Welcome to the Health Catalyst’s Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Adam Brown, Senior Vice President of FP&A and Investor Relations. Please go ahead, sir.

Good afternoon, and welcome to Health Catalyst’s earnings conference call for the fourth quarter of 2023, which ended on December 31, 2023. My name is Adam Brown. I am the Senior Vice President of Investor Relations and Financial Planning and Analysis for Health Catalyst. And with me on the call is Dan Burton, our Chief Executive Officer; and Bryan Hunt, our Chief Financial Officer. A complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website at ir.healthcatalyst.com. As a reminder, today’s call is being recorded, and a replay will be available following the conclusion of the call. During today’s call, we will make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding trends, strategies, the impact of the macroeconomic challenges, including the impact of inflation and the interest rate environment, the tight labor market, our pipeline conversion rates and the general anticipated performance of our business. These forward-looking statements are based on management’s current views and expectations as of today and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. Actual results may materially differ. Please refer to the risk factors in our Form 10-Q for Q3 2023 filed with the SEC on November 6, 2023, and our Form 10-K for the full year 2023 that will be filed with the SEC. We will also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of these non-GAAP financial measures to their most comparable GAAP measures is provided in our press release. With that, I will turn the call over to Dan. Dan?

Thank you, Adam, and thank you to everyone who has joined us this afternoon. We are excited to share our fourth quarter and full year 2023 financial performance, along with additional highlights from the fourth quarter. Furthermore, we look forward to sharing our perspective on 2024 as well as the mid and long-term outlook for our business. I will begin today’s call with summary commentary on our full year 2023 results. We are pleased with our full year 2023 financial results, including total revenue of $295.9 million, with this result beating the midpoint of our most recent guidance and adjusted, EBITDA of $11 million, with this result in line with the midpoint of our most recent guidance. For each of these metrics, the results also represent an outperformance relative to the full year guidance range we provided to begin the year 2023, which was a guidance range we subsequently raised later in 2023. Now let me highlight some additional items from the quarter. You will recall from our previous earnings calls that we measure our company’s performance in the 3 strategic objective categories of improvement, growth and scale. And we’ll discuss our quarterly results with you in each of these categories. The first category improvement is focused on evaluating our ability to enable our clients to realize massive, measurable improvements while also maintaining industry-leading client and team member engagement. Let me begin by sharing an example of a client improvement from a recently published case study. The Queen’s Health System recognized the need to improve its patient flow in order to increase its system’s capacity, provide more cost-effective care, and maintain its financial stability. Prolonged length of stay was creating capacity constraints, impeding Queen’s ability to meet patient demands for care and negatively impacting its patient experience. Supported by our…

Thank you, Dan. Before diving into our quarterly financial results, I want to echo what Dan shared and say that I am pleased with our fourth quarter and full year 2023 performance. I will now comment on our strategic objective category of scale. For the fourth quarter of 2023, we generated $75.1 million in total revenue. This total represents an outperformance relative to the midpoint of our quarterly guidance and it is an increase of 9% year-over-year. For the full year 2023, our total revenue was $295.9 million, representing 7% growth year-over-year. Technology revenue for the fourth quarter of 2023 was $47.1 million, representing 5% growth year-over-year. This year-over-year growth was driven primarily by recurring revenue from new client additions and from existing clients paying higher technology access fees as a result of contractual built-in escalators. For the full year 2023, technology revenue was $187.6 million, representing 6% year-over-year growth. Professional services revenue for Q4 2023 was $28 million, representing a 14% increase relative to the same period last year. This year-over-year performance was primarily due to revenue recognition from the tech-enabled managed services contracts that were signed at the end of Q4 2022 and the beginning of 2023. For the full year 2023, our professional services revenue was $108.4 million, representing 8% year-over-year growth. For the fourth quarter 2023, total adjusted gross margin was 46%, representing a decrease of approximately 450 basis points year-over-year. For the full year 2023, total adjusted gross margin was 49%, representing a decrease of approximately 410 basis points year-over-year. In the Technology segment, our Q4 2023 adjusted technology gross margin was 67%, a decrease of approximately 210 basis points relative to the same period last year. This year-over-year performance was mainly driven by costs associated with migrating an additional subset of our client base…

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

Thank you. [Operator Instructions] Our first question comes from Stephanie Davis of Barclays. Hello, Stephanie, your line is live. If your phone is on mute, please unmute it. Moving on. Our next question comes from Anne Samuel, JPMorgan.

