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spk08: marketing by focusing on the markets and activities with the highest return on the investment. And based on our current full-year revenue outlook, which I'll get to in a few minutes, we now expect to see operating leverage from sales and marketing in 2024 of 300 to 400 basis points relative to full-year 2023. Product development expense was $7.3 million, up 6% from Q1 23. As a percentage of revenue, product development expense was 11.5% of revenue, consistent with Q1 23. We believe investing in our platform and using our existing data sets to launch or enhance multiple products is a highly effective and efficient way for us to increase the value we deliver to customers. Jason touched on some examples of these earlier, and we will continue to invest in the multiple opportunities we have identified on our long-term product roadmap. We continue to expect full-year 2024 product development expense as a percentage of revenue to be fairly consistent with full-year 2023. G&A expense was $7.2 million, down 5% from Q1 23. As a percentage of revenue, G&A expenses were 11.4% of revenue, which is an improvement of about 150 basis points compared to Q1 23. We expect G&A as a percentage of revenue in 2024 to be roughly consistent with 2023. Adjusted operating income was $18.6 million, up 32 percent from Q1 2023. As a percentage of revenue, operating income was 29 percent of revenue, up over 500 basis points from Q1 2023. The year-over-year margin increase was primarily due to efficiencies in sales and marketing. Adjusted EBITDA was $20 million in the quarter, a 28% increase from Q1 in the prior year. As a percentage of revenue, adjusted EBITDA was 32% of revenue, up over 500 basis points from Q1 of the prior year. As we move through 2024, we continue to expect to see year-over-year improvements in our adjusted EBITDA margin. We will continue to make adjustments in the areas that are most important to us and to our clients and maintain a balanced financial profile that drives margin expansion. Adjusted net income in Q1 was $13 million, or $0.08 per diluted share, based on 156.6 million weighted average shares outstanding. Turning to cash flow, definitive health care's high margins, upfront billing, and low CapEx requirements provide substantial free cash flow generation. We focus on trailing 12-month cash flow due to seasonality. Operating cash flows were $42.8 million on trailing 12-month basis, up 16% from $36.9 million in the comparable period a year ago. Unlevered free cash flow with $28.3 million in the quarter, our largest quarter ever of unlevered free cash flow generation. And on a trailing 12-month basis, unlevered free cash flow was $76.1 million, up 43% from the comparable period a year ago. Unlevered free cash flow was 30% of revenue on a TPM basis, effectively converting 97% of our TTM adjusted EBITDA of $78.7 million into cash. On the balance sheet, we ended the quarter with over $295 million in cash, cash equivalents, and short-term investments. With strong adjusted EBITDA profitability and only $254 million of debt, We believe we're well-positioned to fund both organic and inorganic growth initiatives. Current revenue performance obligations of $182 million were up 1 percent year-over-year, and total revenue performance obligations were up 2 percent year-over-year. Deferred revenue of $108.1 million was up 2 percent year-over-year, And you will note that, as expected, CRPO and deferred revenue continued to grow more slowly than revenue, and I'll have more to say about that in guidance. As Jason mentioned, we experienced greater than anticipated disruption from our transformative actions early in the year, and we are adjusting our guidance accordingly. For Q2, we now expect total revenue of $62 to $63.5 million, for a growth rate of 2 to 4 percent year-over-year. And within total revenue, we expect subscription revenue to increase slightly from Q1, while we expect the revenue recognized from professional services to decline due to lower bookings of these projects in Q1. From a profitability perspective, we expect operating income of $17 to $18.5 million. adjusted EBITDA of $18.5 to $20 million for a 30 to 32 percent adjusted EBITDA margin, and adjusted net income of $13.5 to $14.5 million, or 8 to 9 cents per diluted share on 157.2 million weighted average shares outstanding. Rolling forward to the full year 2024, We now expect revenue of $255 to $261 million for a 1% to 4% growth rate. And we continue to expect our growth rate to moderate as we move through the first few quarters of the year given current economic conditions, along with our wrap on the Populi acquisition in the second half. From a profitability perspective, We're tightly managing operating efficiency and the associated costs to protect margins. Accordingly, we now expect adjusted operating income of $75 to $78 million, adjusted EBITDA of $81.5 to $84.5 million for a full year margin of 32 to 33%, with margin unchanged from prior guidance. Adjusted net income is expected to be between $56.5 and $59.5 million. And earnings per share are expected to be between 36 and 38 cents on 157.5 million weighted average shares outstanding. Our guidance for Q2 and the full year fully reflects our assessment of current conditions. We remain focused on driving operating efficiency and investing to meet client needs both today and for the future. Finally, I'd like to touch on our newly announced share buyback program. On May 1st, the board authorized the repurchase of up to $20 million of stock. This repurchase program is expected to continue through the end of 2024. The buyback authorization reflects our strong cash flow generation our confidence in the long-run prospects of the business, and our commitment to enhancing shareholder value. So to summarize, we took several actions to improve the margin profile of our business, and we added meaningful capabilities to our portfolio through organic innovation and through strategic acquisitions. We remain confident that we are well-positioned for the long-term in a large and attractive market that we believe will help us drive shareholder value for a long time to come. And with that, I'll hand it back to Jason for a few closing thoughts before we take questions.
spk15: Before I open it up to questions, I want to reiterate our excitement about the future of definitive healthcare. We have an incredible team that is committed to driving real value for our customers in a market with a large and growing TAMP. We have proprietary data assets that create a true competitive edge, and we are confident that the work we are doing to drive innovation and operational efficiency will translate into the long-term growth and profitability that makes this company such an exciting investment.
spk14: With that, I would like to open it up for questions.
spk04: If you would like to ask a question, please press star 1 on your telephone keypad now. You will be placed into the queue in the order received. Please be prepared to ask your question when prompted, and please keep to one question and one follow-up question. Once again, if you have a question, please press star 1 on your phone now. And our first question will come from Craig Hettenbach with Morgan Stanley.
