Definitive Healthcare Corp.

Welcome to Definitive Health Care's Q4 2024 earnings call. Later, we will conduct a question and answer session. I would like to now turn the call over to your host. You may begin.

Good afternoon, and thank you for joining us today to review Definitive Health Care's financial results. Joining me on the call today are Kevin Koop, our Chief Executive Officer, and Rick Booth, 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, customer growth, our financial guidance, our planned investments, generating value for our customers and shareholders, the anticipated impacts of global macroeconomic conditions on our business, results, and customers, and on the healthcare industry generally, and on our ability to successfully transition executive leadership. 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 included in the earnings release that we have just posted to 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 and investor presentation 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 Kevin.

Thanks, Matt. And thanks to all of you for joining us this afternoon to review Definitive Healthcare's fourth quarter 2024 financial results. We continue to make important progress on several fronts. On today's call, I'll provide an update on that progress and outline the areas where we have more work to do and share some content about how we are thinking about 2025. Let me begin by reviewing our financial results for the fourth quarter, which were above the high end of our guidance ranges for both top and bottom line. Our total revenue was $62.3 million, down 6% year-over-year. The decline in revenue reflects the cumulative impact of the customer retention challenges we experienced throughout the year. Adjusted EBITDA was $17.5 million, down 12% year-over-year, and adjusted EBITDA margin was 28%, which remains strong as we effectively balance the need to invest for growth with the current decline in revenue. Unlevered free cash flow performance was also strong with 92% conversion from adjusted EBITDA up 6% year over year on a dollar basis. From an operational perspective, we are still experiencing mixed results, but with signs of progress. Positively, we executed on securing new business in the quarter, both in terms of new logos and upsell cross-sell activity with existing customers. We believe the ability to win new logos across each of our target end markets is an important validation of Definitive's value proposition and a reflection of the increased focus we have brought to bear on execution in this important area. We are committed to building upon the success throughout 2025. On the other hand, churn remained elevated and was unfavorable compared to Q4 2023 and after having shown improvement over the first three quarters of the year. It's important to note that much of the churn we experience are downsells, not lost clients. While churn rates remained elevated, we continue to believe we can improve those over time. The fact that we are retaining many of these customers in some capacity demonstrates they continue to realize business value and that provides the opportunity to expand with them in the future. Improving our renewal rates remains the highest priority for the business and is essential to returning the company to growth, and therefore we are aligning our operational and strategic focus on impacting this critical area. As mentioned, our continued focus on new logo growth in Q4 has produced some positive results, and I'd like to highlight a couple of new logo wins. First, a behavioral and mental health screening company is leveraging our reference affiliation and claims data to identify and build stronger relationships with the right doctors and practices. They've also helped create an AI-powered tool that uses our insights and data to compare physician prescribing habits, helping health systems improve both care and drive growth. Next, a leading U.S. supplier of industrial, medical, and specialty gases chose Definitive to gain insights into complex IDN hierarchies, identify high-volume facilities, navigate the healthcare RFP process, and expand into new markets like surgery centers and post-acute facilities. This partnership also helps them connect with key nursing, procurement, and purchasing executives at both the facility and GPO distributor levels. Turning to the operational update. Last year, when I was new to the role, I told you that I had found our data to be of high quality and differentiated. I also observed that I had found our team to be comprised of talented and dedicated individuals focused on our customers with solutions that addressed critical business needs. Now, six months into the job and at the start of the new year, my confidence in those initial findings are reinforced. But I have now had the experience of the past several months on the job, which has improved my insight into our remaining gaps and a more informed perspective on the key operational priorities for 2025. Additional changes are needed to simplify and further align our efforts across both sales and customer success and continue to make it easier for our customers to access and leverage the full capabilities of the definitive platform. To that end, several initiatives are underway, including combining our med device sales channel into our existing biopharma team for a more focused and coordinated life sciences distribution channel, integrating our customer success and value delivery teams and aligning their compensation incentives with sales, which we believe will improve our pre- and post-sales efforts and drive more effective customer onboarding, And given the criticality of our focus on retention, we have augmented our leadership team with a new chief customer officer reporting directly to me to oversee this combined functional team. And we have centralized our analytics and data science capabilities into a center of excellence to provide more robust customer support onboarding and attach services for improved customer intimacy. Taken together, we believe these changes will make us more responsive to customer needs and increase the value we deliver. The net result is that while we are making steady progress, it will take longer than originally anticipated for the business to start realizing the positive benefits of all of the changes being made across the business. While we have accomplished much in a short time, more remains to be done. Our focus going forward will be to build upon this initial success and develop a repeatable, predictable cadence in our go-to-market and product development efforts in each of our core customer verticals. I will continue to update you on our progress and how this will impact on our value proposition and our customer needs as we progress throughout the year. We are focused on four key pillars of our platform and value proposition. Differentiated data, data delivery and integrations, driving customer success, and enabling our customers' digital engagement with providers and consumers. How we manage the business and make investment decisions must orient around how something will positively impact the business across one of these four dimensions. Our core value proposition is built upon differentiated data. This is our foundational strength, and we are widely recognized for having the best data in the market. We are always investing in ways to expand and strengthen our data sets. As we look ahead, in addition to continuing to invest in and strengthen our foundational data set, a big part of our focus is on helping our customers