Q3 2024 Health Catalyst Inc Earnings Call
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Speaker Change: Welcome to the Health Catalyst 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: 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.
If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.
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Speaker Change: So others can hear your questions clearly, we ask that you pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Jack Knight, Vice President of Investor Relations.
Jack Knight: Good afternoon, and welcome to Health Catalyst's earnings conference call for the third quarter of 2024, which ended on September 30th, 2024.
My name is Jack Knight.
I am 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 Daniel LeSueur, our Chief Operating Officer.
Jack Knight: A complete disclosure of our results can be found in our press release issued today, as well as in our related form 8K, furnished to the SEC, both of which are available on the Investor Relations section of our website at ir.healthcatalyst.com.
Jack Knight: 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 the remainder of 2024 and full year 2025.
Speaker Change: Our ability to attract new clients and retain and expand our relationships with existing clients.
Speaker Change: Trends, strategies, the impact of the macroeconomic challenges, including the impact of inflation and the interest rate environment.
Speaker Change: the tight labor market, bookings, our pipeline conversion rates, the demand for, deployment, and development of our data and analytics platform, M&A activity, and the general anticipated performance of our business.
Speaker Change: 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.
Speaker Change: Please refer to the risk factors in our Form 10-Q for the second quarter of 2024 filed with the SEC on August 8, 2024, and our Form 10-Q for the third quarter of 2024 that will be filed with the SEC.
Speaker Change: 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 an isolation or as a substitute for financial information presented in accordance with GAAP.
Speaker Change: A reconciliation of non-GAAP financial measures for the third quarters of 2024 and 2023 to their most comparable GAAP measures is provided in our press release.
Speaker Change: However, we have not provided forward-looking guidance for professional services gross margin, the most directly comparable gap measure to adjusted professional services gross margin discussed today. Technology gross margin, the most directly comparable gap measure to adjusted technology gross margin discussed today.
Speaker Change: or net cash from operating activities, the most directly comparable gap measure to adjusted free cash flow discussed today.
Speaker Change: and have therefore not provided related reconciliations of these non-GAAP measures to their most comparable GAAP 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.
Dan Burton: We are pleased to share our third quarter 2024 financial performance and other recent highlights.
Speaker Change: I will begin today's call with summary commentary on our third quarter 2024 results and outlook.
Speaker Change: We are encouraged by our third quarter 2024 financial results, including total revenue of $76.4 million and adjusted EBITDA of $7.3 million, both of which exceeded the midpoint of our previous guidance.
Dan Burton: Additionally, we are updating our expectations for both revenue and adjusted EBITDA for 2024. On revenue, we now anticipate 2024 revenue will be between $305 million and $311 million.
Dan Burton: On 2024 Adjusted EBITDA, we are raising our expectations to between $25 million and $27 million.
Dan Burton: Likewise, we are pleased with our bookings performance through Q3 2024 and we are reiterating our full year 2024 bookings expectations, inclusive of net new platform subscription client additions and dollar-based retention rate.
Dan Burton: we will discuss in greater detail shortly.
Dan Burton: Now let me highlight some additional items from the quarter.
Dan Burton: you will recall from our previous earnings calls that we measure our company's performance in the three strategic objective categories of improvement, growth, and scale. And we'll discuss our quarterly results with you in each of these categories.
Dan Burton: 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.
Dan Burton: Let me begin by sharing an example of a client improvement from a recently published case study.
Dan Burton: Archiving unique and complex data is challenging for health systems as data resides in multiple disparate systems and includes both structured and unstructured data.
Dan Burton: Traditional healthcare data archiving methods can be costly and inefficient, which hinders data sorting and utilization efforts.
Dan Burton: Guy's and St. Thomas' NHS Foundation Trust recognized the need for a scalable and sustainable approach to archiving and accessing clinical data.
Dan Burton: The organization was committed to maintaining access and utilization of historical data dating back as far as 30 years.
Speaker Change: But it lacks scalable and sustainable approaches to archiving and quickly accessing clinical data from decommissioned legacy systems.
Speaker Change: Several legacy systems were built on aging technology, which increases the risk of data breaches and system failures.
Speaker Change: As a result, Guy's and St. Thomas' initially attempted to build an in-house solution.
Speaker Change: but increasing costs and complications slowed development time.
Speaker Change: and the organization needed to find a better solution quickly to preserve historical data.
Speaker Change: To combat this issue, Guy's and St. Thomas' partnered with Health Catalyst to ingest data from 60 source systems.
Speaker Change: into the Health Catalyst data platform to streamline its data archiving processes.
Speaker Change: The Health Catalyst data platform offers many advantages compared to cold storage.
Speaker Change: as our platform provides a secure, modern, and reliable system, ensuring that teams across the organization can continue to access the data.
Speaker Change: Together with Guy's and St. Thomas' we built analytics applications to visualize data and provide comprehensive reporting to help drive actionable improvement.
Speaker Change: by leveraging Health Catalyst Data Platform.
Speaker Change: The organization created a robust, scalable, and cost-effective long-term solution that helps guys in St. Thomas' improve patient outcomes and realize operational efficiency.
Speaker Change: Following these positive results, the organization plans to build additional analytics and aggregate data from 70 more source systems into the data platform.
Speaker Change: Also in the improvement category, we have been fortunate to receive additional external recognitions.
Speaker Change: First, we are excited to be named one of the best workplaces in healthcare by fortune for the second year in a row.
Speaker Change: as a top workplace in Utah by the Salt Lake Tribune for the 11th year in a row and as one of America's greatest workplaces for people with disabilities by Newsweek.
Speaker Change: We were also honored as part of the Utah 100 by Mountain West Capital.
Speaker Change: for the 10th time, a list that includes the fastest-growing companies in Utah.
Speaker Change: Lastly, we are excited to share that Jessica Curran, our Vice President of Data Science and Analytics, was recently named a finalist for the Women Tech Awards by the Women Tech Council.
Speaker Change: recognizing the exceptional work Jessica does as the product owner for Health Catalysts Healthcare.ai
Speaker Change: a suite of AI products and expert services that help hospitals and health systems dramatically expand the use of AI to improve healthcare decision-making.
Speaker Change: Our next strategic objective category is growth, which includes expanding existing client relationships and beginning new client relationships.
Speaker Change: Consistent with what we have shared over the last few quarters, we are encouraged to see health system operating margins steadily improving and stabilizing.
Speaker Change: This improving end market contributes to our robust pipeline and our continued confidence in our expectation that our top-line growth will accelerate back to double digits in 2025.
Speaker Change: As such, we are reiterating our full year 2024 bookings expectations, inclusive of net new platform subscription additions in the low 20s, and our dollar-based retention rate between 100% and 106%.