Hi, thanks for taking the question. Your dollar-based retention in the past 2 years has been [Technical Difficulty] through the bridge, maybe how you’ll get to your 104% to 110% target for next year. How much of that is that 10 contracts that shifted? And then you cited potential for 120% over time. So what needs to happen for you to get there? Thanks.

Yes. Thanks for the question, Anne. So in terms of the building blocks for our dollar-based retention in 2024, one of the elements that we did mention in our prepared remarks was there had been a few of those larger tech enabled managed services opportunities that we had originally forecasted for late – late 2023 signings that took a little bit longer. We were pleased to announce and share that one of those just signed. And that’s a good example of some of the learnings that we’ve had recently and over the last year or so with regards to these large tech enabled managed services opportunities that they are challenging to precisely forecast. There are specific examples where it makes sense to take a little bit more time as was the case with this most recent tech-enabled managed services, charter traction opportunity signing to make sure that across the C-suite, and at every level in the organization, there’s really strong support. And so we took a little bit more time to make sure that, that occurred. And we’re still pleased to see that, that opportunity converted. As we are gathering more data and more information about these larger tech enabled services opportunities, I think we’re trying to be good students of the data. And one of the elements we’re trying to better understand is what is a typical sales cycle for these larger tech enabled managed services opportunities. And we’ve shared previously that we estimated around a 1-year sales cycle, and that still has been the case for a number of opportunities. We are observing there can be some cases where it takes a little longer than a year. And so we’re trying to be data informed as we learn more and more, but we are early in the process of really growing that tech-enabled managed services opportunity. And that is one of the components that does offer meaningful expansion to the TEMS expansion opportunities long term for the company. One other thing that I would share is, as we mentioned in the prior earnings call back in November, we noted some opportunities that were strengthening within the tech side of our portfolio with our end market operating margins improving, there was more of an openness late last year to have more conversations as it relates to the tech growth opportunity. And as we mentioned in the last earnings call, we did begin to shift some growth resources towards those opportunities as they not only represent meaningful growth opportunity but very profitable growth given the higher gross margin profile of that tech. We’ve continued to do that this year. And we believe that will create meaningful shareholder value as we continue to realize that profitable growth that comes from a little bit more of that focus on selling the technology. So those are a couple of the components. Anything you’d add, Bryan?

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

Our next question comes from Stephanie Davis, Barclays.

Hi, thank you for dealing with me. I am at an airport again. I started to like Dan.

No problem.

So given some of the changes we’re seeing in the management team as well as the new 2028 targets, it sounds like potentially your philosophy of Health Catalyst wants to be when it grows up or maybe the path to adulthood in order to get there may have shifted a little bit. But can you talk to me about where you’ve been and kind of where you see yourself going as you patents margin focus?

Absolutely, Stephanie. Thanks for the question. So we are paying attention to what our clients need most and what the end market is asking for in terms of what will be most helpful for health system clients to be successful. And as you know, we’ve just gotten through a period of really significant financial pressure. And for a period of time, the pressure was so significant and so many health systems were underwater from an operating margin perspective that really the only thing that they had the ability to think about doing with us had to offer a very clear near-term hard dollar ROI and often actual guaranteed cost savings. And that’s where I think a lot of our focus, as we have discussed in the past, shifted more towards those parts of our portfolio that had that near-term hard dollar ROI. And particularly, those areas that offered cost savings like tech enabled managed services. We’re really grateful that we had those elements of the portfolio we’re focused, now what’s really – what was needed most significantly and in the near-term with our end markets. Over the last number of months, as we mentioned in our prepared remarks, we have observed an improvement in that end market and a little less financial pressure as operating margins have improved, we found that there’s more of an openness both with our existing clients and with new clients to talk about more the full portfolio, inclusive of more opportunities to talk about the technology components of our solution. And we’ve already been responsive to that. We still fundamentally see ourselves very much the way that we describe ourselves nearly 5 years ago we were public that long-term, we believe there will always be a meaningful technology component to what we do and meaningful…

Our next question comes from Jared Haase, William Blair.

Yes. Good evening, guys. Thanks for taking the question. This is Jared on for Ryan Daniels. I appreciate all the detailed commentary, especially regarding the model targets over the next few years. I wanted to double click on the expected ramp in the tech segment EBITDA margins through your 2028 targets. Just would love to hear a little bit more context as to what is essentially driving that EBITDA margin over the next 4 or 5 years? And is any of that tied into some incremental pricing leverage associated with the next-gen platform? I know you’ve historically had some solid pricing leverage in that tech segment. But I’m wondering if there’s anything incremental given some of the recent investments.