spk01: Great. Thank you. Jason, you mentioned the disruption in the first two months of the year. I was looking to see kind of into March and April, you know, what type of changes as years start to progress from the reorg. And then really kind of when you think some of these changes will start to gel and have an impact.
spk15: Yeah, thanks. Great question. So we made a significant GGM change in January, as everyone knows, to reduce overlays and restructure in a way that we think sets us up to better align with our customers. So more resources looking at our enterprise customers, a separate motion for our small and medium-sized customers. That change is done at this point. So all of the structural changes have been made, all of the transitions of customers to new owners, all of that is done. So now we are laser focused on driving the activity and building the pipelines that will turn into growth in the later part of this year. So we're focused on, you know, now that the changes are done, we're focused on doing all the things that we can to take advantage of what we believe is a much better operating setup for our go-to-market team.
spk01: Got it. And then just as a follow-up, you highlight kind of the 6% growth in enterprise customers. I know that's an area where you've seen some improvement in retention. Can you just discuss what you're seeing out there on enterprise and then on the longer tail of smaller customers? Do you expect that to continue to bleed down in terms of the number or when would you see some stabilization perhaps in the smaller size customers?
spk15: We're incredibly focused as an organization on those enterprise customers. They now make up somewhere around 65% of our total ARR. So we see much better renewal rates with those customers and there's also a tremendous more opportunity to expand with those customers. So a lot of the product investments that we are making will help those customers and allow us to expand the number of use cases that we solve for them. So that remains our key focus because of the strength of that market. The small and medium, I mean, those are always going to churn at a higher pace, the small customers in particular. They're going to churn at a higher pace than other customers. but we are focused with our new group that focuses solely on those customers. We believe that we're going to be able to provide them more value delivery as we work with them on scale rather than the way that we structured it before where the segmentation was a little bit less clear and the motions were a little bit more intermingled as a result.
spk05: Got it. Thank you.
spk04: And our next question will come from Jared Hayes with William Blair.
spk03: Yeah. Hey, thanks for taking the questions. Maybe just on the updated guidance for revenue, obviously implies a little bit of a sequential improvement in the second half of the year. I was just hoping to hear a little bit more about kind of the visibility you have in terms of what gives you confidence in that second half ramp. with the outlook? And specifically, I'm wondering, are there any kind of discrete assumptions in terms of improvements in the macro environment? Any other assumptions, just as you think about that rollout of Populi to the broader customer base? Is that contributing at all? Just would love to unpack a little bit further.
spk07: That's a great question, Jared. This is Rick.
spk08: We're seeing continued improvements in renewals, which are consistent with our prior expectations and with expanding NDR by 1 to 200 bps by the end of the year. We are also in our guide assuming overall sales productivity in the second half, which is similar to what we saw in Q1. So we're not building in a massive rebound there. And we're taking into account that we are focused on product-driven subscription revenue over one-time fees. So we've adjusted to actually take into account that we expect pro-service revenues or one-time fees to actually decline year over year. So all those things together make us feel that this is an appropriate guidance for us.
spk03: Okay, that's super helpful. And then Jason, you talked a little bit about kind of the differences in experience between new logos and the expansions and upsells with the customer base. In terms of the new logos, I'm curious if there have been any changes in terms of just how you're approaching the market to maybe see a little better win rates there, anything you're doing from a messaging perspective, or maybe even in terms of like free trials or things of that nature, anything changed as it relates to your go-to-market motion with new logos?
spk15: It's a good question. So I think there's two changes of nodes. So the first is, as we've discussed, we've separated our enterprise clients from our small clients. So the way that we're approaching small clients is all about high velocity and how do you go drive growth within that segment very efficiently. So I think what you'll see is when we grow those clients, we do so in a more efficient manner than we've been able to do in the past year. The second thing that we're focused on overall is thinking about how we can expand our marketing to drive free trials and drive other opportunities across all of those markets. So continuing to figure out different ways to emphasize ROI with our clients is increasingly important for them, making sure that, you know, as they are more cost conscious and trying to evaluate every buy and all that cost scrutiny that's going on it, presenting an ROI and demonstrating to them that they can get value very quickly from our products is important. And you see that in our product development as well. So we are trying to continually use, for example, the Populite Claims Analytics platform. That is all about how do we design analytics that are very specific to the use case of our clients so that they can see how can I use this data tomorrow to improve my business and drive ROI. Okay.
spk06: Okay, that's perfect. Thank you.
spk04: And we'll move next to Ryan McDonald with Needham and Company.
spk13: Hey, this is Matt Shea on for Ryan. Thanks for taking the question. Jason, you call out new logos and upsells as an area of weakness and that those restructuring changes or with those restructuring changes, you started to see better new logo ads in March, but didn't necessarily hear you comment on the upsells. So curious if you've started didn't see an improvement there. Just any commentary you can provide with that. And then with those new logo improvements in March, is there any end markets to call out that were particularly strong?
spk15: Yes, I think a couple of things. So the upsells were less impacted by our changes. And that has been true in general through this more difficult macro environment where our clients are loyal to us, they get tremendous value over our products, and we're able to upsell and expand with them more easily in difficult markets than new logos. I think it's more a reflection of January and February being more difficult for new logos than seeing improvement across the board. In terms of markets that we're seeing, solid performance and providers is continuing to be a really good market for us. Obviously we made a great acquisition last year and we've got a product that really meets the needs of that market. So we've done well in both new logos as well as continuing to drive down customer churn within that area. The other markets have performed similarly as they have in the past. So continued difficult conditions for both life sciences as well as smaller software and IT organizations.
spk13: Got it. That's helpful. Yeah, it seems like Populi has really been a huge benefit on the provider side. Curious as you look out to the second half of the year and that rollout to the other end markets, have you been able to start marketing to those other end markets or provide demos of the Populi platform to them or any signals that is giving you that confidence in Populi helping drive growth in those other end markets in the back half?
