Health Catalyst, Inc. (NASDAQ:HCAT) Q4 2024 Earnings Call Transcript February 26, 2025 5:00 PM ET

Company Participants

Jack Knight - Vice President, Investor Relations
Dan Burton - Chief Executive Officer
Dan LeSueur - Chief Operating Officer
Jason Alger - Chief Financial Officer

Conference Call Participants

Jared Haase - William Blair

Anne Samuel - JPMorgan

Jessica Tassan - Piper Sandler

Sameer Patel - Evercore ISI

John Pinney - Canaccord Genuity

Daniel Grosslight - Citi

David Larsen - BTIG
Scott Schoenhaus - KeyBanc
Stan Berenshteyn - Wells Fargo

Anne Samuel - JPMorgan

Jessica Tassan - Piper Sandler.

Sameer Patel - Evercore ISI

John Pinney - Canaccord Genuity.

Daniel Grosslight - Citi

David Larsen - BTIG Scott Schoenhaus - KeyBanc Stan Berenshteyn - Wells Fargo.

Anne Samuel - JPMorgan

Jessica Tassan - Piper Sandler.

Sameer Patel - Evercore ISI

John Pinney - Canaccord Genuity.

Daniel Grosslight - Citi

David Larsen - BTIG Scott Schoenhaus - KeyBanc Stan Berenshteyn - Wells Fargo.

Operator

Welcome to the Health Catalyst’s Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Jack Knight, Vice President of Investor Relations.

Please go ahead, sir.

Jack Knight

Good afternoon. And welcome to Health Catalyst's earnings conference call for the fourth quarter of 2024, which ended on December 31st, 2024. My name is Jack Knight, I'm the Vice President of Investor Relations for Health Catalyst.

And with me on the call is Dan Burton, our Chief Executive Officer; Jason Alger, our Chief Financial Officer; and Dan LeSueur, our Chief Operating 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. 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 our future growth and our financial outlook for 2025.

Our ability to attract new clients and retain and expand our relationships with existing clients, trends, strategies, the impact of the macroeconomic challenges, including the impact of inflation, and the interest rate environment, the tight labor market, bookings, our pipeline conversion rates, the demand for deployment and development of our Ignite data and analytics platform and our application, Ignite migration, M&A activity including acquisition integration and the general 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 on 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 the third quarter 2024 filed with the SEC on November 7th, 2024, and our Form 10-Q for the full year 2024 that will be filed with the SEC. We will also refer to certain non-GAAP financial measures to provide additional information to investors.

Non-GAAP financial information is presented for supplemental informational purposes only has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. A reconciliation of non-GAAP financial measures for the full year 2024 and 2023 to their most comparable GAAP measures is provided in our press release. However, we have not provided forward-looking guidance for professional services gross margin the most directly comparable GAAP measure to adjusted professional services gross margin discussed today.

Technology gross margin, the most directly comparable GAAP measure to adjusted technology gross margin discussed today, or net cash provided by operating activities, the most directly comparable I measure to adjusted free cash flow discussed today and have therefore not provided related reconciliations of these non-I measures to their most comparable I measures because there are items that are not within our control or cannot be reasonably forecasted. With that, I will turn the call over to Dan Burton. Dan.

Dan Burton

Thank you, Jack, and thank you to everyone who has joined us this afternoon. We are excited to share our fourth quarter and full year 2024 financial performance along with additional highlights from the fourth quarter. Furthermore, we look forward to sharing our perspective on 2025.

I will begin today's call with summary commentary on our full year 2024 results. We are pleased with our full year 2024 financial results, including total revenue of $307 million and adjusted EBITDA of $26 million, representing 137% year-over-year growth. Additionally, we are encouraged with the results of our Tech segment, which had revenue of $195 million for full year 2024 and $52 million for the fourth quarter of 2024, which represents 10% growth year-over-year for Q4.

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, 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 engagement. Let me begin by sharing an example of a client improvement from a recently published case study. The Innovative Healthcare Collaborative of Indiana or IHCI leveraged Health Catalyst data and analytics platform to enhance its value based care strategies resulting in significant cost savings.

IHCI recognized the need for timely, actionable insights to manage complex risk based populations. Health Catalyst data platform, value optimizer and HealthCare. ai enabled IHCI to integrate clinical and claims data, develop customized analytics and optimize patient care strategies.

IHCI used these technologies to improve patient utilization, reduce thirty day readmissions and lower per member per month spending. Key results include $28.3% million in cost savings over one year through improved inpatient utilization, a $9.88% decrease in per member per month cost and a significant reduction in readmissions, enabling patients to spend more time at home. This highlights the power of data driven value based care strategies in driving significant cost reductions while improving patient outcomes.

Also in the improvement category, we've been fortunate to receive additional external recognition. First, we are excited that Health Catalyst was recognized by Black Book Research in the categories of DEI excellence and top rated behavioral health vendors for analytics and AI. And as a leader in Frost and Sullivan's 2024 U.S. Population Health Management Report, recognizing our proactive approach to innovation.

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 of Work for Diversity in 2025 for the third year, the National Association for Business Resources 2024 Best and Brightest Companies to work for in the nation, and earn recognition as one of India's top workplaces in 2024. This recognition is especially meaningful as we expand and invest in our India operations, now with over 10% of our team member base in India. Our next strategic objective category is growth, which includes expanding existing client relationships and beginning new client relationships.

First, let me provide some commentary on our 2024 bookings performance. We're encouraged to see continued progress related to our growth, especially with the momentum from Ignite as well as continued improvement in our end market. Our net new platform client additions in 2024 were 21, in line with our expectations.

