Welcome to the Health Catalyst First Quarter 2025 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] Now, I would like to turn the conference over to Jack Knight, Vice President of Investor Relations. Please go ahead, sir.

Good afternoon, and welcome to Health Catalyst's earnings conference call for the first quarter of 2025, which ended on March 31, 2025. 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 Dan LeSueur, our Chief Operating Officer. A complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website at ir.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 our future growth and our financial outlook for Q2 and fiscal year 2025, our ability to attract new clients and retain and expand our relationship with existing clients, trends, strategies, the impact of the macroeconomic challenges, including the impact of inflation, tariffs and the interest rate environment, potential changes to government funding and payment programs that could negatively impact the business of our clients, bookings, our pipeline conversion rates, the demand for deployment and development of our Ignite data and analytics platform and our applications, timing and status of Ignite migrations, acquisition integration and the general anticipated performance of our business. These forward-looking statements are based on management's current views and expectations as of today and should not be relied 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-K for the full year 2024 filed with the SEC on February 26, 2025, and our Form 10-Q for the first quarter of 2025 that will be filed with the SEC. We will also refer to certain non-GAAP financial measures to provide additional information to investors. Non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. A reconciliation of non-GAAP financial measures for the first quarters of 2025 and 2024 to their most comparable GAAP measures is provided in our press release. However, we have not provided forward-looking guidance for professional services gross margin, the most directly comparable GAAP measure to adjusted professional services gross margin discussed today. Technology gross margin, the most directly comparable GAAP measure to adjusted technology gross margin discussed today 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?

Thank you, Jack, and thank you to everyone who has joined us this afternoon. We are happy to share our first quarter 2025 financial performance, along with additional highlights from the first quarter. I will begin today's call with summary commentary on our first quarter 2025 results. We are pleased with our first quarter 2025 financial results, including total revenue of $79.4 million and adjusted EBITDA of $6.3 million, with these results above our most recent guidance on each metric. Additionally, we are encouraged with the results of our Tech segment, which had revenue of $51.5 million for the first quarter of 2025, representing 10% growth year-over-year. A key driver to our strategy and growth moving forward is the Ignite platform, and we're pleased to report a strong start to the year with 10 net new platform clients added in Q1, with approximately two-thirds of these net new additions coming from our existing app clients, reinforcing the strength of our cross-sell strategy. Importantly, the aggregated average total ARR and non-recurring revenue per net new platform client came in around the midpoint of the range of $300,000 to $700,000. This is especially encouraging given that Q1 is typically a quieter bookings quarter. And we believe that the momentum we see from Ignite with its additional modularity compared to DOS is the primary driver of this performance. We are encouraged to see Ignite's flexibility and lower average starting price, providing a streamlined sales process compared to DOS. This performance reinforces our confidence in achieving our full year guidance of approximately 40 net new platform clients, and we anticipate being around halfway to that goal by the end of June. We are encouraged by this result as it underscores the effectiveness of our strategic shift to Ignite, a flexibly-priced consumption-based platform. Ignite is…

Thank you, Dan. I want to start by echoing what Dan shared that we continue to believe that the transition to Ignite is a strategically important initiative that enhances our ability to deliver long-term sustainable value to both clients and shareholders. We are monitoring our pace closely and anticipate completing the large majority of Ignite migrations by mid-2026 and completing approximately two-thirds by year-end 2025. Many of the migrations involve smaller, less complex clients where the client may utilize a single DOS module such as healthcare.ai. In these cases, the transition to Ignite is effectively seamless, more of a flip of the switch than a full-scale migration. As part of our shift to Ignite, we've encountered client scenarios where Ignite's lower cost structure has prompted thoughtful pricing discussions, and in some cases, has led to a reduction in total client spend compared to DOS. We continue to focus on cross-selling additional applications to these clients, which we expect will continue to help offset this reduction in spend. These scenarios have been factored into our 2025 bookings expectations, including our anticipated dollar-based retention rate performance, and we will continue to closely monitor trends. Importantly, we expect this headwind will subside starting in late 2026 after we complete the large majority of the Ignite migrations.