spk15: As we develop the product for those end markets, obviously we're doing a lot of testing with our clients. We are getting very good feedback. Again, as you think about what it does, it's all about time to value for our clients. So being able to design analytics and workflow in a way that meets their exact needs is very powerful. So as we roll that out, we would expect that to have a similar impact in terms of driving more expansion, more deal velocity, and also improving our renewal rate within those markets. But that will take time. Obviously, as we roll this out, we need to go get in front of clients, start to build that pipeline, and start to bring on more deals and drive up that renewal rate.
spk12: Got it. Thank you.
spk04: And as a reminder, if you would like to ask a question, please press star 1 on your phone now. And our next question will come from Anne Samuel with J.P. Morgan.
spk10: Hi. Thanks for taking the question. Maybe just a follow-up to the one on the different markets. You know, with capital markets in the life sciences space starting to come back a little bit, I was wondering if maybe you could speak to, you know, your pipeline. And, you know, if things start loosening up a little bit, how long that might take to translate to revenue for you. Thanks.
spk15: Yeah, generally speaking, depending on the size of the customer and the complexity of the deal, our deal cycle is between probably 120 and 150 days overall. So as that market improves, we should see impact of that later in the year. I would say it's somewhat offset by big pharma is in a cost-cutting mode right now, so that is somewhat offsetting somewhat of the revival within the biotech market. But that's the type of timeframe you'd think about as you think about bringing new stuff into our pipeline and when that starts to translate into actual closed business.
spk05: Helpful. Thank you. And we'll move next to David Grossman with Stiefel.
spk02: Thank you. You know, I was just looking at it. I'm sorry I joined the call too many times. Looking at the enterprise customers sequentially, I know you commented here over here. Is there anything, is there a seasonal dynamic there? Is the loss of the six net, was that in line with your expectations? Or is that some of that just fall out from the structuring that you've been talking about?
spk15: Yeah, I don't think there's anything specific to point out there. I think just in general, A slower start to the year is driving that number a little bit, but we would expect continued growth in that over time. Obviously, the year-over-year number is very good.
spk02: Right. And did that impact the sequential dynamic with CRPO, or are those unrelated?
spk07: Yes. The disruption that Jason mentioned definitely impacted CRPO. Overall, CRPO is up 1% year-over-year.
spk08: If you normalize that for the opt-out clauses that we discussed last quarter, you've got about two points of CRPO, and then there will be some contribution from new business as well, as well as the increase in NDR that we talked about of 1 to 200 BIPs. Got it.
spk02: And then just, you know, back to, you know, pocket line and care buoyance, you know, can you talk a little bit, you know, about... just how these acquisitions are playing out for you from a growth perspective. I know you don't really break out organic versus inorganic growth, but, you know, anything you can talk about in terms of, you know, the success that you're having in getting out of those acquisitions, or are they really acquisitions that will generate returns over a long period of time? It's kind of an unnatural thing to think about the cyclical.
spk15: Yeah, good question. So our integration strategy has been very focused on tuck-in acquisitions that we believe can drive innovation. So, you know, right now we're super focused on go-to-market excellence as well as innovation overall. A way to innovate more quickly, of course, is doing these tuck-in acquisitions. So we integrate these very quickly into our organization. So we start feeding our data into these products very quickly to make them better. and we can expand their growth that way. Our commercial team is very quickly selling all of these products as part of their overall product suite that they offer to our customers. We do centralized marketing, back offices integrated within a few months typically. So it becomes very difficult to sort of separate organic versus non-organic, but these are important growth drivers for us. We need to continue to innovate in a market that's changing quickly. And if we can find great companies like Caravoyance and Populi that can expand our product portfolio, we see that as setting us up for long-term growth that we're looking for.
spk02: Got it. And sorry, can I just ask one other question? I think I heard you said that you're still expecting about 100 to 200 basis of improvement by year end at dollar retention. So if I kind of think about the other things you said on the call is the idea that It's really just the current weakness is really just driven by new logos. So the things that you've seen through April, May, you're pretty satisfied with, you know, kind of the dollars that you're getting all day. It's really just new logos that are a package guide for the year.
spk07: Generally, yes.
spk08: I think what we're seeing is that customers that have experienced the benefit of the product are renewing at improving rates, which we're very pleased with in terms of the early feedback on some of the product changes that we've been talking about. We built that expectation in in the second half of the year as it flows through our guidance.
spk16: Okay, guys. Good luck. Thanks very much.
spk08: Thank you.
spk04: And our next question will come from Stephanie Davis with Barclays. Hey, guys.
spk11: Thank you for taking my question. I was hoping you could expand a little bit more about the large uptick you saw in your pipeline in March. Can you help us understand how much of that acceleration was from a shift in your go-to-market versus maybe upsell success or new products or expansion in new end markets? Is there anything about the nature of this uptick in your pipeline that would maybe change your pipeline conversion or make it less certain than history?
spk15: I don't think there's any major changes in it. You know, in general, what you will find is based on the way that we've redesigned our strategy overall, more of that pipeline will be in larger customers by definition because we have more resources focused on those markets. The big increase that I talked about from January to March is really about we've worked through a lot of the changes that we made. It's hard work and making sure that we get our team refocused on getting out there, meeting with clients, building pipeline. That just took a bit more time than we thought, but now we're starting to see that work, and that's reflected in the March pipeline numbers.
spk11: So thinking about the forward trajectory there, should we assume that this is more the go forward clip and then eventually that's going to convert into revenues in a much quicker way? Or are we taking a more cautious approach just given some of the year-to-date performance?
spk15: Yeah, I guess I would be careful to look at our January to March numbers since that's all in quarter. I think, you know, year over year, the fact that we are Meeting last year and beating last year's pipeline ads is important, however. We'll continue to focus on that. So this is one of the three things that we're focused on as a company is go-to-market efficiency and how do we drive that activity and build that pipeline. Product innovation and how do we continue to delight our customers with new innovative products and then continue to run with operational efficiency. So rest assured we are fully focused on it and we will continue to build that pipeline over time.
