Health Catalyst, Inc. (HCAT) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the final session of day 1 of the JPMorgan Healthcare Conference. My name is Michael Minchak, and I'm a member of the health care services equity research team here at JPMorgan. I'm filling in for Annie Samuel, who covers the health care IT space for us and Health Catalyst. And she's currently on a maternity leave so I'm going to moderate the session today. So with that, it is my pleasure to introduce Health Catalyst, which will be presenting at our conference for the second time as a public company. From management, we have CEO, Dan Burton; and CFO, Bryan Hunt, who will be presenting today. And following the presentation, we're going to have a Q&A session. [Operator Instructions] And so without any further ado, I'm going to turn it over to Dan to begin.

Thank you, Michael. Appreciate it. And good afternoon, everyone. Thank you for your interest in Health Catalyst. As Michael and I were preparing before this session, we were both reflecting on the number of years that we've participated in this JPMorgan conference. This is Michael's 21st JPMorgan experience. It's my 11th, and we've never had a virtual experience like this one. And we were both reflecting that we hope this is perhaps the first and the last, and we have good things to look forward to as we see the vaccine roll out. And we can look forward to next year and coming years being together again in San Francisco. I will present and reference a number of slides that we've provided as part of an overview presentation. Then I'll turn some time to our CFO, Bryan Hunt, who will share a few financial highlights. And then we'll open it back up for questions and answers for the balance of the presentation. As I reference and Bryan references slides, we'll also reference the slide numbers so that you can follow along. So let's dive in and begin on Slide 3 with an overview of the company. So Health Catalyst is a leading provider of data and analytics technology and services to health care organizations. There's 3 components to our solution. We always start with the first component, the data platform, which is designed to help our health system clients integrate data from hundreds of different sources into a flexible, open and scalable platform. Importantly, our clients really take ownership of that data platform. And as such, because the platform is open, scalable and flexible, they build even more on top of that data platform than even we do. The second component of our solution is at the analytics layer. Once that data has been organized across clinical, financial and operational areas, we can analyze it to pinpoint opportunities for improvement. An example of a clinical improvement might be to improve our sepsis mortality rates. An example of an operational improvement could be to improve our emergency department throughput, and a financial improvement example might be to improve our cost per case. At the analytics applications layer, we analyze and pinpoint where those opportunities for improvement are. And then we bring the third component of our solution to bear in support of our clients where they specifically want to improve in one of those clinical, financial or operational areas, we have hundreds of specific domain experts that provide services expertise and support so that our clients can realize those measurable improvements, clinically, financially and operationally. On Slide 4, we describe the mission of the company and the flywheel, which is how we accomplish our mission at each client each year. Everything we do at Health Catalyst centers around the fulfillment of our mission: to be the catalyst for massive, measurable, data-informed health care improvement. And our flywheel is how we accomplish that mission with each client each year. At the beginning of a relationship with the client, we start at the top of the flywheel, where our clients are taking a leap of faith that the combination of those 3 components of our solution, the data platform, the analytics applications and the right services expertise will lead to measurable clinical, financial and operational improvement. When that measurable improvement occurs, the trust between us and our health system clients builds and strengthens. And our clients choose to renew and expand their relationship with us. And often, they will refer us to their colleagues in other organizations. Now importantly, at the center of the flywheel for Health Catalyst is team member engagement. We focus on team member engagement because world-class team members are what enable us to have success at every other stage within that flywheel. And so we focus a great deal on ensuring that our team members are engaged in the important work that is part of Health Catalyst's existence. On Slide 5, we have specifically called out 5 investment highlight areas that I'll touch on at a summary level, and we'll talk a little bit more detail in each of these 5 categories through the balance of our presentation discussion. So first, we have been repeatedly recognized, and 2020 was no exception, as an industry leader in health care data and analytics. We're solving a really large problem, the $1 trillion a year problem of waste or inefficiency. About $0.30 out of every $1 that is spent does not lead to measurable improved outcomes. But to know what to fix and how to fix it, you need advanced data and analytics capabilities. And that has provided us with a meaningful market opportunity, an $8 billion U.S.-based TAM and one that we believe will grow over time. Second, we offer a comprehensive solution, the 3 components that I mentioned, both data platform, analytics apps and services expertise, and we have real depth in each of these 3 categories. At the platform layer, we've built and automated the process of ingesting data from over 300 of the most common data sources. Every major EMR, supply chain, costing, finance, labs, administrative, you name it, we have worked with it if it's an important health care source. And we make it really easy at the platform layer to bring in that data, which leads to our experience with large data stores. Often, we're working with 10 to 100 terabytes of data per customer. And we have a very scalable platform through our partnership with Microsoft, where all of our platform instances are hosted in the Microsoft Azure environment. At the app suite layer, we've added 2 new apps with categories in 2020 to expand that portfolio at the clinical, financial and operational use case layer, where we can help our health system clients understand where there are opportunities for improvements and an expanding library of lighter touch analytics accelerators. And on the services expertise side, we've added over 100 new services experts, domain experts that can help our clients realize those measurable improvements. And third, we've seen our clients continue in 2020 to realize measurable clinical and financial and operational improvements, with our longest-standing clients often realizing the most in terms of the number of improvements per year. All of these components are enabled by world-class team member engagement. We were pleased in 2020 to see 99th percentile team member engagement and satisfaction as measured by third parties like the Gallup organization and to be recognized many more times in 2020 as a Best Place to Work. All of this leads to the fifth investment highlight of an attractive operating model. We have a highly recurrent revenue business with greater than 90% of our revenue recurring in nature. We have a significant long-term growth opportunity with a 20-plus percent long-term growth target from a revenue growth perspective. And we have a loyal customer base that chooses consistently to expand with us. Let me speak next on Slide 6 specifically to the impact of COVID-19 on our business. And I'll start by talking about the near-term impact and end by talking about the medium to long-term impact that we anticipate. First, in terms of the near-term impact, we think about 3 components of impact: first, the impact to our technology business; second, to our professional services business; and then third, from a bookings perspective. So overall, we have realized and shared in prior earnings calls that because of our highly recurring revenue business model, the 2020 revenue impact of COVID-19 was relatively muted. And we've also observed, especially since the onset of the pandemic, since those first few months, that the vast majority of our health system clients have effectively adjusted financially and operationally to the new normal environment, including utilizing our COVID-19-specific solutions to help them in this new normal environment. On the technology side, in the near term, we've never seen higher usage of our platform or our applications. On the professional services side, we've remained deeply engaged with our clients in providing support to them and assistance side-by-side with them through the COVID-19 pandemic. And we're seeing increasing return to other improvement-related projects as well. We did offer some specific short-term COVID-19-related discounts to professional services, which were really appreciated by our health system clients who themselves were facing significant near-term financial headwinds. And we've made it through that period as well, and really, Q3 was the last quarter where we saw the financial impact to those short-term discounts that we offer on the pro services side. Finally, as it relates to bookings impact, we did see an impact, especially in the first half of 2020 as it relates to many of our clients just needing to focus in that Q2 time frame, in particular, on their response to COVID. And so we did experience, in some cases, a pause to some of the discussions that we were having, particularly on the new client side. But as we shared in our most recent earnings call, our second half pipeline for 2020 felt a lot like the dynamics of our second half pipeline in 2019 before the pandemic, and we've seen that continue to play out. Now when I think about medium- to long-term impact of COVID-19, we largely see this as an overall tailwind in the industry's recognition of the importance of commercial-grade data and analytics solution. And we are well positioned as a differentiated player in offering that commercial-grade solution. We also believe there may be some longer-term government and life sciences positives and tailwinds. We've certainly seen some specific cases where on the life sciences and government side, we had some opportunities to work with the FDA on COVID-19-specific registries and other specific projects and also some other specific life sciences opportunities related to COVID-19 and real-world evidence analytics that opened up because of the experience that we had together in responding to the pandemic. Let's go next to Slide 8. We continue to benefit from working with a significant innovative customer base, a blue chip customer base. And we were pleased in 2020, even in the midst of the pandemic, to add additional U.S.