Thank you for that update, Dan. To help showcase the long-term sustainable value that Ignite can enable for clients, let me now share an example of an Ignite-powered client improvement from a recently published case study. Lifepoint Health operates across 60 community hospital campuses with a wide range of disparate EHRs, and it faced significant challenges in accessing unified actionable data to support quality improvement at scale. To address this, Lifepoint leveraged Ignite to identify and prioritize high-impact opportunities in areas, including sepsis, heart failure, blood product utilization and repetitive lab testing. In partnership with Health Catalyst Clinical Improvement Services, Lifepoint implemented evidence-based practices supported by robust analytics, process improvement and change management. Additionally, with AI-driven analytics, Lifepoint provided physicians with clear evidence of which interventions had the most significant impact using their own data, enabling data-driven decision-making and accelerating the adoption of best practices. These initiatives drove measurable results with Lifepoint reporting more than 650 lives saved through reduced sepsis and heart failure mortality, 1,200 fewer blood product transfusions and 22,000 additional patient days at home. With the help of Ignite, Lifepoint improved quality of care, decreased unwarranted care variation, decreased costs and enabled the organization to achieve its quality improvement financial goals. Lifepoint continues to advance its mission of making communities healthier through a data-driven approach. Building on this momentum, Lifepoint is expanding Ignite across its enterprise system to improve patient outcomes, reduce readmissions and ensure clinical documentation reflects true patient acuity. We are grateful for Lifepoint's partnership and trust in Health Catalyst as we expand and deepen the relationship between our organizations. We're also excited to highlight several important new client wins that reflect the evolving strength of our platform. Most notably, we secured new Ignite wins with a Midwest Health Information Exchange client and Canopy Cancer…

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 first quarter performance. I will now comment on our strategic objective category of scale. For the first quarter of 2025, we generated $79.4 million in total revenue. This total represents an outperformance relative to our quarterly guidance and is an increase of 6% year-over-year. Technology revenue for the first quarter of 2025 was $51.5 million, representing a 10% increase year-over-year. This year-over-year growth was primarily driven by recurring revenue from new and acquired clients. Professional Services revenue for Q1 2025 was $27.9 million and increased 1% compared to Q1 2024. For the first quarter 2025, total adjusted gross margin was 49%, representing a decrease of approximately 210 basis points year-over-year. In the Technology segment, our Q1 2025 adjusted Technology gross margin was 67%, a decrease of approximately 120 basis points relative to the same period last year and an increase of approximately 260 basis points relative to Q4 2024. This quarterly performance was ahead of the expectations we shared on our last earnings call, mainly driven by lower technology cost of revenue than initially expected. In the Professional Services segment, our Q1 2025 adjusted Professional Services gross margin was 16%, representing a decrease of approximately 630 basis points year-over-year and an increase of approximately 240 basis points relative to Q4 2024. This quarterly performance was mainly driven by our recent reduction in force that occurred in Q1 2025. In Q1 2025, adjusted total operating expenses were $32.8 million. As a percentage of revenue, adjusted total operating expenses were 41%, which compares favorably to 47% in Q1 2024. Adjusted EBITDA for Q1 2025 was $6.3 million, exceeding our Q1 guidance of approximately $4 million. Our adjusted…

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

Thank you, Mr. Burton. The floor is now open for questions. [Operator Instructions] Our first question will come from Anne Samuel of JPMorgan. Please go ahead.

Hi, guys. Congrats on the great print, and thanks for the question. You spoke to the more modular approach making you a little bit more resilient here to some of the challenges in the demand environment and within your customer base. And I was hoping maybe you could just provide a little bit more color here on how the decision-making process is maybe different as a result of your more modular strategy versus DOS? And what are the key factors your customers are thinking about right now in this environment in terms of making purchases versus delays?

