Health Catalyst, Inc. (HCAT) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to the JPMorgan Healthcare Conference. My name is Anne Samuel, and I'm the health care technology and distribution analyst here at JPMorgan. We're thrilled to have Health Catalyst with us this afternoon. Presenting this afternoon is going to be CEO, Dan Burton; and CFO, Bryan Hunt. We'll hear their presentation, and then we'll take Q&A afterwards. So if you have a question, please raise your hand and there'll be someone who will bring you a microphone so that we can all hear you. So with that, let me turn it over to Dan.

Wonderful. Thank you, Anne. It's great to be back together face-to-face. It's nice to see some familiar faces in the audience. We're thrilled to be here. We appreciate Anne and the JPMorgan team for such a well hosted event, and it is nice to be back in person once again. My name is Dan Burton, I'm the CEO of Health Catalyst and thrilled to be back here. I think this is JPMorgan #12 for me. It's a wonderful annual tradition and opportunity for us to share an overview about Health Catalyst and provide some updates as to how things have been going. So first, in terms of an overview. Health Catalyst is a leading provider of data and analytics technology and services to health care organizations worldwide. There's 3 main components of our solution. The first is the data platform, where we integrate data in a flexible, open and scalable way into a single source of truth, including clinical, operational and financial data into that single source of truth so that then we can analyze that data and understand that's the second component of our solution, where we're doing well and where we can improve and therefore, we should focus on improvement. Once we have a better understanding of what clinical improvement opportunities there might be like improving our sepsis mortality rate or financial opportunities like improving our cost per case or operational opportunities like improving our ED throughput. Then we also offer the third component of our solution, which is the services expertise that we were at around the technology that we've provided to our clients. We work alongside our clients, sometimes in a short-term project-based way from a services perspective and often in a longer-term way through items like tech-enabled outsourcing to help our clients consistently realize meaningful and measurable improvements. That is the mission of the company to be the catalyst for massive, measurable, data-informed health care improvement. And the way that we measure our performance with each client each year is using a framework that we refer to as the Health Catalyst Flywheel borrowing the vernacular of Jim Collins. When we begin a relationship, we start at the top of this flywheel that you can see on the screen here, where we recognize that our clients are taking a leap of faith that the 3 components of our solution, that data platform, the analytics applications and the right services expertise when combined with their best efforts as our client can achieve measurable improvement. And in that first year, we worked very hard to make sure that we realize clinical, financial, operational, measurable improvements because when that occurs, then the trust between us and our clients deepens. And our clients choose to renew their relationship and often expand and deepen that relationship, and they often refer us to their colleagues and other organizations as well. Now you'll see at the center of our Flywheel Health Catalyst is team member engagement. That continues to be my #1 priority because it's our team members who develop the right data platform and analytics applications technology and provide the right services expertise to enable that massive measurable improvement to occur. And for the flywheel, that improvement flywheel to spend faster and faster to each one of our clients. So that's my #1 priority. It's my #1 focus to enable team members at Health Catalyst to be deeply engaged in the work that they do. Let me share 5 investment highlights of why Health Catalyst is a great investment and will provide meaningful shareholder return. First, for now over a decade, Health Catalyst has been recognized as an industry leader in health care data and analytics. We're helping to solve a huge problem in health care, the problem of health care waste, which, depending on the study, is estimated to be $0.30 out of every $1, $0.40 out of every $1, over $1 trillion a year in the U.S. alone. But in order to know what to fix from a waste perspective, you need data and analytics. And that has provided us with a meaningful TAM that $8 billion TAM. Where we offer not just the technology solution and not just the services solution but a comprehensive solution with the right data platform capabilities, the right analytics applications capabilities and the right services expertise. And we have depth in all 3 of those areas at the data platform layer. We have automated the process of bringing in data from the 300 most common data sources. I think every major EMR, every major supply chain, finance, costing, labor management, labs, you name it, we've worked with it and automated the process of bringing that data into a single source of truth. We're also accustomed to working with large stores of data, often between 10 and 100 terabytes of data per client. And we have an infrastructure that can handle that kind of data. At the apps layer, we've developed over time 12 full app suites that help every client understand where there are those opportunities for clinical, financial or operational improvement. And we have a whole library of analytics accelerators that help our clients visualize their performance over time and understand how the improvement journey is going. We couple that with the third component of our solution with over 500 domain experts, clinical experts, financial experts, operational experts, analytics experts that work side-by-side with our clients sometimes over the short run, many times and increasingly over the long run in tech-enabled outsourced relationships to work side-by-side right in the trenches with our clients to enable long-term measurable improvement. That's the real proof in the pudding, and that's the third investment highlight that we would share with you, which is this last year, we celebrated the 300th published success story, measurable improvement success story. But behind those 300 published success stories are literally thousands of others that our clients have realized in support of their improvement journey. And we consistently find that over time, the longer that our clients work with Health Catalyst, the faster that improvement flywheel spends, the