-based health systems like Carle Health and like Northwell Health as well as internationally to welcome Saudi German Hospitals as a client of Health Catalyst. So we continue to see expansion, both with new clients being added to our health system client base as well as the expansion of relationships with existing clients. On Slide 9, we were pleased to see continued externally validated industry leadership. We were thrilled to see once again in 2020 that our chargemaster management solution that we added to the portfolio through the Vitalware acquisition was once again recognized as a category leader by class for 2020 in addition to having been recognized in 2019 as well. We're also pleased to have seen our client engagement and client satisfaction continue at a very strong level relative to the rest of the industry. Let me now go to Slide 10. Just as a reference point, a year ago, we talked about this health care success methodology and framework, and increasingly, Health Catalyst is focused on ensuring that everything that we're doing is in support of our clients as they think about the important use cases, whether they reside on the revenue side of their equation, the cost side or the quality side. But we want to, first and foremost, ensure that we have the most robust commercial-grade data platform that enables, at the bottom of this Slide 10, to integrate all of the relevant data across revenue, cost and quality use cases so that then that data can be analyzed in specific ways based on what each health system is prioritizing in terms of which revenue, cost and quality use cases matter the most for this year or this period of time. And at the analytics layer, we focused on ensuring that more and more of our solutions at the apps layer address these important use cases. And then that we can couple that applications layer expertise with the right services expertise to help our clients make specific, measurable progress. Now on Slide 11. As a reference point, as we dig a little bit deeper and describe a little bit more -- in a little bit more detail the 3 components of our solution. We always start at the bottom of Slide 11 with the data platform itself, which provides us with a $2 billion U.S.-based TAM on its own. Secondly, we think about the analytics layer, the analytics applications layer, which provides a $3 billion TAM and an expanding opportunity for us, one which is expanding and has expanded in 2020 as well. And then we complement that technology-based work with our services expertise, which provides us some additional meaningful TAM. So let's go a little bit deeper on Slide 12, starting again at the bottom with the data platform or the data operating system that is a health care-specific, open, flexible and scalable platform that, first and foremost, here on the left, does provide a commercial-grade data warehouse capability specific to health care. We've built an automated source connector, that's 300 most common sources in health care. And we've ensured through our partnership with Microsoft that this data platform is very scalable. All new instances of the data platform are hosted in the Microsoft Azure environment. And couple that scalability from a technology perspective with deep investment, over $100 million that we have invested in health care-specific logic and content, including reusable data logic, machine learning models, terminology, closed-loop EMR integration capabilities, natural language or text processing, real-time streaming and interoperability capabilities and big data capabilities as well. All of this then feeds into the analytics layer, the analytics applications layer, the second component of our solution. A year ago, we described having 8 application suites. We've added, through the course of our M&A activities in 2020, 2 new categories. And we're very excited about all 3 of the acquisitions that the company completed in 2020. The first acquisition of Able Health strengthened 1 of the 8 application suite areas of quality and regulatory measures that we were already in. The second acquisition of healthfinch allowed us to move into a new category of EMR embedded insights as did our Vitalware acquisition in the fall to move into the revenue improvement and workflow optimization space. We're excited about that more robust offering that we have at the apps layer. And we've appreciated the opportunity to complement that with significant services expertise that we've continued to grow and develop, whether at the analytics layer or at the specific domain layer with clinical, financial and operational domain expertise as well. On Slide 13, in terms of the competitive