Q4 2019 Earnings Call
<unk> earnings call at this time, all participants are in listen only mode.
The speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that todays conference is being recorded.
Require any further assistance. Please press star Zero I would now like to hand, the conference over to your host Senior Vice President Investor Relations Adam Brown, Sir. Please go ahead.
Good afternoon, and welcome to help catalyst earnings conference call for the fourth quarter of 29 team.
Which ended on December 31st 2019.
Dan Brown Senior Vice President Investor Relations Ralph catalyst.
And with me on the call is Dan Burton Health catalyst, Chief Executive Officer, and Patrick Nowadays, how catalyst Chief Financial Officer.
It could 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 FCC.
All of which are available on the Investor Relations section of our website at <unk> IR Dot health catalyst dotcom.
As a reminder, today's call is being recorded in a replay will be available following the conclusion of the call.
During the call we will make forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Regarding trends strategies and anticipated performance of the business.
These forward looking statements are based on management's current views and expectations as of today and should not be relied upon as representing our views of any subsequent date.
We disclaim any obligation to update any forward looking statements or outlook.
Actual results may differ materially.
Please refer to the risk factors in our form 10-Q, four Q3, you filed with the FCC on November 13th 29 team and our form 10-K for the full year 2019, they will be filed with the FCC.
We will also refer to certain non-GAAP financial measures to provide additional information to investors.
A reconciliation of these non-GAAP measures to their most comparable GAAP measures is provided in our press release.
During the call we may offer incremental metrics to provide greater insight into the dynamics of our business.
These details maybe onetime in nature, and we may or may not provide updates in the future.
With that let me turn the call over to Dan for his prepared remarks, and then Patrick will provide his prepared remarks as well as brighter outlook for Q1 and the full year 2020.
Denim Patrick will then take your questions Dan.
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 2019 financial performance along with the other highlights from the quarter.
First on or fourth quarter, and full year 2019 financial results I'm pleased with our performance across the board.
Start I'm happy to report that our total revenue for Q4 2019 was 43.5 million.
This represents an outperformance relative to the midpoint of our guidance and result in 21% growth relative to the fourth quarter 2018.
Total adjusted gross margin in the fourth quarter was 51.2%, which compares favorably to 48.6% in the fourth quarter 2018.
And our Q4 2019, adjusted EBITDA was a loss of 6.5 million, which represents an outperformance relative to the midpoint of our guidance and shows meaningful improvement from a loss of 9.4 million for the same period in the prior year.
Translating this to full year 2019 results total revenue was 154.9 million representing 38% annual growth.
Total adjusted gross margin for 29 team was 52.2% an increase of roughly 430 basis points compared to 2018.
And full year 2019, adjusted EBITDA was a loss of 27.4 million a meaningful improvement from a loss of 38.1 million in 2018.
Now, let me transition to some of the highlights from the quarter, you'll recall from her last earnings call.
That we measure our company's performance in three primary strategic objective categories.
Improvement growth and scale and will discuss our fourth quarter results with you in each of these three categories.
The first category improvement is focused on evaluating our ability to enable massive measurable improvements for our customers, while sustaining industry, leading satisfaction and engagement.
First I'm pleased to report that the number of documented improvements achieved with our customers accelerated meaningfully in 2019.
For the full year 2019, we achieved nearly 700 customer verified documented improvements.
This total is more than two and a half times greater than the total number of improvements achieved in 2018.
In our view this significant growth in customer verified improvements.
Evidence of the hope catalyst flywheel accelerating throughout our customer base.
I would now like I'll highlight two examples of documented improvements from recently published case studies.
First unitypoint health leveraged our solution to integrate the necessary data and subsequently monitor and analyze the utilization of its blood products, including the development of a predictive model to risk adjust blood utilization specific to patient case mix. This.
Resulted in more than 17 million indirect cost savings over six years as a result of decreasing unnecessary transfusions.
Next billings clinic leveraged our solution integrated data across numerous source systems and enable its users to dynamically author manage view and publish more than 400 populations for regular reporting regulatory reporting and improvement initiatives.
Yes.
Data quality and timeliness and self service analytics have improved dramatically as demonstrated by a 27% reduction in analytics service request.
We'd encourage you to please visit our website to view hundreds of documented customer case studies.
