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Health Catalyst Inc (HCAT) Q1 2021 Earnings Call Transcript

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HCAT earnings call for the period ending March 31, 2021.

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Health Catalyst Inc (HCAT 0.00%)
Q1 2021 Earnings Call
May 06, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Thank you for standing by, and welcome to the Health Catalyst earnings conference call for the first quarter of 2021. [Operator instructions] As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host, Mr. Adam Brown.

Sir, you may begin.

Adam Brown -- Senior Vice President, Finance and Investor Relations

Good afternoon. And welcome to Health Catalyst's earnings conference call for the first quarter of 2021, which ended on March 31, 2021. My name is Adam Brown. I'm the senior vice president of investor relations and financial planning and analysis for Health Catalyst.

And with me on the call is Dan Burton, our chief executive officer; and Bryan Hunt, our chief financial officer. A complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the investor relations section of our website at ir.healthcatalyst.com. As a reminder, today's call is being recorded, and a replay will be available following the conclusion of the call. During the call, we will make forward-looking statements, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, regarding trends, strategies, the impact of the COVID-19 pandemic on our business and results of operations, our pipeline conversion rates, and our general anticipated performance of the business.

These forward-looking statements are based on management's current views and expectations as of today and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. Actual results may materially differ. And please refer to the risk factors in our Form 10-K for 2020 filed with the SEC on February 25, 2021, and our Form 10-Q for the first quarter of 2021 that will be filed with the SEC.

We will also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of these non-GAAP measures to their most comparable GAAP measures is provided in our press release. With that, let me turn the call over to Dan for his prepared remarks, and then Bryan will subsequently provide his prepared remarks. Dan and Bryan will then take your questions.

Dan?

Dan Burton -- Chief Executive Officer

Thank you, Adam. And thank you to everyone who has joined us this afternoon. We are excited to share our first-quarter 2021 financial performance, along with additional highlights from the quarter. I will begin today's call with some commentary on our first-quarter 2021 financial results by sharing that we are pleased with the company's overall financial performance.

Our Q1 2021 total revenue was $55.8 million and our adjusted EBITDA was a loss of $0.8 million, with these results exceeding the midpoint of our quarterly guidance on each metric. Additionally, Our Q1 2021 technology revenue was $33.8 million, which represents 37% growth year over year. And our Q1 2021 total adjusted gross margin was 54.3%, representing an increase of 540 basis points year over year. Now let me highlight some additional items from the quarter.

You will recall from our previous earnings calls that we measure our company's performance in the three strategic objective categories of improvement, growth, and scale, and we'll discuss our quarterly results with you in each of these categories. The first category, improvement, is focused on evaluating our ability to enable our clients to realize massive, measurable improvements while also maintaining industry-leading client and team member satisfaction and engagement. Let me share a few examples of client improvements from recently published case studies. The first improvement vignette highlights our work with one of our clients supporting their journey to financial and operational recovery from COVID-19, while the latter two vignettes highlight clients leveraging our technology and services to do meaningful improvement work outside of their COVID-19 response.

First, Carle Health employed our software, including the DOS data platform and our new Healthcare.AI solution, to apply advanced data science and analytics to their COVID-19 capacity planning. Our technology-enabled colleagues at Carle to forecast census; and related bed, staffing, and supply needs at the level of patient acuity, which provided the ability in real time to anticipate and meet the demand for facility, supply, and human resources required to care for COVID-19 patients across Carle's community. Next, Thibodaux Regional Health System leveraged our solution to employ a data-informed approach to meaningfully improve care delivery and achieve reduced costs. Our software-enabled colleagues at Thibodaux to significantly reduce their patients' stroke, pneumonia, and sepsis mortality rates, in addition to decreasing length of stay, the incidence of complications for patients undergoing joint replacement surgery, and the use of blood products.

As a result, Thibodaux has achieved over 6.6 million in financial improvements while also improving health outcomes for thousands of its patients across multiple service lines. Finally, Hospital Sisters Health System utilized our solution including the DOS platform and our quality and regulatory measures analytics software to integrate claims and clinical data from disparate EMRs across its ACO. This real-time integrated quality data and analytics-enabled Hospital Sisters Health System to improve their ACO quality measures performance across 11 measures in a single year, closed care gaps, and enhanced reporting accuracy and effectiveness. Moreover, Hospital Sisters Health System gained an additional 1 million in Medicare Shared Savings Program revenue.

And they achieved 320,000 in cost savings, the result of eliminating a third-party quality-reporting software vendor. Also within the improvement category, I'd like to highlight our team member engagement. Approximately every six months, we utilize the Gallup organization to measure our team members' engagement levels. In our most recent results, we achieved an overall team member satisfaction score in the 96th percentile.

This latest engagement level continues a pattern that has been in place for many years of industry-leading team member engagement consistently ranking between the 95th and 99th percentile in overall team member satisfaction scores. This latest result is of particular significance given that it comes during a period where we were required to adapt to a global pandemic necessitating a remote-only work environment as well as having welcomed nearly 200 new teammates who came to us primarily through multiple recent acquisitions. We as a leadership team continue to maintain a primary prioritized focus on team member engagement, the center of our strategic flywheel because we recognize the central and foundational contributions that our team members make in building and then utilizing the software that enables our clients to achieve massive, measurable improvement. These Gallup results, coupled with our clients' high satisfaction levels throughout the pandemic, are heartening confirmation of our prioritization and focus.