more improvements per year that they realize, which drives a higher and higher ROI in their relationship with Health Catalyst. All of this is enabled by the fourth component, world-class team member engagement. We've used third parties for a decade now to measure and report out to us how we're doing with regards to team member engagement. The Gallup organization, we've consistently utilized and benchmarked across their database of millions of respondents to their surveys, and we've consistently over a decade placed between the 95th and 99th percentile in terms of our team member engagement scores. The most recent Gallup results in the middle of last year placed us in the 97th percentile in terms of our team member engagements. We've been recognized 76 times now as the Best Place to Work, and we benefit from that high level of engagement and the low turnover rates that our team members that are able to do some of the best work of their career in developing the right technology, providing that right expertise to enable massive measurable improvement, which all contributes to the last investment highlight, an attractive operating model. We have over 90% of our revenue that's recurring in nature. We have a huge addressable market and a meaningful long-term growth opportunity of 20-plus percent. We have a loyal client base that chooses to expand with us each year. And we're excited this year to be profitable as a company with positive adjusted EBITDA. We're also sharing as part of this update that we are affirming the guidance that we provided from a bookings perspective for both existing clients as it relates to dollar-based retention for the Q4 and full year 2022 time horizon and for our net new DOS subscription client adds on the new client side. We're fortunate now at Health Catalyst through our growth and expansion over the years to now work with over 500 health care organizations across the entirety of the health care delivery ecosystem, including academic medical centers, integrated delivery networks, community hospitals, large physician practices, ACOs. And through that experience, we've found ways to scale the solution up and down and throughout the ecosystem. So we're excited about the growth potential that continues to be evident as we work with our clients. We're also pleased to continue to be recognized as an industry leader by various third parties in terms of the strength of our solutions and the satisfaction that our clients realize often much higher rates than the industry average for health care technology companies. Now there's a lot of detail behind the 3 components of our solution. And we focus our R&D investment in this slide at the bottom of the slide, first and foremost, at the data platform layer. We want to make sure that we are investing in uniquely scalable and health care-specific capabilities from an R&D perspective that differentiate us while also enabling our clients to tap into the strength and the scalability of cross-industry capabilities through our partnerships with Microsoft, Snowflake, Databricks and others. All of that enables us to provide our clients with a robust, scalable, flexible data platform and single source of truth to understand their data, which then enables us to analyze that data in 3 primary categories. In that middle section of this slide, we focus on clinical and quality improvement opportunities, population health improvement opportunities and financial and operational improvement opportunities. And everything in that middle section of this slide is designed to pinpoint where our clients are strong where they're performing well and most especially where there is room for improvement, so that they can focus and prioritize their improvement efforts in the areas that will yield the greatest benefit. Then we wrap around those insights with the right services expertise that work side-by-side with our clients, again, sometimes short term and project base, many times long term to enable massive improvements over long periods of time over years through the right services expertise that we can provide. The competitive landscape for Health Catalyst looks different, depending on which component of the solution that we're focused on. At the bottom, the data platform layer, still our most common competitor is a homegrown solution. Often with some help from a cross-industry tech company, where a health system is able to tap into the scalability from a technology perspective, and we match that scalability through the partnerships that I just mentioned, like with organizations like Microsoft and Databricks and Snowflake. But where they fall short is in that health care-specific domain expertise and content development, machine learning models, source connectors to the most common and important sources from a data perspective in the health care space, that health care-specific content investment is where we focus and where we differentiate ourselves and our solution relative to what any health system could replicate because of our size and scale now that we support over 500 health care organizations. In the middle at the apps layer of the ecosystem, there are hundreds, even thousands of point solution vendors that are often very good at one particular use case, but lack the breadth and the depth and the connection to the single source of truth from a data perspective to really provide an end-to-end solution. They also often aren't willing to provide the services expertise to actually help go from insight to actual improvement. That's where we really win competitively long term at Health Catalyst. The fact that we offer both the right technology at the data level, at the analytics level, and we couple that with the right services expertise, that last mile of work is often what's required to actually realize measurable improvement. And that's what our focus has always been at Health Catalyst, and that's why our clients realize really hard dollar measurable ROI through their partnership with Health Catalyst. There have been many, many case studies published in terms of the partnership that we've had with our clients to enable massive measurable improvement. I'm going to walk through 2 case studies that are related and that are -- that come in the form of a recent update in terms of where our clients are most focused. As many of you have heard in this conference and elsewhere, health care organizations are under incredible financial pressure and many of their operating margins in the provider space are negative. And so what we have found at Health Catalyst is so many of our clients need help -- specific help improving their near-term financial performance. And so companies like Health Catalysts that have parts of