Next within the improvement category I'd like to highlight our team member engagement.
Every six months, we utilize the Gallup organization to measure our team members engagement levels.
In our most recent results, we achieved well into the 99 percentile.
Well, we have consistently ranked between the 90 599 percentile in overall employee satisfaction scores.
Past periods score was the highest in the history of our company.
I'm, particularly pleased with these results as our team members had expressed concerns that has helped catalyst became a public company.
With the leadership team might reduce our focus on team member engagement.
We as a leadership team took specific steps to ensure that team member engagement remains our highest priority.
The company's public market transition.
As it enables us to recruit and retain the best talent in the world and ultimately those team members enable our customers to drive massive measurable data informed improvement.
Lastly, under the category of improvement.
I'd sure that we're happy to see accelerated adoption and utilization of our analytics applications as they have continued to mature.
As a reminder, analytics applications are the newest part of our technology stack with their development occurring within the last few years.
As these applications of continue to mature we're pleased with the resultant adoption rates to highlight one example, one of our longest tenured customers who is one of the heaviest users of our data platform.
Nearly doubled their number of users of our analytics applications from 2018 to 29 team.
Both from deepening its use cases with existing applications and adopting new applications.
Our next performance measurement category is growth.
Which we define is adding new customers, while also deepening existing customer relationships.
Within this category I'd first like this year, our performance on our annual growth key metrics.
On Das subscription customers. We ended 2018 with 50 and we saw the addition of 15 net new customers in 2019.
Bringing our 2019, ending total to 65 das subscription customers.
These results are slightly better than what we had anticipated.
As some additional color approximately 70% of our dust das subscription customer base.
Continues to utilize our all access contracting model.
Additionally, the 2019 total is inclusive of three multicity customers, who became das subscription customers.
It is important to note however that two of those three cross sell customers were already in the health catalyst pipeline.
On our other annual growth key metric I am pleased to report that we achieved 109% dollar based retention in 29 team.
This compares to a dollar based retention of 107% in 2018.
As a reminder, this metric excludes arm at the city customer base.
Related to this metric.
It also shira that we were pleased with the growth across our customer base.
I also want to highlight that we achieved an expansion to greater than $10 million of annual recurring revenue during 2019 with one of our customers for the first time in the company's history.
We view this achievement as a sign of the pathway, we have with our customers to meaningfully deepened and expand our relationships with them overtime.
Under the category of growth I'd shared to other themes that we saw emerge in 2019.
First we continued to see evidence that we are in the early stages of digital transformation within healthcare.
We partially measure this through the framework of our healthcare analytics adoption model.
Our Chief Technology Officer deal centers in association with hymns develop this model a number of years ago, which measures the analytics maturity of health care organization.
The lower levels of the healthcare analytics adoption model focus on more basic data infrastructure and administrative and operational efficiencies.
While the later stages focus more on predictive and prescriptive analytics supplemented by artificial intelligence.
In 2019, we continued to see that most healthcare organizations reside in the lower levels of analytics adoption and are seeking the help of a partner who can enable the automation of many basic data it infrastructure administrative and operational tasks, which had been largely man.
Fuel processes to date.
Over the last decade, we've acted as a trusted and experienced partner, bringing to bear the data infrastructure and applications technology, along with the services expertise needed to enable greater efficiency.
Ultimately this partnership results in increasingly meaningful clinical financial and operational improvements for our customers.
In this thing we've seen any emerging trend of greater demand for outsourced technology enabled services, where a customer will choose to utilize help catalysts to take over an entire function within their organization.
Usually at the lower levels of the analytics adoption model.
The size and scope of these relationships makes them extremely sticky as we bring to bear our technology and our surfaces expertise to more efficiently run that customers outsourced function.
The other growth theme, we saw emerge in 2018 was our increased ability to help our customers achieve financial and operational improvements.
As healthcare organizations continue to see margin pressures.
We focus much of our R&D over the last few years on developing technology and services to better help our customers achieve financial and operational improvements.
In 2019, we saw our solution further resonating with Cfos and CIO goes as they look for a partner to help them operate in an increasingly more challenging financial environment.
In particular, we were pleased to see increased adoption of our activity based costing solution chorus within our existing customer base as well as the driver of new sales opportunities.
