Definitive Healthcare Corp.

Welcome to Definitive Healthcare's Q4 2023 earnings call. Our host for today's call is Jason Krantz. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host. Mr. Krantz, you may begin.

Good afternoon, and thank you for joining us today to review Definitive Healthcare's financial results. Joining me on the call today are Jason Krantz, our founder, executive chairman, and interim CEO, and Rick Booth, our CFO. During this call, we will make forward-looking statements, including but not limited to statements related to our market and future performance and growth opportunities, the benefits of our healthcare commercial intelligence solutions, our competitive position, customer behaviors and use of our solutions, our financial guidance, our planned investments, generating value for our customers and shareholders and the anticipated impacts of global macroeconomic conditions on our business results and clients and on the healthcare industry generally. Any forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the risk factors section and elsewhere in our filings with the SEC. Actual results may differ materially from any forward-looking statements. The company undertakes no obligation to revise or update any forward-looking statements to reflect events that may arise after this conference call except as required by law. For more information, please refer to the cautionary statement including the earnings release that we have just posted in the investor relations portion of our website. Additionally, we will discuss non-GAAP financial measures on this conference call. Please refer to the tables in our earnings release on the investor relations portion of our website for reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I'd like to turn the call over to Jason.

Thanks, Matt. And thanks to all of you for joining us this afternoon to review Definitive Healthcare's fourth quarter and full year 2023 financial results. Let me begin by saying that I'm excited to be back as Definitive Healthcare's CEO on an interim basis. Definitive Healthcare plays a unique and differentiated role in the healthcare ecosystem, providing thousands of companies with the data and analytics to help them more effectively commercialize in the large and complex healthcare market. I am energized to once again help Definitive capitalize upon this significant opportunity. On today's call, I will provide an overview of our fourth quarter results, review our performance for 2023 overall, and discuss the future as we position Definitive Healthcare for our next stage of growth. For the fourth quarter, our total revenue was $65.9 million, representing 9% year-over-year growth. And adjusted EBITDA was $19.8 million, a 30% margin. For the full year, total revenue was $251.4 million, representing 13% year-over-year growth. And adjusted EBITDA was $74.5 million, a 30% margin. We are pleased with our performance during the quarter. We continued to show growth in a difficult macro environment, and we delivered upon the 30% full-year adjusted EBITDA margin that we guided to at the beginning of the year. Our clients continue to view definitive healthcare as critical to solving their most important commercialization problems. They use our products and data to analyze what markets to invest in, who the most important prospects are in those markets, and how to deliver targeted messaging to the right decision-makers. This showed up in our fourth quarter leading results, which exhibited strong top-of-the-funnel demand for our products. But consistent with the trends of 2023, we continued to experience longer sales cycles, as uncertainty remained in some of the key markets that we serve. Positively, late in the quarter, we began to see the benefits of the product and delivery investments we made during 2023, with a meaningful increase in customer retention across our business, a trend we expect to continue into 2024. Additionally, our success in adding 12 new enterprise clients during the quarter demonstrates that our data and products are must-haves for these essential customers. Importantly, our enterprise clients, which renew at a higher rate and have the most opportunity for expansion, now account for 65% of our total ARR, up from 61% a year ago. I will discuss later how we are allocating even more resources and attention to this segment going forward. From an end market perspective, Life Sciences, which makes up almost half of our ARR, remained under pressure during the year. The impact of a challenging financing environment impacted the lower end of the market, and customer churn remained elevated across the entire industry as these organizations continued to adjust to changing market dynamics. Despite this, we had a number of exciting customer wins and expansions in Life Sciences during the quarter. including a New Jersey-based biopharma company focused on oncology therapies for patients with limited treatment options that selected our Monaco platform to help their marketing and medical affairs teams grow their key opinion leader network in support of the launch of a new combination therapy to treat patients with liver cancer. Additionally, in MedTech, we signed on a Swiss robotics company which is focused on minimally invasive surgery. This company plans to utilize our platform across our sales and marketing organization to create a game plan for entering the U.S. market by identifying and targeting the most valuable opportunities for their products within the surgery center, hospital, and individual physician market. Within our provider market, which now accounts for more than 10% of our ARR, we saw improved conditions as this market has started to recover from the challenges created by COVID and staffing shortages. The acquisition of Populi has had an immediate impact on our ability to meet the complex needs of this large and dynamic market, resulting in greater deal velocity with both new and existing customers, as well as a significant reduction in customer churn. Based on this success, we plan to expand the Populi solution to our other end markets in 2024, which we believe will have a similar impact across our entire business. I will talk more about this later. A key win in this segment included one of the largest not-for-profit integrated healthcare systems in Massachusetts that selected our new Populi platform to help them build their physician network by analyzing diagnoses and procedure volumes in their markets, physician referral patterns, and service line utilization. Finally, our diversified customers, which count for about 40% of our ARR, performed well in 2023. This market is comprised of customers across a variety of industries that leverage definitive healthcare as a must-have in order to effectively sell their goods and services into the complex, multi-trillion-dollar healthcare market. An example of a great win during this quarter was a global leader in commercial real estate that selected definitive healthcare to help them map out their clients' market opportunities. Additionally, they're integrating our data into their Snowflake instance, which is an integration partnership that we launched last year that reinforces our goal of becoming heavily integrated into our client's workflow. We were also pleased with our ability to increase adjusted EBITDA margins during the quarter. During 2023 and into the beginning of 2024, we took proactive actions to manage expenses and increase efficiency. These actions allowed us to deliver on our full year adjusted EBITDA margin goal of 30%, and the benefits of these efforts will help drive an expected 200 basis point increase in adjusted EBITDA margin in 2024. Importantly, however, our cost reduction efforts are intended to also give us room to invest throughout the year in the most attractive growth opportunities for our business. As part of the restructuring announcement we made in January, we made several organizational changes. all of which we believe set us up for long-term profitability and growth. First, we streamlined our go-to-market team by reducing overlays and allocating more resources to our most important enterprise clients. These changes will allow us to increase go-to-market productivity by creating more direct accountability amongst our sales team. Additionally, our shift in resource allocation to enterprise clients will allow us to build deeper relationships, ensure these organizations fully benefit from the entirety of our offering, and provide more direct feedback to our product development efforts. Second, we reallocated resources within our product organization to areas we believe can have the most immediate impact on our business. This includes an investment in our claims analytics platform and more resources dedicated to artificial intelligence and data science. Finally, we have increased our investment in our Bangalore office to leverage tremendous talent and expertise in that region. particularly in biopharma, data science, and engineering. We expect this investment will not only result in cost savings over time, but will also impact the speed at which we are able to innovate. While the decision to restructure is always difficult, we believe the changes that we have made create a more sustainable long-term cost structure and free us up to allocate investment dollars to the highest opportunity areas. As we turn to the future, 2024 is a year that will be focused on growth and innovation by digging deep into how we can further help our customers achieve the commercialization success for which they have been turning to us for the last 13 years. Our product work in 2024 will build on our solid foundation of proprietary and differentiated data, powerful and flexible analytical products, and deep subject matter expertise. all of which feed our flywheel of innovation that enables our offerings to evolve at a rapid pace to meet the changing and complex needs of our customers. In 2024, we are focused on the following four areas. First, we will continue to invest heavily in our core and proprietary data asset. We will continue to focus on improving data quality, as well as expanding the breadth and depth of our data. Some specific examples include investment in non-standard affiliations, such as management service organizations and independent provider associations, as well as new data and analytics on cancer and infusion centers. Second, we are expanding the use of our populate claims analytics and visualization platform to serve all of our end markets. Since acquiring this platform in July of 2023, we have seen lower attrition and more rapid expansion in our provider business. With this new platform, we have been able to deliver solutions that get into our clients' workflow as they look to expand their markets, reduce leakage, and strengthen their physician networks. We see tremendous opportunity here to build on this success by leveraging this technology with our valuable life sciences and diversified customers. This enhanced solution will launch early in the second half of 2024, and we believe will have a measurable impact on our expansion and churn metrics. Third, we'll continue to invest in AI and data science to drive more insights for our clients. Our work here, which is a continuation of the deep data science that we have been focused on since we were founded, is concentrated in three key areas. First, we are using AI and data science to become more efficient across our organization by automating our work. Second, we continue to derive new data and insights using AI. Our proprietary data on the entire healthcare ecosystem gives us the unique ability to layer on AI to create new intelligence that cannot be found elsewhere. A few newer examples of this include a geographic proxy to help providers understand where their patients come from, and a new influence score that measures the impact of scientific activity, such as event presentations and scientific publications. Thirdly, we are collaborating with our customers to explore ways in which we can overlay this technology into our front end to help our users leverage our data and intelligence more quickly. Finally, just after year end, we completed another acquisition, purchasing the CareVoyance product line from H1. CareVoyance is a software platform utilized by sales and marketing teams in MedTech to identify the physicians and facilities that can benefit most from their medical technology or device. While this acquisition is small from a revenue standpoint, we are excited as it provides our clients in the valuable MedTech segment with a workflow solution that can leverage our Atlas data set to drive more meaningful interactions with physicians and hospital executives. This product is already being sold by our commercial team, and it's quickly being integrated into our overall platform. Early client response has been positive and illustrates the value of combining our best-in-class data assets with software that is purpose-built for the needs of our end markets. Additionally, in 2024, we will remain keenly focused on customer retention. As discussed, we believe the product initiatives we are putting in place, such as enhancing our core data asset and expanding the use of our Populite claims analytics platform, will result in reduced churn. However, we will also continue the work we started last year of improving our service and delivery efforts that began to positively impact our churn metrics as the year came to a close. The future of definitive health care is bright. We compete in a complex and dynamic market with a TAM that is more than $10 billion and growing. We have a combination of unique and proprietary data assets, along with powerful products that solve mission-critical client problems. And we have an extraordinarily talented workforce that innovates and constantly redefines how data and analytics can be leveraged in health care. With that, let me turn the call over to Rick to walk through the numbers.