Definitive Healthcare Corp.

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. 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 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.

Thanks, Matt. 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 popular 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.