landscape, we continue to see the same dynamics that we've described in the past, which are different, depending if we're talking about the platform layer, the analytics layer or the services layer. At the platform layer, we continue to see a steady, competitive environment, with the most common competitor being a homegrown solution, often with some help from a cross-industry tech company like an IBM or an Oracle in terms of providing real meaningful technology scalability. But where we differentiate is all of that health care-specific content. When we couple that with our partnership with Microsoft to provide all the same scalability and robustness, coupled with that health care-specific investment that is hard for any health system to keep up with from a commercial-grade perspective. At the apps layer, we continue to see a very fragmented market, and we believe there will continue to be a meaningful consolidation opportunity where point solution vendors can be added to our solution set like we did in 2020 to provide an even more robust partnership with clients. And likewise, at the services expertise layer, we continue to focus on services expertise as a complement to our technology, which really differentiates us. The fact that we offer all 3, the platform capabilities, the analytics capabilities and the services expertise, is the real differentiator for us in terms of what we are able to provide to clients. Next, let's go to Slide 14. As I mentioned at the summary level, we were pleased to see in 2020 that our clients continued to realize meaningful, measurable clinical, financial and operational improvements. We were pleased to see that in the pandemic, we were able to pivot with our clients towards a focus on pandemic-related specific, measurable improvements, whether those were clinical improvements at the outset or specific financial improvements helping them in their recovery after the first couple of months of the most acute challenges to the pandemic. Those areas of focus around using data and analytics to measurably improve have continued in 2020, and we expect that, that will continue long term as well. We've provided a number of specific examples that we can reference, and you can reference on Slides 15, 16 and 17 of the way that we have worked with our clients on measurable improvement. I'll next go to Slide 18, just reinforcing our continued focus in 2020 as well on world-class team member engagement, which leads to world-class client engagement, and that will continue to be the focus of our company. On Slide 19, we were pleased to see a number of significant promotions from within in 2020 with Patrick Nelli being promoted from CFO to the role of President, leading all of our growth initiatives moving forward. We were thrilled to continue to benefit from long-standing colleagues like Paul Horstmeier, Dan Orenstein, Linda Llewelyn and Trudy Sullivan. And we were also excited to see Bryan Hinton be promoted from within into the CTO role and Bryan Hunt promoted into the CFO role as well. We continue to emphasize at Health Catalyst our operating principles and our cultural attributes on Slide 20 and Slide 21, the 4 operating principles of improvement, ownership, respect and transparency, and the 4 cultural attributes of every team member striving to be a continuous learner, hard-working, humble and striving to be world-class in every position across every function of the company. I'll conclude my remarks with some specific comments as it relates to Slide 22, and then I'll turn it to Bryan for some financial highlights, and then we'll open it up for your questions. I continue to feel very excited about the long-term growth profile of Health Catalyst. And we continue to have many ways to enable that long-term growth target of 20-plus percent growth over many years into the future. First, starting at the left of this slide, we can continue to see expansion within our current customer base. We were excited to see this technology expansion, in particular, in 2020. And we can continue to grow our overall customer base. As we disclosed in the year-ago time frame, we began the year 2020 with 65 DOS subscription clients out of a total addressable market of over 1,200 potential customers. So there's significant opportunity for us to continue to grow our overall customer base. We can do that with both existing clients and new clients in that third way of adding new applications and services. And just as I mentioned previously, we were excited to add new applications in 2020, 2 new categories of applications to offer both to new clients and to existing clients. We can grow through adjacent markets, and we were excited in 2020 to see continued progress and continued growth, albeit commensurate with the modest investments that we've made in the adjacent markets, both in the life sciences space and international. And then we will -- we continue to be excited about the partnership and M&A opportunities that we believe exist, particularly at the applications layer for Health Catalyst. We realized that meaningfully in 2020, and we anticipate long term that there will continue to be meaningful growth and consolidation opportunities, particularly at the apps layer. Now let me turn it to Bryan Hunt.