On a similar note, I would highlight that we have been fortunate to receive multiple other external recognitions related to team member engagement, including the company's fourth recognition as a Glassdoor best place to work, in addition to inclusion in Fortune's "best place to work in technology" list, the Women Tech Council's Shatter List and InHerSight's "best information technology and services companies to work for" list. We were also thrilled that two of our team members were recently recognized as 2021 black engineer of the year Science Spectrum Trailblazer award winners. Lastly, in the improvement category, I would like to highlight our recent announcement that the company achieved certification for -- in information security by HITRUST. HITRUST leverages nationally and internationally accepted standards to ensure a comprehensive portfolio of security controls.

As trusted stewards of our client's data, we take information security and data privacy very seriously, as we recognize that they are central to the success of our clients and our mission. And this announcement highlights our ongoing commitment to implementing best practice standards for protecting data confidentiality, integrity, and availability. Our next strategic objective category is growth, which includes beginning new client relationships while also expanding existing client relationships. To begin, I would comment that our current operating environment is consistent with commentary that we shared on our Q4 2020 earnings call.

The COVID-19 pandemic continues to result in both headwinds and tailwinds as it relates to our growth, and as such, we are reiterating the 2021 bookings expectations that we shared on our Q4 2020 earnings call. In terms of headwinds, we anticipate our provider end market will continue to be under some amount of operational and financial strain over the coming months as healthcare organizations deal with the continued COVID-19 surge alongside the vaccine rollout logistics. And as it relates to tailwinds, we continue to see meaningful evidence that the healthcare provider ecosystem is better equipped and prepared to respond to the ongoing pandemic in areas including treatment efficacy, supply chain logistics, capacity planning, and broader operational optimization. Likewise, we're encouraged by the pace of the vaccine rollout efforts.

And lastly, we continue to believe that the COVID pandemic will serve as an overall tailwind in the industry's adoption of data and analytics, significantly highlighting the need for a commercial-grade data and analytics solution to replace patchwork homegrown systems. Lastly, on the topic of growth, I would share that, consistent with previous commentary, we continue to believe that we have a meaningful consolidation opportunity, especially at the applications layer of our solution stack. We currently have greater than $265 million of cash and short-term investments on our balance sheet, a meaningful portion of which is available for acquisitions. And while the pace of our acquisition efforts will always be driven by the quality of opportunity set, we continue to be encouraged by a high-quality acquisition pipeline.

And we believe that the COVID-19 pandemic has brought certain opportunities to the forefront that might not have presented themselves otherwise. Finally, I will make a couple of comments related to our board of directors. Dr. Tim Ferris, who has served on our board since January of 2018 and most recently as its chair, has concluded his service on the board, effective May 1, 2021.

England's National Health Service required Dr. Ferris to resign from our board in connection with his appointment as NHS' National Director of Transformation. We are extremely grateful for the opportunity to have benefited from Dr. Ferris's wisdom and experience for many years, and we wish him well in his exciting future role with the NHS.

In Dr. Ferris' place, we are thrilled to announce that Jack Kane has accepted the invitation to serve as Chair of our Board of Directors, effective May 1, 2021. Jack has served on our board since 2016, including several years as Audit Committee Chair. Jack has more than 30 years of experience in healthcare technology, including as a public company CFO, and currently serves on the board of directors of several companies.

We are grateful for Jack's dedication to our mission over many years as well as his depth of financial leadership experience in healthcare and in technology. He is uniquely qualified to serve as our chair moving forward. With that, let me turn the call over to Bryan. Bryan?

Bryan Hunt -- Chief Financial Officer

Thank you, Dan. Before diving into our quarterly financial results, I want to echo Dan's sentiment and say that I am pleased with our first-quarter 2021 results. I will now comment on our strategic objective category of scale. For the first quarter of 2021, we generated $55.8 million in total revenue.

As Dan mentioned, this represents an outperformance relative to the midpoint of our guidance, and it represents an increase of 24% year over year. Technology revenue for Q1 2021 was $33.8 million, representing 37% growth year over year. This year-over-year growth was driven primarily by recurring revenue from new client additions, from existing clients paying higher technology access fees as a result of contractual built-in escalators, and from our Vitalware acquisition. Professional services revenue for Q1 2021 was $22 million, representing 8% growth relative to the same period last year.

This performance is primarily due to our professional services being provided to new DOS subscription customers, partially offset by lower professional services dollar-based retention achieved in 2020, relative to historical performance, as a result of the COVID pandemic. Total adjusted gross margin for the first-quarter 2021 was 54.3%, representing an increase of approximately 540 basis points year over year. In the technology segment, our Q1 2021 adjusted technology gross margin was 69.1%, an increase of approximately 40 basis points relative to the same period last year. This year-over-year performance was mainly driven by existing clients paying higher technology access fees from contractual built-in escalators without a commensurate increase in hosting costs, offset partially by headwinds due to the continued costs associated with transitioning a portion of our client base to third-party cloud-hosted data centers in Microsoft Azure.

In the professional services segment, our Q1 2021 adjusted professional services gross margin was 31.5%, representing an increase of approximately 660 basis points year over year and an increase of approximately 410 basis points relative to Q4 2020. This year-over-year performance was mainly the result of some shift in the mix of professional services delivered and a slightly higher utilization rate than forecasted. In Q1 2021, adjusted total operating expenses were $31.2 million. As a percentage of revenue, adjusted total operating expenses were 56%, which compares favorably to 62% in Q1 2020.

Adjusted EBITDA in Q1 2021 was a loss of $0.8 million, exceeding the midpoint of our guidance and comparing favorably to an adjusted EBITDA loss of $6 million in the first quarter of 2020. This Q1 adjusted EBITDA result was mainly driven by the strong revenue and gross margin performance mentioned previously. Additionally, it was partially driven by some non-head count expenses that we anticipate will be pushed out into subsequent quarters in 2021. Our adjusted net loss per share in Q1 2021 was $0.06.