However, these additions came toward the lower end of our previously disclosed $400,000 to $1 million ARR plus nonrecurring revenue range. Importantly, roughly two thirds of our new client additions came from cross selling and converting existing app clients, and we also anticipate that trend will continue in 2025. Additionally, as of the end of 2024, we're pleased to share that we have more than 1,000 total clients when combining platform clients and app clients.

We are excited to continue our momentum in cross selling our Ignite enabled offerings to our app clients and believe these results reinforce our large and expanding cross sell opportunity. As we have shared previously, we are making a few updates to our growth metrics to provide greater clarity to investors as our business evolves, beginning in 2025 and going forward. First, as it relates to dollar based retention rate, we are updating the definition to include only technology and TEMs segments of our platform client base. This updated definition includes the portions of our business that are most recurring in nature, and we anticipate this updated definition for dollar based retention rate will better encapsulate our go forward strategy as we continue to focus on driving profitable growth with a focus on technology, where we anticipate that technology revenue will reaccelerate in 2025 relative to the past couple of years and grow faster than professional services.

In 2024, our dollar based retention rate was 100% under the legacy definition, which is at the low end of our prior range. Under our new definition for dollar based retention rate for technology and TEMs platform client, our 2024 performance was 102%. The primary driver of this difference is related to non-TEMs professional services, where we've seen an increasing trend from our clients where many are moving from recurring FTE subscription to more nonrecurring project based arrangements.

This move had a negative impact on our legacy dollar based retention rate definition, even though in many cases, the revenue was still retained with the move towards nonrecurring professional services revenue. We believe this updated metric will be more meaningful and helpful to our shareholders. Second, we have decided that an updated definition of platform clients would be useful.

Increasingly, the Ignite infrastructure is and will be powering all of our applications. As a result, beginning in 2025 and moving forward, net new platform clients will generally include any non- platform technology client that signs contracts with at least $100,000 of incremental ARR plus nonrecurring revenue in a given calendar year, along with clients previously included in the prior definition of this metric in 2024. Please refer to our 10-K that will be filed with the SEC for additional detail on these updates along with the new definitions of these metrics.

Next, we're excited to share several important client wins and expansions across key areas. First, we secured a new Ignite client, Signature Healthcare, which originated from our app client base. This marks a meaningful progression with our sales initiatives for Ignite.

Additionally, we saw expansions with existing clients, including Valleywise in the vital wear space. These clients have strengthened their relationships with us, leveraging our technology and services to meet their growing needs and strategic objectives. We are also pleased to provide an update and report progress in adjacent markets.

Following our recent acquisition of Carevive, we closed a life sciences deal, which underscores the increasing relevance of our solutions in the broader healthcare ecosystem. Furthermore, we signed a new payer client, providing a foothold in this adjacent market segment. These wins reflect our continued commitment to delivering impactful solutions that empower our clients as we focus on serving as the catalyst for massive, measurable, data-informed health care improvement and innovation.

Related to our current growth operating environment, we remain encouraged by the state of the end market. We are pleased to see health system operating margins continue to stabilize and approach pre-pandemic levels. One Health Catalyst specific growth dynamic that we anticipate will coincide with this robust demand environment is that existing platform clients could adopt more of our apps that because Ignite is better, faster and cheaper than DOS.

Those app additions may not show up at the same level they normally would in our dollar-based retention rate. With this backdrop, I will now share some perspectives on our anticipated 2025 bookings levels, supported by the strengthening of our end market as well as continued momentum from Ignite. We anticipate improvement in our bookings metrics compared to 2024.

First, we anticipate approximately 40 net new platform client additions. We expect these will be at an average range of $300,000 to $700,000 ARR plus nonrecurring revenue, which is similar to our results in 2024. Achieving approximately 40 net new platform clients will include conversion of some of our 900-plus app clients, which we see as a significant opportunity. In that vein, we are encouraged that thus far in 2025 we've already added six platform clients, and we forecast that by the end of Q1, we will have added approximately 10 net new platform clients, which is on pace for our 2025 target of 40 net new platform client additions.

Moving to our existing client metric. We anticipate our 2025 dollar based retention rate will be approximately 103% under the updated definition of technology intent for our platform client base. As it relates to existing clients, I wanted to highlight one other strategic decision that we mentioned last month.

We made the decision to exit our TEMS pilot in ambulatory operations. We anticipate this exit will be finalized by mid-2025. These pilot ambulatory TEMS contracts represent approximately $9 million of annual professional services revenue.

Importantly, while we are exiting these ambulatory TEMS pilots to prioritize profitable growth. We remain committed to our other TEMS relationships, primarily in the areas of data and analytics and chart abstraction. In addition to our perspectives on 2025 bookings, Jason will share our 2025 guidance later in our prepared remarks.

I'm encouraged by our progress, especially as it relates to our Technology segment, or we anticipate approximately $220 million of technology revenue translating to 13% growth of technology revenue year-over-year. As it relates to profitability, we are pleased to share that we are a little further along than anticipated in our integration progress with recent acquisitions. As such, we are raising our expected adjusted EBITDA for 2025 by $2 million to approximately $41 million from our previous expectation of approximately $39 million.

We project that the Technology segment will contribute approximately $40 million to the total adjusted EBITDA, also raised by $2 million. A technology business with 13% top line growth and approximately 18% adjusted EBITDA margins would represent a rule of 30 profile in 2025. Over the past 12 months, we've been grateful to see meaningful growth in our team member base.

However, as is the case with many companies at scale, our annual planning process has also highlighted the need for us to reduce headcount and expenses primarily in R&D and professional services. We anticipate this will improve our cost structure and allow us to prioritize investment in our core growth areas, enhancing our ability to drive profitable growth and long-term success. We are committed to supporting effective team members during this transition.

Given the importance of our next-generation Ignite platform, in enabling our growth and product strategy and consistent with last quarter's earnings call, our Chief Operating Officer, Dan LeSueur, has joined this earnings call. We expect he will continue to join future earnings calls to provide status updates and help answer Ignite related questions. With that, let me turn some time over to Dan LeSueur.

Dan LeSueur

Thank you, Dan. We continue to make progress migrating existing clients to Ignite, and we are pleased with the strong reception Ignite has received in the market. We have a dedicated team assisting with these migrations and are generally on schedule relative to our forecasted time lines.

The transition to Ignite may temporarily impact our dollar-based retention rate. While clients are adopting more apps on the Ignite platform, the cost efficiencies of Ignite mean that this increased adoption doesn't always translate into a proportional increase in revenue in the short term. We expect this effect to subside by mid-2026.

Dan Burton

Thank you for that update, Dan. Next, I would like to share a few comments related to our acquisition strategy. We are happy to share that the previously announced acquisition of Upfront Healthcare has closed.

We look forward to working in partnership with our new team members from Upfront and are encouraged by the revenue and profit growth made possible through this and other recent acquisitions. As I previously mentioned, we are pleased to be a little ahead of schedule in realizing incremental profitability through our integration efforts. In 2025, we will focus on realizing a meaningful return on these acquisition investments by driving bookings growth and by realizing additional profitability gains.

Lastly, as part of our annual planning process, we're grateful to share chief governance and leadership updates. First, we are thrilled to welcome Dr. . Jill Hoggard Green to the Health Catalyst Board of Directors as of December 1, 2024.

Jill is the former Chief Executive Officer of The Queens Health System and has been an extraordinary leader throughout her career. We are excited for Jill to be a member of our Board. Next, we wanted to take a moment to thank Anita Pramoda, for her dedicated service as a member of our Board.

After nearly a decade, she will complete her service on March 1, 2025. We are deeply grateful for her meaningful contributions. Finally, we would like to highlight a few new leadership team members today.

Dr. . Daniel Samarov has been promoted to Chief AI Officer. Dr.

. Samarov previously served as the Vice President of Data Science Innovation at Health Catalyst, where he led the technology innovations group focusing on rapid innovation and the development of AI capabilities. Next, Allie Coronis, Senior Vice President of Tech-enabled Managed Services has been appointed to our company-wide leadership team. Allie has been with Health Catalyst since 2015, and she had more than 30 years of experience driving data informed improved outcomes in a variety of areas, including clinical research, chart interaction services, analytics and performance improvement.

Finally, Dan Heinmiller, Senior Vice President of Implementation Services, has been appointed to our company-wide leadership team. Over the course of his nearly 10 years at Health Catalyst, Dan has served as Technical Director, Vice President of Analytics and Vice President of Data Services. And throughout his time at Health Catalyst, Dan has shown a dedication to driving operational excellence and fostering continuous improvement across teams.

We look forward to the meaningful impact these long-standing team members will continue to have and are excited for each to join a broader Health Catalyst leadership team. With that, let me turn the call over to Jason. Jason.

Jason Alger

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 full year 2024 performance. I would be remiss if I didn't highlight Dan Burton's continued commitment to servant leadership.

Dan recently won the CEO of the Year category from the annual Silicon Slopes awards. We feel fortunate to have Dan leading our company, and it's a great pleasure to work alongside such a tremendous leader. I will now comment on our strategic objective category of scale.

For the fourth quarter of 2024, we generated $80 million in total revenue, this total is within the range of our quarterly guidance, and it is an increase of 6% year-over-year. For the full year 2024, our total revenue was $307 million, representing 4% growth year-over-year. Technology revenue for the fourth quarter of 2024 was $52 million, representing 10% growth year-over-year.

This year-over-year growth was primarily driven by recurring revenue from new and acquired clients. For the full year 2024, technology revenue was $195 million, representing 4% year-over-year growth. Professional services revenue for Q4 2024 was $28 million, roughly flat relative to the same period last year.

This year-over-year performance was primarily due to lower-than-anticipated TEMS performance in 2024 as well as a reduction in recurring FTE-based revenue, offset by additional nonrecurring professional services revenue. For the full year 2024, our professional services revenue was $112 million, representing 3% year-over-year growth. For the fourth quarter 2024, total adjusted gross margin was 47%, representing an increase of approximately 40 basis points year-over-year. For the full year 2024, total adjusted gross margin was 49%, representing an increase of approximately 10 basis points year-over-year. In the Technology segment, our Q4 2024 adjusted technology gross margin was 65%, a decrease of approximately 200 basis points relative to the same period last year.

This year-over-year decrease stemmed from initial deployment costs for Ninja Universe without corresponding revenue, which typically begins six months or more following contract signing as well as expected temporary headwinds related to the Ignite migrations. For the full year 2024, our adjusted technology gross margin was 66%, an approximately 180 basis point decrease year-over-year. In the Professional Services segment, our Q4 2024 adjusted professional services gross margin was 13% representing an increase of approximately 170 basis points year-over-year and a decrease of approximately 350 basis points relative to Q3 2024.

This quarterly performance was primarily driven by incremental resourcing for ambulatory TEMS operations as well as some seasonality in expenses, including medical plans, which hits disproportionately in Q4. For the full year 2024, our adjusted professional services gross margin was 18%, an approximately 320 basis point increase year-over-year. In Q4 2024, adjusted total operating expenses were $29 million. As a percentage of revenue, adjusted total operating expenses were 37%, which compares favorably to 44% in Q4 2023.

For the full year 2024, adjusted total operating expenses were $123 million. As a percentage of revenue, adjusted total operating expenses were 40%, which compares favorably to 45% in the full year 2023. Adjusted EBITDA in Q4 2024 was $8 million, above the midpoint of our guidance. For the full year 2024, our adjusted EBITDA was $26 million, which compares favorably to our adjusted EBITDA of $11 million in 2023 and also above the midpoint of our guidance.

Our adjusted basic net income per share in Q4 2024 was $0.04%. The weighted average number of shares used in calculating adjusted basic net income per share in Q4 was 62.4% million shares. For the full year 2024, our adjusted basic net income per share was $0.28% and the weighted average number of shares used in calculating adjusted basic net income per share was 60.2% million shares.

Turning to the balance sheet. We ended Q4 2024 with $392 million of cash, cash equivalents and short-term investments compared to $387 million as of Q3 2024. In terms of liabilities, the face value of our outstanding convertible notes is a principal amount of $230 million due in April 2025. and the face value of our term loan is $152 million.

We anticipate we will use cash on hand to repay the outstanding balance of the convertible notes when they are due in April. I also want to highlight our progress on cash flow in 2024. We are encouraged that our operating cash flow was $15 million in 2024.

We expect to continue making progress in 2025. As it relates to our financial guidance, for the first quarter of 2025, we expect total revenue of approximately $79 million and adjusted EBITDA of approximately $4 million. And for the full year 2025, we expect total revenue of approximately $335 million, tech revenue of approximately $220 million and adjusted EBITDA of approximately $41 million.

Now let me provide a few additional details related to our 2025 guidance. First, as it relates to our Q1 2025 expectations, we expect that our technology revenue will be up approximately 10% in Q1 2025 relative to Q1 2024. And we anticipate that our professional services revenue will be roughly flat year-over-year.

Next, we expect that our adjusted technology gross margin will be approximately in line with our Q4 2024 performance as we continue to see near-term headwinds related to the Ignite migration effort as well as Ninja Universe costs continuing prior to revenue recognition. In the Professional Services segment, we anticipate that our Q1 2025 adjusted gross margin will be slightly improved compared to Q4 2024. Lastly, we anticipate our adjusted operating expenses in Q1 2025 will be slightly up compared to Q4 2024, primarily driven by team member salary increases that occurred at the end of 2024.

We anticipate this will be partially offset by the restructuring we discussed earlier. Now let me provide a few additional details related to our 2025 guidance. From a revenue mix standpoint, we anticipate 2025 technology year-over-year revenue growth will outpace professional services year-over-year growth, driven by the momentum of Ignite sales as well as cross-selling additional solutions throughout our broad client base, contribution from acquisitions over the last 12 months and lower-than-anticipated professional services bookings in 2024, primarily in TEMS as well as our decision to exit our unprofitable ambulatory operation TEMS pilots by approximately mid-2025.

We continue to be focused on profitable growth and are pleased with the progress we anticipate for technology growth in 2025. We anticipate technology revenue will grow approximately 13% year-over-year. Next, related to our adjusted gross margin, we anticipate adjusted technology gross margin in 2025 will be roughly in line with 2024 performance. We anticipate that our adjusted technology gross margin in the second half of 2025 will be higher than the first half of 2025 as we continue to make progress on the Ignite migration effort and see revenue ramp from our health information exchange clients, where, as a reminder, we've been incurring costs without associated revenue given the lengthier implementation timeframes than our typical technology contracts.

Next, we anticipate our adjusted professional services gross margin will be high teens. This performance is expected to be driven by our decision to exit our lower-margin ambulatory operations TEMS pilots as well as better utilization of our professional services organization and continued gross margin progress on our other non-ambulatory TEMS contracts. Next, we continue to expect operating leverage as top line growth reaccelerates.

We anticipate that research and development will be roughly flat to slightly up in 2025 relative to 2024 as we continue to streamline that organization following the large investment in Ignite. We anticipate SG&A spend will increase year-over-year, but this increase will be less than our expected total revenue growth. Additionally, we anticipate we will continue to see progress in our stock-based compensation as a percentage of revenue in 2025 with an aim to see stock-based compensation as a percentage of revenue in the mid to high single digits in 2028.

Lastly, we were excited with our progress in adjusted free cash flow in 2024 where it was meaningfully positive, and we anticipate improvement in 2025, consistent with our improving adjusted EBITDA. With that, I will conclude my prepared remarks. Dan.

Dan Burton

Thanks, Jason. In conclusion, I would like to recognize and thank our committed and mission-aligned clients and our highly engaged team members for their dedication and contributions to these results and this progress as well as express my optimism for our future. And with that, I will turn the call back to the operator for questions.

Operator

[Operator Instructions] We’ll go first to Jared Haase with William Blair.

Jared Haase

Hey, guys. Good afternoon and thanks for thanks for taking the questions. Maybe just to start on the outlook.

Just want to make sure I kind of understand what really is driving the acceleration in the platform bookings in 2025 from around 20 last year, up to 40 this year. I guess is that largely just reflecting the time that you've had in the market with the Ignite platform, and you're seeing those opportunities sort of start to bear fruit this year. Is it, I guess, further incremental improvement in hospital budgets.

Just would love to unpack that a little bit more. Thanks.

Dan Burton

Yes. Absolutely, Jared. Thank you for the question.

I do think there are a couple of dynamics that I agree that you just highlighted. First, I think the end market has continued to improve. And you can see that evidenced in operating margins that are approaching pre-pandemic levels.

I think that helps us have discussions about how technology can help these health care organizations move forward. I think a second meaningful improvement, a second meaningful tailwind for us is the fact that Ignite is so much more modular and flexible and is at a lower price point than DOS was about half the price point relative to kind of where we were with DOS. And when you combine that with a third factor of now Health Catalyst having over 900 app clients where we can cross-sell Ignite into those app clients and really leverage Ignite's flexibility and modularity to talk about the next adjacent opportunity for those app clients.

We're finding that, that's a very successful and effective cross-sell motion where because we have those existing client relationships, we're often twice as likely to close that deal from a probability perspective, from a pipeline management perspective. And we're also observing that the sale cycle is a little shorter. And that did manifest itself in the update that we provided that in Q1 to date, we've already welcomed and added six platform client additions and we're on pace to add approximately 10 in Q1 by the end of Q1 in terms of net new platform client additions. This would put us on pace to hit that projection of 40 net new platform clients for the year 2025.

So we're excited to see those tailwinds. And each of those is really contributing to that incremental improvement in the number of net new platform clients that we're going to be adding in 2025.

Operator

We will move next to Anne Samuel with JPMorgan.

Anne Samuel

Thank so much for taking the question. I was hoping perhaps you could speak to the differences in the new Ignite platform versus DOS as it relates to annual escalators. And how should we be thinking about the kind of once you lap these Ignite shifts, what the dollar-based retention levels should look like over the long term.

Thank you.

Dan Burton

Yes. Thank you, Anne. Great questions.

So as it relates to the first question, when we are negotiating these annual escalators and the Ignite contracts that we're signing, we typically have an annual escalator, but it's a bit more modest than where we were a number of years ago with DOS, for example, where we had more of those all you can eat, full access subscriptions and those had larger annual escalators. A more typical annual escalator is in the low to mid-single-digit range, which is helpful and a robust and positive but also a little bit more easy to digest from a client perspective. And then in terms of what we're seeing on your second question, we think the modularity of Ignite is a significant advantage relative to where we were with DOS in the past, and we're seeing that benefit as it relates to the number of app layer clients that we're able to convert onto the Ignite platform and grateful to see that modularity and that flexibility really helping us.

Anything, Jason, that you would add to that.

Jason Alger

Yes. The only thing I would add is with our Ignite pricing, we do have a bit more of a consumption-based pricing model, where if a client does increase the level of consumption or number of sources that they're pulling into the Ignite platform, we would expect to see increases in the pricing due to that. And so that will be a bit of a tailwind for us moving forward.

Dan Burton

And Anne, just on that last question you asked about dollar-based retention, we have shared that because Ignite is better, faster and cheaper than DOS was, we are finding that, in many cases, we're able to persuade clients to add an app, for example, which then maintains their overall spend that they used to just spend for DOS. Now they're getting Ignite plus an app. But that does have a negative impact on our dollar-based retention rate in the near term.

We think that subsides by mid-2026. And we think that's probably about a couple of points impact in the near term in terms of the dollar-based retention. That's built into our projection for 2025 of 103% dollar-based retention.

But as we get through those migrations, I think we would expect maybe a couple of points of additional dollar-based retention that would be possible after that.

Operator

We'll move next to Jessica Tassan with Piper Sandler.

Jessica Tassan

Hi, guys. And thanks so much for the questions and for all the detail. I want to follow up on any or the question just prior, to what extent can you guys kind of control the pace of the migrations to Ignite such that you're only seeing a certain amount of degradation to net revenue retention per year. And I guess, just if you can control those migrations, kind of when would you expect the entirety of the Ignite migration to be complete.

Thanks.

Dan Burton

Yes. Great questions, Jess. And I'll share a few thoughts, and then Dan, please feel free to share as well.

So we've been trying to work very closely with our clients on the right pace of migration and make sure that we're meeting their needs as well as managing that migration process in a responsible way from a financial perspective. I think we feel good about where we are in that regard and on track with what we have provided in terms of the guidance of being largely through that migration for the large majority of our clients by mid-2026. And we think that's a pace by which we can manage some of the incremental costs and some of the other elements associated with Ignite migration like that dollar-based retention headwind that is part of our near-term reality, but also get the benefit of that long-term client retention.

And so even as we're getting through a meaningful amount of that migration process, as Jason mentioned a few minutes ago, we do anticipate, for example, starting to see in the back half of this year, some improvement in the tech gross margins. That is a reflection of getting largely through a good chunk of those migrations. And we think that improvement in gross margin will continue to manifest throughout 2026 and beyond.

Daniel, anything to add.

Dan LeSueur

No, that was good.

Operator

We'll move next to Elizabeth Anderson with Evercore ISI.

Sameer Patel

This is Samir Patel on for Elizabeth Anderson. Just maybe just thinking about the cadence of EBITDA throughout the year. It looks like you guys are guiding to something like 14.5% EBITDA for the rest of the three quarters, if I did my math right.

Can you guys just help us understand the cadence for the year, just given the step down in 1Q. And just to confirm, related to that, the Analytics Summit is in August. So should we expect sort of 3Q to be a little bit more moderated versus 2Q.

Thanks.

Dan Burton

Yes. Great question, Sameer. I'll share a few thoughts, and then Jason, please share as well.

So first of all, from a historical perspective and historical context, we have been pleased as a company to provide consistent actual performance relative to what we've guided to over the last number of years in terms of our EBITDA performance. So we do have confidence that we can achieve what we're guiding to. And to your point, we recognize that there is some seasonality in the way that our EBITDA plays out. And that is certainly accounted for in our Q1 guide, and we've accounted for other seasonal items like HAS that will happen in Q3 of this year as we forecast the quarterly cadence of our EBITDA.

There are some Q1 specific items like, for example, the Upfront acquisition where we often bring over acquisitions at an EBITDA-neutral level, but then we work very hard to turn those into profitable contributing assets to our overall profitability goals. That takes a little bit of time. And so that's a near-term Q1 headwind.

There were also base salary increases that were incorporated in late last year that are now showing up in Q1 for the first quarter moving forward. And then as Jason mentioned, we had some restructuring costs, some restructuring moves that we made, decisions that we made that will really meaningfully positively impact our cost structure moving forward, but will only be accounted for in a portion of Q1. So there are some seasonally adjusted adjustments that are appropriate to make and some reasons why Q1 is a little bit lower from an EBITDA perspective.

Jason, what would you add.

Jason Alger

Yes. The only items that I would add is we do expect a revenue ramp throughout 2025. Some of that is due to just timing of deployments on the KPI Ninja Universe side where we do expect those to ramp into revenue later in 2025 as well as just from a new deal standpoint, those deals that we closed in Q4, and we'll be closing throughout 2025 to take a little bit of time to ramp into revenue.

So that revenue ramp will positively improve our adjusted EBITDA later in 2025. And then just speaking specifically to the Health Catalyst Analytics Summit, Sameer, we do expect that to take place in Q3. We do expect it to have a lower cost footprint compared to prior years.

We're probably looking at something closer to $1 million, $1.5% million in cost as opposed to that $3 million plus number that we saw in prior years.

Dan Burton

And a couple of additional thoughts. Thank you, Jason, for that. First, as it relates to HAS, we are going to be focusing HAS much more specifically on our existing client base, our platform clients and our app clients.

We have over 1,000 of them now. And we're really excited to focus on enabling them to have a fantastic experience unless about kind of organizing around an industry-wide event. So this will be much more focused on our clients and much more focused on growth and generating opportunities for us to expand our relationships with our clients.

So we're excited about that as a growth driver in August. And then just back to the Q1 specific items. Just one thing to highlight that Jason mentioned, we mentioned at the JPMorgan Conference in January that we were pleased to see a record number of new platform client additions at 21 for 2024.

We also shared that we had a meaningful late-stage pipeline in the new client space that needed just a little bit more time. We've converted some of that pipeline, and that was part of our update that we are encouraged to see even in a quarter in Q1, it's usually a little bit more quiet to have already added six new platform client additions thus far in Q1. Those will be very positive in terms of how they contribute in the future.

But to Jason's point, it takes a few months for that revenue to ramp and therefore, that profitability to also ramp. So that will impact future quarters much more than Q1.

Operator

We'll go next to John Pinney with Canaccord.

John Pinney

Hi, John Pinney on for Richard Close. Thanks for the question. I just want to touch on M&A.

Can you discuss like how you're seeing the environment for acquisitions of '25, how are valuations looking. Are you open to additional acquisitions in 2025. Or any commentary you can provide there would be great.

Thanks.

Dan Burton

Yes, absolutely, John. Thanks for the question. So as we mentioned in our prepared remarks, I think we have obviously been active in the M&A space over the last year, having completed four acquisitions.

And we're excited about each of those acquisitions, each one with an industry-leading capability, really, at the apps layer and strengthened our portfolio really meaningfully. I think as we turn to the balance of 2025, our primary and significant focus is on getting a great return on that investment. And we're seeing some early signs of that that are encouraging to us.

We're cognizant of the fact that those M&A investments came at a cost with the most significant cost being the most recent Upfront Healthcare acquisition, which was dilutive at about a 10% level. We're focused on the remainder of 2025 being really about harvesting and getting a return on that investment. Encouraged to see some early progress there, which enabled us to increase our target for adjusted EBITDA for 2025 by a little over 5% because of progress that we've made in our acquisition integration efforts and seeing some incremental profitability.

We're going to continue to focus there to make sure we get a great return on those investments. And so I think it's less likely in the near to midterm, that we'll be pursuing other acquisition opportunities. Obviously, these are always fluid situations, and there are often unique windows of opportunity with assets where we'll still keep our ear to the ground and we'll continue to nurture relationships.

But I think our primary focus is really going to make sure that we get a great return on the investments that we've recently made.

Operator

Our next question from Daniel Grosslight with Citi.

Daniel Grosslight

Hi, thanks for taking the question. Yes, as you migrate more tenured clients to Ignite, I'm curious if the pricing model is going to change for everyone. Meaning if you go to Ignite, you are moving more towards a more modular, more consumption-based pricing model and there will no longer be an all you can eat option.

Or will that option always exists. And then more specifically, as we think about those -- that headwind, I think you sized it at a few hundred basis, there are a couple of hundred basis points to net dollar retention on folks not buying up more apps as they switch to Ignite, what gives you confidence that you'll be able to persuade clients to add apps in the near term. So there is limited impact on revenue per client on the more tenured clients.

Thank you.

Dan Burton

Yes. Thank you for the question, Daniel, and I'll share a few thoughts, and then Daniel, if you'd like to add anything, please do. So as it relates to our current platform clients that are migrating to Ignite, I do think we are seeing a pricing model that is shifting based largely on the value to the client to a bit more of a modular model where they have a little bit more control over exactly what they're paying for. And that strengthens the value proposition and the return that our clients are getting and the consumption-based model is one of the benefits that makes Ignite better, faster and cheaper for our clients than DOS.

I do think that's going to be a much more common pricing model moving forward and that the opportunity for expansion will be much more about consuming more of the apps, which is a good segue to your second question. I would share as it relates to our confidence in seeing more of our platform clients adopt more and more of our apps, a few fold. First of all, we're seeing meaningful uptake in interest from our platform clients that are migrating to Ignite in our growing portfolio of apps and that's really helped us to maintain our robust dollar-based retention even with a cheaper Ignite footprint where, as we mentioned in 2024, we were able to still maintain 102% dollar-based retention, and we've guided to 103% dollar-based retention. So much of that dollar-based retention is becoming -- is coming to us because our clients are interested in our app layer portfolio.

It's just replacing some of the former DOS revenue that has been lowered because of a better value for Ignite. Our confidence moving forward is, I think as we get through those migrations, we still have a really large and robust portfolio at the apps layer to offer our platform client. The average platform client has only consumed one or two of the apps layer portfolio capabilities.

And so we have quite a bit more on average to offer them even after they have increased their consumption of apps through the Ignite migration. So I think we're excited about their interest. We see continued interest from our platform clients at the app layer.

We've tried to focus on those five key areas of focus that we've talked about. And each of those has, is more of a must-have category that has a very clear hard dollar ROI associated with it that is important to achieve for health system clients. So all these things, I think provide us with some confidence for the future.

Anything to add, Dan.

Dan LeSueur

Yes. One dynamic I would share in relation to the question of what is it about Ignite that sort of what's the appetite for expansion at that app layer, every one of those apps represent sort of a different use case for a client, whether that be financial, operational or clinical. And each of them requires a capability of data in and data out an ability to facilitate getting data in an automated fashion where it needs to be in the application and then getting the data out representing it analytically to drive better decision-making and improve the outcomes that are intended.

And Ignite because of its modularity can really sort of attach those capabilities in a very modular and just-in-time fashion to each of those use cases. So where DOS tended to be heavier and not quite as plug and play with each of those use cases, getting to the other side of the migration and having Ignite in place sets us up nicely so that barrier to entry for that next use case isn't as high. And so that we anticipate that will be a tailwind for us once we get through the migrations to enable that type of expansion over time.

Operator

We'll move next to David Larsen with BTIG.

David Larsen

Hi. Can you talk about your visibility into growth in technology revenue like after 1Q. It seems to me like technology revenue growth might be like 7% year-over-year in 1Q compared to like 13% for the year.

So it looks like you're assuming a pretty rapid acceleration as the year progresses. Are those signed contracts. Is your visibility like 100%.

Or how much of that do you still have to win. Thank you.

Dan Burton

Yes. Great questions, David. I'll share a few thoughts, and then Jason, please also share thoughts.

So one of the things we shared in our prepared remarks is an estimate that we would estimate approximately 10% year-over-year growth for our Technology segment in Q1 of this year versus last year. So little higher than the 7%. And we have very good visibility.

As a reminder, our total revenue as a company, about 90-plus percent of that is recurring in nature. And so have good visibility as it relates to that future revenue coming in from those existing contracts. I think the other piece that I would just point to, and then Jason, please add would be when you think about those building blocks for growth on the new client side, the building blocks would be focused on the new client relationships that we've signed and how much ARR plus NRR comes on board there.

You have the building blocks for 2024. Obviously, that takes a few months to ramp into technology revenue. But then it's ramped and you can predictably count on that.

There's always some in-year activity, and that's where we'll try to provide you with visibility as to how that's going. And we shared that quarter-to-date, we've already added six platform client additions and are on pace to tap 10 of those by the end of Q1. Those will also take a few months to ramp into revenue, but then that would have some in-year revenue impact.

On the existing client side, we've shared the building block in terms of the 102% dollar-based retention that really flows into the next year's revenue growth. There can be a little bit of a delay. And as Jason mentioned, the largest delay there is typically with our health information exchange clients where sometimes that can take six or more months of implementation work before that revenue ramps.

But normally with our other Ignite platform client relationships, it's more of a few months ramp until you see that revenue recognized. But a lot of visibility from the prior year bookings performance into this year and it's at that greater than 90% level. Anything you'd add, Jason.

Jason Alger

I think Dan covered it well. I mean it is recurring revenue. So as Dan mentioned, really, the biggest timing element is when we go live on those different products.

As I mentioned in the prepared remarks, the Ninja Universe projects, those have taken us a little longer than anticipated, where we are expecting go-lives on those a little later in 2025 rather than late 2024 or Q1 2025. So we're monitoring, working really closely with those clients to get to the right go-live date.

Operator

We'll move next to Scott Schoenhaus with KeyBanc.

Scott Schoenhaus

Thanks team for taking my question. Dan, I just want to follow up here on the new platform, net new platform clients that you mentioned. You had six platform clients added so far in 2025.

Do you anticipate at 10 by the end of Q1. What -- and you mentioned, I think, in some of your comments that the sales cycle is becoming shorter. Is that the nature of Ignite versus the old DOS platform.

Is there something else driving that. Because you clearly saw some acceleration from maybe a slowdown in the fourth quarter conversion of the pipeline into what we're seeing in first quarter. So any additional color there would be really helpful.

Dan Burton

Yes. Great question, Scott. So I'll share a few thoughts there.

We do believe, based on the data that we're seeing largely because Ignite is just at a lower price point than DOS was that the sales cycle is likely to be less than what we've typically experienced with DOS, which was more of a 12-plus month sales cycle. So that's encouraging for us to see. Now there's a headwind from a revenue perspective related to Ignite and it is a lower price point of we shared the range of $300,000 to $700,000. And I think using the midpoint of that range of around $0.5% million is a good proxy to think about what each of these new clients is bringing from an ARR perspective.

So we will need more of those new logos in order to really provide a robust growth, building block from the new client side. But we're encouraged to see that, first of all, we've got a really large universe to work with of existing app clients, 900-plus of those app clients. And we shared that in 2024, two thirds of our net new platform client additions came from our existing app client base.

And we expect that to continue in 2025. So that helps us. It helps us in a few ways, including you take a quarter like Q1 which is typically a pretty quiet quarter for us from a sales perspective.

Usually, we skew more towards Q2 and Q4 and to already have seen six new platform client additions and be on pace for approximately 10 feels encouraging to us. And I think part of the reason for that is these are, a large majority of these are existing app clients that have already had a good experience with Health Catalyst. We've observed that higher conversion rate when we're talking with existing clients versus when it's a cold call.

And I think all of those things are benefiting us and increasing our confidence level that we are in a new chapter as it relates to the new client growth building block that we have confidence that we're going to see a lot more of these new clients moving forward, and that's going to be the primary growth driver for our organic growth moving forward.

Operator

We'll move next to Stan Berenshteyn with Wells Fargo.

Stan Berenshteyn

Hi, thanks for taking my questions. I hopped on a little late, so I do apologize if this was addressed. But you mentioned Ignite has a broad product suite and unlike the legacy platform, you have more consumption-based pricing.

You're going after new clients, you have M&A that opened up sales, cross-sell opportunities. So given that backdrop, can you just talk through what's the hierarchy of priorities for your sales reps given all these different monetization angles that are available to you. Thanks.

Dan Burton

Yes. Great question, Stan. So I think the first and largest growth building block for us is that new client growth building block.

And the largest source of those new platform client logos, we believe, will be our existing app layer clients. So that's our first focus for our salesforce is how do we continue to nurture those relationships and then get really good at cross-selling that next adjacent opportunity where we leverage the strength of the experience they've already had with Health Catalyst with one app and move to the next adjacent app that is Ignitified, that is powered by Ignite glue, as Dan and I was describing, that data in, data out, just so much easier for us to include in that next adjacent app discussion than was DOS. So that's the first priority to really enable very effective and very focused performance on the new client side.

And that's where we're excited to be out of the gates quickly in 2025 already with six new platform client additions and on pace for approximately 10 in Q1, which would normally be a pretty quiet quarter. That gives us confidence that we're on pace for that 40 that we shared last month as our guide for the year 2025. I think the second major focus and a primary ongoing focus is to make sure with our large platform client relationships that we're always nurturing those and first, ensuring that they're all getting a measurable improvement, measurable value and great ROI from that, that we're making really meaningful progress on migrating those who've not yet migrated to Ignite and that we're maintaining the size and strength of those relationships, which often includes the addition of an app at the apps layer.

To your point, Stan, we're grateful to have the strongest portfolio at the apps layer that we've ever had and strengthened by our most recent acquisitions, and we're encouraged to see a lot of interest in those applications, each one was an industry leader in its space, and that was one of the reasons we were excited about each acquisition. So we have a really strong portfolio to offer. That apps layer is our most profitable layer as a company.

So we're excited to see more and more happening there. And Ignite makes those next adjacent example opportunities so much easier to pursue. And that shows up in both the new client category where we're able to convert those app clients into platform clients using Ignite as the glue.

It also shows up in the dollar-based retention. And as I mentioned, as we mentioned earlier, there's a little bit of a near-term headwind where because Ignite is better, faster and cheaper. You don't see all of the benefits of those app expansions in our dollar-based retention.

We think that headwind subsides by mid-2026, and there's probably a couple of points of incremental dollar-based retention that you might start seeing above what we've guided to for this year of that 103 but we're excited about each of those. Those are the two major areas of focus for our sales team. First, on that new client goal and building block and second, on strengthening our existing platform client relationships.

Operator

We'll move to our final question from Sarah James at Cantor Fitzgerald.

Unidentified Analyst

Hey, this is Gabbie on for Sarah. Could I just ask a quick question on if you've had conversations with your end market on some of the policies facing, Dan, potentially enhanced marketplace subsidies or site neutrality. Thank you.

Dan Burton

Yes. Thank you, Gabbie. So we do stay in close contact with C-suite executives across our client base.

And we are monitoring the end market at a few different levels and are pleased to see some real positives as it relates to their operating margin improvement and stabilization. I think everyone is watching the activities of the new administration to try to understand from a policy perspective, what some of the puts and takes might look like. Thus far, while there is some uncertainty in a couple of areas, I think a couple of the areas of most focus for our clients have been what may happen with research funding and then what may happen with Medicaid, as an example.

I think our sense right now is that we haven't observed any impact in our sales pipeline at this point. As it relates to Medicaid, I think we would anticipate those Medicaid benefits that are under consideration are very popular in most states. And so there may be some significant complexity to changing those Medicaid benefits over the near to midterm.

I think as it relates to research, that may be an area where there could be some more direct decisions made by the administration, but that would really impact a small subset of our client base, more of the academic medical centers. And even there, I think there's some real complexity to navigate through. So in the near to midterm, we haven't seen any negative impact in terms of our pipeline performance.

Operator

With no further questions. I will now turn the program back over to Dan Burton for any additional or closing remarks.

Dan Burton

Thank you so much for your continued interest in Health Catalyst. We're appreciative of this opportunity to provide an update. And we look forward to staying in touch in the future.

Operator

Thank you. This concludes today's Health Catalyst Fourth Quarter and Full Year 2024 Earnings Conference Call. Please disconnect your line at this time.

And have a wonderful day.