Thanks, Dan. So moving to Slide 23. Let me share a couple of highlights related to our financial and operating model. So on the top of that slide, so as Dan mentioned, we provide our solution to technology and services primarily through a subscription or recurring revenue-based model. In 2019, as an example, over 90% of our revenue was recurring in nature. Dan referenced our -- the second point, our long-term revenue growth target for our core business of 20%-plus. That's primarily driven by 2 factors: so one is the customer retention and net expansion. As an example, in 2019, our dollar-based retention rate was 109%; and then the second driver is the addition of new customers. At the end of 2019, as Dan referenced, we had 65 DOS subscription customers. Through that revenue growth, we're able to, have been in the past, able to drive improving gross margins. As an example, in 2017, our overall gross margin was 41%, and year-to-date Q3 2020 was 50%. And through that growth as well, we're able to drive operating leverage. In 2017, as an example, our OpEx as a percentage of revenue was 90%, and year-to-date Q3 2020 was 62%. So jumping to Slide 24, I'll dive in further to a couple of those components of our financial highlights. So on the left of the slide, you can see we've been able to drive robust historical growth on both our professional services and technology segments, which we break out in our financials. Year-to-date Q3 2020 growth from a revenue standpoint over the prior year period was 22%, and you can see the mix between technology and services revenue. Year-to-date mix was approximately 50% technology revenue as a percentage of total -- 58%, excuse me, percentage of total revenue. In the middle of the slide, you can see some trends around our dollar-based retention rate, which has been in the 107% to 109% range historically. That's a combination of technology retention and services retention rate. Our technology retention is primarily driven by customers renewing and expanding via built-in annual contractual price escalators for our technology subscription and services growth for existing customers driven by them, utilizing more and more of our FTE capacity and experts. On the right side of the slide, you can see our historical trend in new customer additions, which has been in the mid-teens, that blue bar from a DOS net customer addition standpoint historically. Jumping to Slide 25. So through that revenue growth, driving additional gross margin expansion has occurred over time. Our gross margin is made up of 2 components. So 1 is the technology adjusted gross margin. The other is the services. And then overall is a combination of the mix of those 2. On the technology side, our adjusted technology gross margin has been in the mid-60s over the last couple of years and has ticked up to the high 60s, driven by those increasing -- driven by the dollar-based retention expansion on the technology side growing at a faster rate than our hosting and support costs. On the services side, you can see that's moved around some. In year-to-date Q3 2020 period, that was 24%, which is down from the 2019 professional services number, primarily driven by a mix of services that we're providing and some impact from COVID-19 on our utilization of our team members. Overall, our technology -- our overall gross margin is a combination of those 2 segments and a factor of the mix between those 2 segments. And that's, in the most recent period year-to-date, is approximately 50%. So lastly, on our long-term target operating model, let me start on the top line. So Dan mentioned our long-term core growth rate of 20%-plus is a combination of our existing customers expanding and then adding new customers. Moving down the P&L, our gross margin long-term target overall is in the high 50s, and that's a mix of technology being in the mid-70s and professional services being in the mid-30s. And then lastly, moving down to the adjusted EBITDA line, we do expect to continue to drive operating leverage on the OpEx side. That, coupled with our gross margin expansion over time, contributes to an overall adjusted EBITDA margin target of 20%-plus. Now importantly, we are still marching toward our EBITDA breakeven goals and time line we've shared on our Q3 earnings call that we are targeting entering into 2022, so the beginning of 2022, on an adjusted run rate EBITDA breakeven basis. Now I'll push it back -- I'll send it back to you, Dan. Thank you.