Likewise, we view the signing of Steward health care the largest private for profit physician led health care network in the United States as a meaningful data point that our technology and services offering is resonating with Cfos and see iOS.
Lastly, I'd like to share a few comments on a recent acquisition of able health, which we're happy to announce is officially closed.
Able health as a leading SaaS provider quality and regulatory measurement tracking and reporting to healthcare providers and risk bearing entities.
This acquisition will enhance health catalyst quality and regulatory measures capabilities and we believe it will further demonstrate help catalysts ability to integrate and scale software applications.
Of particular importance and excitement is the strong mission and cultural alignment with the able health team. We're thrilled to have Rachel cats, Steve Daniels and the remainder of their talented and diverse team join help catalyst and continuing our mission to be the catalyst for massive measurable data.
Informed healthcare improvement.
Now I'll turn the call over to Patrick who will review our performance in the category of scale, including providing a detailed view of our fourth quarter and full year 2019 financial results.
And our outlook for Q1, and the full year 2020.
Patrick.
Thank you Dan as Dan mentioned I'll be discussing our companys performance in the strategic objective category at scale.
This category focuses on enabling greater contribution to our mission by sustainably scaling our organization.
Before diving into our fourth quarter financial results I want to Echo Dan sentiment and say that I'm pleased with our fourth quarter results and the momentum we are seeing across our business.
For the fourth quarter 2019, we generated 43.5 million in total revenue.
As Dan mentioned this represents an outperformance relative to the midpoint of our guidance and it represents an increase of 21% year over year.
The outperformance relative to the midpoint of our guidance was driven primarily by new customers and expansion contract signing earlier in the quarter than expected.
Increasing the revenue we were able to recognize within the quarter.
Technology revenue was 22.6 million, an increase of 20% compared to the same period last year.
And professional services revenue was 20.9 million, an increase of 21% year over year.
Total year over year organic growth was driven primarily by recurring revenue from new customer additions.
To existing customers paying higher technology access fees from contractual built in escalators.
And from existing customers expanding their relationship with us.
Inline with what we communicated previously I'd share that the majority business with a headwind on our technology revenue growth rate in the fourth quarter.
Additionally, as a reminder of what we shared in our last earnings release, our revenue in the fourth quarter of 2018 included certain performance based revenue arrangements, where performance was measured and achieved in that quarter.
Moving forward performance based revenue arrangements will be a much smaller portion of our overall revenue base.
And does they posed a headwind to our Q4 2019 year over year professional services revenue growth rate.
For the full year 2019, we achieved total revenue of 154.9 million, representing an annual growth rate of 38%.
As a reminder, we acquired modesty at the end of Q2 2018, and thus a portion of the 2019 annual growth rate results were from that acquisition.
For Q4 2019, we achieved total adjusted gross margin 51.2%.
An improvement of approximately 260 basis points year over year.
On the technology side, our adjusted gross margin was 68.2% an increase of approximately 340 basis points year over year.
This year over year increase was mainly driven by existing customers paying higher technology access fees from contractual built in escalators without the corresponding increase in hosting costs, partially offset by the headwinds due to the continued cost associated with transitioning a portion of our customer base.
Third party cloud hosted Datacenters in Microsoft Azure.
And on the professional services side, our adjusted gross margin was 33% inline with our expectations.
This represents an increase of approximately 170 basis points year over year, and a decrease of roughly 370 basis points relative to Q3 2019.
As mentioned on our Q3 2019 earnings call I professional services are comprised of data and analytic services.
Domain expertise services outsourcing services and implementation services.
And depending on the mix of services delivered in a given quarter, we would expect to see some fluctuation.
In our quarterly adjusted professional services gross margin.
Full for the full year 2019, we achieved the gross margin of 52% and improvement of approximately 430 basis points compared to 2018.
Moving forward to for full year 2020.
We anticipate adjusted gross margins will be roughly flat with 2019 performance.
In regards to adjusted Technology gross margins, we expect a similar trend at existing customers paying higher technology access fees.
From contractual built in escalators without the corresponding increase in hosting costs that will be offset by headwinds due to the continued cost associated with transitioning a portion of our customer base to third party cloud hosted data centers in Microsoft Azure.