spk11: Super helpful. If I could sneak in a quick one. As much as I love hearing Jason on the call, is there any updates on the CEO search?
spk15: Yeah, well, I appreciate that comment first. But yeah, we are continuing to, we're continuing to focus on finding a great candidate. We have met a lot of good people. There's tons of interest in this job overall. You know, our timing, as discussed previously, is when we find the right person. We need to find somebody that is a great operator that can help us see our way to a billion dollars in revenue over the next 10 years, and we need to find somebody that is customer-obsessed and focused on driving the type of innovation we need to meet those numbers. So when we find that person, you'll be the first to know, but we're actively looking and seeing a lot of great candidates.
spk11: Thank you much.
spk04: Appreciate it. All questions have been addressed at this time. I'd like to turn the conference back to Jason Krantz for closing remarks.
spk15: Great. Well, thanks, everyone. We appreciate your time today. You know, as we said, we are very excited about the long-term opportunity for definitive healthcare. This is truly a great market that we compete in. And as macro conditions improve, we believe all the things that we're doing right now, whether it be the go-to-market efficiency work that we're doing all of our product innovation that is accelerating and doing so in a way that drives profitable growth is something to be really excited about. So thank you for your support, and we look forward to continued conversations.
spk04: This concludes today's conference call. Thank you for attending.
spk05: The host has ended this call. Goodbye. you Thank you. Thank you.
spk00: Thank you. Thank you. you Thank you.
spk04: Welcome to Definitive Healthcare's Q1 2024 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.
spk05: Mr. Krantz, you may begin.
spk09: 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 in 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 factor 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.
spk14: Thanks, Matt.
spk15: And thanks to all of you for joining us this afternoon to review Definitive Healthcare's first quarter 2024 financial results. As you will hear on today's call, our first quarter performance was mixed. While we met our revenue guidance for the quarter, we underperformed our new logo and upsell expectations largely due to the continued macro headwinds and disruption from our restructuring at the beginning of the year. However, we delivered strong adjusted EBITDA margin expansion as we continue to focus on operational efficiencies to set ourselves up for long-term profitable growth. Furthermore, we continue to improve our customer renewal rate during the quarter as our work to deliver more value to our customers faster continue to take hold. Finally, the financial power of our business model shown as we translated 97% of our adjusted EBITDA into unlevered free cash flow over the last 12 months. Before I get into details, I would like to reiterate how excited I am about the long-term opportunity for definitive healthcare. We have highly differentiated data and cutting-edge data science delivered through a scalable SaaS platform. We have a talented and committed workforce, and we compete in a complex market with a large and growing TAM. Furthermore, we have a fantastic business model that is able to generate a powerful combination of growth, profitability, and free cash flow. And we believe that the work we are doing today will set us up to get back to the growth we expect. With that said, for the quarter, our total revenue was $63.5 million, representing 7% year-over-year growth. And our adjusted EBITDA was $20.0 million, a 32% margin. We also, during the quarter, delivered record unlevered free cash flow of over $28 million. Additionally, as Rick will discuss in more detail, due to the slower than expected start to the year, we will be adjusting our guide down for both revenue and adjusted EBITDA. However, we will still deliver on our goal of 200 to 300 basis points of year-over-year adjusted EBITDA margin improvement. Our slow start to the year can be attributed to two factors. First, macroeconomic conditions continue to create headwinds. Similar to the dynamic in 2023, sales cycles remain elongated as buyers continue to scrutinize their spend in a cost-conscious environment. This continues to be more acute in new logos rather than expansion and upsells with existing clients. Second, as previously discussed, as part of our restructuring on January 4th, we reorganized our go-to-market team to significantly reduce overlay expenses create a separate group in sales motion for our small and medium-sized customers, and allocate more resources to our most important enterprise customers. The extent of this change resulted in significant disruption to our sales efforts in the first two months of the year as we transitioned to the new model. Despite these near-term challenges, we are confident these important strategic moves best position the company to deliver on our long-term goals. Now that we have completed these large structural changes, we are focused on driving improved, consistent performance, and we are already seeing positive indications of this on our business. For example, in March, we added over 80% more pipeline, as measured in dollars, in new logo opportunity versus what we added in January, and we surpassed our pipeline ads from March of 2023. In addition, we continue to see year-over-year improvement in our customer renewal rate as our products and delivery investments continue to take hold. We believe this improvement will continue as we roll out our new claims analytics platform to all markets and drive operational excellence across our delivery teams. Importantly, we continue to manage our experience as well as we work through our restructuring. We are laser focused on ensuring all of our resources are pointed on in the areas of our business that can drive the most value for our customers. This resulted in a strong adjusted EBITDA, which grew 28% year-over-year during the quarter, as well as an adjusted EBITDA margin that improved over 500 basis points year-over-year and was at the upper end of our guidance range. We will continue to maintain this cost discipline as growth resumes. Finally, we continue to demonstrate an ability to deliver exciting value to our customers. One metric that I look at is our average ACV across our client base, which increased 13% year-over-year and continues the streak of increasing sequentially every single quarter since we have been a public company. Over the coming quarters in 2024, we will focus on three key areas. First, we will continue to focus on operational excellence. We are incredibly focused on driving data-driven performance within our highly scalable sales engine to build pipeline and work with our customers to deliver the data and products they need to accelerate their growth. Additionally, we will continue to focus on ensuring that we run the company as efficiently as possible. From G&A to product to our data collection and research, We will ensure we continue to deliver on the EBITDA margin expansion we got into at the beginning of the year. Second, on the product front, we are heads down on all the important initiatives that we discussed at our last earnings call. These initiatives include growth of our core data assets to include new affiliation and provider types, such as infusion and cancer centers, which