Thanks, Bryan, and thank you all. And Michael, now we're ready to turn to questions.

Great. Well, thank you very much for walking us through that, Dan and Bryan. It was very informative. So I'm going to lead off the Q&A, but I do want to remind everyone about the blue box. [Operator Instructions] So I guess just to start off with maybe a couple of questions around COVID. I was wondering if you could speak to how COVID impacted your business in 2020 and how you're able to pivot to add new products to help your customers. And then as a follow-on, you've spoken to professional services being impacted by COVID. When do you expect that business to inflect back to a more normalized run rate?

Absolutely. So I might reference Slide 6 in the presentation, just for those who are following along as well. We did experience a near-term impact, to your question, Michael, as it relates to the technology side. Because our platform is very flexible, it did allow us to pivot quickly in building at the apps layer and helping our clients build at the apps layer some COVID-19-specific solutions. And we rolled out literally hundreds of new dashboards and other specific visualizations and accelerators that were helpful in the COVID-19 response. And that's one of the reasons why we saw such a high technology usage rate, is the flexibility of our platform and our apps layer was really purpose-built to respond effectively to a pandemic. We also saw, as you mentioned, on the professional services side that while our health system clients were under financial strain themselves because of the need to cancel or reduce the elective procedures, they wanted our team members, in almost every case, to stay engaged. And we proactively offered some of those discounts that were referenced there. We did experience more of a financial impact on the professional services side, certainly. On the technology side, we really saw continued robustness as we've mentioned in our prior earnings calls. But we do believe longer term that this reinforces the importance of that technology, commercial-grade capability and flexibility, and we do believe that will be a tailwind moving forward. We do anticipate, on the professional services side, to your question, that 2021, especially as we get through the pandemic, we'll see a return to pre-pandemic performance levels from a professional services perspective. Bryan, anything you'd add?

Yes. The only other data point I would add, Dan and Michael, is the -- we referenced in our Q3 earnings call in November that we did expect our professional services dollar-based retention rate to deviate from that historical 107% to 109% range to be in the low to mid-90s for 2020. And that will play out, to Dan's point, on our 2021 P&L. And then looking kind of beyond, to Dan's point, on the pandemic, any uptick in that bookings metric, that net retention metric, would mostly impact 2022 and beyond from a P&L standpoint.

Got it. I was wondering, have you seen any changes in the competitive environment due to COVID, given higher demand for analytics?

At the platform layer, we have not. We've continued to see -- other than, I think, a growing recognition that a homegrown patchwork solution isn't going to scale to meet the dynamic environment of a pandemic response, we continue to see the same few competitors at the platform layer. I think at the apps layer, we've seen some consolidation occur. We've been part of that at Health Catalyst in terms of the 3 acquisitions that we made. Others have made acquisitions at the use case layer, at the apps layer that we think will continue so that health systems have perhaps fewer but deeper client relationships. But those are the major elements that we've seen.

Got it. You saw unprecedented use of the data platform in 2020. Do you think there's any opportunities to raise your annual escalators?

Yes. Good question. So we are contractually already negotiated as it relates to the technology escalators and the definition of what is included in the library from a technology subscription perspective. Importantly, acquisitions fall outside of that library. So where there is an opportunity for some incremental technology expansion, it really lies within those acquisitions that we've made. And we do believe there will be some tailwind associated with that, that a lot of our clients are interested in those capabilities we're intending to be active in the future as well. So those will mean incremental technology revenue opportunities for us.

Okay. And maybe to take a step back, for those that might be newer to the story, could you walk us through how much of your revenue growth in a given year comes from new additions in the prior year and how much comes from expansion within existing clients?

Yes. I'd be happy to share a few thoughts. And then Bryan, please feel free to add as well. If you think about our long-term revenue growth profile that we shared of 20-plus percent and you were to break down the contribution of existing client expansion to that, and you took our historical performance of -- in that 107% to 109% range that we've shared publicly, that might be a good way to think about 7% to 9% of that 20-plus percent revenue growth coming from existing client expansion and the balance coming from the addition of new clients over long periods of time. Bryan, anything you'd add?

Yes. The only thing I would add, Dan, is -- and Michael is given our recurring revenue kind of business model, so our bookings metrics that we achieve in a given year play out on the P&L the following year, to Dan's point, on those 2 drivers of growth. And so in a typical year, 90 -- we have typically 90%-plus revenue visibility into that kind of annual GAAP revenue figure.

Great. Maybe just a question on acquisitions. You made a couple of acquisitions this year. Can you talk to what capabilities they've added and sort of how you're thinking about the M&A strategy going forward? What are specific areas you're focused on?

