As Health Catalyst has its initial IPO it still faces several challenges. Firstly, the company is not yet profitable. In 2018 it recorded a net loss of $62M, up on the net loss in $47M in 2017.
Much of the success Health Catalyst has had, has been a result of the support services it offers in conjunction with its technology (services accounted for 49% of revenues in 2018 and 57% in 2017). These services often go beyond how the technology is implemented and supported and focus more on how health systems can reengineer process and workflows to ensure that the analytics that the technology provides can be used to maximise the health system’s performance. Whilst instrumental in its success, providing these services comes at a significant cost, shown by its services business line having a much higher ratio of cost to revenue than its technology business line.
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Driving faster growth in the technology business, compared to the service business, as the company scales will aid the company in moving towards profitability. To do this it needs to increasingly upsell additional technology products to existing customers as it scales the business. This is already starting to occur — organic growth from existing customers in Q1 2019 represented 13% of overall technology business line growth, compared to the same quarter in 2018. Continuing this trend will be key to achieving a profit.
Secondly, the company also suffers, to some extent, due to the large number of products it supports. Whilst, on one hand the huge range has helped drive revenues, supporting this broad portfolio comes at a significant financial cost. It can also confuse customers. Simplifying the portfolio would help with both issues and the company has started addressing this. Last month it announced a new platform “Population Health Foundations”. This product brings together several technology modules and services, that had previous been sold separately, into one platform that supports providers when starting initial PHM program deployments. The solution simplifies the procurement process for the customer and has the potential to increase revenue per customer and reduce overall platform support costs for Health Catalyst. Following similar strategies with other product areas will also be instrumental in the journey to profitability.
Whilst Health Catalyst’s core markets have grown rapidly over recent years, it now faces some headwinds in several of the key markets it plays in, specifically that of population health management.