Yes. Great question, Jared. Thank you. So if you think about our tech business from a margin profile perspective, there is the data platform component of what we offer and then there’s the app layer component of what we’ve offered. And we see some meaningful tailwinds over the next 4 years that will add to that progression that we’re projecting and we’re targeting in the EBITDA profile for the tech business. So at the data platform level, to your earlier comment, Jared, we are excited to roll out the next-generation data platform. And it has many benefits to offer to our clients in terms of its scalability and modularity flexibility. It also has an improved margin profile once we get through the migration process, which will take a couple of years. But the fundamental margin profile is better than our current DOS data platform profile. And as such, it offers some combination of a better value to clients if we choose to pass some of that along to them as well as an increased gross margin profile that then can drop to the bottom line. On the apps layer, we see some tailwinds as it relates to the cross-selling opportunities that we see to enable more of our clients to adopt more at the apps layer. The average DOS subscription client has only between one and two of our applications fully deployed. And so there’s a great deal of cross-sell opportunity. And as you may recall from prior conversations that we’ve had, the apps layer gross margin is in that 80% plus range. And so the higher the proportion of our technology revenue is coming from the apps layer, the more upward momentum that we’ll see in that gross margin profile. And there’s a lot that we have to sell…

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

Our next question comes from Elizabeth Anderson with Evercore ISI.

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

I do think there will be some benefit in 2024, Samir. Part of what we mentioned in our earnings call transcripts prepared remarks was that from now on, with regards to new clients, we are planning to roll out the next-gen data platform as these new clients sign with Health Catalyst. And the value proposition, the strength and the differentiation of that data platform with new clients and the fact that we’re avoiding any future migrations that would be needed, I think is a real positive that will show up some in 2024, especially from a bookings perspective. To your point, much of the P&L impact will roll into 2025 with regards to new clients. I think with existing clients, we’re encouraged and excited to see so many of our existing clients really excited and interested in migrating to the next-generation data platform. There are some one-time migration costs associated with that – with that transition that we’ll have to work through over the next couple of years, which is one of the reasons why we’re projecting our technology gross margins to kind of stay in a similar place. But as we get through those migrations, then I think that improved gross margin profile will accrue to the benefit of the company.

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

Our next question comes from Daniel Grosslight, Citi.

Hi. Thanks for taking the question. I want to go back to the longer term targets, particularly on revenue growth. If I look at some of your long-term targets given, I think it was about 1.5 months ago now, you are thinking about revenue growth in kind of that 20% plus range. These new 2028 targets imply around 13% revenue growth, and the EBITDA margin is similar at around 20% plus. So, I am curious what’s driving the more conservative stance now? And if there is some change in the market or your approach to the market, that would lead to a bit of a slowdown in top line growth?

Yes. Thank you for the question, Daniel. And we have wanted to make sure that we are carefully following what our clients and what the end market is needing and demanding and be reflective and responsive to that. We have found, as we mentioned previously, over the last few months, late last year and into this year that while there is significant financial pressure still in our end market, it is starting to subside and it is improving. And there is more of an openness to talk about our full portfolio and more a discussion around our technology offerings. And I think we have wanted to be responsive to that. And we have shifted some of our growth resources both now. And as we think about the future, we see more of those opportunities for balanced growth. And I think we want to prioritize the technology growth as more profitable growth, which can lead to a really meaningful EBITDA growth over the next 4 years as a company. And so we are prioritizing that profitable growth as what we feel is very important to drive shareholder value at a primary level. We continue to be really excited about the other opportunities for growth, and we will continue in a balanced way to pursue opportunities like tech-enabled managed services. But I think as the end market is improving, and there is more of an openness to talk about the technology components of our portfolio a little bit more than what we have been able to do over the last 18 months. And that coupled with the fact that we have confidence and we are excited about our next-generation data platform, I think we have shifted some resources and we are planning on continuing to focus on that tech component of our value proposition in a balanced way such that we would project forward more balanced growth that is similar between our technology revenue growth and our services growth. The last thing that I will share and then see if Bryan would like to add anything is we do take these targets very seriously as we have in the past when we share a profitability target, for example, we have striven to meet or exceed that timeline that we have shared. And we have done that recently in multiple regards. And I think as we think towards those targets for 2028, we want to have confidence that we can meet or exceed those targets, including from a top line revenue growth perspective.