Speaker Change: We are excited that low 20s Net New Platform subscription additions would represent the best year in Health Catalyst's history for this metric, underscoring the significant client demand we continue to see for our solutions.
Speaker Change: Related to our full year 2024 bookings expectations, let me first share a reminder that similar to prior years, Q4 is anticipated to be an important bookings quarter.
Speaker Change: For new clients, we continue to anticipate the average ARR plus non-recurring revenue for 2024 Net New Platform subscription clients will be between $400,000 and $1 million.
Speaker Change: As it relates to our 2024 dollar-based net retention, we are reiterating our expectations shared on our Q2 call of 100% to 106%.
Speaker Change: Q4 bookings will have a significant impact on where we end up on our new client performance and dollar-based net retention for 2024.
Speaker Change: As a reminder, dollar-based net retention excludes items such as non-recurring professional services revenue, as well as expansions within our non-platform, application-only client base.
Speaker Change: We anticipate these two categories of existing client expansion, which fall outside of the current definition of dollar-based retention,
Speaker Change: will be meaningful drivers of revenue growth and we expect they will also contribute to our adjusted EBITDA growth in 2025 due to their higher margin profile than TEMS expansions.
Speaker Change: Given that these important growth categories fall outside of our current definition of dollar-based retention,
Speaker Change: and our desire to provide shareholders with meaningful insight into our growth drivers. We are continuing to consider whether it would be helpful to update the growth metrics we have historically shared.
Speaker Change: We anticipate we will be in a position to share this potential update in early 2025.
Speaker Change: 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.
Speaker Change: We expect that he will join future earnings calls to provide status updates and to help answer IGNITE-related questions.
Speaker Change: With that, let me turn some time over to Daniel LeSueur.
Daniel LeSueur: Thank you, Dan. We continue to see strong demand among existing clients to migrate to Ignite and steady progress with implementing migrations that are underway.
Daniel LeSueur: We are generally on schedule relative to forecasted timelines for migrations, and we have a dedicated team that is assisting with these migrations, and we anticipate we will continue to migrate our existing DAS clients to IGNITE over the next couple of years.
Daniel LeSueur: We also continue to welcome new clients directly onto the Ignite platform.
Daniel LeSueur: Given the advantages of the Ignite platform related to elastic compute and modularity, we're pleased to offer a flexible menu of options for clients to benefit from these improved efficiencies.
Speaker Change: These options include expanding their relationship and spend by purchasing additional applications and features.
Speaker Change: Immediate savings while maintaining the same functionality through a price reduction as part of the migration, or maintaining existing spend and realizing improvement in operations and functionality from the enhanced capabilities of Ignite.
Speaker Change: Over the course of the next few years, we anticipate our clients will continue to fall along the spectrum of these three options.
Speaker Change: Importantly, during this migration, we will continue to be proactive in cross-selling and up-selling additional applications to drive expansion within our existing client base, while also ensuring that we provide compelling value to our clients.
Speaker Change: With that update, let me turn it back to Dan Burton.
Speaker Change: Thank you for that update, Dan.
Dan Burton: Next, I want to highlight a meaningful expansion with a long-standing client.
Speaker Change: Wisconsin Statewide Health Information Network or WISHN.
Speaker Change: an independent not-for-profit organization dedicated to bringing the benefits of widespread, secure, interoperable health information technology to patients and caregivers throughout Wisconsin has expanded its partnership with Health Catalyst.
Speaker Change: This multi-year expansion includes migration of technology and services to Ninja Universe Help Catalyst's Ignite interoperability platform.
Speaker Change: Ninja Universe is an end-to-end cloud-native platform.
Speaker Change: with applications purpose-built for health information exchanges like WISH-IN.
Speaker Change: We are excited and grateful for the opportunity to expand our partnership and look forward to continuing to help support WISHN in our shared commitment to improve the health of individuals and communities in Wisconsin.
Speaker Change: Additionally, I'm excited to announce a meaningful new client partnership with Sync Health.
Speaker Change: Think Health also recently selected Health Catalyst Ninja Universe Solution, our Ignite interoperability platform.
Speaker Change: By leveraging Ninja Universe, we are excited to help SyncHealth achieve its mission to bring trust and value to health information technology by creating solutions for moving health data forward.
Speaker Change: Additionally, we are pleased to announce that we recently signed a new IGNITE partnership with Ortho Nebraska to provide them with a robust data and analytics infrastructure to support their strategic initiatives.
Speaker Change: We continue to anticipate a return to double-digit revenue growth and approximately 50% growth in adjusted EBITDA in 2025 as compared to 2024, consistent with our prior commentary and even after raising our 2024 adjusted EBITDA guidance.
Speaker Change: As always, execution against our Q4 bookings targets is an important contributor to achieving our 2025 growth expectations.
Speaker Change: I would also like to share a few comments related to our acquisition strategy. Consistent with what we have shared in the past, we are excited to announce we have signed a definitive agreement to acquire Enterprise Health.
Speaker Change: Enterprise is a tech-enabled cybersecurity provider offering an end-to-end cybersecurity risk management platform and services to protect its clients from cyber attacks and manage follow-on liability in the event of an incident.
Speaker Change: Cybersecurity is a critically important area for our clients and enterprise is ranked number one in CLASA's recent rankings in this category.
Speaker Change: We look forward to welcoming Enterprise to Health Catalyst and are excited about how this combination will help drive growth and help us continue to address the areas that are most important to our clients.
Speaker Change: including a robust security infrastructure as part of our Ignite solution.
Speaker Change: The purchase price is $43 million and will be a combination of cash and equity.
Speaker Change: We anticipate this acquisition will close by the end of the year, and it will be immaterial to our financial statements in the near term.
Speaker Change: Over the last several years, we've made a number of strategic acquisitions.
Speaker Change: We have developed an integration playbook that allows us to efficiently and effectively integrate a new asset into the broader Health Catalyst solution ecosystem.
Speaker Change: so that we can drive maximum value for our clients and create maximum value for our shareholders.
Speaker Change: That integration playbook includes cross-training sales teams.
Speaker Change: quickly identifying areas of redundancy.
Speaker Change: Further, we have continued to maintain a pipeline of acquisition opportunities that enable us to act as a consolidation platform and support our clients in their improvement goals.
Speaker Change: We anticipate we will continue to be a consolidator.
Speaker Change: which will help us deepen our relationships with clients through our cross-selling efforts, where, as a reminder, we are more than twice as effective in selling to clients when we have an existing relationship, compared to a new prospect that doesn't have a relationship with Health Catalyst.
Speaker Change: We've heard consistent feedback from our clients that they will continue to focus on consolidating their vendor relationships.
Speaker Change: and we believe our acquisition strategy positions Health Catalyst well to be one of these long-term strategic partners.
