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May 7, 2019
J. Patrick Nelli
Chief Financial Officer
Health Catalyst, Inc.
3165 Millrock Drive #400
Salt Lake City, UT 84121
Re: Health Catalyst, Inc.
Draft Registration Statement on Form S-1
Submitted April 10, 2019
CIK No. 0001636422
Dear Mr. Nelli:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form S-1
Prospectus Summary
Business Overview, page 4
1. You state that for the 12 months ended March 31, 2019, customers who
contracted with
you in 2015 and 2016 experienced approximately 6 improvements on average
and
customers who contracted with you prior to 2015 experienced more than 15
improvements
on average. While you state that these improvements are
"customer-validated," please
explain the process by which you calculated these improvements and
disclose any
limitations or assumptions underlying the calculations. As part of your
response, explain
whether the number of improvements was self-reported by customers or
whether the
number of improvements was calculated by an independent party. Further,
explain
J. Patrick Nelli
FirstName LastNameJ. Patrick Nelli
Health Catalyst, Inc.
Comapany NameHealth Catalyst, Inc.
May 7, 2019
May 7, 2019 Page 2
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FirstName LastName
whether the averages were calculated for all customers in each cohort
or for a sample size
of each cohort. Finally, please disclose the average improvements per
customer for the
2017 and 2018 cohort for a balanced discussion.
2. Please provide context regarding your statement that you have achieved
strong customer
retention by quantitatively disclosing retention rates for each period
presented. We note
your disclosure that the dollar-based retention rate reflects
contraction or attrition but it is
unclear the extent to which the decrease in the dollar-based retention
rate from 2017 to
2018 is based on customer attrition. We also note the increase in the
number of customers
in 2018 was primarily due to your Medicity acquisition.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview, page 68
3. Please revise your overview section to provide a balanced discussion
regarding the
material challenges, risks and opportunities focused on by your
management. For
example, discuss any material trends or uncertainties related to the
introduction of a new
pricing model for your Solution in the fourth quarter of 2018. We note
your disclosure
that the revenue increase in fiscal year 2018 was primarily "due to
increased technology
access pricing as customers move beyond lower-level pricing tiers."
Please describe the
changes made to the pricing model and disclose the amount of revenue
attributable to the
pricing model change to the extent material. Further, disclose any
material impact on the
company if the revenue increase in fiscal year 2018 was due to a
non-recurring event. See
Item 303(a) of Regulation S-K and SEC Release No. 33-8350.
Other Key Metrics
DOS Subscription Customers, page 71
4. You disclose that you have increased your number of DOS subscription
customers as of
December 31, 2017 to December 31, 2018. Please clarify whether or not
the number of
DOS subscription customers includes only customers with active
subscriptions as of each
period end.
Dollar-based Retention Rate, page 71
5. Please clarify here that your 2017 and 2018 dollar-based retention
rates do not include
your Medicity customers and state whether this metric will include
Medicity customers
going forward.
Begin, Renew, Expand, Refer, page 72
6. We note that your number of other customers includes customers who
previously
purchased perpetual licenses and Medicity customers. Please revise the
disclosure here
and throughout the prospectus to clarify this metric. In this regard,
please include enough
information so investors can clearly understand if this number
represents current
J. Patrick Nelli
FirstName LastNameJ. Patrick Nelli
Health Catalyst, Inc.
Comapany NameHealth Catalyst, Inc.
May 7, 2019
May 7, 2019 Page 3
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FirstName LastName
customers, historic customers, revenue generating customers or some
combination of the
aforementioned groups.
7. We note your disclosure that your KLAS Evangelism Score is over twice
the healthcare
technology industry average score. Please place this metric in context
by providing
additional information related to this score, such as the period to
which your score relates,
your score and the healthcare technology industry average score.
Measurable Improvement Occurs, page 75
8. Please revise your disclosure to more clearly disclose what your LTM
average
documented improvements per customer metric represents. Also, please
tell us your
consideration of providing this metric for each cohort year.
Results of Operations, page 80
9. Please tell us your consideration of disclosing and providing a
discussion related to your
accretion of redeemable convertible preferred stock.