Agree, Dan, yes. And I think that last point is important around as we think about from a financial guidance standpoint, these targets, we do think of them as threshold level targets and a little bit different from long-term profiles that we had shared previously in that these targets are more specific. So, therefore 2025, specifically in 2028 real meaningful milestones with levels of both revenue and EBITDA that we think are threshold level that we will strive to meet and exceed. So, to Dan’s point, we take those very seriously.

Our next question comes from David Larsen with BTIG.

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

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

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

Our next question comes from Scott Schoenhaus, KeyBanc.

Hey guys. This is Steve on for Scott. I just want to ask about the margin cadence on tech-enabled managed services. Should we continue to expect no margin contribution in the first year for technology help to augment this? Thanks.

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

Our next question comes from Sarah James, Cantor Fitzgerald.

Thank you and congratulations to Bryan, Jason, and Dan on your new positions. Can you talk about your assumptions on cross-selling embedded in your 2025 and ‘28 guide, does that assume that the dollar-based retention stays in the 104 to 110 range? And how much of the top line growth is coming from cross-selling? And where do you think penetration into your existing book will be when you hit the ‘28 numbers?

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

Just to add to that, yes, I do think to what Dan is saying, as we look to the 2025 and 2028 targets, we do anticipate our dollar-based retention rate, which is that once a DOS client has landed either net new to the company or have been cross sold under the platform, we anticipate that being in the high-single digit rate range above 100%. So, somewhat similar to 2024, potentially a little higher than what we have guided to. That’s kind of the anticipation that we see moving forward.

And I would add that part of what we are encouraged by is we think that the tech dollar-based retention opportunity is quite similar to the services dollar-based retention opportunity that they are both significant at that high-single digit per year level, which contributes to that balanced growth over the next 4 years between tech and services.

[Operator Instructions] Our next question comes from Vishal Patel, Piper Sandler.

Hi. This is Vishal on for Jeff Sansone. Thanks for taking the question. On TEMS, could you remind us what percent of technology customers have a TEMS contract today? And what percent do you expect in 2024? And then could you also remind us what’s the long-term gross margin target for the TEMS contracts? Thank you.

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

Just on the margin profile side of the TEMS contracts, the services margin, we expect to be similar to what we have heard in the past around unit economics where services margin, gross margin begins at zero to 10% in year one and then migrates over 4 years or 5 years to that 25% services gross margin. The technology component of those relationships, which typically expands with the TEMS deal, as you would expect, a little higher than our overall technology gross margins. So, call it in that 70% to 80% range for those contracts. And the great benefit about locking in these TEMS relationships is they are typically 5-year locked-in contracts, which gives us a very high level of visibility and stickiness for the technology contract over that term as well as the services contract. So, while they can be a little bit hard to precisely forecast, we really love the long-term strategic relationships and the visibility it gives us in the out years.

Our next question comes from John Pinney with Canaccord Genuity.

Hi. John Pinney on for Richard Close. So, thanks for the questions. So, with the Databricks and like Snowflake’s infrastructure, you said 2 years to 3 years to get the entire client base like transitioned over. Can you, I guess give some color on whether – like is that an easy transition? Is it difficult? Do you expect any pushback on getting those transitions? And like approximately how much of the client base has transitioned are on the platform already? Thank you.

Yes. Thanks for the questions, John. So, we have a few clients that are already utilizing the next-generation data platform. And as Bryan mentioned in our prepared remarks, we are pleased with how that performance is going and pleased to see clients really satisfied with the next-generation data platform capabilities. We do think migrating our existing client base will take the next 2 years to 3 years to get the vast majority of them migrated over. And what we have seen is more demand than supply. In terms of – from a timeline perspective, there is a lot of excitement among our existing client base to move to these new capabilities. So, we are working to accommodate those migrations as quickly as we can, but make sure that we can do that in a very orderly way. It is a meaningful migration. It is a migration that involves new technology capabilities. And so we want to be thoughtful and careful in the way that we approach this. This isn’t the first or the second or the third migration that we have managed before. So, we have experience in how to manage this. So, we are confident that we will be able to manage this migration in a similar way that we have successfully managed prior migrations.

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

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

Thank you. This concludes today’s Health Catalyst’s fourth quarter and full year 2023 earnings conference call. Please disconnect your line at this time, and have a wonderful day.