Yeah. Great question, Anne. So, there are a few meaningful differences because of the modularity, the lower price point of Ignite versus what we used to experience with DOS. I think, specifically, as we mentioned in our prepared remarks, our ability to meet clients where they are to focus on a single-use case and for those use cases to have specific hard dollar ROI associated with them, I think, make our opportunity to provide real tangible value quickly and at a lower price point, much more doable with Ignite than what we used to have to experience with DOS. As you may recall, DOS had an average starting price point of about $1.5 million, which especially in an uncertain macro environment with potential funding cuts looming is just a very, very high price point to begin a new relationship or expand an existing app layer relationship. And so, we found that, that cross-sell motion, especially from app clients into platform clients was really, really difficult, virtually impossible in economic uncertainty headwinds. Whereas with Ignite, we have a very different opportunity, especially with our app clients. And that's one of the reasons why we believe in Q1, we saw such a strong performance as it relates to net new platform client additions. There was meaningful uncertainty in Q1, and yet, especially having two-third of those net new platform clients come from our app layer client base where we already have a relationship, they've had a good experience with us. We're able to go to that next adjacent area that offers a specific hard dollar ROI and is at a price point that is a lot less of a leap than where we were with DOS. I think the one other thing I would highlight and then see if Dan L. or Jason would add anything would be that whereas in a few years ago, when we faced some similar headwinds as it relates to economic uncertainty and potential economic pressures, we relied more on TEMS as a response to those economic difficulties. Today, we have a much better technology response to any potential downside scenarios where it could be Medicaid cuts, it could be research funding cuts. that by virtue of a much stronger app player portfolio based on what we've built over the last few years and what we've acquired as well. And then, the Ignite [glue] (ph) being so much more modular, flexible and lower in price point than what we had with DOS, we have a much stronger technology-led response to clients that are facing that uncertainty that need a hard dollar ROI. And we anticipate that we'll lean much more heavily on that technology-based response, which has an obvious benefit to Health Catalyst in that revenue being much higher profit margin revenue and much more profitable for Health Catalyst. So, we do feel like this is a different chapter that Health Catalyst is in. Jason or Dan L., anything you'd add?

Yeah. The only thing I would add is, and this is an example that really showcases Ignite's flexibility is our early traction with Ignite Spark, that's a purpose-built solution designed for community, regional and specialty health systems. It allows us an entry point into this market that we wouldn't have been able to see historically with DOS. So, we're excited about that.

And Anne, one other thing that, that prompted as well, you asked specifically about the decision-making process. I think when you have a lower price point as it relates to the offering, there are just fewer levels of approvals required. And we're seeing that manifest itself, especially in the net new platform client additions that we shared in terms of a Q1 result where we're seeing shortened sales cycles because of that more streamlined decision-making process because of that lower price point, and that does feel encouraging to us moving forward.

That's really helpful. And I was -- my next question was just, should we expect, I guess, maybe given there's kind of fewer levels of decisions that need to be made that perhaps the cadence should it look different, I guess, than the chunkier or more aligned with the budget season cadence as you add new customers should be kind of more measured throughout the year?

Yeah. Great question, Anne. I think we're monitoring that. We were pleasantly surprised to see our Q1 be a more active quarter than what we've historically seen in terms of that 10-40, 10-40 mix of bookings activity in the 10% being Q1, Q3 and 40% being Q2, Q4. We do expect that to still be a dynamic that being aligned with budgets still matters. But perhaps there's a little bit more smoothing that may take place over time just because of the flexibility of our offering.

Really helpful color. Thank you.

Thanks, Anne.

Thank you. We go next now to Jared Haase of William Blair.

Hey, guys. Congrats on a nice quarter here and thanks for taking the questions. Dan, maybe to go back on something you mentioned in the prepared remarks, you talked a little bit about Ignite subscribers tending to have a higher weighting of tech versus services relative to what you experienced with the legacy DOS platform. I would love to unpack that a little bit more just in terms of what's driving that? Is that really some of the novel functionality at the data layer just makes it a little easier to consume, so it requires less of the sort of high-touch delivery model? Is it a lower complexity use case that they're using the data platform for? Just would love to hear a bit more about that.