our portfolio that can deliver near-term financial ROI that can be built right into the contract are finding real traction. And those elements of our portfolio that offer that, including this one right here, around tech-enabled outsourcing, where we have found over the last 8 years that in certain areas where we've already built the technology like at the data platform layer and like it at some of the application layers. When we couple that together with the people that are involved in using the technology, we can often do things better, faster and cheaper than our clients are able to do. And over time, we've realized that, that can average around a 15% savings while improving the quality and the efficacy of those functional areas like chart abstraction, like low-level data management, analytics and reporting. And we found clients like Banner Health and Community Health Network have needed that savings. They've appreciated the opportunity for that savings to be built right into the contract. And they've wanted to expand and deepen their relationship with Health Catalyst as a result. And because of that relationship, they've not only realized improved cost savings like that 15% reduction that's highlighted here but also improvement in the quality of what is being submitted to registries, for example, in the area of chart abstraction and the engagement level of the team members that we've consistently found that the engagement scores team members that become rebatched and join Health Catalyst as part of these tech-enabled outsourcing relationships goes up and the turnover rates go down. And so it solves multiple problems in terms of our client relationships. The most recent announced tech-enabled outsourcing relationship just came out a few weeks ago. You may have seen the press release announcing the massive expansion in the relationship that we have with Carle Health where they nearly quadrupled the size of the relationship, which included both an expansion of the technology that they use from Health Catalyst both at the data platform layer as well as expanding to an all-access subscription at the apps layer, but also the opportunity for them to rebadge and outsource certain functions like data management, reporting abstraction and project management to Health Catalyst. And through that rebadging process, Carle Health is able to realize meaningful cost savings over time. This is a 5-year contract that guarantees that they have great visibility as to what that cost will be and it's meaningful cost savings and in the case of a number of our health system clients that can be up to 7 figures per year of built-in cost savings that can be written right into the budget. So it's a win for Carle. It's a win for these team members who are becoming rebadged because often, an analyst at a health system feels like they're alone on an island. They're maybe the only analyst in their department, and there's an unclear career path for them because the health system isn't primarily focused on something like analytics. Whereas at Health Catalyst, we have hundreds of analytics engineers. That's the main thing that we do. And so these analysts that joined us from Carle Health now are joining a cohort of hundreds of like-minded colleagues and a training infrastructure and a career path that's really significant with many promotion opportunities that they wouldn't otherwise have access to if they hadn't joined Health Catalyst. That's one of the reasons why engagement scores go up and turnover rates go down. So it's a win for the team member. It's also a huge win for Health Catalyst in that we have this massive expansion in the relationship where any 1 client relationship can now be as large as $16 million or more per year of recurring revenue that's guaranteed in a long-term contract, that's a meaningful mix of technology and services and that at a unit economics level can produce the long-term EBITDA targets that we've described to our public market investors of that 20-plus percent. So there's massive organic growth and client expansion opportunities as evidenced in partnerships like the one with Carle Health. So we're very excited to see more and more of our clients embrace this kind of multifacet relationship. This will continue to be enabled by our primary focus on team member engagement. As I mentioned before, we've been recognized 76 times as the best place to work from virtually every organization that measures team member engagement. And we consistently score in that 95th to 99th percentile in terms of team member engagement, and we'll continue to focus on team member engagement in the years to come as well. We benefit from a leadership team that has depth of experience in health care, in technology. Many of our team members have spent decades in the health care delivery ecosystem. And so when these rebadge team members join us, they recognize the consistency of the mission alignment that exists between us and our clients. We continue at Health Catalyst to emphasize the 4 operating principles of improvement, ownership, respect and transparency and to be continuous learners, hardworking, humble and strive to be world-class in everything that we do. These last 2 slides that I'll share. First, as it relates to our long-term growth prospects, there are many ways for Health Catalyst to realize that long-term 20-plus percent growth trajectory. The one that I am most excited about, as evidenced by the Carle Health relationship that I just described, is the opportunity for us to expand within our existing client base, that first element on this slide. Certainly, there are other great levers for growth, but the tremendous opportunity before us. And our primary growth focus will be on how we expand within our existing clients organically over time, which is very, very exciting for Health Catalyst. We'll continue to grow our overall client base. We can add new applications and services. We can grow through adjacencies and through M&A. But our primary focus will be on existing client expansion, and we're very excited about that. Finally, we have a strong balance sheet. We're excited to be a profitable company, as measured by adjusted EBITDA in 2023. And we have confidence in our future, as evidenced at a company level by the recent announcement of a share repurchase. And for me personally, I have never felt more optimistic and excited about Health Catalyst future, especially at these share prices, which has informed my own personal buying decisions. I'm grateful to now be around a top 15 shareholder. I like the alignment that I have with our public market investors. We, as a Board, are excited for that alignment. We're excited for the future. Let me now turn it to Bryan.