Speaker Change: before turning the time over to Jason.
Speaker Change: I also want to share that we are honored to announce that Dr. Jill Hoggart Green will be joining the Health Catalyst Board of Directors, effective December 1st, 2024.
Speaker Change: Jill is the former Chief Executive Officer of the Queens Health System.
Speaker Change: and has been an extraordinary leader throughout her career.
Speaker Change: registered nurse whose career includes work with oncology, bone marrow transplant units, and hospice programs, and at leading hospitals, ambulatory and home health services in Utah, Oregon, and North Carolina.
Speaker Change: Jill has dedicated her life to improving patient care.
Speaker Change: We are excited for Jill to join our board of directors and anticipate her contributions will be significant and impactful over the months and years to come.
Speaker Change: 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 third quarter performance.
Speaker Change: Before jumping into our strategic objective category of scale, I would be remiss if I didn't highlight Dan Burton's continued commitment to servant leadership. Dan was recently awarded both a Decade of Impact Award by the Women Tech Council and as a Healthcare Hero by Utah Business Magazine.
Speaker Change: We feel fortunate to have Dan leading our company and it's a great pleasure to work alongside such a tremendous leader
Speaker Change: I will now comment on our strategic objective category of scale. For the third quarter of 2024, we generated $76.4 million in total revenue.
Speaker Change: This represents an outperformance to the midpoint of our guidance and it represents an increase of 3% year over year.
Speaker Change: Technology revenue for the third quarter of 2024 was $48.7 million.
Speaker Change: representing 6% growth year-over-year. Professional services revenue for Q3 2024 was $27.7 million, roughly flat year-over-year.
Speaker Change: For the third quarter of 2024, total adjusted gross margin was 48%.
Speaker Change: representing an increase of approximately 70 basis points year-over-year.
Speaker Change: In the technology segment, our Q3 2024 Adjusted Technology Gross Margin was 65%.
Speaker Change: A decrease of approximately 330 basis points relative to the same period last year and roughly in line with previously shared expectations.
Speaker Change: This year-over-year performance was mainly impacted by upfront costs associated with the deployment of Ninja Universe, Ignite's interoperability platform, without associated revenue which generally ramps six months or more after contract signing.
Speaker Change: as well as temporary headwinds due to the ongoing migration efforts from DOS to help Catalyst Ignite.
Speaker Change: In the professional services segment, our Q3 2024 adjusted professional services gross margin was 17%.
Speaker Change: representing an increase of approximately 550 basis points year over year and a decrease of roughly 330 basis points relative to the second quarter of 2024.
Speaker Change: This quarterly performance was primarily driven by a combination of ongoing service costs prior to recognition of revenue on project-based arrangements and slightly more tense resourcing in ambulatory operations.
Speaker Change: In Q3 2024, adjusted total operating expenses were $29 million.
Speaker Change: As a percentage of revenue, adjusted total operating expenses were 38%, which compares favorably to 44% in Q3 2023, and highlights our continued focus on driving additional operating leverage and cost discipline.
Speaker Change: Adjusted EBITDA in Q3 2024 was $7.3 million, exceeding the midpoint of our guidance and representing an increase of $5.3 million relative to the same period last year.
Speaker Change: This Q3 2024 adjusted EBITDA result was mainly driven by the quarterly revenue outperformance mentioned previously, along with the timing of some non-headcount expenses that we anticipate will be pushed out to the fourth quarter.
Speaker Change: Our adjusted net income per share in Q3 2024 was $0.07. The weighted average number of shares used in calculating adjusted basic net income per share in Q3 was 60.4 million shares.
Speaker Change: Turning to the balance sheet, we are pleased with the strength of our financial position, which provides us with meaningful financial and strategic flexibility.
Speaker Change: We ended Q3 2024 with $387.2 million of cash, cash equivalents, and short-term investments, compared to $308.3 million as of Q2 2024.
Speaker Change: In terms of liabilities as of the end of Q3 2024, the face value of our outstanding convertible notes is a principal amount of $230 million due in April 2025.
Speaker Change: and the face value of our initial term loan is $125 million.
Speaker Change: As it relates to our financial guidance, for the fourth quarter of 2024, we expect total revenue between $78 million and $84 million, and adjusted EBITDA between $6.8 million and $8.8 million.
Speaker Change: And for the full year 2024, we expect total revenue between $305 million and $311 million.
Speaker Change: and adjusted EBITDA between $25 million and $27 million.
Speaker Change: which represents an increase of 1 million to both the bottom and top ends of the range.
Speaker Change: Now let me provide a few additional details related to our Q4 2024 guidance.
Speaker Change: We continue to anticipate that our year over year total revenue growth will be higher in the second half of 'twenty 'twenty four compared to the first half of 2024 with that said we have seen a few dynamics that are impacting our second half and Q4 revenue growth.
Speaker Change: We continue to anticipate that our year-over-year total revenue growth will be higher in the second half of 2024 compared to the first half of 2024. With that said, we have seen a few dynamics that are impacting our second half and Q4 revenue growth.
Speaker Change: Which helped inform our wider than typical revenue range for Q4 first as we mentioned on our prior earnings call. We signed more contracts in the first half of 2024 related to international and health information exchange clients. These contracts generally take longer to ramp into revenue than traditional ignite.
Speaker Change: which helped inform our wider than typical revenue range for Q4.
Speaker Change: First, as we mentioned on our prior earnings call, we signed more contracts in the first half of 2024 related to international and health information exchange clients.
Speaker Change: These contracts generally take longer to ramp into revenue than traditional IGNITE contracts.
Speaker Change: Contracts. These extended timelines can have an impact on our quarterly revenue expectations as the revenue recognition for some of these contracts would could be delayed into early 2025.
Speaker Change: These extended timelines can have an impact on our quarterly revenue expectations as the revenue recognition for some of these contracts could be delayed into early 2025.
Speaker Change: Next we've also seen a few projects that would result in one time revenue recognition be pushed into early 2025, where we initially forecasted that these would be finalized in 2024, which would have allowed us to recognize the revenue in 2024.
Speaker Change: Next, we've also seen a few projects that would result in one-time revenue recognition be pushed into early 2025, where we initially forecasted that these would be finalized in 2024, which would have allowed us to recognize the revenue in 2024.
Speaker Change: Lastly, as we have mentioned previously throughout 'twenty 'twenty four we have proactively shifted our focus towards the higher margin solutions in our pipeline and we are pleased that this mix has contributed to our adjusted EBITDA progress, which is ahead of our initial guidance. This shift in our focus has also resulted in la.
Speaker Change: Lastly, as we have mentioned previously, throughout 2024, we have proactively shifted our focus toward the higher margin solutions in our pipeline, and we are pleased that this mix has contributed to our adjusted EBITDA progress, which is ahead of our initial guidance.
Speaker Change: This shift in our focus has also resulted in lower TEMS bookings than we had initially forecasted. While we are very encouraged with our profitability progress, this lower bookings performance in TEMS has a near-term impact on our Q4 and 2024 revenue.
Speaker Change: Sure Tamps bookings than we had initially forecasted while we are very encouraged with our profitability progress. This lower bookings performance in towns has a near term impact on our Q4 and 2020 for revenue.
Speaker Change: In terms of our adjusted gross margin, we anticipate our Q4 adjusted technology gross margin will be roughly in line with Q3 performance as we continue to focus on migrating our clients from das to ignite and as Ninja universe costs continue prior to revenue recognition in the professional services segment.
Speaker Change: In terms of our adjusted gross margin, we anticipate our Q4 adjusted technology gross margin will be roughly in line with Q3 performance as we continue to focus on migrating our clients from DOS to Ignite and as Ninja Universe costs continue prior to revenue recognition.
Speaker Change: We anticipate that our Q4 adjusted professional services gross margin will be down compared to Q3 2024.
Speaker Change: In the professional services segment, we anticipate that our Q4 adjusted professional services gross margin will be down compared to Q3 2024.
Speaker Change: Some of this decline relates to incremental Resourcing of times, specifically for ambulatory operations. Additionally, similar to prior years. There is some seasonality in expenses such as medical claims which hits disproportionately in Q4, we anticipate this professional services gross margin for <unk>.
Speaker Change: Some of this decline relates to incremental resourcing of TEMs, specifically for ambulatory operations. Additionally, similar to prior years, there is some seasonality in expenses, such as medical claims.
Speaker Change: which hits disproportionately in Q4. We anticipate this professional services gross margin performance will improve moving into Q1 2025.
Speaker Change: Four months will improve moving into Q1 2025.
Speaker Change: As it relates to our operating expenses, we expect to continue to see a material operating leverage moving forward and generally anticipate that quarter over quarter performance in our operating expense categories will be roughly flat compared to Q3 2024.
Speaker Change: As it relates to our operating expenses, we expect to continue to see material operating leverage moving forward and generally anticipate that quarter-over-quarter performance in our operating expense categories will be roughly flat compared to Q3 2024.
Speaker Change: We are very encouraged with our profitability progress thus far in 2024, which informed our decision to raise our expectations for adjusted EBITDA for 2024. Additionally, we are encouraged that through Q3 2024, our operating cash flow was $18 1 million, we anticipate our adjust.
Speaker Change: We are very encouraged with our profitability progress thus far in 2024, which informed our decision to raise our expectations for adjusted EBITDA for 2024.
Speaker Change: Additionally, we are encouraged that through Q3 2024, our operating cash flow was $18.1 million.
Speaker Change: Free cash flow will be meaningfully positive in 2024 and in 2025. This is a testament to our commitment to financial discipline operating leverage and profitable growth.
Speaker Change: We anticipate our adjusted free cash flow will be meaningfully positive in 2024 and in 2025. This is a testament to our commitment to financial discipline, operating leverage, and profitable growth. With that, I will conclude my prepared remarks. Dan?
Speaker Change: With that I will conclude my prepared remarks, Dan.
Speaker Change: Thanks, Jason.
Dan: In conclusion, I would like to recognize and thank our committed and mission aligned clients and a highly engaged team members for their dedication and contributions to these results and this progress is.
Speaker Change: Thanks, Jason.
Speaker Change: 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.
Speaker Change: As well as express my optimism for our future.
Speaker Change: And with that I will turn the call back to the operator for questions.
Speaker Change: And with that, I will turn the call back to the operator for questions.
Speaker Change: Certainly on the floor is now open for questions. At this time, if you have a question or comment. Please press star one on your telephone keypad. If at any point. Your question has been answered you may remove yourself from the queue by pressing star too again, we kindly ask that you limit yourself to one question and then you pick.
Speaker Change: And the floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad.
Speaker Change: If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.
Speaker Change: Again, we kindly ask that you limit yourself to one question and that you pick up your handset when posing your question to provide optimal sound quality. Thank you. Our first question comes from Jesse Hoff with William Blair. Please go ahead.
Speaker Change: Of your handset when posing your question to provide optimal sound quality. Thank you. Our first question comes from Jesse <unk> with William Blair. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Jared Haase here on for Ryan Daniels from Blair. Thanks for taking our questions maybe I'll ask one just on the.
Speaker Change: Yeah, Jared Haas here. I'm for Ryan Daniels from Blair. Thanks for taking our questions. Maybe I'll ask one just on the
Speaker Change: I'll look here in Canada set up for 2025, and a return to double digit growth. Obviously, you mentioned a couple of times in the prepared remarks kind of the importance of the fourth quarter here as it bookings period to set up next year's performance I was just hoping to hear a little bit of color around I guess, what youre seeing in the pipeline how those sales opportunities are progressing.
Speaker Change: I'll look here and kind of the setup for 2025 and return to double-digit growth. Obviously, you mentioned a couple times in the prepared remarks kind of the importance of the fourth quarter here as a bookings period to set up next year's performance.
Speaker Change: We're just hoping to hear a little bit of color around, I guess, what you're seeing in the pipeline, how those sales opportunities are progressing today, sort of relative to what you need to hit that double-digit growth profile in 2025.
Speaker Change: Today sort of relative to what you need to hit that double digit growth profile in 2025.
Speaker Change: Yeah. Thank you for the question Jared So happy to talk about those three building blocks as we see them playing out and contributing to that growth profile in 'twenty to 'twenty five that we did reiterate our confidence in achieving so the first is our new client.
Speaker Change: Yeah, thank you for the question Jared so happy to talk about those those three building blocks as we see them playing out
Speaker Change: and contributing to that growth profile in 2025 that we did reiterate our confidence in achieving. So the first is our new client.
Speaker Change: Additions and as we mentioned in the prepared remarks, we're on track for in that particular metric what would be the best year in health Catalyst's history in terms of the net new logos that we add and that new platform subscription clients that we add in the low twenties. We also shared that average error or ray.
Speaker Change: And as we mentioned in the prepared remarks, we're on track for the next webinar.
Speaker Change: In that particular metric, what would be the best year in Health Catalyst history in terms of the net new logos that we add, the net new platform subscription clients that we add in the low 20s?
Speaker Change: We also shared that average ARR range, ARR plus NRR range, of between 400,000 and a million, on average, that would then contribute to that first building block of growth. And we feel good about where we are, year-to-date. We feel good about the pipeline that we have.
Speaker Change: <unk> Air are plus center or a range of between 400000 and $1 million on average.
Speaker Change: Then contribute to that first building block up growth and we feel good about where we are a year to date, we feel good about the pipeline that we have and we're excited to execute well against that pipeline. So that's the first building block. The second building block is expanding with our existing clients were please.
Speaker Change: and we're excited to execute well against that pipeline. So that's the first building block. The second building block is expanding with our existing clients.
Speaker Change: To see continued strength and progress as it relates to our gross client retention rates with churn levels coming down this year meaningfully relative to last year.
Speaker Change: We're pleased to see continued strength and progress as it relates to our gross client retention rates with churn levels coming down this year meaningfully relative to last year.
Speaker Change: And we're encouraged to see meaningful expansions happening, particularly in areas that are higher profit margin.
Speaker Change: and we're encouraged to see...
Speaker Change: meaningful expansions happening.
Speaker Change: particularly in areas that are higher profit margin.
Speaker Change: Within our our our pipeline in our portfolio, including tech expansions with existing clients. Those nonrecurring contracts that are being signed as part of expansions that those nonrecurring contracts do fall outside of the current definition of dollar based retention, but nonetheless do directly contribute to that.
Speaker Change: within our pipeline and our portfolio, including tech expansions with existing clients.
Speaker Change: those non-recurring contracts that are being signed as part of expansions.
Speaker Change: do directly contribute to that existing client expansion as the second building block of our growth moving forward.
Speaker Change: Listing client expansion as the second building block of our growth moving forward.
Speaker Change: And we feel good and that informed our reiteration of that second metric as well coming into the end of the year here and then the third building block of growth is our inorganic activities and while each individual acquisition that we've now announced a throughout 2020.
Speaker Change: and we feel good and that informed...
Speaker Change: our reiteration of that second metric as well, coming into the end of the year here. And then the third building block of growth is our inorganic activities. And while each individual acquisition that we've now announced
Speaker Change: Four has been small and and contributes immaterial <unk> on its own from a revenue perspective.
Speaker Change: Those new applications. So those new solutions go into our growth engine and in particular that cross sell engine that has proven to be very efficient and very productive and effective where we see a conversion rate that's more than double the conversion rate when we're cross selling to an existing client where we have a relationship.
Speaker Change: Those new applications, those new solutions go into our growth engine.
Speaker Change: and in particular that cross-sell engine that has proven to be very efficient and very productive and effective where we see a conversion rate that's more than double the conversion rate when we're cross-selling to an existing client where we have a relationship.
Speaker Change: And when we're selling at the apps there that's among the highest profit margin aspects of our portfolio. So you get a double benefit and that third building backup growth a small smaller benefit initially as it relates to any individual acquisition from a from a revenue contribution.
Speaker Change: and when we're selling at the AppSlayer, that's among the highest profit margin aspects of our portfolio.
Speaker Change: So, you get a double benefit in that third building block of growth, a smaller benefit initially as it relates to any individual acquisition from a revenue contribution.
Speaker Change: But if flows into that growth engine of cross sell that we just saw effective for us those three building blocks will contribute to that return to double digit top line revenue growth in 2025, and and we feel good about where we are as is always the case.
Speaker Change: But it flows into that growth engine of cross-sell, which is so effective for us. Those three building blocks will contribute to that return to double-digit top-line revenue growth in 2025, and we feel good about where we are, as is always the case.
Speaker Change: Q4 is always an important quarter, but where we're encouraged by the pipeline that we have by the progression within that pipeline.
Speaker Change: Q4 is always an important quarter, but we're encouraged by the pipeline that we have, by the progression within that pipeline, and that informed our decision to reiterate that confidence level in a return to double-digit revenue growth for next year.
Speaker Change: And that informed our decision to to reiterate that confidence level and a return to double digit revenue growth for next year.
Speaker Change: Perfect that's super helpful and I appreciate all the color.
Speaker Change: Thanks Jared.
Speaker Change: Yeah.
Speaker Change: Thank you we'll take our next question from Elizabeth Anderson with Evercore ISI. Please go ahead.
Speaker Change: Yeah.
Joanne: Hi, Thanks for taking the question. This is Joanne I thought so.
Joanne: So I guess my question is looking to 'twenty five.
Joanne: And a similar well camp next or in 'twenty, four like with more bookings coming from international and information exchange customers molecule to the traditional health care system.
Speaker Change: Thank you.
Speaker Change: Yeah. Great question. So we are encouraged to see some really strong performance our year to date in 'twenty 'twenty four among those two groups are our international our growth opportunities as well as our health information exchange growth opportunities.
Speaker Change: Those are meaningful expansions they tend to be higher profit margin expansions, where theres a high proportion of that that revenue base that is technology revenue, which we really like one of the dynamics that are a little bit more challenging at least in the near term is those implementations tend to be a little bit more complex a little bit more.
Speaker Change: <unk>, that's more of a near term challenge in and once we get through that initial implementation then those clients will behave in many of the same ways as our other clients in terms of their predictability of those are recurring revenue relationships and so they contribute to the business model overall at health catalyst of.
Speaker Change: Of 90, plus percent of our revenue being recurring in nature and therefore, we have a lot of visibility now is as I think about 2025 moving forward I will share with you. We're encouraged to see a meaningful pipeline of both international opportunities in health information exchange opportunities among other meaningful opportunities.
Speaker Change: That we see in our pipeline and we're encouraged to see.
Speaker Change: Some pretty meaningful market leadership in the health information exchange space, we want that to continue absolutely, which which brings a little bit of a near term complexity in terms of those initial implementations, but brings lots of long term advantages and lots of similarities to the advantages of the <unk>.
Speaker Change: Rest of our business in terms of that recurring revenue sticky at really a fundamentally important solution set that we're providing that tends to skew a little bit more towards technology revenue.
Speaker Change: Okay.
Speaker Change: Thank you we will take our next question from Jessica <unk> with Piper Sandler. Please go ahead.
Jessica Curran: Hi, guys and thank you for taking the question.
Jessica Curran: I think you guided to a couple points of growth in 2025 related to onetime or nonrecurring services contract.
Jessica Curran: First off all of us understand are those related to existing customers or new customers and then secondarily.
Jessica Curran: Are those should we think about those as like international implementation.
Speaker Change: I guess that would make sense.
Speaker Change: Me and I'm curious to know any of the international deals.
Speaker Change: Are you a company.
Speaker Change: Elsewhere with services already.
Speaker Change: I think you sort of mentioned this but are they strictly software.
Speaker Change: Thanks.
Speaker Change: Yes, great questions Jess so as it relates to the first question those nonrecurring services contracts skew very heavily towards existing client relationships and they include the existing client relationships in the U S and.
Speaker Change: And internationally, we've really seen an expansion of those nonrecurring contracts really related to ongoing initiatives that are focused on clinical operational and financial improvements.
Speaker Change: And we found that our clients appreciate that this the budget structure of a nonrecurring contract that has a starting point at an ending point.
Speaker Change: Easier to get those approved internally because they have a starting point and ending point and a finite number of dollars that we're that we're asking for them and we prefer it because we see our clients continuing to stack more and more of these nonrecurring contracts on top of each other such that.
Speaker Change: There's a component of ongoing spend that is reoccurring, even though the contract structure itself is not recurring so it is a meaningful expansion. That's not just one time and what we're observing a even though the contract structure is is non recurring in its nature. So we're seeing it across.
Speaker Change: U S as well as international.
Speaker Change: And we are seeing it as an important complement to our technology revenue.
Speaker Change: That that services piece is often accompanying and in most cases there is a services component that's accompanying the tech revenue contracts that we're signing.
Speaker Change: Thank you we will take our next question from Stephanie Davis with Barclays. Please go ahead.
Speaker Change: Hi, guys. This is anika pantheon, Stephanie thank you.
Speaker Change: My question I was hoping for some more at bats.
Speaker Change: Africa is long and while we noticed the Savage 20 tomorrow given all of the.
Speaker Change: Can you talk more about what synergies the asset has without power Corp.
Speaker Change: Good question.
Speaker Change: Yeah, Great question and thank you for the question.
Speaker Change: So one of the recurring themes that we try to follow as a as a strategy at health catalyst is.
Speaker Change: That we keep our ear to the ground and we have ongoing client discussions about areas of most importance to them and security is absolutely on the shortlist of essentially every CIO every C. So that we talk with among our client base and that's only been strengthened by some.
Speaker Change: Of the recent incidents that have occurred over the last nine months or so.
Speaker Change: So it's a it's a huge area of focus for our health system clients. It's a really important area of need and for many years. We've been asked at health catalyst because we are an important part of the technology infrastructure to provide a level of visibility and reassurance to our class that were really strong and robust and.
Speaker Change: Terms of our own security infrastructure as it relates to ignite and before ignite you know other instances if the data platform and Fortunately we have a very strong long term track record, we have been investing very meaningfully and we have a robust infrastructure.
Speaker Change: And a strong track record.
Speaker Change: So that was one of the synergies that led us to to think a little bit more broadly as our clients would ask us usually a two part question. The first part was was focused on how well is your security infrastructure supporting your solutions and then as they as they got more and more car.
Speaker Change: Evidence in our own infrastructure.
Speaker Change: <unk> question was will could you help us to strengthen our infrastructure more broadly and that's what led us to really think about this as an area of complementary strength that we could offer as a real natural extension to what we do with our clients already both from a technology and a services perspective of a.
Speaker Change: Adding that robust infrastructure that includes the need for security the need for certifications that that then by extension can provide our clients with an ability to build trust and build and strengthen their own relationships with their members and their patients.
Speaker Change: <unk> two <unk>.
Speaker Change: <unk> that they're providing the right amount of investment there paying attention to this important area.
Speaker Change: And that's hard to do on your own as a health system and it and so as we dug into this space.
Speaker Change: And as we tested the potential of us offering more to our clients. It was very warmly received and that really led us and guided us strategically to prioritizing this area and and thus far we're really encouraged and excited to be able to have an offering to these clients that already.
Speaker Change: Rely on health catalyst all already have a sense of health catalyst natural strength in this area because we've been providing a really secure infrastructure for our data and analytics platform.
Speaker Change: To be able to naturally extend that to strengthen their own environment from a certification perspective, and a risk management perspective.
Speaker Change: Yes, just just one comment and then from a from a financial synergies standpoint, we did mentioned in the prepared remarks that the revenue contribution related to this acquisition is expected to be immaterial, but one area, where we do focus.
Speaker Change: As we're looking at these acquisitions is bringing these targets over.
Speaker Change: Our near adjusted EBITDA breakeven that does give us opportunity as as the company grows and as.
Speaker Change: As we are able to cross sell and improve that sales motion. It gives us opportunity to improve that EBITDA profile and just to that point, thanks for bringing that up Jason.
Speaker Change: The two areas, where we have most commonly found meaningful cost synergies.
Speaker Change: As we have pursued these combinations that we've discussed in the past or in the R&D and in sales and marketing line items and from an R&D perspective, we really appreciate it and this is the case with enterprise that they have invested meaningfully in developing the technology components of their solution, that's well built and it's it's.
Speaker Change: It's very positive, we think theres leverage there and synergy there moving forward and secondly from a sales and marketing perspective. The fact that we have over 600 existing client relationships and that cross sell motion that we have is so efficient it so much more productive and efficient than knocking on.
Speaker Change: The door from the outside and so we can leverage that more efficient motion from a cross sell engine perspective that often provides meaningful sales and marketing leverage as well and that's part of that integration playbook that we talked about in our prepared remarks that over time. We've we've gained increased confidence that we can execute well.
Speaker Change: Against that integration playbook, and really see these acquisitions not only contribute to our growth engine, but also contribute to our profitability engine.
Speaker Change: Thank you we will take our next question from John <unk> with Canaccord Genuity. Please go ahead.
Speaker Change: Hi, John Penny on for Richard close Thanks for the question.
Speaker Change: And in analytics, where we have been performing.
Speaker Change: Performing those terms functions for a decade in some cases with clients. We have a lot of experience and we've found that there are meaningful efficiencies and we've developed that playbook of improved efficiencies that are gained through the use of technology through the pooling of resources and process.
Speaker Change: So we feel really good about those areas, where we have the most experience.
Speaker Change: We are seeing it in a new area.
Speaker Change: Which is ambulatory operations that we're still learning, we're still coming up the learning curve, there and while we're pleased and encouraged with some of the progress at a fundamental level.
Speaker Change: In terms of the overall operational improvement from our clad partnership perspective, we're still working through the cost structure elements. Though this is a smaller part and it's a new area of terms. So we're we're really we've just taken a few steps into that space, but we're still.
Speaker Change: You know within the first year and a half or so of our experience base, there and it's to be expected that.
Speaker Change: We continue to learn and we wanted to make sure first and foremost that what we were providing US a solution was really providing meaningful value to our clients.
Speaker Change: And then we will continue to be focused on learning in this new area, but in those areas. Most experience that represents the vast majority of our times solutions at our temps client relationships, we're encouraged and we're progressing nicely including.
Speaker Change: Through the use of AI, we're seeing some some continued meaningful encouraging cost structure benefits.
Speaker Change: And in particular in areas like chart abstraction.
Speaker Change: Yeah.
Speaker Change: Thank you we will take our next question from Daniel <unk> with <unk>.
Speaker Change: Please go ahead.
Speaker Change: Hey, this is Luis offered Danielle.
Speaker Change: Yes.
Speaker Change: U S facilities closing and others auctions and you've mentioned previously that your default assumptions assume a continuation of revenue from Stuart.
Speaker Change: Are there any updates to your expectations and how should we think about the impact of steward. Thank you.
Speaker Change: Yeah, I'll share a few thoughts and then Jason please here as well so.
Speaker Change: We are fortunate and grateful to receive two have received really meaningful positive updates there that as as Stuart has completed the sale of some meaningful ambulatory assets that are that health catalyst was successful and.
Speaker Change: In transferring that client relationship.
Speaker Change: And that we were identified as a critical partner.
Speaker Change: And as such we did receive a full repayment of all of that was owed I think from a strategy perspective. It is a testament to the the must have importance of the solutions that we provide in the case of steward health that ignite that that data platform infrastructure that then.
Speaker Change: Powers are such important solutions like measures in registries.
Speaker Change: That have such a meaningful impact in terms of incentive payments incentive bonus payments as it relates to quality measures and performance and the complexity of providing.
Speaker Change: Those measures in the right way with the right combination of data with the right domain expertise so that they can qualify for those incentive payments.
Speaker Change: All informed I think the reality that that we realize that really positive outcome. So we're really grateful for that for that specific example of the importance of our solutions and how that played out at steward health, even in a really difficult financial situation that we did receive that full rip.
Speaker Change: Payment of of all that was a what would you add Jason yeah.
Jason Alger: I appreciate the question Luis we have strived to be a great partner for Stuart over the years and during these these challenging few months of the bankruptcy process.
Speaker Change: Dan mentioned, our contract has been assigned to a new party and we're looking forward to that relationship moving forward and continuing the service. So we have continued to include expected revenue related to that ongoing contract and are in our in our guidance and then our expectation.
Speaker Change: Moving forward, we'll we'll work through the impact of the repayment of the pre petition or pre bankruptcy receivables balance as part of our Q4 financial statements.
Speaker Change: Thank you. Thank you.
Speaker Change: We will take our next question from Sean Dodge with RBC capital markets. Please go ahead.
Speaker Change: Hey, Good afternoon. This is Thomas Keller, one for Sean Thanks for taking the questions.
Speaker Change: I just wanted to follow up on Tim's question earlier can you give us any indication of this.
Speaker Change: The potential incremental EBITDA dollar contribution remaining with an existing client.
Speaker Change: These newer contracts kind of ramped it as mature at target margins.
Speaker Change: Yeah happy to share a few thoughts and then and then Jason. Please also share so as we've discussed in the past when we begin attempts relationship would often starting at zero percent gross margin or somewhere around zero percent gross margin and over time as we introduce.
Speaker Change: Technology that automates processes that were manually in the past as we introduce and benefit from other efficiency gains, we see that that operating margin or that gross margin grow from zero percent in the first year. The first couple of years up towards our.
Speaker Change: Our target margin profile of 25%, but that was before any of the recent.
Speaker Change: Innovations that we've been pursuing as it relates to AI improvements.
Speaker Change: We shared in the past as we have implemented some of the chart abstraction specific AI efficiency gains we see another 20, 25% efficiency gain so that would just be additive to that that longer term gross margin profile of of 25%, but we're still early in the implementation.
Speaker Change: And most of our AI use cases had been focused on chart abstraction. So it's a it's a subsegment of our overall terms.
Speaker Change: The footprint, but it is encouraging for us to see and we are on track in those areas of most experience that we have in chart abstraction and analytics cross those client relationships, where we see a nice progression.
Speaker Change: From a gross margin perspective from the beginning point of zero percent up towards that 25 mid twenties.
Jason Alger: Margin in years 345 of the relationship what would you add Jason. Thank you covered it well Dan the only thing I would add is we are still early on those as Dan mentioned in a previous question are still early in our and still learning.
Jason Alger: As it pertains to the ambulatory tabs relationships, we did have some incremental resourcing in investment and in Q3, which put a little bit of pressure on our professional services gross margin in our in our third quarter.
Speaker Change: Alright, thanks for the color.
Speaker Change: You bet.
Speaker Change: Thank you we will take our next question from David Larsen with BTG. Please go ahead.
David Larsen: Hey, Dan can you give an example, or two of what youre seeing in the broader market. It sounds like demand is picking back up just any thoughts around labor constraints that maybe improve the impact of inflation and any thoughts on the election here would be great. Thanks very much.
Dan: Yeah, absolutely David Thank you for the question. So I think we are seeing across the board a general continued improvement back to really pre pandemic levels, a normalcy from an operating margin environment and I think the.
Dan: The factors that you mentioned those first two factors of our labor.
Speaker Change: Labor constraints and inflation really becoming more manageable for our clients I think are very.
Speaker Change: They are interrelated and there are very.
Speaker Change: Significant improvements, where we're seeing both on the labor and the supply side that inflation rate coming down from low double digits, all the way down to low single digits today. It makes a huge huge impact on our on the bottom line of most of our clients and our clients are still across our spec.
Speaker Change: But I would I would share that the vast majority of our clients on that spectrum find themselves in a positive operating margin territory and in often.
Speaker Change: Approaching what some of the other external sources are are presenting like the Kaufmann haul monthly report, where they show operating margins in a pretty healthy range, three or four 5%, which for not for profits. In particular is certainly is a solid performance and it really allows them to think more whole.
Speaker Change: Stickley about the future and it provides them with enough breathing room to think about our innovation to think about technology innovations AI innovations and and that's where as it relates to our ignite progression.
Speaker Change: We're really pleased to see many of our clients wanting to leverage the scalability of ignite to pursue more AI based use cases that might require a more significant footprint from a scalability perspective and and.
Speaker Change: And so that is certainly.
Speaker Change: Encouraging to us as it relates to the election.
Speaker Change: You know as as we saw the election play out health care at least particularly that the health care.
Speaker Change: The portion of health care that we play with them in terms of data and analytics, our technology infrastructure to enable improvement was not a primary focus of the election for either candidate.
Speaker Change: So we don't anticipate a significant impact in the near to midterm as it relates to the election.
Speaker Change: As it relates to the ignite the.
Speaker Change: The ignite migrations Danielle anything you would add.
Speaker Change: You you brought up Dan the excitement and enthusiasm around some of the emerging use cases around AI and a lot of our application oriented solutions kind of tap into that capability, which we're seeing increased demand and interest in that and so that's kind of an exciting tailwind for us as we think.
Speaker Change: About our modular capabilities with ignite, enabling those types of use cases, so yes.
Speaker Change: Yes, I think I think that was well said.
Speaker Change: Just one more quick follow up for 25, what are your EBITDA expectations or just what sort of ballpark.
Speaker Change: Ballpark estimate can be used for perhaps margin expansion.