And in regards to adjusted professional services gross margins. We anticipate we will continue to see quarterly fluctuations depending on the mix of services provided and hiring patterns specifically in the first half of 2020, we anticipate that the mix of services provided coupled with.
Annual health catalyst team member pay increases will likely result in lower adjusted professional services gross margins in that period.
In Q4 2019, adjusted operating expenses totaled 28.8 million.
As a percentage of revenue adjusted total operating expenses were 66%, which compares favorably to 75% in Q4 2018.
Adjusted EBITDA in Q4, 2019 was a loss of 6.5 million.
Which compares favorably to an adjusted EBITDA loss of 9.4 million in the fourth quarter of 2018.
As Dan mentioned earlier, we are pleased to report that we outperformed the midpoint of our guidance.
Adjusted EBITDA performance was mainly driven by the revenue outperformance mentioned previously.
Full year 2019, adjusted EBITDA was a loss of 27.4 million and improvement of 10.7 million compared to full year 2018.
Our pro forma adjusted net loss per share in Q4, 2019 was 21 cents.
The pro forma as adjusted weighted average number of shares used in calculating adjusted net loss per share in Q4 was 36.5 million shares.
For the full year 2019, our adjusted net loss per share with 93 cents.
Turning to the balance sheet, we ended the fourth quarter with 228.3 million of cash and short term investments compared to 33.2 million at year end 2018.
As of December 30, Onest 2019, we had 48.2 million in total debt.
An increase of 28 million over the end of 2018.
The increase in our cash balance and debt are the result of financing events in Q1, 2019, and our IPO that took place in Q3 2019.
Before I move on the guidance I will share a few additional thoughts related to adjusted EBITDA and our balance sheet strength.
First I mentioned that consistent with what we shared previously.
We anticipate we will begin 2022 on an adjusted EBITDA run rate breakeven basis.
Next given the size of our current cash position of over 225 million. We anticipate we have plenty of coverage to reach cash flow breakeven.
I'll conclude my commentary with our guidance for the first quarter and the full year 2020.
For the first quarter 2020, our guidance for total revenue is between 42 million and 45 million.
For the full year 2020, our guidance for total revenue is between 185 million and 188 million.
For the first quarter 2020, our guidance for adjusted EBITDA loss is between 8.5 million and 6.5 million.
And for the full year 2020, our guidance for adjusted EBITDA loss is between 23.5 million and 20.5 million.
A couple of comments on this guidance first I'd share that this full year guidance assumes that new das subscription customer additions that are consistent with the expectations. We've shared in the past a being in the mid teens.
As a reminder, our net new das subscription adds were 12 in 2017.
16 in 2018 and 15 in 2019.
Lastly, I'd share that this guidance assumes dollar base retention inline with our historical performance over the last few years.
As a reminder, our dollar base retention was 108% in 2017.
107% in 2018 and 109% in 2019.
I finish by saying that our fourth quarter capped off a strong year performance in 2019, and we think we are a good position to continue that momentum heading into 2020.
That concludes my review of our financial results and now like to turn the call back to Dan for his closing remarks Dan.
Thanks, Patrick.
In summary, we are pleased with the performance of the company. We could not have made this progress without all of the hard work commitment and dedication of our health catalyst team members, who work hard at each day to enable our customers to realize improvement.
We're looking forward to keeping you updated on our progress throughout 2020 and with that let's open it up for questions.
Thank you as it reminded to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Please standby, while we compile the couponing roster.
First question comes on line.
Robert Jones of Goldman Sachs. Your question. Please.
Great. Thanks. Thanks, so much further questions I guess, maybe just to start off on on the new adds a 19 for this year.
Anymore, you guys could share just around the composition of ads in the year versus your base, you know anything more on risk bearing entities versus hospitals, and then just related to that Patrick you mentioned kind of a mid teens expectation again for new ads in 2020.
Wondering if you'd be willing to share any expectations around the diversity cross sells in that expectation.
Absolutely. So Bob this is Dan I'll start out and then Patrick if you have additional thoughts please share them.
So as it relates to your first question Bob the composition of the 15 net new to us subscription clients looked very much like what we have seen in the past several years a mix of a majority of.
Customers that are in the provider space health systems, but also inclusive of some risk bearing entities and.
And others as we've described in the past.
And then as or at least for the second question.
As we mentioned in our prepared remarks in 2019, we saw.
Three minutes city customers, who became help catalyst das subscription customers.
Which was encouraging to us, but as we noted two of those three cross sells we're already within our help catalyst core pipeline.
And so we would think of that similarly, as we think forward to 2020 that we may continue to see an acceleration within our core help catalyst pipeline.
Of overlapping clients admit the city that May also decide.
To to become health catalyst das subscription clients.
And then we would expect and hope that similar to 2019, there may be some incremental benefit as well anything you'd add Patrick the only item I would add is if we cross sell more mid 50 customers in 2020 than we did in 2019 that would be incremental.
To that mid teens expectation that we shared.
Okay. That's helpful. Thanks.
Thank you. Our next question comes from and Samuel of JP Morgan Your question. Please.
Hi, guys. Thanks for taking the question.
I'm wondering if you could maybe provide a little bit of color of how to think about cadence of growth and new amdocs description customer additions throughout the year. I know you talked previously about you know maybe the second half being a little bit more on the just the opportunity just given you started across the conversation and midway through last year. So how should we be thinking about that that cadence.
Thanks, Jenny I think thats a reasonable.
Way of thinking about the Multicity component that as we've mentioned in the past.
We do experience around a one year sales cycle in general for.
For the discussions that we have with health systems and our.
Our experience to date has been that that is the right way to think about the sales cycle for the cross sell as well and as we mentioned in the past, we really began those cross sell discussions in earnest in the summer of last year and so we would expect.
To see some of those results coming towards the latter part of this year hitting that Patrick and as far as standard net new das subscription customers go we usually see those weighted towards Q2 and Q4.
Rough numbers would be that approximately 40% of the full year net new das subscription customers come in Q2 at approximately 40% in Q4 similar to what we've seen over the past several years, although there can be some variation on that exact timing.
Very helpful. And then maybe just one on April how how many other opportunities like that in terms of tuck ins to the athletes are there and how should we be thinking about your criteria as you evaluate fibers itself.
Yes. Thank you for that question any great question. So we're very excited as we mentioned in our prepared remarks to welcome our teammates from April helps to join help catalyst and they're a great example of a company that operates.
Within the apps layer of the other three layers of what we provided to customers. So the first later the platform. The second letters the apps that are in the third layer is the wraparound expertise and services that we provide.
Importantly, we see by far the most opportunity for acquisition activity in the apps, where where there are literally hundreds of companies many of which are our startups that have developed some very innovative.
Capabilities technology capabilities, where as we evaluate moving forward. We believe there will be a number of other cases, where.
The acquisition path will be the most effective path for us to meet the needs of of our clients across the application suite area. So I would anticipate.
That we will continue to be active and we have a very robust and meaningful pipeline of potential companies, where we're in discussions and we will continue to do that in the months in years ahead.
Great. Thanks, guys.
Thank you.
Thank you next question comes from Ryan Daniels of William Blair. Your line is open.
Yes, Thank you for taking the question.
Upsell opportunity to an existing customer I believe you mentioned one it was $10 million and I'm curious, if that's a annual opportunity or kind of the contract value and number two it seems like a novel data point in quite a.
Strong opportunities and maybe a little bit more color on what drove that the potential for similar opportunities going forward.
Great. Thank you for the question Ryan.
As it relates to that upsell opportunity to your first question that does represent an annual recurring number so that greater than $10 million is.
Annual recurring revenue, which is inclusive of both technology and services and as it relates to some of the specifics that we feel our are perhaps.
Repeatable at other health system clients, we do see as we mentioned in the prepared remarks.
Trends towards more and more of our clients looking for greater support and help at the lower levels of the analytics adoption model where.
Through the use of our technology and through the use of our expertise and our scale.
We are in a physician to provide those lower levels some of those lower levels of activities better faster and cheaper than any of our clients could could achieve.
On their own and that does involve us taking over processes that were often manual processes and automating them through the use of our technology and then also benefiting from.
Process improvements on the expertise side that when coupled together.
Provide us with real differentiation relative to what our health system clients.
Could achieve in terms of both efficiency and in terms of accuracy and effectiveness and we do believe this will be a pattern.
That will repeat itself for many of our clients, we would anticipate that within our Tam there are likely hundreds of clients that could grow to a similar size as what we just experienced.
In 2019.
Okay. This is great color and then.
We think about visibility at this point of the year I know most of the 50 new contracts.
Revenue growth.
Provide the ramp throughout the year, but how much visibility do you really have at this point is extremely high as we look towards revenue.
Good question Ryan It is extremely high as we've discussed in the past over 90% of our revenue is recurring in nature.
And related to that we have over 90% visibility to our projected 2020 revenue, which is which is very helpful. In terms of our forecasting and planning process.
Just one more if I could.
People acquisitions.
If you could talk about the potential revenue opportunity I know, it's not material in your guidance.
To drive more all in purchases does it.
For pricing improvements over time or is it really something that you see is a client acquisition vehicle.
Robert value proposition.
Versus really a sector revenue generation line for the company.
Yes, very good question.
I think we see some elements of each of those categories that you mentioned, but I might I might emphasize just a couple of things and first let me broadened to the general M&A topic that as we acquire accompany particularly at the apps layer.
In general the acquisition of that New technology would fall outside of the current technology subscription that our clients have with us. So there is an upsell technology opportunity through these acquisitions generally we do expect a small incremental upsell opportunity within our existing client base.
Specifically related to the able health acquisition and we do believe also that there are other meaningful opportunities for us to cross sell within ables customer base.
And for us to have a new entry point potentially at a lower cost.
To begin new client relationships by virtue of this new capability that April health brings to us anything you'd add Patrick.
Just to emphasize that we felt very much about the acquisition enhancing specifically our quality and regulatory measures application suite and we focused on the product capabilities that could bring us more so than its independent financial.
Characteristics.
Okay, great. Thank you and congrats.
Action.
Thanks, Ryan Thanks, Ryan.
Thank you. Your next question comes from Sean Wieland Piper Jaffray. Your line is open.
Hi, Thanks.
So just digging into April help a little bit more I just want to understand you speak spoke a little bit about the strategic importance, but what is the.
They're offering versus your existing offering that you had in quality quality and regulatory reporting is there overlap there are there shared clients and.
Can you give us any specifics on revenue and EBITDA contribution or number of employees.
Absolutely great questions, Sean So I'll share a few thoughts and then pattern. Please also sure so as it relates to their offering.
Compared to our existing offering importantly, we see meaningful complimentary and a minimal amount of overlap.
Our focus on quality and regulatory measures has included in the in the future roadmap the desire to to offer our clients. The specific capabilities that enable help rings and that is specific to our clients submitting regulatory measures, but that has not been an area that we had yet.
Developed on our own we had been more focused on the curations those metrics in the improvement work that we have done.
To improve clinically operational and with our clients. So the addition of able health capabilities.
It's very complementary to what we have today and it's very consistent with our desired product roadmap and and consistent with feedback from customers that they would like that additional capability as it is a good example of.
A process that in many cases is very manual.
When our clients handle all of the steps of submission themselves, whereas with able they automate and streamline many of those steps.
As well.
Patrick what would you add.
The only I might add is.
We shared in the 8-K that April will have an immaterial impact our 2020 revenue or EBITDA.
I would also share that it is a relatively small team that we're bringing on a very talented team that we're very excited to bring on but a relatively small team.
All right, Thanks, and Patrick what can you comment on on that that trend on deferred revenues on the balance sheet.
Of course, so when you look at our deferred revenues there.
There is a little bit of noise there given the acquisition of modality and the fact that majority have a different deferred revenue profile than health catalyst. The other item that can cause a little bit of noise is the deferred revenue profile between technology and services for our core business does vary.
And depending on the timing of new client additions or the timing of expansions. It can have fluctuations in our deferred revenue in given quarters last item I would note is because our average air our per customer is approximately $2 million a year or invoices can be fairly low.
George So an invoice moving between one quarter or another can also had a fairly material impact on our deferred revenue.
All right. That's helpful. And then one last quick one.
Percentage of clients Das clients today are on is there and how many converted in the quarter.
Thanks.
We've shared that starting approximately four years ago, all of our new clients went to the Microsoft Azure environment, which means that the majority of our clients are in the Microsoft Azure environment, We do have a minority but still material portion of our das subscription customers that are in our pro.
Hi that cloud data center that we have been converting into the Microsoft Azure environment and expect to continue to convert over.
Over the next year plus one to two years and then we also have a few on premise clients remaining and we expect to move to the Microsoft Azure environment and that process. We also expect to take over a one the two year time period.
Okay. Thank you.
Thank you. Our next question comes from Michael No show.
Evercore ISI. Please go ahead.
Thanks.
Thanks, I wanted to ask about the trajectory for gross margins I know the flat gross margins you've guided to for this year. Some of that you talked about before because of that continued transition to Microsoft as Youre, but is there any just update on timeline for completing that transition and we see more gross margin improvement in 2021.
From a financial impact we would expect to continue.
To have a headwind from moving clients to the Microsoft Azure environment in both 2020 and 2021.
We are obviously working and doing our best to try to.
Obvious to outperform those expectations, but from an expectation perspective, we would expect it to take 2020 in 2021 and Thats why technology gross margins will be roughly flat over that time period, Gaza and so set so similar size headwind in 2021.
Yes, and I should note that the natural tailwind is from the fact that our.
Escalators on the technology side are very high margin because they don't come with corresponding cost that would naturally lead our technology gross margins to expand every year, but the headwind counteract that and results an overall flat technology gross margins.
Got it.
Maybe separately I know this is kind of speculative, but I'm just wondering to any thoughts about weather hospitals response to krona virus kind of an indirect impact on you. I mean is is it possible preparations and uncertainty just the competition for attaching could have any delays on contracting decisions or it's got like the process of people involved separate enough and the processes visible enough that it.
Foresee any impact.
Good question. Thank you for that question Michael So.
Let me up for a couple of thoughts there. So first of all we along with many others sure deep concern.
Well being of those who have been impacted by the Corona virus.
We're also on behalf of our team members closely monitoring the situation.
And its impact on the well being of our team members.
We continue to provide our health system customers with significant data and analytics support for this specific health issue along with all the other health issues that these clients helped to address.
And we recognize in respect.
The dedication commitment and sacrifice of health care providers around the world.
Including our exemplary customers I would share specifically related to your question that.
We have not yet seen any impact the corona virus as it relates to.
Our pipeline.
Or our and therefore, our forecast either.
Great. Thanks very much.
You bet.
Thank you again to ask a question press star wanting it touched on telephone star one on your touched on telephone ask a question.
Our next question comes from the line of Sandy Draper of Suntrust Robinson Humphrey Your line is open.
Thanks. This is a stand on for Sandy maybe a continuation of the previous question.
Just looking at the sales pipeline as there is there anything to call out given that this is also an election year that maybe you're seeing any changes in our decision making.
Yes, good question.
What we have found is that as we have shared in the past.
We continue to not see a material impact from the 2020 election cycle.
The good news from the perspective of help catalyst is that in whatever political or reimbursement landscape, we find ourselves within.
The market continues to believe in the need for data and analytics and importantly, our model is not tied to the transition to value based care like some other health care I T companies fundamentally our model.
And our value proposition to clients is is to help them manage the complexity.
Of data.
And the economic model complexity that they have to deal with him in working within both the value base and a volume based economic model now all that being said.
We have also observed over long periods of time that health care providers tend to be more cautious in purchasing situations.
So this is something that we'll continue to closely monitor.
That's helpful and maybe just a follow up.
Besides a two wins from a diversity that you called out the were already in your and your pipeline before the acquisition are there any ahmed dissident clients today that you have not yet cross sold but we're in your pipeline before the acquisition and if so can you can you quantify that number for us.
Of course, thanks them, yes that number would be very low so since we have approximately a year long sales cycle.
And we are more than a year since the time of acquisition at this point in time.
Our very few customers that are in our pipeline that were.
That were in our pipeline at the time of acquisition that are modesty customers.
Got it thank you.
Thank you at this time I'd like to turn the call back over to Dan burden for closing remarks, Sir.
Thank you and thank you to everyone who has dialed in for this earnings call. We appreciate your interest.
In the company and we look forward to keeping you updated.
In the months ahead, thank you very much.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
[music].