Thank you, Dan. I'll just share a few financial highlights, and then we're excited to get to the Q&A portion. From a financial model standpoint, Dan mentioned this, but our recurring revenue is our primary contractual model with our clients. And that's both for technology subscriptions to our platform and applications as well as to our services component. So both our analytic consulting services as well as our tech-enabled managed services offerings are recurring in nature. And that provides us great visibility into a given year's revenue profile. Our long-term revenue growth target of 20% plus, as Dan mentioned, is made up at a foundational level by our ability to deliver value to clients who then renew and expand with us as well as to add new clients on an annual basis. And as Dan mentioned, we're grateful to see and happy to see that our bookings metrics that we had guided to in Q3 for fiscal year '22. We can confirm we're in line with those expectations based on that selling season, which is important for us because a lot of our bookings do come in the Q2 time frame as well as the Q4 time frame. Those are important selling seasons for us. Through that growth as well as by driving additional efficiencies in our operations, we've been able to show strong progression on gross margins. So you can see in 2017 in the low 40% level up to kind of year-to-date 2022 through Q3 in the roughly mid-50s range. That gross margin progression has helped us drive operating leverage all the way down on the EBITDA line. And we've also been able to leverage our operating expense profile over time and continue to grow by working on -- working with what we have to drive that growth. So we're excited to see in 2022 progress there as well. And as Dan mentioned, in 2023, continued EBITDA progression and will be positive for 2023, which is exciting to us. The growth drivers that Dan described continued to hold true. So you see that our foundation continues to be dollar-based retention rate, which provides the foundation for our growth and then new client additions over time. On the right of the slide, you'll see that we had coming into the 2022 time frame about 90 DOS subscription customers, but around 500 or so total clients today. A meaningful portion of those clients are not yet platform subscribers and so do represent a great expansion and upsell opportunity and cross-sell opportunity for us and a huge focus area. As well, when you look at our DOS client base or our platform client base, most -- the vast majority of those clients do not yet use our tech-enabled outsourced services as a full option, and that represents a very meaningful expansion opportunity as well. Just quick detail on our segments from a gross margin standpoint. Both of our segments, so technology as well as services, have improved over time, which has led to kind of overall gross margin improvement that we saw through 2022. Our Technology margin has ticked up close to the high 60%, 70% level year-to-date 2022. And services has moved around but currently sits around the mid-20s level. And then you can see that overall margin progression there in the middle. Lastly, and then we'll get to Q&A. Our long-term target model, you can see here on the slide, and you can see the progress that we've made historically as we drive towards those long-term targets. You can see the top line revenue growth target of 20% plus. Our gross margin targets in the mid-50s -- or excuse me, in the high 50s. And then you can see us demonstrating this EBITDA margin progression on an annual basis. Year-to-date 2022, we're around breakeven. 2023 expect to be positive and drive meaningful margin progression. And then in 2025, we've stated a 10% EBITDA margin target, and we feel confident in our ability to drive toward that level as well as a long-term target of 20% plus. So I'll pause there, and we'll get to questions.

