Thank you for standing by, and welcome to the Health Catalyst Earnings Conference Call for the First Quarter of 2021. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [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.

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?

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 our colleagues at Carle to forecast census; and related bed, staffing…

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…

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.

Thank you. [Operator Instructions] Our first question is from Robert Jones with Goldman Sachs. Your question please.

Great. Thanks for taking my question. 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?

Yes, 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 towards 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.

Understood. Thanks so much.

Thank you Jack.

Thank you. Our next question comes from Anne Samuel with JPMorgan.

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?

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.

Okay, helpful. Thank you. And then maybe just one on the macro environment. 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.

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 conversations.

Great. Thanks very much.

Thank you.

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

Yeah. Thanks for taking the questions. Congrats on a strong start to the year. I wanted to do a follow-up there on the 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 one million-plus in savings. Is that something that you think is transferable 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 commercial-grade analytics solutions?

Yeah. 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 other really important aspects of operational performance and financial performance. And so we would see that this capability that HFHS [ph] was able to leverage our solution and produce is applicable in the payer space and in different sub-segments of the payer space as well. So we are excited about the potential of others utilizing that solution and yielding similar benefits.

The only thing I would add Ryan is as you know 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.

Okay. 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.

It's a good question Ryan. And I would share that we feel like we're in learn 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. 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 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 following the planning process probably early next year.

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.

Okay, great. Thank you again.

Thanks Ryan.

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

Hi. 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?

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 non-recurring 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?

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 non-recurring services, but a fairly small portion of our overall mix currently.

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

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?

No, that makes sense. Thanks, Dan.

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?

We did share a mid-teens expectation.

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

That's right.

Super. Thanks so much.

Thank you, Sean.

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

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

Yeah. 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.

Got it. Okay.

The only thing, I would...

…sorry.

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.

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

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 write-down that will have an impact on that through Q1 Q2, in particular. And then, tick-up towards the back half of the year. So hopefully that helps you with a little bit of color on that level.

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?

Yeah, yes.

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

Got it. Thank you.

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

Thank you for taking my question. And congrats on the quarter.

Thank you.

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 multi-year recovery?

Yeah. 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?

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.

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?

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.

Don't mind the skews and services [ph]. Thank you, guys.

Thanks, Stephanie.

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

Hi. 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 that a safe assumption?

Yes. 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.

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

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.

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

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.

Thank you.

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

Thank you. I think, this question has come up in a couple 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?

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?

Yes. 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.

All right. No, 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?

Yes, 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?

No, I think that was well said. Thank you, Dan.

Great. All right. Yes. Thank you.

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

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

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.

Got it. Okay. Okay. 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?

I think the answer is yes to both actually that pre-pandemic we did see a back weighting 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 towards Q2 and Q4, but the pandemic has thrown some curveballs and so we're continuing to just watch and monitor.

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 in a couple months a couple or three months.

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

Yes.

Okay. Thanks guys.

Thank you, Daniel.

Thank you. Our next question comes from Iris Long with Berenberg.

Hey, guys. Thanks for taking my question. So I have 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?

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 which 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.

Yeah. 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.

Okay. 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?

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.

Very helpful. Thank you.

Thank you, Iris.

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

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 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?

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 towards 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.

Okay 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?

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 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, where 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.

Thank you so much.

Thank you.

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.

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.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect.