Q4 2023 Health Catalyst Inc Earnings Call

Participants

Adam Brown; Senior Vice President, Investor Relations; Health Catalyst Inc

Daniel Burton; Chief Executive Officer, Director; Health Catalyst Inc

Bryan Hunt; Chief Financial Officer; Health Catalyst Inc

Anne Samuel; Analyst; JPMorgan

Stephanie Davis; Analyst; Barclays

Jared Hoff; Analyst; William Blair & Company

Sameer Patel; Analyst; Evercore ISI

Daniel Grosslight; Analyst; Citi

David Larsen; Analyst; BTIG

Sarah James; Analyst; Cantor Fitzgerald

Presentation

Operator

Welcome to the Health Catalyst's fourth-quarter and full-year 2023 earnings conference call. (Operator Instructions)
I will now turn the call over to Adam Brent, Senior Vice President of FP&A and Investor Relations. Please go ahead, sir.

Adam Brown

Good afternoon, and welcome to Health Catalyst's Earnings Conference Call for the fourth quarter of 2023, which ended on December 31, 2023. 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 Hahn, 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 eight K furnished to the SEC, both of which are available on the Investor Relations section of our website at ir dot health, Catalyst.com. As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call.
During today's 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 macroeconomic challenges, including the impact of inflation and the interest rate environment, the tight labor market, our pipeline conversion rates and the generally anticipated performance of our 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. Please refer to the risk factors in our Form 10 Q for Q3 2023 filed with the SEC on November sixth, 2023, and our Form 10 K for the full year 2023. 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 financial measures to their most comparable GAAP measures is provided in our press release.
With that, I will turn the call over to Dan. Dan?

