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.
Bryan Hunt: 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.
Dan Burton: 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: [Operator Instructions] Our next question comes from Vishal Patel, Piper Sandler.
Vishal Patel: 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.
Dan Burton: 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.
Bryan Hunt: 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.
Operator: Our next question comes from John Pinney with Canaccord Genuity.
John Pinney: 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.
Dan Burton: 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.
Operator: 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.
Dan Burton: 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.
Operator: 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.