Yeah. Great question, Jared. And I think you're on the right track there with those examples that you gave there at the end. At a lower price point, we're often focused on a specific use case. And that specific use case is typically tapping into our portfolio of those five focus areas, each of which has a tangible ROI and each of which just tends towards more of a technology-driven solution than where we were with DOS. I think with DOS, we didn't have quite as wide a portfolio at the apps layer of tech solutions. And there was more to do in terms of the level of integration that was required and that skewed towards more of a services component in that 50-50 range. With Ignite, to your point, it is more modular and flexible and it's easier to install. And what we're typically doing with clients is also something at the apps layer that's tapping into the technology that is robust and requires less services in terms of implementation or the ability to realize a tangible ROI. There will always still be a component of meaningful services, less about implementation and more about, in some cases, having the right domain expertise to realize a measurable improvement like the Lifepoint example that we walked through in our prepared remarks, required real depth of clinical improvement expertise as an example. That will always be part of what we offer. But we're increasingly seeing that technology more and more can cover more of the space needed in order to get to measurable improvement. AI certainly expands that footprint as well. And that is all contributing to that, that 80-20 Tech mix that we're seeing that we view as very favorable. Obviously, that's higher profit margin mix and skews more towards Tech growth, which is a top priority for us in terms of shareholder value creation. So all of those factors, I think, are contributing as well.

Perfect. That's great. I'll leave it there and hop back in queue. Thanks.

Thanks, Jared.

Thank you. We go next now to Jessica Tassan of Piper Sandler.

Hi, guys. Thanks for taking the question. Can I ask one just on how some of these KPIs are accounted? So, is the new -- or sorry, is the $300,000 to $700,000 in average starting ARR, is that new or incremental revenue? Or does it kind of refer to the sum of the ARR with a particular client? I guess, for example, like a large DOS customer, call it, $1 million of ARR in 2024, decides to migrate to Ignite, buys a new module and total ARR goes from $1 million in 2024 to $800,000 in '25. Can you just -- how is that reflected in bookings, average ARR per booking and then net revenue retention?

Yeah, great questions. So, let me provide two categories of answers. So, the example that you just walked through would be what we would categorize as existing client dollar-based retention activity, where if we have an existing platform client, that is migrating to Ignite, and in your example, which does happen, they decide to pocket the savings of Ignite where it's better, faster and cheaper and they don't add new applications, for example. In that scenario, that would be a headwind to our dollar-based retention metric that we've shared that is the way of capturing that growth building block with existing platform clients. That's the first category of kind of how the accounting works. The second category of that $300,000 to $700,000 average that we shared all applies to new, net new platform clients. So, the primary source of these net new platform clients are our app clients where two-third of our Q1 adds and two-third of last year's adds came from the app layer. In these cases, that $300,000 to $700,000 is all incremental. So, think of a Vitalware client at the app layer, maybe they're spending $200,000 with us just on Vitalware and they decide to expand their relationship with us, including Ignite, that average of, call it, $500,000 is all incremental in that kind of a transaction. And in that example, the $200,000 Vitalware client would grow into a $700,000 relationship with that $500,000 being incremental. And that's where we're seeing a lot of traction. And that's what that metric is really representing both in terms of the number of net new platform clients with 10 in Q1 and that $500,000 average incremental ARR plus nonrecurring revenue, kind of a proxy for what kind of next year revenue growth will that new platform client building block contribute.

Thank you. That's actually so helpful. And then just maybe a follow-up. Is the timeline on implementations different between the two-thirds of the net new bookings that you described as coming from app clients versus the one-third that are brand new to the platform? And maybe you could just give us a sense of like the respective implementation timelines? And then, my quick follow-up would be, was there any upfront acquisition contribution in 1Q? Thanks for the question.