leverage and act upon this highly valuable data by investing in other of the three core pillars. One area we are increasingly focused on is finding ways to enhance our data delivery and integrations to make it simpler for Definitive to be part of a customer's workflow in new and enhanced ways. For example, In a large fourth quarter customer arrangement, one of the world's leading business data and analytics companies selected us based on the high quality of our data. They are also providing us with several solutions that will enhance the quality of our data and provide access to critical components of a complete master data management or MDM solution. We believe having a robust MDM capability that enables customers to integrate both first-party and third-party data with the definitive platform strengthens the quality of our data and makes our solution stickier. This is a textbook example of the types of partnerships we intend to pursue that enable us to work with our customers in a more sophisticated manner based on their choice of engagement with us. We're also currently working with a large pharmaceutical company that is leveraging our data along with their own internal and third-party data inside a robust MDM system they have built. They are using this integrated data set to develop a sophisticated patient and provider segmentation machine learning model along with Next Best Action program to support the launch of a new pain medication. This initiative allows and enables a continuous learning model to identify high potential healthcare organizations and optimizes field and commercial activities such as territory sizing, targeting, dashboard development, and ad hoc queries. Definitive not only provides critical data and services to enable this integration, but our expertise also increases the value the customer derives from their existing platform investments. Another area where we are investing is to better enable customer success. It has become clear that what our customers need to be successful is not the same within each of our end markets. We need to have a more sophisticated and nuanced segmentation approach to how we service and target our end markets. This includes how we price and package our platform for each respective segment. For example, the needs of a life sciences customer is very different from that of a provider or diversified customer, and our platform and distribution needs to reflect this reality. Life science customers need to manage many different data sources, and it is essential that we make it seamless for them to integrate their data with our data, which is another example for why we are enhancing our MDM capabilities and strategy. As we go through the year, we will continue to update you on our progress enhancing our customer success process to meet the specific needs of our different end markets, and it is important to note that this capability is not a new one. We already provide rich services to our customers and are simply looking to do more of this for our customers. Another more complex illustration of the power of our domain expertise is a global pharmaceutical customer that needed to provide their internal users with a 360-degree view of their customers and prospects. They expect that this will improve the efficiency of their marketing and sales efforts. To do this, we leverage the definitive ID as the token for appending HIN, the health industry number, a unique identified number for the health case supply chain entities, and GLN, global location number, a unique 13-digit code identifying business and legal entity location with their own internal customer account records. This was critical to track purchasing contracts and match to the IDN, or the Individual Unique Identifier, and the GPO, the Group Purchasing Number, relationships. DH created the leveled hierarchy file based upon the purchasing power of each GPO network and facility, allowing for more effective management oversight and business intelligence. We believe there is a significant opportunity to help diversified and provider customers engage with the physicians and consumers they are trying to directly target. These end markets are more focused on the ability to act based on our data and measure the results. Let me give you an example. Today, we provide customers a verified and up-to-date set of deep provider contact and affiliation data relevant to specific sales or product development outcomes that the customer is trying to drive. However, once we provide that data, it's up to the customers to initiate contact and carry the ball the rest of the way. Now, imagine that Definitive were able to drive actions that directly engaged our customer's customer, providing a faster and more effective outreach campaign. We have had this digital activation capability since acquiring Populi, but today it is a small and narrowly focused on the provider market. Over the course of 2025, we expect to build upon this capability and expand our digital activation engagement across the entire business. The common thread in each of these examples is that we are focusing on ways to make our platform more actionable and easier to incorporate into our customers' business workflow. These efforts are expected to increase our value proposition and make our business stickier. We believe that this will open new sales opportunities and should begin to alleviate the ongoing pressure on churn. We continue to believe that Definitive Healthcare can be a growth company in the long term. While fully acknowledging that it is going to take longer to reach stability and ultimately return to growth than we thought 90 days ago, we still think the fundamental opportunity is the same. We have confidence that we have identified the areas of operational focus that will positively impact retention and support continued success in new logo acquisition. We believe the simplified go-to-market motions will enable us to better deploy our enterprise resources efficiently and effectively for new logo acquisition, existing customer expansion, and value delivery. I look forward to updating you with more details on these changes in the near future. I would like to finish by providing an exciting update on our senior management team. As mentioned earlier, we have augmented and expanded the leadership team with a senior chief customer officer, as this is our most critical area of focus. We will also be announcing the addition of a new head of engineering technology and data strategy next week. And after a thorough search process, I'm pleased to announce that Casey Heller, our senior vice president of finance, will assume the role of definitive health care's chief financial officer effective June 2nd, 2025. We expect the transition from Rick to Casey should be seamless, as she is already responsible for a significant portion of the company's financial functions, including all aspects of commercial and operational finance, FP&A, and investor relations. In addition, Rick will continue to serve as CFO until early June to give us time to backfill Casey's current position and enable her to hit the ground running as CFO with a full team. I want to congratulate Casey on this well-deserved promotion, and I am confident she will excel in this role. We've worked closely since I joined Definitive, which has given me ample time to appreciate her outstanding commercial and analytical skills, as well as the strong relationships she has forged throughout the company and with the board. I will now turn the call over to Rick to cover our financials in more detail. Rick?