The weighted average number of shares used in calculating adjusted net loss per share in Q1 was approximately 43.9 million shares. Lastly, as it relates to our GAAP income statement, let me share an update on some of the areas of year-over-year increase. First, I would note that our Q1 2021 depreciation and amortization expense increased by $4.9 million year over year primarily due to the amortization of acquired intangible assets resulting from our 2020 business combinations. Next, you will see that our Q1 2021 stock-based compensation expense increased by $4.8 million year over year.

In addition to expense associated with incremental RSU grants and performance-based RSU grants, this increase is also the result of restricted shares issued and revested as part of acquisition consideration from our 2020 acquisitions of Able Health and Vitalware. And this revesting is classified as stock-based compensation expense. Turning to the balance sheet. We ended the first quarter of 2021 with $266 million of cash, cash equivalents, and short-term investments compared to $271 million at year-end 2020.

As a reminder, in April 2020, we issued a private placement of convertible notes with a principal amount of $230 million. And we used a portion of the proceeds to extinguish an outstanding term loan. After deducting the unamortized debt discount related to the conversion feature of $53.6 million and unamortized issuance costs of $4.5 million, as of March 31, 2021, the net carrying amount of the liability component of the convertible notes is $171.9 million. As it relates to our financial guidance.

For the second quarter of 2021, we expect total revenue between $55.1 million and $58.1 million and adjusted EBITDA losses between $4.8 million and $2.8 million. And for the full-year 2021, we expect total revenue between $228.1 million and $231.1 million. At their respective midpoints, this represents an increase of $3 million compared to the full-year revenue guidance we provided last quarter. We also expect adjusted EBITDA losses between $15 million and $13 million.

At their respective midpoints, this represents an improvement of $0.75 million compared to the full-year guidance we provided last quarter. Lastly, I will provide a few additional details related to our guidance and 2021 forecast. First, we anticipate our Q2 2021 professional services revenue will be roughly flat to Q1 2021. As a reminder, Q2 2021 professional services year-over-year growth will result in a more favorable comparison relative to the other quarters in 2021 given that, in Q2 2020, we offered a subset of our clients' temporary professional services discounts, helping to support them through the acute COVID-19-related financial strain.

Next, I would mention that we continue to anticipate our overall adjusted professional services gross margin percentage will be in the 20s for the full-year 2021, driven by our forecasted mix of services utilized and our forecasted utilization rate. And lastly, I would like to provide a reminder that we do typically experience seasonality in our operating expenses. The increase in our operating expenses that we anticipate for the remainder of the year are mainly driven by non-head count expenses, including our Healthcare Analytics Summit, the acquisition-related integration expense that we described on our Q4 2020 earnings call as well as continued strategic investment in our growth and research and development functions consistent with previous commentary. With that, I'll conclude my prepared remarks.

Dan?

Dan Burton -- Chief Executive Officer

Thanks, Bryan. I will conclude my commentary by thanking our highly engaged team members. I'm grateful to these teammates for their central contributions to our mission and growth. And with that, I will turn the call back to the operator for questions.

Questions & Answers:


Operator

[Operator instructions] Our first question is from Robert Jones with Goldman Sachs. Your question, please.

Jack Rogoff -- Goldman Sachs -- Analyst

Great. Thanks for taking my questions. This is Jack Rogoff on for Bob. So would you be able to describe specifically what in professional services mix was better in the quarter? And if I heard you correctly, it sounds like you expect some of that mix to revert, so could you talk about how what transpired within professional services in the quarter impacts how you do the balance of the year?

Bryan Hunt -- Chief Financial Officer

Yeah, absolutely. So in terms of our Q1 professional services performance, we did see a bit of an uptick in terms of the mix of services offered that are some of our higher-margin professional services. So as a reminder, we have three main components of professional services offerings. One is our implementation services.

One is our data and analytics consulting services, and the third is our outsourced services. Data and analytics and then our -- in line with that, our domain expert services are the higher-margin professional services that we offer. And we did see a bit of an uptick toward those in Q1. That was also related to actually some additional nonrecurring or project-based work along those lines in Q1 as well.

And that's why you did see a bit of an uptick in that gross margin and in our utilization rate in Q1. And then looking ahead, based on the pipeline of services that we have visibility into now, we do expect, one, our utilization rate to normalize a little bit more throughout the remainder of the year; and then two, that, that mix of services would shift slightly more to those lower-margin relative professional services offerings throughout 2021.

Jack Rogoff -- Goldman Sachs -- Analyst

Understood.

Bryan Hunt -- Chief Financial Officer

Thanks much, Jack.

Operator

Thank you. Our next question comes from Anne Samuel with J.P. Morgan.

Anne Samuel -- J.P. Morgan -- Analyst

Hi. Thanks so much for taking the question. Maybe for the second quarter with the flat professional services growth, that actually implies some really nice organic technology growth for the second quarter. So just wondering if there's anything incremental in there or maybe any optimism that you're seeing that might be leading to that.

Dan Burton -- Chief Executive Officer

Yes --

Bryan Hunt -- Chief Financial Officer

Hey, Annie, thank you. So to your point, we do -- consistent with what we've shared in our prior earnings calls as well, we do expect continued robust technology growth for the full-year 2021. And we shared on our Q4 call that our annual 2021 technology growth rate would look similar directionally to what you saw in 2020, which was approximately 30% growth. And so to your point, we do expect on a sequential basis technology to continue to tick up slightly quarter-over-quarter by a few percentage points, although there can be a little bit of in-quarter variation on that exact number based on a few factors like the timing of go-lives and implementation dates and the like.