Daniel Burton

Thank you, Adam, and thank you to everyone who has joined us this afternoon. We're excited to share our fourth quarter and full year 2023 financial performance, along with additional highlights from the fourth quarter. Furthermore, we look forward to sharing our perspective on 2024, as well as the mid and long-term outlook for our business.
I will begin today's call with summary commentary on our full year 2023 results. We are pleased with our full year 2023 financial results, including total revenue of $295.9 million. With this result, beating the midpoint of our most recent guidance and adjusted EBITDA of $11 million. With this result, in line with the midpoint of our most recent guidance for each of these metrics, the results also represent an outperformance relative to the full year guidance range, we provided to begin the year 2023 with the guidance range we subsequently raised later in 2023.
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 road 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 engagement.
Let me begin by sharing an example of a client improvement from a recently published case study. The cleans health system recognize the need to improve its patient flow in order to increase its systems capacity, provide more cost effective care and maintain its financial stability. Prolonged length of stay was creating capacity constraints impeding cleans ability to meet patient demand for care and negatively impacting it's patient experience supported by our DOS data platform and a robust suite of analytics applications, including our patient flow explore accelerator, along with our tech-enabled Managed Services cleans, established a dedicated team focused on capacity management. The team at Queens, then leveraged DOS and our patient flow explore technology to better understand its demand and capacity, identify patient flow improvement opportunities and quantify the value of the improvement efforts. Likewise, our tech-enabled managed services supported claims, clinical quality improvement and advanced analytics adoption through the use of our software and services, along with a widespread focus on process improvements. Queens has improved IT systems, capacity management effectiveness, decrease its length of stay increased its ability to serve more patients and improved its overall patient experience. These improvements reduced claims costs by 22 million over the course of 15 months, the result of an 8.4% relative reduction in length of stay, while its patients were able to spend approximately 19,000 more days at home. Additionally, Queens simultaneously increased its inpatient admissions, generating an additional $1.9 million in new revenue in under one year. This improvement case study is an important example of how our technology and tech-enabled managed services offerings work together, cleans and others benefit from the synergy of this integration with Health Catalyst's uniquely able to provide both offerings delivering a clear ROI to our clients.
Also in the improvement category, we have been fortunate to receive several additional external recognitions related to our technology and to our team member engagement. First, we are excited that our Vitalware Chargemaster management software solution, a revenue cycle analytics technology we acquired in 2020, what was recently ranked best in class for 2024. This marks the 5th year that the vital CDM solution as achieved this distinction for the class organization validating our meaningful investment in this mission critical technology that provides near term hard dollar ROI.
Next, we are pleased to share that we have recently been recognized for several team member engagement awards, including placement on Newsweek's America's greatest places to work for diversity in 2020 for list Fortune's Best Workplaces for Women 2023 list, the National Association for business resources, 2023 Best and Brightest Companies to Work For in the nation list. And the Salt Lake Tribune is top workplaces list. Additionally, we were thrilled to have several Health Catalyst team members honored as part of the recent 2023 women of color STEM awards.
Our next strategic objective category is growth, which includes expanding existing client relationships and beginning new client relationships. Firstly, provide some commentary on our 2023 bookings performance. At a summary level, we are encouraged to see continued progress relative to our growth related performance, especially in the second half of 2023, as our end market began to see financial improvements. Our net new DOS subscription client additions in 2023 was 11, in line with our expectations, both in number of net additions and an average ARR per new client. Our 2023 dollar-based retention rate was 100% as previously shared, this performance was below our forecasted range of 102% to 110%, primarily due to the delay with a few larger tech-enabled managed services expansion opportunities. As a reminder, these tech-enabled managed services opportunities tend to be more challenging to precisely forecast the timing of deal signing, given the size of the relationships, the relatively small number of opportunities in a given quarter and the complexities associated with rebadging of health system team members such as the need for client board level approval. That said, despite the contract start date being more challenging to forecast as compared to our typical gas contracts. Once these relationships are contracted, we benefit meaningfully from long-term locked in sizable contracts that strategically align us at the highest levels of our clients' leadership across both technology and managed services. Our clients are asking us to provide these tech-enabled business services because they recognize the clear hard dollar ROI that we provide by offering integrated technology and services. We are pleased to share that one of these tech-enabled managed services, Charter checks and opportunities originally protected to sign in late 2023 has just signed. The revenue recognition for this opportunity won't begin until midyear. Likewise, we are encouraged to see continued progression in our pipeline, including tech-enabled managed services opportunities and anticipate additional contract signings in the next few months. I will provide additional commentary on these opportunities when I share our 2024 bookings expectations.
Next, related to our current growth operating environment consistent with what we have shared recently, while health system operating margins continue to be challenged relative to longer-term historical levels, we are encouraged to see operating margins steadily improving in recent months. We anticipate this will be a tailwind related to our bookings metrics in 2024 and beyond.
With this backdrop, I will now share some perspectives on our anticipated 2024 bookings achievement levels, supported by the continued improvement in the operating environment of our end market. We anticipate meaningful improvement in both our both of our bookings metrics relative to our 2023 performance. First, as it relates to our net new DOS subscription client additions, we anticipate achievement of mid 10s net new DOS client additions as we have seen our end market improve. We have begun to strategically allocate more of our growth resources toward new client and cross-selling efforts with a focus on technology, especially with the benefit of our next-generation modular data platform. We anticipate this emphasis will support our focus on sustained profitable growth as these higher-margin client relationships contribute more meaningfully to adjusted EBITDA.
Starting in year one, we expect the average ARR per net new DOS subscription client added to increase in 2024 as compared to 2023, driven by a small portion of bonus Lite client adds relative to 2023.
Next, as it relates to our 2024 dollar-based retention rate, we anticipate achievement between 104% and 110% for the tech-enabled managed services deals that moved from Q4 2023. As I just mentioned, one of those opportunities just recently signed and others continue to be in our pipeline, and we assume these deals will contribute to our improved 2024 dollar-based retention rate range I just shared likewise, consistent with 2023, we expect professional services dollar-based retention achievement to be higher than technology driven by larger tech-enabled managed services expansion pipeline opportunities.
In addition to our perspectives on 2024 bookings, Bryan will share our 2024 P&L guidance later in our prepared remarks, I am encouraged by these projections, especially as they relate to our continued progress on profitability. We are also pleased to introduce a few new mid-term and longer-term financial targets as well as to provide updates relative to our previously shared financial targets.
First, as it relates to our 2025 revenue growth, we anticipate 10% to 15% year over year growth. This expectation is supported by our 2024 bookings expectations. Next, we now anticipate that our 2025 adjusted EBITDA margin will be between 10% and 12%, a positive update relative to our prior expectations. We are encouraged by our anticipated ability to meaningfully increase profitability while driving robust revenue growth across both technology and professional services.
On a related note, as we have considered our mid and long-term planning, one view that we find helpful is an estimated business unit adjusted EBITDA margin for each of our technology and professional services business units. Along these lines, we perform a high-level allocation of our operating expenses by business unit, assigning R & D to our technology segments and SG&A across our technology and professional services segments. This view helps us in our planning process as we evaluate our relative investment in each business unit and the long-term drivers of shareholder value. In 2025, we expect our technology business unit to have an approximately 20% adjusted EBITDA margin. And for our professional services business unit to have a slightly positive adjusted EBITDA margin.
Lastly, related to 2025, we expect our adjusted free cash flow to be meaningfully positive, a testament to our growth operating leverage and financial discipline mix. We are pleased to share a few updates relative to our longer-term financial targets. First, we anticipate the annual revenue of 500 million plus in 2028 with greater than 55% of this revenue coming from our technology business units. Next, we expect our adjusted EBITDA will be 100 million plus in 2028 as we forecast the business unit margin of its 2028 adjusted EBITDA target, we expect our technology business unit to have an approximately 30% adjusted EBITDA margin, which when combined with the expected annual revenue growth of our technology business unit of 10 plus percent per year. We make our Technology Business Unit a Rule of 40 business. We expect our professional services business unit to have an approximately 10% adjusted EBITDA margin. We are pleased to establish these meaningful milestones related to both total revenue and total adjusted EBITDA for 2028 and are encouraged by our team members' focus and dedication to achieving these targets.
Lastly, in the growth category, I would like to highlight our upcoming 10th Annual Health Care Analytics Summit, inclusive of our annual user conference. This year's conference, which will be held next week, represents a meaningful investment in new client and existing client relationship development. It also affords Health Catalyst, another opportunity to provide thought leadership within the health care data and analytics ecosystem while carefully listening to our clients and prospects as we further cultivate and deepen those relationships we anticipate approximately 1,000 attendees this year, primarily composed of existing and prospective Health Catalyst clients and other health care industry leaders and innovators.
I also wanted to take the opportunity to highlight our excitement related to our next-generation data platform. As we have shared previously, we have made a meaningful investment in the next generation of our data platform software, allowing for significant increases in its scalability and modularity enabled by cross industry technologies such as Snowflake and Databricks. We anticipate this investment will enable best in class technology to support existing client relationships and prospective client sales processes, while also supporting technology gross margin expansion over the medium term. The initial deployments of our next-generation platform are going as planned, and we anticipate migrations of the majority of our existing DOS subscription clients over the next two to three years. Likewise, we anticipate that moving forward, our new client deployments will be in this next-generation architecture.
Lastly, prior to turning the call over to Bryan and in connection with our annual planning process, I would like to share a few leadership and Board member updates. First, Bryan Hunt will be transitioning from CFO to a strategic adviser role effective March first, I would like to express my heartfelt gratitude to Bryan for his countless contributions to help the catalyst growth and success over the last 10 years, including his service as our CFO, helping us navigate through a global pandemic, record high inflation and a period of tremendous financial pressure for our health system clients. Bryan has been an extraordinary leader and partner to me and to the Board. And we are grateful for his dedication, professionalism and commitment to the company and its mission I'm also pleased to share that Jason auger will begin as Health Catalyst CFO effective March first. Jason has been with Health Catalyst for more than 10 years, having contributed significantly during that time, including most recently as our Chief Accounting Officer, prior to joining Health Catalyst, Jason held various roles at Ernst & Young, my fellow Board members and I along with our finance organization have the utmost confidence and respect for Jason, and we look forward to more widely introducing him across our research, analyst and investor base in the coming weeks.
Next, let me share that effective March first, Dan, The Squaire is being promoted to Health Catalyst's Chief Operating Officer role with responsibility spanning both our technology and professional services business units. Dan brings a wealth of experience to this role, having a leadership responsibility across many functions during his 12 years at Health Catalyst, most recently as the Senior Vice President and General Manager of our professional services business unit. I am thrilled to have someone with Danone's breadth and depth of experience and expertise to lead this important strategic function as Health Catalyst continues on its maturation path, focusing on operational excellence to enable scalable growth and profitability.
Lastly, I want to take a moment and share my sincere gratitude for Marc Templeton for his service on our Board of Directors as he completes his board service as of March first, we were fortunate, but I have had Marc extend his board service beyond his original commitment and Health Catalyst's has benefited meaningfully from his service over the last nearly four years, including his leadership role as Chair of our transactions committee.
With that, let me turn the call over to Bryan. Bryan?

Bryan Hunt

Thank you, Dan. Before diving into our quarterly financial results, I want to echo what Dan shared and say that I am pleased with our fourth quarter and full year 2023 performance.
I will now comment on our strategic objective category of scale. For the fourth quarter of 2023, we generated $75.1 million in total revenue. This total represents an outperformance relative to the midpoint of our quarterly guidance, and it is an increase of 9% year over year for the full year 2023 our total revenue was $295.9 million, representing 7% growth year over year. Technology revenue for the fourth quarter of 2023 was $47.1 million, representing 5% growth year over year. This year-over-year growth was driven primarily by recurring revenue from new client additions and from existing clients paying higher technology access fees as a result of contractual built-in escalators.
For the full year 2023 Technology revenue was $187.6 million, representing 6% year-over-year growth. Professional services revenue for Q4 2023 was 28 million, representing a 14% increase relative to the same period last year. This year over year performance was primarily due to revenue recognition from the tech-enabled managed services contracts that were signed at the end of Q4 2022 and the beginning of 2023. For the full year 2023, our professional services revenue was $108.4 million, representing 8% year-over-year growth for the fourth quarter 2023. Total adjusted gross margin was 46%, representing a decrease of approximately 450 basis points year over year. For the full year 2023, total adjusted gross margin was 49%, representing a decrease of approximately 410 basis points year over year.
In the technology segment, our Q4 2023 adjusted technology gross margin was 67% a decrease of approximately 210 basis points relative to the same period last year. This year-over-year performance was mainly driven by costs associated with migrating an initial an additional subset of our client base to our multi-tenant, Snowflake and Databricks enabled data platform environment.
For the full year 2023, our adjusted technology gross margin was 68% and approximately 130 basis point decrease year over year.
In the Professional Services segment, our Q4 2023 adjusted professional services gross margin was 12%, representing a decrease of approximately 580 basis points year over year and an increase of approximately 30 basis points relative to Q3 2023. This quarterly performance was in line with the expectations we shared on our last earnings call, and we continue to expect a several point increase through our adjusted professional services gross margin in Q1 2024. The result of our recent reduction in force that primarily occurred late in the fourth quarter of 2023. For the full year 2023, our adjusted professional services gross margin was 15% and approximately 850 basis point decrease year-over-year. In Q4 2023, adjusted total operating expenses were 33.3 million as a percentage of revenue adjusted total operating expenses were 44%, which compares favorably to 52% in Q4 2022. For the full year 2023, adjusted total operating expenses were $133 million. As a percentage of revenue, adjusted total operating expenses were 45%, which compares favorably to 54% in the full year 2022. Adjusted EBITDA in Q4 2023 was 1.4 million, in line with the midpoint of our guidance for the full year 2023, our adjusted EBITDA was $11 million, which compares favorably to an adjusted EBITDA loss of $2.5 million in 2022. Our adjusted basic net income per share in Q4 2023 was $0.02. The weighted average number of shares used in calculating adjusted basic net income per share in Q4 was approximately 57.5 million shares for the full year 2023, our adjusted basic net income per share was $0.16, and the weighted average number of shares used in calculating adjusted basic net income per share was approximately 56.4 million shares.
Turning to the balance sheet, we ended Q4 2023 with 317.7 million of cash, cash equivalents and short-term investments compared to $347.7 million as of Q3 2023.
In terms of liabilities, the face value of our outstanding convertible notes is a principal amount of $200,000 due in 2025.
As it relates to our financial guidance for the first quarter of 2024, we expect total revenue between 72.5 million and $76.5 million and adjusted EBITDA between 2,000,004 million. And for the full year 2024, we expect total revenue between 304,000,312 million and adjusted EBITDA between 24,000,026 million.
Now let me provide a few additional details related to our 2024 guidance. First, as it relates to our Q1 2024 expectations, we expect that our adjusted technology gross margin will be in the high 60s in the first quarter and the professional services segment, we anticipate our Q1 2024 gross margin will be in the high 10s, a several point improvement relative to Q4 2023 consistent with our expectations shared last quarter. Lastly, we anticipate our adjusted operating expenses will be roughly flat to slightly up compared to Q4 2023, with our sales and marketing increasing by two to $3 million quarter over quarter. The results of our Healthcare Analytics Summit event and our research and development decreasing by a couple of million sequentially. The result of our recent reduction in force.
Next, let me share a few additional details related to our full year 2024 guidance. First, our 2024 revenue growth expectations are impacted by our 2023 dollar-based retention rate achievement being lower than our prior expectation. Given the in-year 2024 revenue impact from the tech-enabled managed services deals that moved from Q4 2023 to 2024. We now anticipate our first half year-over-year total revenue growth to be lower and to ramp in the second half of 2024 as we benefit from these in year 2020 for bookings translating into second half revenue.
Next, in terms of our adjusted gross margin, we expect our adjusted technology gross margin will be in the high 60s through 2024. We anticipate the built-in client level technology gross margin expansion, mainly driven by contractual escalators, will be mostly offset by the headwinds from costs associated with migrating an additional subset of our client base to our multi-tenant Snowflake and Databricks enabled data platform environments.
Next, we anticipate our adjusted professional services gross margin will be in the high 10s for the year, primarily driven by the mix of professional services, which will be comprised of a larger percentage of tech-enabled managed services, which start out at a low gross margin, but ramp up meaningfully over time. Next, we continue to anticipate material year-over-year operating leverage. This includes the expectation that our 2024 R&D expense will be lower on an absolute dollar basis relative to 2023. As we conclude a large portion of the investment we have been making in our next-generation Snowflake and Databricks enabled data platform. Additionally, we anticipate continuing to see operating leverage as a percentage of revenue across SG&A. Next, we anticipate we will see a reduction in our stock-based compensation expense as a percentage of revenue by approximately 350 to 450 basis points in 2024 on our way to stock-based compensation expense as a percentage of revenue in the mid to high single digits in 2028. And lastly, we anticipate our adjusted free cash flow in 2024 will be approximately breakeven.
With that, I will conclude my prepared remarks.

Daniel Burton

Yes. Thanks, Bryan. In conclusion, I would like to recognize and thank our committed and mission aligned clients and our highly engaged team members as well as express my excitement and optimism for the future.
And with that, I will turn the call back to the operator per question.

Question and Answer Session

Operator

(Operator Instructions)
Stephanie Davis, Barclays.
If your phone is on mute, please unmute.
And moving on. Anne Samuel, JP Morgan.

Anne Samuel

I think strategic question on your dollar-based retention. The past two years has been enormous. 1% was through the bridge, how you get to your 104% to 110% target for next year. How much of that is that 10 contracts that shifted?

Daniel Burton

And then you cited potential for 120% of our time. So what needs to happen for you to get there?
Yes.
Thanks for the question. Any so in terms of the building blocks for our dollar-based retention in 2024, one of the elements that we did mention in our prepared remarks was that there had been a few of those larger tech-enabled managed services opportunities that we had originally forecasted for late late 2023 signings that took a little bit longer. We were pleased to announce and share that one of those just signed, and that's a good example of some of the learnings that we've had recently and over the last year or so with regards to these large tech-enabled managed services opportunities that they are challenging to precisely forecast, there are specific examples where it makes sense to take a little bit more time, as was the case with this most recent tech-enabled Managed Services chart extraction opportunities signing two to make sure that across the C-suite at every level in the organization, there's very strong support. And so we took a little bit more time to make sure that that occurred and we're still pleased to see that that and that opportunity converted as we are gathering more data and more information about these larger tech-enabled services opportunities like we're trying to be good students of the data and one of the elements we're trying to better understand is what is a typical sales cycle for these larger tech-enabled managed services opportunities. And we've shared previously that we estimated around one year sales cycle, and that still has been the case for a number of opportunities we are observing. There can be some cases where it takes a little longer than a year. And so we're trying to be data informed as we learn more and more. But we are early in the process of really growing that tech-enabled managed services opportunity and that is one of the components that does offer meaningful expansion to the TAM expansion opportunities long term for the company. One of the things that I would share is, as we mentioned in the prior earnings call back in November. And we noted some opportunities that were that were strengthening within the tech side of our portfolio with our end market operating margins improving there was more of an openness late last year to have more conversations as it relates to the tech growth opportunity. And as we mentioned in the last earnings call, we did begin to shift some growth resources towards those opportunities as they not only represent meaningful growth opportunities, but very profitable growth. Given the higher gross margin profile of that tech, we've continued to do that this year. And we believe that will create meaningful shareholder value as we continue to realize that, that profitable growth that comes from from a little bit more of that focus on on selling the technology. So those are a couple of the components. Any that, Bryan?

Bryan Hunt

I agree, Dan, in terms of what's driving the improved outlook for our 2024 dollar-based retention rate ranges, the component that you mentioned anywhere, we will have a few points of contribution from these tenants expansion deals that have moved into 2024 The other piece of that is to what Dan said around our end market financial environment is improving for hospitals and health systems, and that will lead to a broader portfolio of what we can offer outside of terms in terms of upselling additional technology and other services to our clients. So that's the near term kind of outlook that we see. And then as we've put forward some new targets for 2025 and 2028. I think what Dan said is right, where we are assuming improvement and dollar-based retention rate for both technology and services at a similar level into the future. And we like that model and that it drives a more profitable growth rate and a higher kicker on our EBITDA expansion through 2020.

Operator

Stephanie Davis, Barclays.

Stephanie Davis

As.Thank you for dealing with me. I am at an airport again, I started by saying and how that works. But given given some of the changes we're seeing and the management team as well as the new 2020 targets, it sounds like potentially your philosophy about Health Catalyst wants to be when it grows and maybe the path to adulthood in order to get there may have shifted a little bit. So can you talk to me about where you stand and kind of where you see yourself going as the path or the margin focus?

Daniel Burton

Absolutely, Stefan, thanks for the question. So we are paying attention to what our clients need most and what the end market is asking for in terms of what will be most helpful for health system clients to be successful. And as you know, we've just gotten through a period of really significant financial pressure for a period of time. The pressure was so significant and so many health systems were underwater from an operating margin perspective. That's really the only thing they have the ability to think about dealing with us had to offer very clear near term hard dollar away and often actual guaranteed cost savings. And that's where I think a lot of our focus, as we have discussed in the past, shifted more towards those parts of our portfolio that had that near term hard dollar ROI and particularly those are areas that offered cost savings like tech-enabled business services. We're really grateful that we had those elements of the portfolio and a focus on when that was really what was needed most significantly in the near term with our end markets over the last number of months. As we mentioned in our prepared remarks, we have observed an improvement in that end market and although less financial pressure as operating margins have improved, we found that there's more of an openness, both with our existing clients and with new clients talk about more of a full portfolio, inclusive of more opportunities to talk about the technology components of our solution. And we wanted to be responsive to that. We still fundamentally see ourselves very much the way that we describe ourselves nearly five years ago were public that long term, we believe there will always be a meaningful technology component to what we do a meaningful services component to what we do and and informed by the experience of the last 18 months or so much of what we do on the professional services side.
Moving forward, we believe will take the form of tech-enabled managed services where our clients ask us to take on more direct responsibility for certain functions because that offer such a strong hard dollar ROI. And I think what you're seeing in our perspective over the next few years is that we do see the end market coming back to more of a normalized level where we can have a balanced set of conversations that include meaningful conversations around our technology offerings as well as meaningful conversations around the services that we can provide, the managed services that we can provide. We think this affords us the opportunity for balanced growth. And we do appreciate, and we recognize the importance from a shareholder value perspective of profitable growth and increasing profitability over time. And when we grow in a fairly balanced and similar way with regards to our tech and our services that that proportionate growth in tech or tech continues to be a majority of our revenue streams, for example, over the next four years enables more and more profitable growth and a really significant growth rate in our EBITDA as as we see that play out between now and 2028 of an average growth over the next four years of over 40%. We do believe that that is a model that we can execute well against with our clients and provide them with tremendous value, and it creates a lot of shareholder value and for our investors.
So that's a priority for us.

Operator

Jared Hoff, William Blair.

Jared Hoff

Yes, good evening, guys. Thanks for taking the questions. This is Jared on for Bryan Daniels. I appreciate all the detailed commentary, especially regarding the model targets over the next few years. I wanted to double click on the expected ramp in the tech segment EBITDA margins to your 2020 targets. Just would love to hear a little bit more context as to what was potentially driving that EBITDA margin over the next four or five years? Is any of that tied into some incremental pricing leverage associated with the next-gen platform. I know you've historically had some solid pricing leverage in that segment, but I'm wondering if there's anything incremental given some of the recent investments.

Daniel Burton

Yes. Great question, Joe. Thank you so if you think about our tech business from a margin profile perspective, there is the data platform component of what we offer. And then there's the apps layer component of what we've offered and we see some meaningful tailwinds over the next four years that will add to that progression that we're projecting and we're targeting in the EBITDA profile for the tech business.
So at the data platform level, to your earlier comment, Gerard, we are excited to roll out the next-generation data platform, and it has many benefits to offer to our clients in terms of its scalability and modularity flexibility. It also has an improved margin profile once we get through the migration process, which will take a couple of years. But the fundamental margin profile is better than our current DOS data platform profile. And as such, it offers some combination of a better value to clients that we choose to pass some of that along to them as well as an increased gross margin profile that then can drop to the bottom line. And on the apps layer, we see some tailwinds as it relates to the cross-selling opportunities that we see to enable more of our clients to adopt more at the apps layer. The average DOS subscription client has only between one and two of our applications it fully deployed. And so there's a great deal of cross-sell opportunity. And as you may recall, from prior conversations that we've had, the absolute gross margin is in that 80 plus percent range. And so the higher the proportion of our technology revenue is coming from the apps layer, the more upward momentum that we'll see in that gross margin profile and there's a lot that we have to sell and cross-sell to our clients. And so we are excited and encouraged to see those opportunities.
The last thing that I'll share from a technology EBITDA margin perspective is the operating leverage that we believe we'll see over the next four, four years, continue within the tech business. And that's that's true overall at the company as well. But specific to the tech business, our R&D operating leverage, we believe, will continue to progress over the next four years. One of the reasons for that is we've largely completed the investment that was significant in the next-generation data platform. And so that's really behind us and that's creating some of the near term operating leverage in R&D. We continue to also be focused on efficiency as it relates to R&D and focus as it relates to R&D, we're moving more and more towards global delivery and certain aspects of our R&D and we see the opportunity as we simplify and focus on key differentiated elements of our value proposition that allow us to achieve more R&D leverage.
Lastly, as it relates to the other OpEx categories. We continue to see an efficient sales and marketing motion, especially as it relates to existing client expansion and cross-sell opportunities where we benefit from the fact that we have hundreds and hundreds of existing client relationships, and we can cross-sell many aspects of our technology into those clients. And that provides a more efficient sales motion, which will show up in additional operating leverage in the sales and marketing space.

Jared Hoff

Just to add density to your last point on some of the cross-sell and upsell opportunity, Jared, as we shared, we do anticipate our dollar-based retention rate improving meaningfully in 2024 as well as into the into the future. What that leads to is a is a top line growth level as well for the technology business that when coupled with the EBITDA margin that we have in 2024, 2025 and then long-term target for 2028 leads to financial profile for the tax business unit that looks like a Rule of 40 profile me. We do to Dan's point believe that that will be one of the primary ways of driving additional shareholder value creation over time.

Operator

Elizabeth Anderson, Evercore ISI.

Sameer Patel

Hi, this is Sameer Patel on for Elizabeth Anderson on congrats, Bryan, as well as Dan And Jason, I had a quick question on the next-gen platform. Understanding that the tech side of your business has a bit of a longer sales cycle. Does your 2024 guidance contemplate any benefit from the rollout of this next-gen platform? Or is that pretty strictly isolated to 2025 and beyond?

Daniel Burton

I do think there will be some benefit in 2020 for Sameer and part of what we mentioned in our earnings call transcript prepared remarks was that from now on with regards to new clients, we are planning to roll out the next-gen data platform as these new clients signed with Health Catalyst and and the value proposition, the strength and the differentiation of that data platform with new clients and the fact that we're avoiding any future migrations that would be needed. I think it's a real positive that will show up some in 2020 for especially from a bookings perspective to your point, how much of the P & L impact will roll into 2025 with regards to new clients, I think with existing clients, and we're encouraged and excited to see so many of our existing clients truly excited and interested in migrating to the to the next-generation data platform. There are some onetime migration costs associated with that might with that transition that we'll have to work through over the next couple of years, which is one of the reasons why we're projecting our technology gross margins to kind of stay in a similar place. But as we get through those migrations, then I think that improved gross margin profile will accrue to the benefit of the company.

Bryan Hunt

And I do think that to add to that, Sameer, in addition to what Dan said on the margin kind of dynamics with the new data platform, another benefit of the next-generation data platform is it continues to be flexible in terms of modular sales as well as enterprise platform sales and in particular, with cross-sell opportunities as we market to our non-data client base, which is over 500 other clients who do not use our platform. We found that the next-generation platform with its modularity and is a really good starting point to be able to market into that client base as well and is a part of why we anticipate improved Amdocs customer additions in 2024 relative to prior years.

Operator

Daniel Grosslight.

Daniel Grosslight

Said I thanks for taking the question. I want to go back to the longer term targets, particularly I had on revenue growth. If I look at and some of your long-term targets, given it was about a month and a half ago. Now you're thinking about revenue growth in kind of a 20% plus range. These new 2020 targets imply around 13% revenue growth and the EBITDA margin is similar at around 20% plus. So I'm curious what's driving the more conservative stance now and if there were some change in the market or your approach to the market that would lead to a bit of a slowdown in top-line growth?
Yes.

Daniel Burton

Thank you for the question, Daniel, and we have wanted to make sure that we are carefully following what our clients and what the end market is needing and demanding and and be reflective and responsive to that. We have found, as we mentioned previously, over the last few months, late last year and into this year that that while there is significant financial pressure still in our end market, it is starting to subside and is improving and there's more of an openness to talk about our full portfolio and more of a discussion on our technology offerings. And I think we've wanted to to be responsive to that and we have shifted some of our growth resources both now and as we think about the future, we see more of those opportunities for balance growth. And I think we want to prioritize that technology growth as more profitable growth, which can can lead to a really meaningful EBITDA growth over the next four years as a company. And so we are prioritizing that profitable growth as what we feel is very important to drive shareholder value at a primary level. We continue to be really excited about the other opportunities for growth, and we will continue in a balanced way to pursue opportunities like tech-enabled managed services. But I think as the end market is improving and there's more of an openness to talk about and the technology components of our portfolio, a little bit more than what we've been able to do over the last 18 months. And that, coupled with the fact that we have confidence in and we're excited about our next-generation data platform. I think we've shifted some resources and we're planning on continuing to focus on that component of our value proposition in a balanced way such that we would project forward about more balanced growth that is similar between our technology revenue growth and our services growth.
The last thing I'll share and then to Bryan, would like to add anything is we do take these targets very seriously. As we have in the past, when we all share a profitability target, for example, we've striven to to meet or exceed that time line that we've shared and we've done that recently in multiple regards. And I think as we think towards those targets for 2028, we want to have confidence that we can meet or exceed those targets, including from a top-line revenue growth perspective?

Bryan Hunt

Agree that Yes. And I think that last point it is important around as we think about from a financial guidance standpoint, these targets we do think of them as threshold level targets and a little bit a little bit different from long term profiles that we have shared previously and that these targets are more specific. So there for 2025, specifically in 2028 on real meaningful milestones with levels of both revenue and EBITDA that we think are threshold level that we'll strive to to meet and exceed the endpoint. We take those very seriously.

Operator

David Larsen, BTIG.