will be launched in early H2. Continue to expand on our core data as it is an ongoing and essential part of our business, and it's what sets us apart from the typical data vendors. For example, in Q1, a leading provider of chronic care management products and services selected Definitive Healthcare as their central source of truth for all healthcare provider data. They're using our products to build heat maps for their sales teams and are integrating our affiliation hierarchies into their CRM system. This will allow their teams to identify new white space opportunities that their clients and prospects. As discussed previously, we are also expanding our Populi claims analytics and visualization platform to serve all of our end markets. Originally designed to help our provider customers solve their most important use cases, we believe other markets will similarly benefit from the platform as we create use case-based solutions that allow these customers to leverage our proprietary data in new ways. Two recent Populi deals include a leading health system in the southeastern United States whose strategic planning and business development teams selected the Populi network and market intelligence modules to analyze patient out-migration within their existing practices, as well as to evaluate potential practice acquisitions. In addition, the marketing team at a Texas-based health system selected the Populi population intelligence platform to drive their consumer marketing programs for expansion of new and existing service lines. Additionally, we continue to focus on AI and data science to turn our proprietary data into new, actionable insights for our customers. An example of this is our upcoming launch of DH Market Forecast, which is a cutting-edge 10-year projection tool that revolutionizes healthcare planning in the U.S. Utilizing our comprehensive Atlas datasets spanning provider, consumer, and claims data, this tool predicts changes in healthcare utilization. as well as disease incidents and trends in supply and demand. This invaluable resource will empower our customers across all verticals. For example, life science firms will be able to anticipate disease trends and the resulting shifts in therapy demand. And healthcare providers will gain insights into service demand, helping optimize physician staffing and adapt to shifts from inpatient to outpatient care. Finally, on our last call, we also touched on our CareVoyance acquisition, which has now been fully integrated into our organization, both from a product and commercial perspective. We are excited at the early indications of market demand. An example of an early win in Q1 was a leading manufacturer of advanced heart pump technology, a client of both our VIEW platform and CareVoyance, who expanded their CareVoyance spend to help drive growth in their therapeutic awareness and physician programs. The third area of focus for the remainder of 2024 will be on the success of our existing customers. Product is a major part of this effort, and we believe the improvements that we are making would deliver more value more quickly to our customers. But we're also investing in processes to assist our customer success and claims deliveries teams to help our customers get more value out of our data and products. An example of this effort, the hard pump manufacturer I just mentioned cited the excellent support they received from our customer success team as a key factor in their expansion efforts.
spk14: With that, let me turn the call over to Rick to walk through the numbers. Rick?
spk08: Thanks, Jason. I'll start with a detailed review of our Q1 results before finishing with our guidance for Q2 and commenting on the full year of 2024. In all of my remarks, I'll be discussing our results on a non-GAAP basis unless otherwise noted. As Jason mentioned, our performance was mixed in the quarter. We delivered both revenue and adjusted EBITDA within our guided range, and while we're pleased with the profit performance in the period, revenue was at the low end of our expectations. We remain focused on what we can control, and we continue to advance our efforts to operate more efficiently while delivering innovation for clients. both of which we expect to position as well as the market recovers. Highlights of the quarter include revenue growth of 7% compared to Q1 of 23, and EBITDA adjusted net income and core EPS by 28%, 44%, and 41%, respectively, over the same period a year ago. We delivered a 32 percent adjusted EBITDA margin for the quarter, up over 500 basis points year over year. And as a result, Q1 revenue growth plus the trailing 12-month adjusted EBITDA margin was 38 percent. And we generated $28.3 million of unlevered free cash flow in the quarter and $76.1 million on a trailing 12-month basis. which is up 43% versus the same period a year ago. Turning to our results in more detail, revenue for the first quarter was $63.5 million, up 7% from the prior year and within our guided range. This includes 1.7 million of professional services as large clients engaged us to work on some of their most challenging issues. We ended the quarter with 559 enterprise customers, which we define as customers with more than $100,000 in annual recurring revenue. This was an increase of 30 enterprise customers, or 6% year over year. As a reminder, these customers represent the majority of our ARR and are a key focus of our go-to-market programs. Our total customer count, which includes smaller customers, was approximately 2,800 at the end of Q1, down about 200 from Q1 2023, and down 100 from the previous quarter, as smaller customers have been disproportionately impacted by current conditions. Adjusted gross profit was $53.1 million, up 7% from Q1 2023. The adjusted gross profit margin of 83.6% decreased from Q1 2023 due to the impact of Populi, which was acquired in Q3 of 23. Excluding Populi, gross margins expanded by over 100 basis points year over year, demonstrating the scalability of our solutions. Sales and marketing expense was $19.5 million, down 6% from Q1 23, As a percentage of revenue, sales and marketing expense was 31% of revenue, an improvement of over 400 basis points from Q1 23. The year-over-year improvement reflects the changes we've made to drive efficiencies in sales and marketing by focusing on the markets and activities with the highest return on investment. And based on our current full-year revenue outlook, which I'll get to in a few minutes, we now expect to see operating leverage from sales and marketing in 2024, of 300 to 400 basis points relative to full year 2023. Product development expense was $7.3 million, up 6% from Q1 23. As a percentage of revenue, product development expense was 11.5% of revenue, consistent with Q1 23. We believe investing in our platform and using our existing data sets to launch or enhance multiple products is a highly effective and efficient way for us to increase the value we deliver to customers. Jason touched on some examples of these earlier, and we will continue to invest in the multiple opportunities we have identified on our long-term product roadmap. We continue to expect full-year 2024 product development expense as a percentage of revenue to be fairly consistent. with full year 2023. G&A expense was $7.2 million, down 5% from Q1 23. As a percentage of revenue, G&A expenses were 11.4% of revenue, which is an improvement of about 150 basis points compared to Q1 23. We expect G&A as a percentage of revenue in 2024 to be roughly consistent with 2023. Adjusted