Anne Samuel -- J.P. Morgan -- Analyst

OK, helpful. Thank you. And then maybe just one on the macro environment. You know, we've been hearing a lot about the macro backdrop being more favorable for value-based care.

Just wondering what you're seeing around appetite for that. Thanks.

Dan Burton -- Chief Executive Officer

Yes. So generally speaking, we are seeing more discussions, Annie, as it relates to population health and value-based care coming back as a higher proportion of the conversations that we're having both with new clients and with existing clients relative to where they've been over the last 15 months, where COVID-specific activity had really dominated. So that is something that we're seeing as well, is an uptick in those kinds of conversations.

Anne Samuel -- J.P. Morgan -- Analyst

Great. Thanks very much. Thank you.

Operator

Our next question comes from Ryan Daniels with William Blair. Your question, please.

Ryan Daniels -- William Blair & Company -- Analyst

Yeah. Thanks for taking the questions. Congrats on a strong start to the year. I wanted to do a follow-up there on the kind of population health or value-based care front.

Dan, the vignettes you provided are always very helpful. And I wanted to focus on the one where you worked with an ACO on quality reporting and improvement in the practices and drove the 1 million-plus in savings. Is that something that you think is transferable, you know, to payers and to large provider groups? Thinking large physician groups or advanced medical practices as well because we're seeing them more and more enter the space, whether it's through Medicare Advantage or taking MA attributed lives or even direct contracting. So I'm curious what your thoughts are about that market opening up for your kind of commercial-grade analytics solutions.

Dan Burton -- Chief Executive Officer

Yes. Thanks for the question, Ryan. We have been focused on strengthening our overall value proposition as it relates to measures in particular. And many organizations have specific requirements, and those measures often relate directly to, you know, other really important aspects of operational performance and financial performance.

And so we would see that this capability that HSHS was able to leverage our solution and product is applicable in the payer space and in different subsegments of the payer space as well. So we are excited about the potential of others utilizing that kind of a solution and yielding similar benefits.

Bryan Hunt -- Chief Financial Officer

The only thing I would add, Ryan, is, as you know, sort of the vast majority of our current customer base is on the more traditional provider side, but we do have some segment, some portion of our customer base that is in those verticals that you described and what Dan described along the spectrum of risk-bearing entities, ACOs and the like; and do think our platform and our population health applications have relevance there.

Ryan Daniels -- William Blair & Company -- Analyst

OK, super helpful. And then one quick follow-up just on the margin front, and I'm thinking longer term in nature. If we look at the different portions of your services offering, is it fair to think that the data analytics over time could increase as a portion of that services revenue, with you having a broader offering and constantly introducing new use cases? Just how should we think about that, again longer term, not talking this year but maybe over the next three to five years, how might that skew? Thanks.

Dan Burton -- Chief Executive Officer

It's a good question, Ryan. And I would share that we feel like we're in learning mode, especially during the COVID pandemic where we're just trying to learn and observe. And we want to, I think, take the rest of this year to better understand what we're observing in the professional services space. And I think, pre-COVID, we would share a perspective that it was not atypical at all to see different parts of those three components of our service ramp-up or ramp-down in any given quarter based on the kind of improvement work that we were doing.

We've seen some other changes that have occurred over the last 15 months. And we're trying to pay attention to signal and noise as we get through the pandemic. And so we'll likely keep observing before making any specific observations but then use the planning cycle each year as another opportunity to step back, consider if we've seen any more macro changes that would be of note. And if we do observe any, we will share those, you know, following the planning process probably early next year.

Bryan Hunt -- Chief Financial Officer

Another thing I would add, Ryan, just in terms of our long-term professional services gross margin target. That is in the mid-30s, as we've stated. And so that margin would reflect essentially that mix of those services that I described, and data and analytics and other consulting services are like a good portion of that.

Ryan Daniels -- William Blair & Company -- Analyst

Great. Thank you, again.

Dan Burton -- Chief Executive Officer

Thanks, Ryan.

Operator

Our next question comes from Sean Wieland with Piper Sandler. Your question, please.

Sean Wieland -- Piper Sandler -- Analyst

Thanks very much. You called out a greater amount of nonrecurring services in the quarter. Could you quantify that and maybe tell us a little bit more about what that was?

Dan Burton -- Chief Executive Officer

Yes, Sean. I'll make a comment, and then Bryan, please feel free to add as well. So I would characterize, Sean, that the increase in nonrecurring-revenue-oriented services is one of those elements that we've seen recently during the midst of the pandemic, that a number of clients have been interested in those kinds of projects. That's something where we don't feel ready to make any pronouncements yet about a longer-term shift.

And I'll let Bryan comment on the specifics as it relates to Q1, but it is something that we're watching as we progress through 2021. And we'll see if, as we gather more data, there's anything that we feel has changed more materially or longer term. Bryan, what would you add?

Bryan Hunt -- Chief Financial Officer

Yeah. Just to add on the quantification, Sean, of it. So given that the vast majority of our services are still recurring, it is fairly small. You can think about it as $1 million or so of additional nonrecurring services but a fairly small portion of our overall mix currently.

Sean Wieland -- Piper Sandler -- Analyst

OK, that's good to know. And just on the overall pipeline of new DOS clients. I mean, can you characterize that a little bit in terms of, you know, are you going to kind of regain momentum after a pandemic year this year? And how is the maturity of the pipeline progressing?

Dan Burton -- Chief Executive Officer

So overall, we would continue to characterize the pipeline in the way that we have been, that it behaves a lot like pre-pandemic levels. And that is the result of headwinds and tailwinds that we've described previously. We continue to experience those headwinds and those tailwinds. That affects specifically the new client, the new DOS subscription client pipeline as well.

