has adversely affected workforces, organizations, governments, clients, economies, and financial markets globally, leading to an economic downturn and increased market volatility.
Biggest changeInflation risk The recently high inflationary environment has adversely affected workforces, organizations, governments, clients, economies, and financial markets globally, leading to an economic downturn and increased market volatility. It has also disrupted the normal operations of many businesses, including ours.
Refer to Note 10 of our audited consolidated financial statements included within Item 8 in this Annual Report on Form 10-K for more information regarding our contractual obligations related to these convertible senior notes. Operating lease obligations We lease office space under operating leases that expire between 2023 and 2031.
Refer to Note 10 of our audited consolidated financial statements included within Item 8 in this Annual Report on Form 10-K for more information regarding our contractual obligations related to these convertible senior notes. Operating lease obligations We lease office space under operating leases that expire between 2024 and 2031.
As of December 31, 2022 and 2021, a hypothetical 100 basis point change in interest rates would not have had a material impact on the value of our cash equivalents or investment portfolio.
As of December 31, 2023 and 2022, a hypothetical 100 basis point change in interest rates would not have had a material impact on the value of our cash equivalents or investment portfolio.
Off-balance sheet arrangements As of December 31, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. 81
Off-balance sheet arrangements As of December 31, 2023, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. 84
Our market risk exposure is primarily a result of fluctuations in interest rates but may include foreign currency exchange risk and inflation in the future. Interest rate risk We had cash, cash equivalents, and short-term investments of $363.5 million and $445.0 million as of December 31, 2022 and 2021, respectively, which are held for working capital purposes.
Our market risk exposure is primarily a result of fluctuations in interest rates but may include foreign currency exchange risk and inflation in the future. Interest rate risk We had cash, cash equivalents, and short-term investments of $317.7 million and $363.5 million as of December 31, 2023 and 2022, respectively, which are held for working capital purposes.
As of December 31, 2022, we had total future operating lease payment obligations of $26.5 million, with $3.4 million payable within the next 12 months. Refer to Note 9 of our audited consolidated financial statements included within Item 8 in this Annual Report on Form 10-K for more information regarding our operating lease obligations.
As of December 31, 2023, we had total future operating lease payment obligations of $25.6 million, with $3.4 million payable within the next 12 months. Refer to Note 9 of our audited consolidated financial statements included within Item 8 in this Annual Report on Form 10-K for more information regarding our operating lease obligations.
Restructuring liabilities During the year ended December 31, 2022, we initiated a restructuring plan to optimize our cost structure and focus our investment of resources in key priority areas to align with strategic changes. As of December 31, 2022, we had total restructuring liabilities of $1.8 million payable within the next 12 months.
Restructuring liabilities During the year ended December 31, 2023, we initiated a restructuring plan to optimize our cost structure and focus our investment of resources in key priority areas to align with strategic changes. As of December 31, 2023, we had total restructuring liabilities of $2.4 million payable within the next 12 months.
Contractual Obligations and Commitments The contractual commitment amounts summarized below are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the transaction.
Our inability or failure to do so could harm our business, results of operations, or financial condition. 83 Contractual Obligations and Commitments The contractual commitment amounts summarized below are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the transaction.
It has also disrupted the normal operations of many businesses, including ours. Our health system end market is currently experiencing meaningful financial strain from significant inflation with increases in labor and supply costs without a commensurate increase in revenue, leading to significant margin pressure.
Our health system end market is currently experiencing meaningful financial strain from significant inflation with increases in labor and supply costs without a commensurate increase in revenue, leading to significant margin pressure.
If our costs, including labor costs, were to become subject to significant inflationary pressures on an ongoing basis, we may not be able to fully offset such higher costs by increasing fees for our Solution. Our inability or failure to do so could harm our business, results of operations, or financial condition.
If our costs, including labor costs, were to become subject to significant inflationary pressures on an ongoing basis, we may not be able to fully offset such higher costs by increasing fees for our Solution.
In the future, an increasing portion of our international sales contracts may be denominated in local currencies. Additionally, as we expand our international operations a larger portion of our operating expenses will be denominated in local currencies.
In the future, an increasing portion of our international sales contracts may be denominated in local currencies. Additionally, as we expand our international operations a larger portion of our operating expenses will be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars.
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Purchase commitments As of December 31, 2023, we had $41.5 million of remaining non-cancelable contractual commitments related to our third-party cloud infrastructure agreements, under which we committed to spend an aggregate of at least $45.8 million between February 2023 and January 2028. We expect to fully consume these contractual commitments in the ordinary course of operations.

Other HCAT 10-K year-over-year comparisons