Thanks guys for the really informative presentation. If anybody has a question, there's pack room. Please raise your hand and someone will come and bring you the mic. But I want to kick it off with the first question. Health Catalyst sits in a really interesting position where you can really understand the problems that your customers are facing. So can you talk about where their biggest issues are right now?

Yes. I just finished my 65th face-to-face visit with a C-suite exec from 1 of our top 100 clients. And I will share with you, there is 1 predominant theme, and that is financial pressure. That is negative operating margins. And how can you help me in the near term to improve my operating margins and improve this financial condition that's among the worst that most of the C-suite executives have ever seen. So for us and I think for many other companies, we've needed to shift away from parts of our portfolio that deliver a longer-term clinical improvement objective or a longer-term ROI and focus much more specifically on those near-term hard dollar financial improvement elements. What we found is there's no appetite for the first. There's a lot of appetite. If the client relationship and the trust level is there, there's a lot of appetite and even willingness that wasn't always there in the past to try something new like tech-enabled outsourcing that does involve change. But because of that financial pressure, there's more of a willingness to try that. And so in a strange way, that's one of the reasons I think we've seen more growth in that part of our pipeline than what we had forecasted and more acceleration in that part of our pipeline. But that's certainly the predominant theme that we're hearing.

You've been hearing a lot about that today. And I would imagine that tech-enabled outsourcing is also really helpful because of all labor shortages as well.

Yes.

So you're helping them with that as well. But you've talked about the financial pressures, and we've also been hearing from a lot of companies at the conference that, that's had an impact on purchasing. It's caused more scrutiny on what they're willing to buy. It's causing them to take a little bit more time to make decisions. So can you talk about how that's impacted your business?

Yes, it's a bit digital for us, and I can't speak for other companies. But I am certainly grateful that we didn't only have elements of our portfolio that were longer term in nature and a little softer on the ROI. Like if I were running a company like that, I don't know how we would survive because in our experience and my direct experience in these face-to-face, there is no appetite for that right now. It's not just elongated purchasing decisions, like there is no appetite for that. So we've needed to shift away from even talking about those solutions and instead focus specifically on here's how we can help meet you right where you are, we get it, we understand, you need this near-term help. And in those cases, we're still early on. And for us, it's really been the last 6 months that we've kind of pivoted and really focused on the other elements of our portfolio that deliver that hard dollar savings, but we've had a couple of data points where the opposite of purchasing elongation has occurred. There's been an acceleration like, okay, I need those savings right now. How quickly can we move? That doesn't always play out and generally health systems, as everyone here knows, take a while to make decisions, and there are a lot of people involved in those decisions. But relative to what we've experienced over the last decade, there's been more of a streamlining in some cases because of the need for that financial relief.