Yes, absolutely. So, I'll speak to the first, the first category of questions. And then, Jason, if you want to take the upfront acquisitions specific question. The timeline on the implementations for the two-third of net new platform clients that came from the app layer and the one-third that came in as just net new relationships to Health Catalyst have about the same implementation time line. It's usually about a few months of implementation before we start recognizing revenue. So, very similar, whether they're an existing client or a new client. There's slight advantages to the existing app layer client, but they're not huge. And one of the benefits of Ignite versus DOS is it's just much easier to implement. And so, that's generally going to only be a few months before -- between signing the contract and starting to recognize revenue. Jason?

Yeah. From an upfront standpoint, there was a slight contribution in 1Q related to upfront. From an EBITDA standpoint, they were burning on EBITDA. So, it was a slight headwind for EBITDA, and we expect over the course of 2025 that, that headwind will turn into a tailwind for us where we're able to continue revenue expansion and manage costs effectively to where it is generating EBITDA in 2025.

Awesome. Thanks again.

Thanks, Jess.

Thank you. We go next now to Elizabeth Anderson of Evercore ISI.

Hi, guys. Thanks so much for the question, and congrats on a nice quarter. I had a question. I know you talked about the mix between sort of the Tech and the Professional Services revenue going forward. With the new Ignite customers, does that have any service component at all to it or like an implementation? I just want to make sure I have that part understood as I'm looking towards sort of the evolved model. Thank you.

Yeah. Thanks for the question, Elizabeth. The mix does shift much more towards Tech, and we like that. We're proactively driving towards that. There is still a services component. There's still in some use cases, there's some domain expertise services as well that can exist, but it is shifting. And for those new Ignite customers, we're typically seeing about an 80-20 mix of tech versus services, which is considerably different from when we went public six years ago with DOS, we were more of a 50-50 mix. And so we continue to see that mix shift more and more towards tech.

Got it. That's super helpful. And I apologize if I missed this as you mentioned before, but in terms of the length of those contracts, I know we think of you obviously having a partnership model with your customers having sort of many like multiyear contracts. Does that element -- is there any change in sort of that element with these new contracts? Or should we think of those in those sort of similar length types of periods?

Yeah, very similar. So, still that long-term partnership mindset, still often three- or five-year contracts that we're locking in, which is obviously very positive and favorable, but able to start at a lower price point with Ignite.

Got it. Thank you so much.

Thanks, Elizabeth.

Thank you. We go next now to Richard Close of Canaccord Genuity.

Yeah. Thanks for the questions. Congratulations. We've seen a couple of quarters here of delays on the Health Exchange deals and maybe some slower implementations. I'm just curious, do you have enough Ignite deals in the pipeline to get to the 40 new platform clients that you're reiterating here today if you don't close these exchange deals?

Yeah. Great question, Richard. Let me answer in two parts. So there's an existing Health Information Exchange client kind of answer to the question, and there's a new client, new pipeline kind of an answer. So, on the existing client answer, we did share in our prepared remarks. And as you pointed out, this has been a trend for a couple of quarters now. I think one of the real challenges in working with Health Information Exchange clients is the complexity of the implementations. They're really an implementation that often cuts across hundreds of different organizations that are all relying on the ability to share data in an interoperable way through our infrastructure. So, they're very complex. And one of the dynamics that has been a real challenge for us is the scoping in a number of these cases keeps expanding. And the complexity keeps expanding and that requires more time and more execution. And that is a challenge that we're facing. It's one of the reasons why our some of our original forecast for when we would recognize revenue with existing clients has been delayed. And we're making progress on those implementations. But towards expanding scope and complexity is a real challenge for us to manage. And so, that is one of the factors in terms of our revenue ramp into the second half that -- we've continued to see some increased scope that has delayed them getting to specific milestones that then would result in revenue recognition, and that's pushing some of the revenue a little bit further into the year than what we had originally forecasted. That's the first category of answer. Then the second category would be as it relates to our new client pipeline, the new platform client additions. And as you mentioned, that is…

Okay. That's helpful. And then just with respect to Tech margins, with Ignite being higher, I guess what is the timing where we really see the Tech adjusted gross profit margin really begin to lift here? I'm just curious because the first quarter was down year-over-year. And I guess you're looking at second quarter down again. So just curious on that.