We do anticipate and look forward to getting through the pandemic. And then we do believe that those tailwinds associated with a sense that every health system needs a commercial-grade data platform like DOS rather than a homegrown patchwork infrastructure will persist beyond the pandemic, but we still observe long sales cycles of approximately one year. And so the results of that longer-term tailwind will take time. Much of that will take beyond 2021 to really show up in terms of pipeline performance.

Anything, Bryan, you would add?

Bryan Hunt -- Chief Financial Officer

No, that makes sense.

Sean Wieland -- Piper Sandler -- Analyst

So just remind me. Have you given us a target for the number of DOS clients you -- new DOS lines you want to add this year?

Dan Burton -- Chief Executive Officer

We did share a mid-teens expectation.

Sean Wieland -- Piper Sandler -- Analyst

And so that's what we're still on track for.

Dan Burton -- Chief Executive Officer

That's right. Super. Thanks so much.

Operator

Thank you. Our next question comes from Elizabeth Anderson with Evercore. Your question, please.

Elizabeth Anderson -- Evercore ISI -- Analyst

Hi guys. Thanks so much for the question. Can you talk about in terms of the demand environment? Is there a difference in what, you know, new prospects or potentially even people in the pipeline are looking for or different aspects of your service that they're really interested in?

Dan Burton -- Chief Executive Officer

Yes. Thank you for the question, Elizabeth. So as we mentioned a few minutes ago, we are seeing more questions, more interest as it relates to what we saw before the pandemic in terms of a lot of focus and a lot of discussion around value-based care and population health. That slowed down during the last 15 months, where there was more of a specific focus on COVID-19 response and everything related to that.

We are seeing that topical area pick up a little bit more over the last few months.

Bryan Hunt -- Chief Financial Officer

The only thing I would --

Elizabeth Anderson -- Evercore ISI -- Analyst

Got it, OK -- sorry.

Bryan Hunt -- Chief Financial Officer

I was just going to add, Elizabeth. We continue to see again focus on areas like the financial optimization, cost optimization, and efficiencies on population health, as Dan mentioned, but then continued focus on that robust commercial-grade solution, as compared to a patchwork solution that's less flexible in an environment like this.

Elizabeth Anderson -- Evercore ISI -- Analyst

Makes sense. And did you -- I apologize if I missed this. Did you size the Vitalware contribution in the quarter numerically?

Bryan Hunt -- Chief Financial Officer

Yeah, we are not breaking that out in our filings or 10-Q and did not comment on it in the prepared remarks. We did break that out in our filings through 2020, the year of acquisition, but I could point you, Elizabeth, to the color as well that we provided on our last call, which was that, for the year, we expected Vitalware to contribute in the low $20 million in 2021 in terms of revenue. And that low $20 million, as you're aware, there's a deferred revenue writedown that will have an impact on that through Q1, Q2 in particular; and then tick up toward the back half of the year. So hopefully, that helps you with a little bit of color on that level.

Elizabeth Anderson -- Evercore ISI -- Analyst

Got it. So sorry. Just to clarify: That low 20s contribution is for all four quarters -- sort of 1Q -- it's not as like the just the first three quarters until you lap the purchase date, right?

Dan Burton -- Chief Executive Officer

Yeah, yes.

Bryan Hunt -- Chief Financial Officer

Yes, for the full-year 2020, all -- or 2021, all four quarters.

Elizabeth Anderson -- Evercore ISI -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from Stephanie Davis with SVB Leerink. Please go ahead.

Stephanie Davis -- SVB Leerink -- Analyst

Thank you for taking my question and congrats on the quarter. Thinking about the new sales process as we exit the pandemic, could you walk us through the near-term opportunity to reengage with clients that had to pause for cost concerns during the pandemic? And is that wallet going to bounce back pretty immediately? Or do you think for some of your broader-reaching solutions this could be more of a multiyear recovery?

Dan Burton -- Chief Executive Officer

Yes. So we think about -- thank you for the questions, Stephanie. We think about the growth of the company in two broad categories. One is with new clients.

And as we've stated previously, we certainly did experience especially in the early months of the pandemic more of a pause, like you mentioned, in discussions about having a new client relationship. Starting in the back half of last year, we saw that reengagement occur, but we still have a long sales cycle of about one year with regards to new client discussions. Now the second category that we think of in terms of growth is expansion with existing clients, and that's a typically more streamlined set of discussions and can vary a lot based on what they specifically are focused on and what they'd like to expand. As we shared previously, a lot of the discussions with existing clients focused on COVID-19 response, especially the first six months of the pandemic.

We started to see some of the other aspects of our portfolio of offerings coming back, starting in the latter half of last year. And we see that continuing forward even more in the first part of this year as well. And we anticipate that that will continue to be the case moving forward. Anything you'd add, Bryan?

Bryan Hunt -- Chief Financial Officer

Yeah. Just to add, Stephanie, as well that -- in the end market that we're selling into in healthcare. So budget cycles tend to be sent on -- set on an annual basis. And shifts in terms of the macroeconomic environment or trends that way can tend to potentially have a lag as it gets reflected in updated budget cycles and then flowing into our sales cycle.

Stephanie Davis -- SVB Leerink -- Analyst

On that same note of capital spend, is there any chance for a pickup in the professional service side that you're not factoring in just as that seems more immediate? Or is that still always going to be boxed up with the tech sales side of the world?

Bryan Hunt -- Chief Financial Officer

Yes, it's great question. It's something that we're continuing to monitor. So in Q1, we did have that uptick that I mentioned that increased our utilization rate a little bit beyond what we had expected. We are wanting to continue to monitor that trend and that demand and assess over the next couple of quarters, but it's something that we're thinking through and we'll provide updates on.