Okay. You talked about your expansion with Carle, that's really exciting. It's huge and kind of long-term opportunity for you. Can you talk about what went into their decision-making process and why they decided large expansion with you?

Yes. We think it's a very interesting microcosm for the rest of our client base. And so we've tried to study it, but there was a combination of a couple of things that seem to happen. One was that financial pressure. The CFO highlighted, we need cost savings. And they have specific goals and every department was asked to contribute to those goals. And the second piece was we were already in a relationship there where we had installed the data platform, we had used the data platform and the analytics and the right improvement expertise to realize some success together. So there was a relationship of trust there. And their Chief Operating Officer, Matt Cole, happened to be someone we've worked with Allina before Carle Health. And so there was a longer-term relationship with trust. Matt's coming here tomorrow, by the way, if any of you are meeting with me, he'll be tagging along. So that will be an added opportunity. But that relationship strength, coupled with the fact that there was a near-term need for financial savings, allowed an innovative leader like Matt and Dr. Leonard their CEO, to be open to what Dr. Leonard described is deepening a few carefully vetted long-term partnerships and figuring out how can we do more with a few long-term partners. And they describe it as we -- they have an Epic first and a Health Catalyst first strategy, like let's use a couple of consolidation platforms where we know we're going to be long-term partners we need cost savings. Let's trust these long-term partners and figure out how we get more out of those relationships. And that opened the door to the tech-enabled outsourcing discussion. And that, combined with the fact that we sort of offer a kinder gentler version of outsourcing, where we rebadge and we keep those team members local because Carle Health and so many other not-for-profit health systems care a ton about their local community and they care about these team members. And the fact that we had really high engagement scores and they knew we would take care of those team members, I think all kind of conspired together to enable us to have that massive expansion. And we certainly hope that we can see that repeated over and over again.

If I could just add 2 more dynamics as well, Anne. So to what Dan was saying around the technology use case, that enabled us to actually re-up Carle on a long-term 5-year kind of all access contract and by us having invested over time in additional applications and acquired some applications that Carle did not use. We were able to include those and drive upsell on the technology side as well with this deal. And then the other dynamic I was going to mention was Carle also just -- and Dan mentioned this in his prepared talk just had turnover and retention issues like they were struggling with, how do I keep this team of 60, 70 people kind of on track, and you all do that better than anyone in the industry. And so this is a great place for them to kind of grow in scale .

So that's where tech-enabled outsourcing really came in to seal the deal.

Yes.

I have one more question. I know there's a question in the room. But to that point, is Carle included within the dollar-based retention guidance that you've talked about? I just want to make sure that we clarify that.

It is. And it was an important element in a strong Q4 performance. It definitely informed our ability to share that we're affirming the bookings guidance both for existing clients and new.

Great. And we'll take the question here.

Great presentation and congratulations on your success so far. The question I have is, you pointed that it's not just the analytics and coming up with the reports and showing the hospital. It's really working with them to operationalize the solution and then realize the benefit. And that's really the real challenge. And you have an army of about 600 people, specialized people to work with that. My question to you is technology company, you scale with technology with very high gross margins. Consulting services companies, you scale with people and you have to keep adding people to deliver your service. What's your ambition? Do you want to become a consulting services company that uses technology to enable the consulting service? Or are you going to be a technology company that uses the consulting service to sell more technology? And where do you see the inflection point coming? How far are you from achieving that huge scale or scalability that comes with pure technology?

Yes. We've been debating that one for 15 years. And I think the answer is what we have found is you've got to have both. If you're serious about measurable improvement, you got to have both the right technology that automates processes that were manual, makes things better, faster and cheaper, but it's almost never sufficient. There's almost always a last mile of activity that needs to occur on the ground level. And so we have decided to embrace that, that we need both and we should be governed by what drives the most improvement. So in the case of Carle Health, for example, I have no doubt that this massive expansion, which, in this case, happens to include more services than tech still a very robust tech component. They expanded their tech relationship that 4 million of that 16 million is tech. But that was not enough to drive really massive, measurable improvement. And they needed the help that included that services component. So our ambition is to be the deepest, most effective partner that these health system clients can have in driving massive measurable improvement. That should mean that we migrate all of our largest 100, 200, 300 client relationships to include tech-enabled managed services in my view. What's exciting to me about that is, we've been at this now for 8 years. The first tech-enabled outsourcing deal we signed was with Allina Health 8 years ago. By the way, it wasn't our idea, it was Penny Wheeler's idea. It was a great idea. Most of our best ideas have come from our clients. And she asked us to Bryan's point about, gosh, we're having such trouble retaining our team members, half of them want to go work for you, why don't you just manage the whole end-to-end part of data management. So we got into that business in response to a client request. And what we found over time is that we can operate those things better, faster and cheaper. That's its own measurable improvement. And we can produce a business that at a unit economics level fits with this long-term EBITDA profile as well. And so what that enables us to do is with each client now that the TAM at any individual client, if we broaden the aperture and we include everything we might do on tech and services, instead of each client representing a TAM of maybe $1 million or $2 million now, you have clients that could spend $10 million, $15 million, $20 million a year with us, and we still produce this kind of EBITDA profile. It's very exciting from a top line growth perspective, and it's a very exciting business to build from a profitability perspective.

Dan, you talked about profitability, and we probably only have time for one more question. So I really want to dig in here. The 10% medium-term target is a fairly new data point and very exciting, considering you're just crossing the profitability barrier. It's very fast move. So should we expect that to be linear? How should we think about the progression of leverage over time?

Yes, we're excited to, Anne, because we realize how important that is. Every company needs to get to that kind of financial sustainability. And we're excited that 2023 will represent the first full year that the company will be profitable as measured by adjusted EBITDA. We shared in the November call that we expected about 300 basis points of improvement or 3 points of margin improvement this year. And if you sort of draw a line from this year to 2025, somewhere in that 3 to 4 points a year kind of a range feels like what we've been able to achieve historically and what we expect to achieve moving forward.

A big piece of that, yes. So a big piece of that will continue to be the revenue growth reacceleration that we'll see in 2025, which will drive gross profit dollars down to EBITDA. But also we've been working through kind of operating expense cost reductions. We've had been fairly acquisitive since we've been a public company and do have some efficiencies that we've been able to drive, in particular, on the SG&A side as we've tried to reduce that level of spend. So we're excited about that because a lot of this growth, we think, can be driven really efficiently from a spend standpoint.

And there's one other element that we're excited in terms of operating leverage with sales and marketing, and that is, I'll use the Carle Health example again. We had 1 account rep at Carle Health, right? And they were managing the relationship when it was 1 million and then when it was 4 million, and now it's expanded to 16 million, we still have 1 account rep. And that's a lot of leverage. And we see that kind of model being replicable, which we're excited about.

It's an exciting milestone for you guys next year. We only have 1 minute left. What are you most excited about in 2023?

Yes. There's 2 components that I think are going to happen at the same time, which I'm really excited about. One is the top line growth reacceleration. I think we're going to see more and more of these Carle Health type deals. That will, especially with existing clients, enable us to really massively expand. But doing that while at the same time, accelerating our profitability. I think that combination is really exciting. It certainly has informed my own purchasing behavior as it relates to Health Catalyst shares and where I think will be headed relative to where we are.

Great. Well, thank you so much Health Catalyst for presenting today, and thank you all for joining us.

Thank you.

Thank you.