Certain Relationships and Related Party Transactions
Investor Rights, Registration, and Stockholders Agreements, page 134
10. You disclose on page 123 that all of your directors currently serve on
the board pursuant
to provisions of a stockholders agreement. Please include a
description of material
provisions of the stockholders agreement in this section. While you
state that you expect
the stockholders agreement to terminate upon the completion of this
offering, it appears
that the agreement could be material given that the directors who are
parties to the
agreement will continue to serve on the board until their respective
terms expire between
2020 and 2022. Please also provide an analysis of why you believe that
the investor rights
agreement and the stockholder agreement do not need to be filed
pursuant to Item
601(b)(10)(ii)(A) of Regulation S-K given that some of your officers,
directors and 5% or
greater stockholders are parties to these agreements.
Customer Relationships, page 135
11. We note that you have customer relationships with certain related
parties and recognized
$8.6 million and $3.8 million in revenue from related parties in
fiscal 2017 and 2018,
respectively. Please revise this section to separately disclose the
dollar amount involved
in your transactions with each of these related parties. Additionally,
please tell us what
consideration you have given to filing your agreements with UPMC, a
6.4% beneficial
owner of your common stock. See Item 601(b)(10)(ii)(A).
J. Patrick Nelli
FirstName LastNameJ. Patrick Nelli
Health Catalyst, Inc.
Comapany NameHealth Catalyst, Inc.
May 7, 2019
May 7, 2019 Page 4
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FirstName LastName
Health Catalyst, Inc. Notes to Consolidated Financial Statements
Note 1 Description of Business and Summary of Significant Accounting Policies
Professional Services Revenue, page F-12
12. You disclose that your professional services, including implementation
services, are
typically considered distinct. We also note your disclosure on page
F-45 that Medicity
LLC's SaaS contracts generally require significant integration,
configuration, and
implementation services that are performed to create a combined, fully
integrated solution.
For arrangements that include implementation or customization
services, please tell us the
significant judgments used in determining if these services should be
considered a
separate performance obligation. Please refer to FASB ASC 606-10-25-19
through 25-
22. Also, tell us how material significant integration or
customization arrangements are
for each period presented and expand your disclosures to further
explain your policy for
these arrangements, to the extent they are material.
Contracts with Multiple Performance Obligations, page F-12
13. Please revise to describe the types of products or services for which
standalone selling
prices are not directly observable.
14. You disclose that in cases where standalone selling prices are not
directly observable, you
may utilize the residual estimation method. Please tell us when you
utilize this method
and how you met one of the criteria in FASB ASC 606-10-32-34(c). In
addition, to the
extent material, expand your disclosure to outline the reasons for
your use of this method
and the types of contracts for which this method is used. As part of
your response, please
quantify the amount of revenue recognized in the periods presented
where the residual
method is used.
Note 2 Business Combinations, page F-19
15. You disclose that you used the services of a third-party valuation
firm to assist us in
assessing the fair value of the assets acquired and liabilities
assumed. Please revise to
clarify the nature and extent of your reliance on the third-party
valuation. Refer to
Question 141.02 of the Securities Act Sections Compliance and
Disclosure
Interpretations.
General
16. We note that you have included certain graphics in your prospectus.
Please provide us
with copies of any other graphical materials or artwork that you
intend to use in your
prospectus. Upon review of such materials, we may have further
comments. For
guidance, consider Question 101.02 of our Securities Act Forms
Compliance and
Disclosure Interpretations.
17. Please provide us with copies of all written communications, as
defined in Securities Act
J. Patrick Nelli
Health Catalyst, Inc.
May 7, 2019
Page 5
Rule 405, that you, or anyone authorized to do so on your behalf,
present to potential
investors in reliance on Securities Act Section 5(d), whether or not
they retain copies of
the communications.
You may contact Diane Fritz, Staff Accountant, at (202) 551-3331 or
Stephen Krikorian,
Accounting Branch Chief, at (202) 551-3488 if you have questions regarding
comments on the
financial statements and related matters. Please contact Mitchell Austin, Staff
Attorney, at (202)
551-3574 or Jan Woo, Legal Branch Chief, at (202) 551-3453 with any other
questions.
Sincerely,
FirstName LastNameJ. Patrick Nelli Division of
Corporation Finance
Office of
Information Technologies
Comapany NameHealth Catalyst, Inc.
and Services
May 7, 2019 Page 5
cc: An-Yen Hu, Esq.
FirstName LastName