operating income was $18.6 million, up 32% from Q1 2023. As a percentage of revenue, operating income was 29% of revenue, up over 500 basis points from Q1 2023. The year-over-year margin increase was primarily due to efficiencies in sales and marketing. Adjusted EBITDA was $20 million in the quarter, a 28% increase from Q1 in the prior year. As a percentage of revenue, adjusted EBITDA was 32% of revenue, up over 500 basis points from Q1 of the prior year. As we move through 2024, we continue to expect to see year-over-year improvements in our adjusted EBITDA margin. We will continue to make adjustments in the areas that are most important to us and to our clients, and maintain a balanced financial profile that drives margin expansion. Adjusted net income in Q1 was $13 million, or 8 cents per diluted share, based on 156.6 million weighted average shares outstanding. Turning to cash flow, definitive health care's high margins, upfront billing, and low CapEx requirements provide substantial free cash flow generation. we focused on trailing 12-month cash flow due to seasonality. Operating cash flows were $42.8 million on trailing 12-month basis, up 16% from $36.9 million in the comparable period a year ago. Unlevered free cash flow was $28.3 million in the quarter, our largest quarter ever of unlevered free cash flow generation. And on a trailing 12-month basis, unlevered free cash flow was $76.1 million, up 43 percent from the comparable period a year ago. Unlevered free cash flow was 30 percent of revenue on a TTM basis, effectively converting 97 percent of our TTM adjusted EBITDA of $78.7 million into cash. On the balance sheet, we ended the quarter with over $295 million in cash, cash equivalents, and short-term investments. With strong adjusted EBITDA profitability and only 254 million of debt, we believe we're well-positioned to fund both organic and inorganic growth initiatives. Current revenue performance obligations of $182 million were up 1% year-over-year, and total revenue performance obligations were up 2% year-over-year. Deferred revenue of $108.1 million was up 2% year-over-year, and you will note that as expected, CRPO and deferred revenue continued to grow more slowly than revenue, and I'll have more to say about that in guidance. As Jason mentioned, We experience greater than anticipated disruption from our transformative actions early in the year, and we are adjusting our guidance accordingly. For Q2, we now expect total revenue of $62 to $63.5 million for a growth rate of 2% to 4% year over year. And within total revenue, we expect subscription revenue to increase slightly from Q1 while we expect the revenue recognized from professional services to decline due to lower bookings of these projects in Q1. From a profitability perspective, we expect operating income of $17 to $18.5 million, adjusted EBITDA of $18.5 to $20 million, for a 30 to 32 percent adjusted EBITDA margin, and adjusted net income of $13.5 to $14.5 million, or 8 to 9 cents per diluted share on 157.2 million weighted average shares outstanding. Rolling forward to the full year 2024, We now expect revenue of $255 to $261 million for a 1% to 4% growth rate. And we continue to expect our growth rate to moderate as we move through the first few quarters of the year given current economic conditions, along with our wrap on the Populi acquisition in the second half. From a profitability perspective, We're tightly managing operating efficiency and the associated costs to protect margins. Accordingly, we now expect adjusted operating income of $75 to $78 million, adjusted EBITDA of $81.5 to $84.5 million for a full-year margin of 32 to 33%, with margin unchanged from prior guidance. Adjusted net income is expected to be between $56.5 and $59.5 million. And earnings per share are expected to be between 36 and 38 cents on 157.5 million weighted average shares outstanding. Our guidance for Q2 and the full year fully reflects our assessment of current conditions. We remain focused on driving operating efficiency and investing to meet client needs both today and for the future. Finally, I'd like to touch on our newly announced share buyback program. On May 1st, the board authorized the repurchase of up to $20 million of stock. This repurchase program is expected to continue through the end of 2024. As buyback authorization reflects our strong cashflow generation, our confidence in the long-run prospects of the business, and our commitment to enhancing shareholder value. So to summarize, we took several actions to improve the margin profile of our business, and we added meaningful capabilities to our portfolio through organic innovation and through strategic acquisitions. We remain confident that we are well-positioned for the long-term in a large and attractive market that we believe will help us drive shareholder value for a long time to come. And with that, I'll hand it back to Jason for a few closing thoughts before we take questions.
spk14: Before I open it up to questions, I want to reiterate our excitement about the future of definitive healthcare.
spk15: We have an incredible team that is committed to driving real value for our customers in a market with a large and growing TAMP. We have proprietary data assets that create a true competitive edge, and we are confident that the work we are doing to drive innovation and operational efficiency will translate into the long-term growth and profitability that makes this company such an exciting investment.
spk14: With that, I would like to open it up for questions.
spk04: If you would like to ask a question, please press star 1 on your telephone keypad now. You will be placed into the queue in the order received. Please be prepared to ask your question when prompted, and please keep to one question and one follow-up question. Once again, if you have a question, please press star 1 on your phone now. And our first question will come from Craig Hettenbach with Morgan Stanley.
spk01: Great. Thank you. Jason, you mentioned the disruption in the first two months of the year. I was looking to see kind of into March and April, you know, what type of changes as years start to progress from the reorg. And then really kind of when you think some of these changes will start to gel and have an impact.
spk15: Yeah, thanks. Great question. So we made a significant GGM change in January, as everyone knows, to reduce overlays and restructure in a way that we think sets us up. to better align with our customers. So more resources looking at our enterprise customers, a separate motion for our small and medium sized customers. That change is done at this point. So all of the structural changes have been made, all of the transitions of customers to new owners, all of that is done. So now we are laser focused on driving the activity and building the pipelines that will turn into growth in the later part of this year. We're focused on, you know, now that the changes are done, we're focused on doing all the things that we can to take advantage of what we believe is a much better operating setup for our go-to-market team.
spk01: Got it. And then just as a follow-up, you highlighted kind of the 6% growth in enterprise customers. I know that's an area where you've seen some improvement in retention. Can you just discuss what you're seeing out there on enterprise and then on the longer tail of smaller customers, Do you expect that to continue to bleed down in terms of the number, or when would you see some stabilization perhaps in the smaller size customers?