Stephanie Davis -- SVB Leerink -- Analyst

Don't mind the skew of conservatives. All right. Thank you, guys.

Dan Burton -- Chief Executive Officer

Thanks, Stephanie, again.

Operator

Our next question comes from Steve Halper with Cantor Fitzgerald. Please go ahead.

Steven Halper -- Cantor Fitzgerald -- Analyst

Just a quick housekeeping question. You talked about a higher level of stock compensation in the quarter due to the revesting of acquisition-related stock. I'm assuming that doesn't repeat in subsequent quarters. So is it -- is that a safe assumption?

Bryan Hunt -- Chief Financial Officer

Yeah. Thanks, Steve. Yes, there will be some of that, that continues through a portion of 2021 just based on the revesting schedule that's been defined from those acquisitions, but to your point, we do think about that as essentially somewhat separate and different from the stock-based comp that's driven by RSU grants, performance-based grants, team member retention, and compensation and the like. But that will have a little bit of a lag as it rolls through 2021.

Steven Halper -- Cantor Fitzgerald -- Analyst

Right, but the subsequent quarters, you know, in the aggregate, does that -- does the stock comp number decline?

Bryan Hunt -- Chief Financial Officer

We'd expect the stock comp number to tick up slightly just based on those grants that I described. So I think it's fair to think about, as a percentage of revenue, as an example, stock-based comp could tick up by a few percentage points through the next few quarters in 2021.

Steven Halper -- Cantor Fitzgerald -- Analyst

And then the revesting, did that go into any one category? Or is it spread throughout?

Bryan Hunt -- Chief Financial Officer

It's broken out in our filings in the form of restricted shares. So I'd have to look at it exactly. I think it's mostly in a single opex category, but we do break out those shares separately.

Operator

Thank you. Our next question comes from David Grossman with Stifel. Your question, please.

David Grossman -- Stifel Financial Corp. -- Analyst

Thank you. You know, I think this question has come up in a couple of different contexts, but are you -- is there anything you can kind of explain or help us understand the patterns in your base in terms of how they may view services, utilization, and attach rates once we get through the pandemic? Or based on the conversations you're having, do you feel it's just a timing issue, as opposed to any real changes in behavior on a longer-term basis?

Dan Burton -- Chief Executive Officer

Yes, thank you for the question, David. So the vast, vast majority of our clients tap into both our technology at the data platform layer as well as at the applications layer as well as different components of our services. And we have a particular perspective about our services that they're all designed to enable our clients to be successful; to enable them to realize measurable, massive improvements in the areas of most importance to them. As a result and as we've discussed previously, we are comfortable with that mix of services changing each quarter based on what the needs of our clients are.

And we see that different clients need different components of those three categories of services that we offer, and we're comfortable with that. And that's one of the reasons why historically you've seen some variation in terms of the gross margin profile of services in any given quarter. We're comfortable with that because we're optimizing those services to really focus on enabling our clients to be successful, as the first measure of our success in services. And as a result, we're flexible there.

Anything you'd add, Bryan?

Bryan Hunt -- Chief Financial Officer

Yeah. Just to -- I think, to Dan's earlier point, we're continuing to learn about the long-term attachment rates, long-term kind of more normalized growth profile in the services segment. We have provided color at least for 2021 in terms of our professional services dollar-based retention rate that we'd expect to be up meaningfully from the mid-90s in 2020, although still have some pressure in particular in the first half of 2021 and potentially for the year on that retention rate. So at least, hopefully, that provides some color in terms of how we think about it this year and then how that would flow into 2022 revenue.

David Grossman -- Stifel Financial Corp. -- Analyst

All right, got it. Thanks for that. And assuming my math is right, it would imply, your guidance for the year, that sequentially revenue growth slows down quite a bit in the back half of the year. So if that math is right, is that just conservatism because of the variability in services, or is there something more to it than that?

Dan Burton -- Chief Executive Officer

Yeah, I'll comment, and then Bryan, please feel free as well. So as Bryan mentioned earlier, in the first quarter, we did observe some increased activity as it relates to nonrecurring revenue of services. And because they're nonrecurring in nature and project-based in nature, those services come to an end later in the year. And that's a component of our services offering that is relatively newer in terms of its proportion and clients' interest.

As I mentioned before, we are focused mostly on ensuring that we're offering services that are really helpful to clients and enabling them to be successful. And that's one of the reasons why, during the pandemic and even as we're continuing in the pandemic in the first half, we're still watching and observing and trying to understand if there are anything, any patterns that might last beyond the pandemic versus those that are more specific to the pandemic. And we don't feel we have enough data yet to understand how nonrecurring services, as one example, might play out through the rest of the year. And so we do try to be data-informed when we think about projections for the back half of the year.

What would you add, Bryan?

Bryan Hunt -- Chief Financial Officer

No, I think that was well said. Thanks, Dan.

David Grossman -- Stifel Financial Corp. -- Analyst

Great. All right. Thank you.

Operator

Thank you. Our next question comes from Daniel Grosslight with Citi.

Daniel Grosslight -- Citi -- Analyst

Can you provide an update on cross-sales this quarter, both selling DOS client's newly acquired solutions and cross-selling the DOS platform to acquired clients?

Dan Burton -- Chief Executive Officer

Yes. So in the first category of selling newly acquired applications, cross-selling those into our DOS client base, we did have some success in Q1. We're still early in that process of sharing that -- those expanded offerings in our portfolio, but that apps layer cross-sell is typically at a lower incremental price point. And so the sales cycle is a little bit shorter in those cases.