David Larsen

Hi. Can you talk a little bit more about these 10 deals that have pushed? It sounds like you signed one of them. So any color on like how many more times deals there may be what the incremental revenue contribution could be for each of those. And then it sounds like you're pretty confident with your 2025 revenue growth guide of, I think 10% to 15%. Is that really going to be driven by these these 10 sales you expect to kind of sign in the near term?

Daniel Burton

Yes, great questions. David. So first, as it relates to the 10 deals that we were originally projecting two to close by the end of the year, we were encouraged to see one of those just a few days ago to come through and sign. That was a meaningful terms.
Chart abstraction opportunity for us with an existing client that already had some meaningful ten's activity going on. So it was encouraging to see that there continues to be expansion opportunity. The size of that particular deal was a little below the average for Tim's contract that we've seen over the last little while. And we do have other Tim's opportunities in the pipeline that continue to progress. Importantly, over the last few months, as we've seen improvement in the end market and more of an openness to talk about more of our portfolio, not just tens or not just those elements of the portfolio and offer cost savings. We have proactively shifted some of our growth resources towards more of those tech-oriented conversations, both with existing clients as well as more new client discussions. And we've started to see the positive results of that in that our pipeline is growing. We saw a very active Q4, very strong Q4 in terms of our new client conversions, and we move in with momentum to 2024 along those lines. That is, we believe, the result of the end market improving as well as our our shift of resources towards those other opportunities and what I would share as it relates to thinking forward too, to what that means for 2025, we believe that 10% to 15% growth will be pretty balanced between tech and services. And it will heavily skewed towards tens. It will it will meaningfully have ten's contributing to that overall growth, but it will be meaningful tech growth as well. And as part of that balance theme that I think we are we're excited about. We're encouraged by that. We see in our pipeline that there are meaningful tech growth opportunities and meaningful TAM growth opportunities. We are shifting some growth resources a little bit more towards those tech opportunities because that represents really meaningful profitable growth. And we do believe that profitability will be the primary way we can create shareholder value from a shareholder return perspective. So we are prioritizing that, but we'll still continue to have a mix of meaningful attack opportunities, meaning full services opportunities that we that we pursue and a large proportion of those services opportunities are proving to be those ten's opportunities.

Bryan Hunt

To your question, Dave, around kind of in-year P&L contribution dynamics, what we're anticipating for revenue in 2024 is just given the bookings results in 2023. With that 100% dollar-based retention rate as well as a little bit heavier weighting towards Q4 2023 bookings for new client additions, and we'll see a little lower revenue growth in the first half of 2020. For those new deals, new deals do take a couple of few months to start ramping under the P & L. And then with the deal that we just recently signed, the ten's expansion, we mentioned that that will start ramping towards midyear. And so we do anticipate to what Dan shared that both technology and services will ramp from a revenue growth standpoint in the second half of 2024 as we ramp toward that 10% to 15% growth rate in 2025, we likely won't be at the 10% to 15% growth rate in the second half of 2024, but we'll be ramping toward that. And then we'll have a meaningful as you'd expect and bookings season in the back half of 2024 as well.
That will lead to that. I'm confident in that revenue trajectory for 2025.

Operator

Scott Schoenhaus, KeyBanc.

Hey, guys, it's Steve on for Scott. I just want to ask about the margin cadence on tech-enabled managed services. Obviously, we continue to expect no margin contribution in the 1st year for how technology helps augment this.

Daniel Burton

Yes, great questions, Steve, so we continue to see the tech-enabled managed services, client relationships and margin profile that that is actually occurring consistent with what we've seen in the past. And we do have optimism about the impact, but some of our technology investments, both in terms of technology that we've acquired recently with ERS. acquisition with the RMS acquisition as well as some of our AI. pilots were generative. AI. is providing us, for example, in China, the traction with some meaningful efficiency gains that will be a tailwind for us as we think about the gross margin profile evolution. That has helped us to kind of stay on track and we hope in the future both. But we're early to have some tailwind as it relates to that progression, but we continue to see consistency of margin expansion and improvement in those tech-enabled managed services opportunities like what we've seen in the past.

Operator

Our next question comes from Sarah James, Cantor Fitzgerald.

Sarah James

Thank you and congratulations to Bryan, Jason and Dan, on your new positions, can you talk about your assumptions on cross selling embedded in your 2025 and 28 guide. Does that assume that the dollar-based retention stays in the 1.4 to 1 10 range? And how much of the top line growth is coming from cross-selling? And where do you think penetration into your existing book will be when you hit the 20 numbers?

Daniel Burton

Yes.
Great questions. So thank you for the most share.
A few thoughts.
And then Bryan, please add as well.
So when we think about the cross-selling motion, first of all, one of the things that we're encouraged by is the fact that over the last several years, we've dramatically expanded the number of clients where we have some form of existing client relationship. We're now over 600 health care organizations where we have an existing client relationship. Now 109 of those are more full enterprise-level DOS kind of client relationship, but that does offer us, you know, more than 500 existing clients that have more of the apps layer, but that provide us with a meaningful opportunity for cross-sell of DOS or data platform into that base.
And then in the other direction, as well as meaningful opportunities with our DOS subscription base to sell into more applications and see expansion there. That first motion that really shows up when we only sell an app layer client on the data platform that contributes to our ability to add more and more net new DOS subscription clients over time. As I know last year, a majority of the net new DOS subscription clients that we added came from that pool of existing clients at the apps layer that hadn't yet adopted the data platform. And so we're encouraged to see that cross-selling motion, adding to our confidence level in 2024 and beyond in adding more and more data platform clients and then going the other direction, we are also encouraged to see meaningful interest, meaningful opportunity within our DOS subscription client base to cross-sell our new application capabilities that we've either built or we've recently acquired. And I think we're building more and more capabilities. And there's more and more of an openness now at the end market improving to talk about those tech cross-sell opportunities. And that's become more of a focus for our growth organization. It also has the benefit in both cross selling motions and being a little bit more efficient and motion from a sales and marketing operating leverage perspective. And that also informs the way we think about the next few years that we can see meaningful growth, balanced growth between tech and services and IT that can be a growth with operating leverage so that it's very profitable growth. And I think that informs that meaningful improvement that you see us projecting by 2028 in terms of our EBITDA expansion.