Yeah. Great question, Richard. We believe we'll start to see some of that uplift in the second half of this year. And as Dan L. mentioned, we do expect to be about two-third of the way through the migration process by the end of this year and then largely complete with the migration process by mid next year. So I would expect you'll see gross margins start to see some of that uplift in the second half of this year. That should continue in the first half of next year and continue even further towards the back half of 2026.

Okay. Thank you.

Thank you. We go next now to Daniel Grosslight of Citi.

Thanks for taking the question. I just had a quick one on the cadence of Professional Services revenue for the remainder of the year. I just did some back-of-the-envelope math, and it looks like when you take into account some of the shifting dynamics into the second half of this year, you take into account the rolling off of the TEMS ambulatory product, you kind of have to assume an increase in revenue of about $17 million from the first half of the year to the second half. I was just hoping you could comment and put a little bit of a finer point on where that sequential from one half to second half uplift is really going to come from because typically, you just don't see that type of seasonality in the business. Thanks.

Yeah. I appreciate that question, Daniel. And I'll share a few thoughts and then, Jason, please share. So, in terms of bridging from the first half to the second half, there are a couple of factors that I think will cause some of that revenue ramp that you're asking about in the second half. First, as we mentioned in our prepared remarks, we have seen just a couple of specific instances where we had a few late-stage opportunities that were delayed, at least partially due to some uncertainty in the funding environment. We noted that there were two. One was a life sciences opportunity, one was in the Health Information Exchange subsegment. Both have some uncertainty. In the life sciences space, it's tied to more of the research funding uncertainty. And in the Health Information Exchange space, it's more tied to the Medicaid funding uncertainty. We believe we can win both of those deals, but they were delayed as folks were waiting for a little bit more clarity on what the funding environment will look like. And as a note, in those life sciences opportunities, in particular, they can tend to be fairly large, even seven figures in one case in our pipeline. And they tend to be fairly rapid as it relates to revenue recognition. And so that delay in that late-stage opportunity pushes some meaningful revenue into the second half that could have otherwise happened earlier in the year. But we believe we have a great opportunity to still close that business and just see that revenue ramp in the second half. A second element that I would highlight would be, I mentioned a few minutes ago, that increased scoping in some of our Health Information Exchange client implementations has just taken longer as the scope has increased and the complexity has increased. And so, that revenue, we believe, will still be recognized, but it's just pushing out a little bit further into the year than what we had originally forecasted. And then, finally, we were encouraged to see a strong Q1 as it relates to our bookings performance, but it does typically take a few months for those Q1 bookings to turn into revenue. And so we would expect to really see that materializing in the second half of the year. And finally, along those same lines, Q2 is normally a busy bookings quarter. We expect that it will be this year as well, which is exciting and positive for us, but those bookings really will translate into revenue late in 2025. So, those are a few of the items that will cause more of a ramp in 2025 -- in the back half of 2025 from a revenue perspective.

Very helpful. Thank you.

Thank you. We go next now to David Larsen of BTIG.

Hi. This is Jenny Shen on for Dave. So, I wanted to ask about price increases. I think in years in the past, they have trended around the 6% to 9% range. Where are they now? And how is client acceptance been for price increases lately with the uncertain macro environment? Thank you.

Yeah. Thanks for the question, Jenny. So, I would characterize a more typical technology annual increase to our contracts being more in the mid-single-digits. And that has been something that our clients have accepted and been supportive of. Our TEMS contractual relationships typically have a lower -- more of a low-single-digit increase, but more of the contracts that we've been signing recently and more of the growth that we're experiencing is really coming in those tech contracts and mid-single-digits from a year-over-year increase is a reasonable assumption.

Great. Thank you.

Thanks, Jenny.

We'll go next now to Scott Schoenhaus of KeyBanc.

Thank you. I wanted to follow up on the upfront acquisition. You mentioned very minimal revenue contribution this quarter. But kind of wanted to see how the traction has been going in terms of bookings, what your revenue growth ramp should look like, and when we should be expecting an inflection on the EBITDA profitability side for this business? Thank you.