spk15: We're incredibly focused as an organization on those enterprise customers. They now make up somewhere around 65% of our total ARR, so we see much better renewal rates with those customers, and there's also tremendous more opportunity to expand with those customers. So a lot of the product investments that we are making will help those customers and allow us to expand the number of use cases that we solve for them. So that remains our key focus because of the strength of that market. The small and medium, I mean, those are always going to churn at a higher pace, the small customers in particular. They're going to churn at a higher pace than other customers. But we are focused with our new group that focuses solely on those customers and We believe that we're going to be able to provide them more value delivery as we work with them on scale rather than the way that we structured it before where the segmentation was a little bit less clear and the motions were a little bit more intermingled as a result.
spk05: Got it. Thank you.
spk04: And our next question will come from Jared Hayes with William Blair.
spk03: Yeah, hey, thanks for taking the questions. Maybe just on the updated guidance for revenue, obviously implies a little bit of a sequential improvement in the second half of the year. I was just hoping to hear a little bit more about kind of the visibility you have in terms of what gives you confidence in that second half ramp with the outlook. And specifically, I'm wondering, Are there any kind of discrete assumptions in terms of improvements in the macro environment? Any other assumptions just as you think about that rollout of Populi to the broader customer base? Is that contributing at all? Just would love to unpack a little bit further.
spk07: That's a great question, Jared. This is Rick.
spk08: We're seeing continued improvements in renewals, which are consistent with our prior expectations and with expanding NDR by 1 to 200 bps by the end of the year. We are also in our guide assuming overall sales productivity in the second half, which is similar to what we saw in Q1. So we're not building in a massive rebound there. And we're taking into account that we are focused on product-driven subscription revenue over one-time fees. So we've adjusted to actually take into account that we expect pro-service revenues or one-time fees to actually decline year over year. So all those things together make us feel that this is an appropriate guidance for us.
spk03: Okay, that's super helpful. And then Jason, you talked a little bit about kind of the differences in experience between new logos and the expansions and upsells with the customer base. In terms of the new logos, I'm curious if there have been any changes in terms of just how you're approaching the market to maybe see better win rates there, anything you're doing from a messaging perspective or maybe even in terms of like free trials or things of that nature, anything changed as it relates to your go-to-market motion with new logos?
spk15: It's a good question. So I think there's two changes of nodes. So the first is, as we've discussed, we've separated our enterprise clients from our small clients. So the way that we're approaching small clients is all about high velocity and how do you go and drive growth within that segment very efficiently. So I think what you'll see is when we grow those clients, we do so in a more efficient manner than we've been able to do in the past The second thing that we're focused on overall is thinking about how we can expand our marketing to drive free trials and drive other opportunities across all of those markets. So continuing to figure out different ways to emphasize ROI with our clients is increasingly important for them, making sure that, you know, as they are more cost conscious and trying to evaluate every buy and all that cost scrutiny that's going on it, presenting an ROI and demonstrating to them that they can get value very quickly from our products is important. And you see that in our product development as well. So we are trying to continually use, for example, the Populite Claims Analytics platform. That is all about how do we design analytics that are very specific to the use case of our clients so that they can see how can I use this data tomorrow to improve my business and drive ROI. Okay.
spk06: Okay, that's perfect. Thank you.
spk04: And we'll move next to Ryan McDonald with Needham and Company.
spk13: Hey, this is Matt Shea on for Ryan. Thanks for taking the question. Jason, you call out new logos and upsells as an area of weakness and that those restructuring changes or with those restructuring changes, you started to see better new logo ads in March, but didn't necessarily hear you comment on the upsells. So curious if you've started Didn't see an improvement there. Just any commentary you can provide with that. And then with those new logo improvements in March, is there any end markets to call out that were particularly strong?
spk15: Yes, I think a couple of things. So the upsells were less impacted by our changes. And that has been true in general through this more difficult macro environment where our clients are loyal to us, they get tremendous value over our products, and we're able to upsell and expand with them more easily in difficult markets than new logos. So I think it's more a reflection of January and February being more difficult for new logos than seeing improvement across the board. In terms of markets that we're seeing solid performance in, providers is continuing to be a really good market for us. Obviously, we made a great acquisition last year, and we've got a product that really meets the needs of that market. So we've done well in both new logos as well as continuing to drive down customer churn within that area. The other markets have performed similarly as they have in the past, so continued difficult conditions for providers both life sciences as well as smaller software and IT organizations.
spk13: Got it. That's helpful. Yeah, it seems like Populi has really been a huge benefit on the provider side. Curious as you look out to the second half of the year and that rollout to the other end markets, have you been able to start marketing to those other end markets or provide demos of the Populi platform to them or any signals that is giving you that confidence in Populi helping drive growth in those other end markets in the back half?
spk15: As we develop the product for those end markets, obviously we're doing a lot of testing with our clients. We are getting very good feedback. Again, as you think about what it does, it's all about time to value for our clients. So being able to design analytics and workflow in a way that meets their exact needs is very powerful. So as we roll that out, we would expect that to have a similar impact in terms of driving more expansion, more deal velocity, and also improving our renewal rate within those markets. But that will take time. Obviously, as we roll this out, we need to go get in front of clients, start to build that pipeline, and start to bring on more deals and drive up that renewal rate.
spk12: Got it. Thank you.
spk04: As a reminder, if you would like to ask a question, please press star 1 on your phone now. And our next question will come from Anne Samuel with J.P. Morgan.
spk10: Hi. Thanks for taking the question. Maybe just a follow-up to the one on the different markets. You know, with capital markets in the life sciences space starting to come back a little bit, I was wondering if maybe you could speak to, you know, your pipeline. And, you know, if things start loosening up a little bit, how long that might take to translate to revenue for you. Thanks.
spk15: Yeah, generally speaking, depending on the size of customer and the complexity of the deal, our deal cycle is between, you know, probably 120 and 150 days overall. So as that market improves, you know, we should see impact of that later in the year. You know, I would say it's somewhat offset by big pharma is in a cost-cutting mode right now, so that is somewhat offsetting somewhat of the revival within the biotech market. bringing new stuff into our pipeline and when that starts to translate into actual closed business.