Yes, absolutely. And I think I'll reference Slide 12 just visually as a way of highlighting. So there were 3 acquisitions that we made. The first acquisition we made was Able Health in the February time frame. And that really added to our capabilities within an already identified quality and regulatory measures category, where we were already in that application suite, but we were able to accelerate the realization of our product road map through that acquisition of Able Health. And that's in the middle section of Slide 12 in the second column from the left, quality and regulatory measures was where Able Health fit. The second acquisition is just to the right of that, EMR embedded insights was the new category that healthfinch, the acquisition of healthfinch enabled us to move into. We knew that many of our health system clients were focused on that closed-loop capability of when you can analyze, there's a gap, there's an opportunity, like a care gap to close, that you need that closed-loop capability to be able to do it in real time, at the right point in time, when a clinician is interfacing with a patient, for example, to close those care gaps. So healthfinch enabled us to move into that new category. And we added a ninth application suite category through that acquisition. The final acquisition of Vitalware is this bottom application suite category in the middle section of Slide 12, revenue improvement and workflow optimization. The chargemaster capability, chargemaster management solution that has been recognized as industry-leading, that we acquired through the Vitalware acquisition enabled us on the revenue side of the equation to move into a new use case that was really important to our clients, to CFOs within their client settings and added a 10th application suite. So we were excited from an M&A perspective, as we've discussed many times, that we saw the greatest opportunity for M&A at the apps layer and inclusive of either accelerating our product road map that we were already pursuing in 1 of these 8 application categories we're already in or introducing us to new application suite categories that we knew would be of interest to clients. I'll also note that as we've shared previously, we continue to look at acquisitions as well in the adjacent market spaces that we've identified of life sciences and international, and we'll continue at that apps layer at the use case layer to focus most of our M&A activity in the future.

Great. That's helpful. And then just maybe taking 1 that came in from online. What does your typical client or target client base look like? So Allina, UPMC, Memorial, they're all health systems. Would a smaller independent community hospital, one that may be financially struggling or not sophisticated enough to develop in-house data warehouse, would they be able to afford Health Cat?

Yes. So we -- when we think about our available market, they obviously include really large health systems. But they scale down as well, all the way down to approximately $100 million to $200 million of net patient revenue from a health system perspective. So we have some rural smaller health systems as clients. We have some larger physician practices as clients. We also serve the payer space and risk-bearing entity space, although a majority of our clients are more on the health system side. So there are a few subcategories, and we are able to scale up and down our platform and our solution to a certain threshold level.

Great. Maybe one for Bryan. Is there a level of cash or leverage that you feel like you need to maintain on the balance sheet?

Yes. Yes, certainly. So we're fortunate as of the end of Q3 to be in a strong position on our balance sheet from a cash standpoint. So at the end of Q3, we had approximately $275 million in cash on the balance sheet. And as I mentioned in the prepared remarks, we're targeting an EBITDA breakeven target of early in 2022. And so don't need the vast majority of that cash to kind of fund operations, which gives us some good dry powder still on the balance sheet to be proactive in terms of M&A strategy. Looking longer term, we would expect to maintain a good amount of cash on the balance sheet in terms of -- you could think about this $50 million-plus of cash on the balance sheet in kind of a normal corporate finance scenario.

Okay. And then just as we sort of wrap up, we have time for one more question. I guess maybe just broadly, I guess outside of sort of the vaccine and sort of moving past COVID, what are you most looking forward to in 2021?

Well, that certainly is something I think we're all looking forward to, is the rollout of the vaccine. We're grateful to provide analytic support to our health systems as they are managing that distribution process and that's -- that important process. We are hopeful that by the summertime, we will have perhaps reached herd immunity, and that we'll continue to see a pattern we're already seeing, which is a return to more of a sense of normalcy and more of an ability to pursue the fundamental mission that we talked about earlier of measurable, massive improvement across clinical, financial and operational areas. Our clients are excited to do that important work. We're excited to do that important work, and we believe we'll see an increase in that work in 2021, and that's something to look forward to.

Great. So with that, we've come to the end of our time. I did want to thank Dan and Bryan for their insights today and wish everyone luck with the rest of their conference this week. Have a good night.

Thank you.

Thank you.