Yeah. Great question, Scott. I'll share a few thoughts and then Jason, please add as well. So, we continue to feel good about the progress that we're seeing, both from a sales pipeline and bookings perspective. And one of the meaningful new wins that we highlighted in our prepared remarks was a patient engagement solution that really combines the strength of Ignite with the strength of our expanded patient engagement offering, inclusive of upfront, and that was encouraging. Now, like other Ignite deals, as we mentioned a few minutes ago, that takes a few months to ramp into revenue, but we do expect to see some of that revenue ramping in the second half and contributing to the overall ramp that we described a few minutes ago. As it relates to EBITDA, as Jason mentioned, in Q1, upfront was a slight headwind as it relates to EBITDA contribution. But we're encouraged to see meaningful synergy and cost management efforts paying off and do expect to see, especially in the second half of this year, that headwind turn into a tailwind as we realize those synergies and enable that particular part of our portfolio to perform in a consistent manner to where we look for the rest of the portfolio to perform as well. Anything you'd add, Jason?

No, I think you covered it well, Dan. Thanks.

Thank you.

Thank you. We'll go next now to Stan Berenshteyn at Wells Fargo.

Hi. Thanks for taking my questions -- I guess, question. So, in the prepared remarks related to modularity of the Ignite platform, creating some down pricing pressure from existing DOS clients. If we square that against your expectations for Ignite replatforming over the next two years, is it reasonable to assume that the headwinds you talked about will be greater in 2025 versus 2026? Thanks.

Yeah. Great question, Stan. I think so, given that we will be two-third of the way through by the end of this year, and we anticipate being largely through by mid-2026. I think those dollar-based retention headwinds will primarily be factored in and absorbed in 2025, but still some effect in 2026. We're excited to get to the other side of that really substantively by the second half of 2026.

Great. If I can maybe squeeze a quick one in? Would just love to get your take on the difference in win rates of the Ignite platform versus the DOS platform. Do you have any insight into how the win rates are squaring up against the all-in sales that you had previously? Thanks.

Yeah. Another great question, Stan. So, one of the challenges that we had with DOS, especially in, call it, the late 2022 and 2023 timeline was DOS was so expensive that we really couldn't cross-sell our app clients in an effective way to become platform clients with DOS. It was just too big a leap for $100,000 client to become $1.6 million client with the addition of DOS and especially with some financial pressure. That is totally different with Ignite. And that's where this is a time of some market uncertainty and macro uncertainty. And yet because we have Ignite, we can cross-sell with those existing app layer clients. And as we've shared in the past, we see about a 2x to 3x conversion rate advantage when we're cross-selling to an existing client versus kind of starting and cold calling with a new client. And so that's a huge advantage to us. And that 2x to 3x conversion rate is a reasonable proxy, especially for our cross-sell opportunity, which is massive now with over 900 app layer clients that all could become platform clients that just really wasn't open to us with DOS. And today, it's wide open, and we see that 2x to 3x conversion rate bump being really, really positive and sustainable for us.

Awesome. Thanks so much.

Thanks, Stan.

Thank you. We go next now to Jeff Garro of Stephens.

Yeah. Good afternoon. Thanks for taking my question. I want to ask about the Spark product and selling applications on the Azure marketplace with Microsoft. So, I want to ask if you're seeing a benefit from expanding the product portfolio and channels and maybe further to what extent is there overlap versus those expansions being completely incremental? Thanks.

Yeah. Great questions, Jeff. We are really encouraged, and we're excited about Spark for the mid-market. Interestingly, one of the motivations for us to really focus on the mid-market is that there's a large chunk of those 900 app layer clients that really fit the definition of mid-market. And this was a way of really reaching out to them and kind of getting the best of both worlds where we could share with them a very price competitive offering and take advantage of the fact that we have an existing client relationship that enables us to be inside the door as opposed to on the outside knocking on the door. And so, there is meaningful overlap, but there's also a broader mid-market outside of our client base of over 1,000 existing clients that we're also tapping into and excited to expand. And Ignite makes that possible. And Spark is just a tweak to the Ignite infrastructure that's actually quite easy because Ignite is so modular, we just couldn't have done that with DOS. And so, it's another example of why Ignite is really a stronger platform for us and a much more flexible platform for us to expand into the mid-market and to have lots of great tech-heavy answers even in a time of macro uncertainty.