So we have a little bit more data there, and we did see some success. We do assume some moderate cross-sell, yes, in our forecast and in our guidance at that apps layer. The second category is selling apps layer clients on the DOS platform. And that's a more difficult cross-sell.

It's a much larger price tag to get started. And those clients that are app-only clients of newly acquired companies, for example, are used to a much lower price point. So that is a category where we continue to see pipeline movement. And we're continuing to focus there, but given the longer sales cycle and the larger ticket, that will take longer to play out.

And much of that, we expect, would play out from a P&L perspective really more into next year and beyond.

Daniel Grosslight -- Citi -- Analyst

Got it, OK, OK. And then on the quarterly cadence of new DOS adds this year, I think you mentioned mid-teens is still the expectations for total adds, but would you expect the quarterly cadence of those adds to once again be back weighted? Or do you expect that to normalize to kind of a pre-pandemic level?

Dan Burton -- Chief Executive Officer

I think the answer is yes to both actually, that pre-pandemic we did see a back weighting, you know, in each half of the year, where the second quarter and the fourth quarter were typically more heavy in terms of the sales activity. And that aligns with something Bryan mentioned earlier, that most of our clients have an annual budget cycle that usually either typically aligns with the calendar year or more of a midyear kind of fiscal year schedule. So we do expect that that will continue to be the case, weighted toward Q2 and Q4, but the pandemic has thrown some curveballs and so we're continuing to just watch and monitor.

Bryan Hunt -- Chief Financial Officer

The only thing I would add, thanks, Dan, is just to Dan's point. Once those contracts sign and are onboarded, there can be just a bit of variation and timing impact of the time between post-contract signing and then a go-live date or an implementation date. That can have an impact on the timing of that new recognition, you know, in a couple of months, a couple or three months.

Daniel Grosslight -- Citi -- Analyst

OK, OK. So if we assume kind of a 10 40, 10 40 quarterly cadence, would that be a good assumption?

Dan Burton -- Chief Executive Officer

Yes.

Daniel Grosslight -- Citi -- Analyst

OK. Thanks, guys.

Dan Burton -- Chief Executive Officer

Thank you, Daniel.

Operator

Our next question comes from Iris Long with Berenberg.

Iris Long -- Berenberg -- Analyst

Hey, guys. Thanks for taking my question. I guess first question on M&A. I'm wondering, Dan, if you can kind of elaborate on your M&A comment, particularly on the pipeline that you're looking at.

Maybe can you talk about what capabilities and what deal size are you looking at? And then I also kind of want to get your thoughts around the buy-versus-build decision.

Dan Burton -- Chief Executive Officer

Yes. Thank you for those questions, Iris. We continue to believe long term that we are in a good position to be a consolidator in this space and believe that will be the case for many years to come. That's one of the reasons why we have been acquisitive and active, with three acquisitions over the last 15 months or so.

And as we mentioned in our prepared remarks, we see a meaningful, high-quality, robust pipeline of acquisition opportunities. We primarily are focused at the apps layer of our technology stack, as that is a layer that includes many companies, a number of whom are start-ups, that may struggle to make it long term as independent companies but may fit really well within our portfolio. And to your point, Iris, we go through of -- a rigorous process of build-partner-buy analysis when we think about the portfolio of offerings that we have at the applications layer. We continue to focus on specific areas where we want to be the best in the world and differentiated.

And we continue to think of acquisitions as a way of accelerating the portfolio that we can offer, for example, in areas like population health where there are always opportunities for us to make more robust our offering. And we've used both research and development investments as well as acquisitions in the past to strengthen our offering there in pop health, for example. And we believe there may be other opportunities like in areas like patient engagement, for example. We continue to also focus in other areas like the CFO value proposition both on the revenue side and the costs side and where we want to strengthen what we can offer in terms of tangible ROI.

A great recent example of strengthening that through acquisitions was Vitalware. We do believe there are other opportunities for us to strengthen the value proposition to CFOs. And in terms of the size of offering, we want to always be in a position with our capital structure to be very strong in terms of being able to go after great opportunities as they present themselves and fit with our strategic framework. And as such, we want to have a strong balance sheet today.

As we mentioned in our prepared remarks, we sit with over $265 million of cash and cash equivalents on the balance sheet. Much of that can be utilized, along with equity, in pursuing opportunities that can be small, on the one end of the spectrum, like tuck-in acquisitions like Able Health; all the way up to a few hundred million in total enterprise value; and everything in-between. And we want to make sure that we're always well positioned, when we see a strategic opportunity in the acquisition space, to have the balance sheet strength and the capability to act so that we can be that consolidator long term that we believe we should be in order to fulfill our mission.

Bryan Hunt -- Chief Financial Officer

Yes. And just to add to that, Iris, to Dan's point around the "build versus buy versus partner" framework. So one additional area that we tend to lean a little bit heavier on in terms of the build opportunity is our platform layer typically. And we -- you saw we did announce some additional capability related to machine learning, augmented intelligence, AI.

That's a horizontal capability called Healthcare.AI built into our platform layer that we're encouraged by. So just another framing in terms of where we're focused there on build versus buy.

Iris Long -- Berenberg -- Analyst

OK, great. Actually, my second follow-up question is on the Healthcare.AI solution. I'm wondering like how much time and resources did it take you guys to kind of build that solution. And then maybe if you can kind of highlight what's special about it if you compare it to some of the other solutions that's on the market.

Dan Burton -- Chief Executive Officer

Yes. Thank you for the questions. So as Bryan mentioned, we focus a good deal of our R&D investment at the data platform and the data content layer as key elements of differentiation that really get a client started on becoming more data-informed. And the Healthcare.AI is a great example at that data content layer, where we have focused our investment to make sure that our clients have data organized in a way that is not a black box.

