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Small-Cap Confidential
Undiscovered stocks that can make you rich

May 13, 2020

This health-care data stock reported after the close yesterday with results that beat lowered expectations.

Health Catalyst (HCAT) Reports Q1. Quick Note on Cardlytics (CDLX)

Health Catalyst (HCAT) reported after the close yesterday with results that beat lowered expectations. Revenue was up 28% to $45.1 million, beating by $1 million. Adjusted EPS of -$0.16 beat by $0.10. In the quarter management rolled out several COVID-19 specific products with some modules made available for free (initially), which could help bring new customers into the fold in the second half of 2020 and 2021. That said, management did say professional services revenue (45% of revenue), which was very strong in the quarter (up 36% to $20.4 million), could dip in the near-term due to reduced spending at hospitals. Management said it would likely offer these services at reduced rates as a customer retention tool. That makes sense from a business perspective but it’s not great news from a shareholder perspective; we’d prefer to be invested in companies with strong pricing power.

Looking forward, Health Catalyst typically has strong customer signings in Q2 and Q4. This year, that’s going to be a tough slog. I suspect Q2 will be horrendous since health organizations aren’t in much of a position to pursue strategic projects right now. Perhaps they will be in Q4, but without a looking glass I’m not sure I want to stick my neck out on that potential.

The bottom line here is that HCAT is now around our normal stop-loss level (i.e. -30% from where we got into it). We’ve held it through a horrible crash and continued to hold as shares rallied 60% from the low. Let’s step back now. Bigger picture I like the company and idea of health care data but fail to see enough positives to get the stock moving materially higher over the coming months. I think the money can be better put to work elsewhere. SELL REMAINING HALF

Cardlytics (CDLX): Yesterday in my haste to get a Special Bulletin out that detailed Cardlytics’ (CDLX) earnings report I neglected to say that the stock has been rated BUY since April 23 when I wrote, “holding my nose and moving to buy.” The stock is up roughly 35% since. Yesterday’s verbiage implied the stock was moved to buy from hold yesterday, which was not the case. In terms of what to do now, I’ll admit I wasn’t expecting a nearly 20% rally in the stock yesterday! But this is a wild market. If you want to peck away at a few more shares around this level that’s fine, but don’t overdo it. I’m keeping at buy for aggressive investors, while acknowledging that we could see a swift retreat if this market turns south. Key for me to keep CDLX at buy will be having the stock hold above its breakout level around 53. BUY