And Dan, anything to add on the Microsoft Azure marketplace and the opportunity there?

Yeah. We -- as you know, Jeff, I've had a long-standing relationship with Microsoft, but we're really excited about the expansion in that partnership, which includes a go-to-market expansion. There's a couple of components to that go-to-market expansion. One is that we're on the Azure marketplace, and we have components of Ignite like healthcare.ai that we make it really easy for someone to get started, which we really like. We're early in that process, but we really like having that as a new channel. We're also doing some joint go-to-market activity with our combined sales force and also really excited about that partnership. We have a similar kind of partnership with Databricks and have seen some really meaningful traction where we've come to the agreement that we're better together going to market jointly in the healthcare space and believe that will be another tailwind for us moving forward.

Excellent. Thanks again.

Thanks, Jeff.

And we'll go next to now to Sarah James of Cantor.

Thank you. Can you provide any color on the mix of Ignite converting clients that are taking in the savings from the conversion as opposed to applying them to expanded purchases? And if I take a step back, your overall company revenue retention is increasing year-over-year even through this conversion. So, maybe you could give us a breakdown of what average revenue retention looks like on converting clients and help us bridge that to the overall guide of 103% revenue retention for the total company?

Yeah. Great question, Sarah. I'll share a few thoughts, and then Dan L., if you'd like to add anything as well. So, we do experience a spectrum of responses with clients. Our first focus is make sure that we win as it relates to this multiyear technology strategy, architecture strategy decision to migrate to Ignite. And we're really pleased to see the vast, vast, vast majority of our clients finding Ignite really resonant and very, very positive. And that's where we expect almost all of our existing platform clients to have made that migration, which is fantastic. Then, the second question is how are we going to manage that? And we do share some of the better, faster, cheaper savings with our clients. We keep some of that, and that's why Ignite is 10 points higher gross margin than DOS was, but we share some of that as well. And we do everything we can to strive to help them see the benefit of adding an app or adding two apps so that we maintain the same spending levels. And that's where, to your point, Sarah, we have been pleased to see our ability to maintain 100%-plus dollar-based retention across the platform client base that we have. And I think that's a reasonable proxy for how those clients that are migrating given that by the end of this year, we'll have two-third of them migrated onto Ignite in 2025. So that 103% dollar-based retention target that we've set has a lot of -- the vast majority of what's being contributed there is coming from clients who have migrated to Ignite. We do factor in some headwind, though. There are plenty of cases where the clients are facing uncertainty or headwind or concerns about funding environment and may choose to just pocket some of that savings, still maintain the same use cases and the same level of engagement with us, but just take advantage of some of Ignite being better, faster and cheaper. And we have factored that in to that 103% dollar-based retention target for this year. Now, there could be -- in some negative case scenarios, there could be a little bit more headwind if there was a major cut to Medicaid funding, for example, that would impact many of our health system clients. And one of the places you could see a little bit of headwind incremental to that 103% could be a few more of those clients kind of choosing to just pocket the savings for now or if there's more uncertainty, we could see that in the near term. Currently, we feel good about the 103%, and we've already factored in kind of a couple of points of headwind as it relates to that dynamic of Ignite being better, faster and cheaper. Dan L., anything you'd add?

No. Well said, Dan.

Okay. Thank you.

Thanks, Sarah.

Thank you. And that is all the questions we have today. Mr. Burton, I'd like to turn things back to you, sir, for any closing comments.

All right. Thank you all for your continued interest in Health Catalyst, and we look forward to staying in touch. Take care, everyone.

Thank you. This concludes today's Health Catalyst first quarter 2025 earnings conference Call. Please disconnect your lines at this time, and have a wonderful day. Goodbye.