Bryan Hunt

Just to add to that?
Yes.
I do think towards the end saying, as we look to the 2025 and 2028 targets, we do anticipate our dollar-based retention rate, which is that once a DAS client has landed either net new to the Company or have been cross-sold onto the platform. We anticipate that time being in the the high single digit rate range above 100%. So somewhat similar to 2024, potentially a little a little higher than what we've guided to. And that's kind of the anticipation that we see going forward.

Daniel Burton

And I would add that part of what we're encouraged by is we think that the tech dollar-based retention opportunity is quite similar to the services dollar-based retention opportunity that they're both significant at that high single digit per year level, which contributes to that balance growth over the next four years between tech and services.

Operator

Vishal Patel, Piper Sandler.

Hi, this is Charles on for John Patterson and for taking the question on tons. Could you remind us what percent of technology customers have against contract today? And what percent do you expect in 2024?
And then could you also remind us what's the long-term gross margin target for those tons contracts? Thank you.

Daniel Burton

Yes, absolutely, Vishal, thanks for the questions. So as it relates to the percent of our DOS subscription clients that have a Thames component to their relationship were a little over 10%. So still very early stages in terms of the opportunities. And even with in those little over 10% of our clients that have one form or another of Tim's relationship. There are often multiple times opportunities and the most recent deal that we signed, it's a good example of that. Just a few days ago with an existing client that was already in that that 10% group that has had at Thames component to their relationship chose to expand the Thames component, add some new Thames capabilities to that relationship. So we're not even just limited to the 90 or so percent or just under 90% that haven't yet it entered into a term relationship. So we see meaningful opportunities in the pipeline today, specific opportunities, both with the 10 plus percent that already have a 10-year relationship as well as the other just under 90% that haven't yet entered into a 10-year relationship because Thames has gone so well with our existing client base. We do see a little bit of a difference in the time line that's often it manifests when a client has had success in one times area, there's often a little bit more openness to other tens areas and expansion opportunities there. The first time a client goes from a more traditional DOS relationship to that first ten's relationship that can take a little bit more time, but we believe that will continue to be a meaningful opportunity and we're trying to balance that as it relates to our overall growth to make sure that we're also prioritizing the attack cross-sell opportunities with our existing clients. And as the end market has improved and operating margins have improved. There's a little bit more of an opportunity to talk about that as part of the expansion profile. And as I mentioned earlier, we have shifted some of our focus at some of our resources more towards those tech cross-sell opportunities. And so that's also informing our 2024 and and and beyond projections to to enable us to have that balanced growth perspective where we're seeing both tech and services grow at about the same rate.

Bryan Hunt

Just on the margin profile side and the tens contracts on the services margin, we expect to be similar to what we've shared in the past around unit economics, where services margin gross margin begins at 0% to 10% in year one and then migrates over four or five years to that 25% services gross margin. The technology component of those relationships, which typically expands with the Thames deal, is on that is, as you'd expect a little higher than our overall technology gross margins of, call it in that 70% to 80% range for those contracts and the great the great benefit about locking in these times relationships is they're typically five year locked in contracts, which gives us a very high level of visibility and stickiness for the technology contract over that term. As well as the services contract. So while they can be a little bit hard to precisely forecast, we really love the long-term strategic relationships and the visibility it gives us in the out years.

Daniel Burton

John Guinee, Canaccord Genuity Ally, John penny on for Richard Close.

Thanks for the questions.
So with that, the database are Databricks and like snowflakes infrastructure two to three years to get the entire client base like transitioned over.
Can you I guess, give some color of whether like is that an easy transition transition is it difficult. Do you expect any pushback on getting those transitions and like approximately how much of the client base client base has transitioned or are on the platform already?
Thank you.

Daniel Burton

Yes. Thanks for the question, John. So we have a few clients that are already utilizing the next-generation data platform. And as Bryan mentioned in our prepared remarks, we're pleased with how that performance is going and pleased to see clients really satisfied with the next-generation data platform capabilities. We do think migrating our existing client base will take the next two to three years to get the vast majority of them migrated over. And what we have seen is more demand than supply of in terms of from a timeline perspective, there's a lot of excitement among our existing client base to move to these new capabilities. So we're working to accommodate those migrations as quickly as we can, but make sure that we can do that in a very orderly way. It is a meaningful migration. It is and migration that involves new technology capabilities. And so we want to be thoughtful and careful in the way that we approach this isn't the first or the second or the third migration that we've managed before. So we have experience in how to manage this. So we're confident that we'll be able to manage this migration in a similar way that we've successfully managed prior migrations.

Operator

We have no further questions in the queue.
I would now like to turn the call back over to Dan Burton for any additional or closing remarks.

Daniel Burton

or I thank you so much for your investment of time and interest in Health Catalyst, and we look forward to staying in touch in the future.
Thank you.
Thank you.

Operator

This concludes today's Health Catalyst fourth-quarter and full-year 2023 earnings conference call. Please disconnect your line at this time. And have a wonderful day.