And you asked the question of how does this differentiate from some of the other AI offerings in the marketplace. And that's an important distinguishing factor, that we have found and work across the healthcare delivery spectrum an ecosystem that, when leaders, clinical or operational leaders, are leveraging a black box from an AI perspective where they can't understand or they don't have access to understand the assumptions behind the results that come out of the AI black box, they're much less likely to trust and to utilize that information. We purposefully build all of our solutions around the AI offering at that data content layer as drillable so that you can see exactly what the assumptions were. What were the inputs? What was the weighting of those inputs in determining and developing a predictive model? And then we allow our clients, those leaders to be able to adjust the assumptions that go into those predictive models.

We want them to be the owners of those predictive models and those machine learning capabilities because the adoption of those capabilities goes way up; and because fundamentally we believe that AI is a support, not a replacement, for the decision-making that needs to take place always and be in the hands of clinical leaders who have that domain expertise and have the relationship with the patient. And AI provides a great support to that. And when AI is utilized in that way, adoption is much higher than what we've otherwise seen in the industry. And we're really pleased to see that adoption high with our clients that are utilizing Healthcare.AI because they can be in the driver's seat.

They're still the decision-maker. They haven't been replaced but rather they're now using this new capability to make even better decisions.

Iris Long -- Berenberg -- Analyst

Very helpful. Thank you.

Operator

Thank you. Our last question comes from David Larsen with BTIG. Your question, please.

David Larsen -- BTIG -- Analyst

Hi. Can you talk a little bit about the pace of sales into hospitals as we get through the pandemic? Some of the publicly traded hospital companies have reported, you know, ER volumes at 73% of baseline. So still well below baseline. And the inpatient volumes are actually a little bit light as well in some cases.

I know you had a product that was helping hospitals identify where they could recover elective procedures. I guess maybe any comments around hospital volumes and COVID-related sales would be helpful. Thank you.

Dan Burton -- Chief Executive Officer

Yes. Thank you, David. Good to hear your voice. So across our client base, I would characterize our recent conversations as consistent in some ways with what you just shared, that many of our health system clients are still experiencing impacts from COVID-19, as we shared in our prepared remarks.

That impact either can manifest itself in terms of a shift in prioritization toward, you know, a focus on vaccination logistics, for example, and other COVID-19-specific care that they're delivering. A second place that it can manifest itself is as it relates to pre-pandemic volumes. And in some cases, we do see some of our clients that have not yet gotten back to pre-pandemic volumes. Others have.

And I think many are approaching much more close to that pre-pandemic volume, but there's still an impact there in both of those categories where they've either shifted their focus and they're doing some pandemic-specific activity. Or they still haven't quite gotten back to that pre-pandemic level, but we are seeing that over time most of our clients are getting closer and closer to those pre-pandemic levels.

David Larsen -- BTIG -- Analyst

OK, great. And then just a quick follow-up: Allscripts obviously sold EPSi to Strata. I would think that that could potentially open up an RCM opportunity for somebody like yourselves. Any thoughts on that? And any other comments on the RCM space in general? I mean Vitalware is great, but it's really chargemaster.

There's a lot of other areas in RCM that could be valuable, I think.

Dan Burton -- Chief Executive Officer

Yes. So RCM is a very large space, as you know, David. And we were focused, with regards to the Vitalware acquisition, on enabling a technology foothold. That would be, you know, a meaningful beachhead and a place where we can build around that chargemaster capabilities, knowing that, that was a small subsegment of a very broad space.

We've been pleased with that foothold and that beachhead opportunity that Vitalware provides us. Likewise, our activity-based costing solution CORUS is another important technology foothold that does enable us to build around that in the space of what is most important to a CFO. And as mentioned earlier, that CFO value proposition continues to be an area of prioritized focus for us, both in our R&D investments as well as in our potential acquisition-related activities we'll continue to be focused very much on the technology that can enable more and more measurable improvement in this space and in specific subsegments where we feel that we can be differentiated. As you know, there are many players in the broad RCM space.

We want to make sure that the specific subsegments that we go after, that we focus on are subsegments that play to our natural strengths around organizing data from many different sources; and then analyzing that data; and using technology, the apps layer that can really automate and measurably improve. So we'll continue with that lens as we think about our position within that broad space.

David Larsen -- BTIG -- Analyst

Great. Thanks so much.

Dan Burton -- Chief Executive Officer

Thank you.

Operator

Thank you. And I'm going to end the Q&A right now, there is no questions in the queue, and pass the call to Dan Burton for final remarks.

Dan Burton -- Chief Executive Officer

Thank you, Carmen. And thank you to all those who have dialed in for this report. We appreciate your interest in our company, and we look forward to staying in touch in the months ahead.

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

Adam Brown -- Senior Vice President, Finance and Investor Relations

Dan Burton -- Chief Executive Officer

Bryan Hunt -- Chief Financial Officer

Jack Rogoff -- Goldman Sachs -- Analyst

Anne Samuel -- J.P. Morgan -- Analyst

Ryan Daniels -- William Blair & Company -- Analyst

Sean Wieland -- Piper Sandler -- Analyst

Elizabeth Anderson -- Evercore ISI -- Analyst

Stephanie Davis -- SVB Leerink -- Analyst

Steven Halper -- Cantor Fitzgerald -- Analyst

David Grossman -- Stifel Financial Corp. -- Analyst

Daniel Grosslight -- Citi -- Analyst

Iris Long -- Berenberg -- Analyst

David Larsen -- BTIG -- Analyst

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