spk05: Helpful. Thank you. And we'll move next to David Grossman with Stifel.
spk02: Thank you. You know, I was just looking at it. I'm sorry. I joined the call a few minutes late. But looking at the enterprise customers sequentially, I know your comment is here over here. Is there anything, is there a seasonal dynamic there? Is that, is the loss of the six net, was that in line with your expectations? Or is that, some of that just fall out from the structuring that you've been talking about?
spk15: Yeah, I don't think there's anything specific to point out there. I think just in general, a slower start to the year is driving that number a little bit. But we would expect continued growth in that over time. Obviously, the year-over-year number is very good.
spk02: Right. And did that impact the sequential dynamic with CRPO, or are those unrelated?
spk07: Yes. The disruption that Jason mentioned definitely impacted CRPO. Overall, CRPO is up 1% year-over-year.
spk08: If you normalize that for the opt-out clauses that we discussed last quarter, you've got about two points of CRPO, and then there will be some contribution from new business as well, as well as the increase in NDR that we talked about of 1 to 200 BIPs. Got it.
spk02: And then just, you know, back to, you know, populating care buoyance, you know, can you talk a little bit, you know, about... just how these acquisitions are playing out for you from a growth perspective. I know you don't really break out organic versus inorganic growth, but anything you can talk about in terms of the success that you're having in getting out of those acquisitions, or are they really acquisitions that will generate returns over a long period of time? It's kind of an unnatural period when you think about those cycles.
spk15: Yeah, it's a good question. So our integration strategy has been very focused on tuck-in acquisitions that we believe can drive innovation. So right now we're super focused on go-to-market excellence as well as innovation overall. A way to innovate more quickly, of course, is doing these tuck-in acquisitions. So we integrate these very quickly into our organization. So we start feeding our data into these products very quickly to make them better. and we can expand their growth that way. Our commercial team is very quickly selling all of these products as part of their overall product suite that they offer to our customers. We do centralized marketing, back offices integrated within a few months typically. So it becomes very difficult to sort of separate organic versus non-organic, but these are important growth drivers for us. We need to continue to innovate in a market that's changing quickly. And if we can find great companies like Caravoyance and Populi that can expand our product portfolio, we see that as setting us up for long-term growth that we're looking for.
spk02: Got it. And sorry, can I just ask one other question? I think I heard you said that you're still expecting about 100 to 200 basis of improvement by year end at dollar retention. So if I kind of think about the other things you said on the call, is the idea that It's really just the current weakness is really just driven by new logos. So the things that you've seen through April, May, you're pretty satisfied with, you know, kind of the dollars that you're getting. It's all based really just new logos that are impacted by the year.
spk08: Generally, yes. I think what we're seeing is that customers that have experienced the benefit of the product are renewing at improving rates, which we're very pleased with in terms of the early feedback on some of the product changes that we've been talking about. We built that expectation in in the second half of the year as it flows through our guidance.
spk16: Okay, guys. Good luck. Thanks very much.
spk08: Thank you.
spk04: And our next question will come from Stephanie Davis with Barclays. Hey, guys.
spk11: Thank you for taking my question. I was hoping you could expand a little bit more about the large uptick you saw in your pipeline in March. Can you help us understand how much of that acceleration was from a shift in your go-to-market versus maybe upsell success or new products or expansion in new end markets? Is there anything about the nature of this uptick in your pipeline that would maybe change your pipeline conversion or make it less certain than history?
spk15: I don't think there's any major changes in it. You know, in general, what you will find is based on the way that we've redesigned our strategy overall, more of that pipeline will be in larger customers by definition because we have more resources focused on those markets. The big increase that I talked about from January to March is really about we've worked through a lot of the changes that we made. It's hard work and making sure that we get our team refocused on getting out there, meeting with clients, building pipeline. That just took a bit more time than we thought, but now we're starting to see that work, and that's reflected in the March pipeline numbers.
spk11: So thinking about the forward trajectory there, should we assume that this is more the go-forward clip and then eventually that's going to convert into revenues in a much quicker way? Or are we taking a more cautious approach just given some of the year-to-date performance?
spk15: Yeah, I guess I would be careful to look at our January to March numbers since that's all in quarter. I think year over year, the fact that we are Meeting last year and beating last year's pipeline ads is important, however. We'll continue to focus on that. So this is one of the three things that we're focused on as a company is go-to-market efficiency and how do we drive that activity and build that pipeline. Product innovation and how do we continue to delight our customers with new innovative products and then continue to run with operational efficiencies. So rest assured we are fully focused on it and we will continue to build that pipeline over time.
spk11: Super helpful. If I could sneak in a quick one. As much as I love hearing Jason on the call, is there any updates on the CEO search?
spk15: Yeah, well, I appreciate that comment first. But yeah, we are continuing to, we're continuing to focus on finding a great candidate. We have met a lot of good people. There's tons of interest in this job overall. You know, our timing, as discussed previously, is when we find the right person. We need to find somebody that is a great operator that can help us see our way to a billion dollars in revenue over the next 10 years, and we need to find somebody that is customer-obsessed and focused on driving the type of innovation we need to meet those numbers. So when we find that person, you'll be the first to know, but we're actively looking and seeing a lot of great candidates.
spk04: Thank you much. Appreciate it. All questions have been addressed at this time. I'd like to turn the conference back to Jason Krantz for closing remarks.
spk15: Great. Well, thanks, everyone. We appreciate your time today. You know, as we said, we are very excited about the long-term opportunity for definitive healthcare. This is truly a great market that we compete in. And as macro conditions improve, we believe all the things that we're doing right now, whether it be the go-to-market efficiency work that we're doing all of our product innovation that is accelerating and doing so in a way that drives profitable growth is something to be really excited about. So thank you for your support and we look forward to continued conversations.
spk04: This concludes today's conference call. Thank you for attending.
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