Speaker Change: It looks like your service gross margin, obviously pulled in a little bit just any thoughts on margins for 25 would be great. Thank you.
Speaker Change: Yeah, we continue to thank you for the question, David we continue to feel confidence in our ability to see them.
Speaker Change: A meaningful continued progression in our EBITDA and we're pleased with the track record that the company has demonstrated.
Speaker Change: Over the last several years of really meaningful EBITDA progression of 400 500 basis points per year of margin improvement from an EBITDA perspective meaningful year over year growth, whereas this year with the the raise of our EBITDA for this year of another million dollars.
Speaker Change: In EBITDA at the midpoint.
Speaker Change: We're talking about you know 135 plus percent year over year growth in EBITDA. When we shared that the perspective that even with that increase to our guidance. We still feel confident that that we can see EBITDA grow 50, approximately 50% next year, well that $26 million base.
Speaker Change: <unk>.
Speaker Change: The reasons that we feel confident and comfortable.
Speaker Change: Include you know at the at the gross margin.
Speaker Change: Leverage perspective, we continue to see meaningful technology growth ramping back up.
Speaker Change: You see that a little bit in in our Q3 results. We've shared that we're seeing a ramp a take place as it relates to the second half of this year versus the first half of this year. That's true overall, it's even more true as it relates to our tech growth outpacing our overall company growth, that's encouraging and I think that's a trend that will continue into.
Speaker Change: 2025, which means that our mix will skew more towards technology that will help.
Speaker Change: That mix shift will help from an overall gross margin perspective for the company. So that's a tailwind that gives us some increased confidence that some of that will drop to the bottom line. The second tailwind that we've been able to execute really well against over the last number of years is in the operating leverage category and there's really two primary drivers there one is R&D.
Speaker Change: The other is sales and marketing as it relates to R&D, we continue to see real success.
Speaker Change: Building out our offshore capabilities, particularly in our India office, it's one of our fastest growing areas of of team member growth and we're seeing really.
Speaker Change: Really positive progress as it relates to that we're going to continue to invest and think that will be a meaningful source of operating leverage in R&D and then as it relates to sales and marketing. We can continue to see that efficient highly productive primary growth engine of the cross sell motion, where especially as.
Speaker Change: As we add clients through.
Speaker Change: Through acquisition and through our sales efforts as well and began an existing client relationship our ability to cross sell and a very effective way is more than two X as productive.
Speaker Change: As when we were just knocking on the door from outside so that provides meaningful sales and marketing leverage each of those items again are items that we've already demonstrated over a number of years that we've been able to execute and they inform our confidence even when we raise our EBITDA guide for this year, but we'll see.
Speaker Change: They'll be able to grow it another 50% next year anything you'd add Jason.
Jason Alger: Yeah, Yeah, I was just kind of just kind of tag on with that last point, Dan that it is important to note that we are still expecting to grow adjusted EBITDA by roughly 50% even after the raise on our adjusted EBITDA range by $1 million on both the bottom end and top end.
Jason Alger: And the other thing I would note Dave is we do anticipate providing additional gross margin color in early early 'twenty early 2020 five.
Jason Alger: Thanks very much.
Jason Alger: Thanks.
Speaker Change: Thank you we will take our next question from John Ransom with Raymond James. Please go ahead.
John Ransom: Hey, good evening afternoon.
John Ransom: I've always had the opinion that technology are sold not bought and so we've been through some cycles where.
John Ransom: We are doing face to face we're doing zoom, there's a hybrid world, but yes, youre hiring a new sales rep or as you're talking to your people out in the territories. What is the rhythm of meeting with your customers look like now in the kind of hybrid World War.
Speaker Change: Yes, great question John.
Jason Alger:
Jason Alger: Hybrid is a good word for it I think we have realized as we came through the pandemic that.
Jason Alger: We had really missed.
Jason Alger: That opportunity to have those face to face interactions and so I think that coupled with the extreme financial pressure because of inflation that are our health system clients found themselves in we did a lot of face to face work and we continue to do meaningful face to face work with our clients.
Jason Alger: That made a lot of progress there in the back half of 2022 and throughout 2023.
Jason Alger: We found a good rhythm at health catalyst in that hybrid model, where I think having at least a quarter the opportunity with our larger clients to be together face to face is really positive and we use our the structure of our quarterly business review with them truly sit down and be in the same room and talk about what.
Jason Alger: We've accomplished over the last quarter together, how we've measured the value of what we've accomplished together and what we're planning to move forward with that's a very helpful.
Jason Alger: Face to face series of discussions it deepens the relationship and I think in between those quarterly sessions, we found a really good cadence and rhythm in following up.
Jason Alger: So that has been a factor in 2024 I hope that that continues that we continue to dominate that sub segment of the market and so that that would and could be a component to the way that we think about and plan for 2025 now that tends to be a near term element where where.
Jason Alger: Getting to a go live is one near term dynamic that FX revenue, but then once were alive. It's recurring revenue ratably recognized much like the rest of our business and so then it becomes very very predictable and are easier.
Jason Alger: Easy or to manage and understand so I don't think it's a it's a material significant impact and even as we've seen you know in <unk>.
Jason Alger: Overrepresentation of little higher performance than what we had forecasted in that sub segment.
Jason Alger: Of our of our overall portfolio of our pipeline, we still see the same dynamics of over 90% of our revenue being recurring in nature, which which enables us to have a lot of visibility as to how we see that revenue ramping in and displaying throughout the P&L are going into next year. So we.
Jason Alger: Still feel a lot of confidence in how we think that will play out there is a bit on the margin and that that's where you see a little bit wider range to our Q4 revenue guide and our full year revenue guide just because we have a little more.
Speaker Change: In terms of our implementation work than we normally do of those more complex implementations anything you'd add Jason the only thing I would add is the timeline to deploy a standard ignite Dallas is shorter than these health information Ninja universe types of deals that it would typically.
Speaker Change: <unk> take us a couple to a few months to to deploy and ignite Dale and ramp that into revenue. So depending on timing of deal closures that will impact that revenue ramp going into 2025 and I would also just shared.
Speaker Change: Final comment we continue to try to keep the focus on making sure that those implementations go really really well.
Speaker Change: We don't want to artificially rush and implementation and so if in.
Speaker Change: In the in the spirit of the client relationship. It makes more sense for us to take a few extra weeks and that means some of that revenue pushes into the next quarter.
Speaker Change: We think that's the right trade to keep the focus on the client relationship.
Speaker Change: We'll still recognize that revenue and then after that implementation is complete that revenue becomes very predictable and very smooth, but we want to make sure that our clients feel great about those complex implementation. So that'll continue to be a north star for us.
Speaker Change: Great. Thanks for the color.
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Speaker Change: Okay.
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