Definitive Healthcare Corp. (NASDAQ:DH) Q4 2021 Earnings Conference Call February 23, 2022 5:00 PM ET Company Participants David Samuels - General Counsel & Chief Legal Officer Jason Krantz - Founder and CEO Rick Booth - Chief Financial Officer Robert Musslewhite - President Conference Call Participants Craig Hettenbach - Morgan Stanley Kash Rangan - Goldman Sachs Saket Kalia - Barclays Adam Watts - Credit Suisse Brian Peterson - Raymond James David Grossman - Stifel Glen Santangelo - Jefferies Operator Gre ...

Financial Data and Key Metrics Changes - Total revenue for Q3 2021 was $43.1 million, representing a 43% year-over-year growth [10][54] - Adjusted EBITDA was $15.5 million, translating into a 36% margin [10] - Unlevered free cash flow was $11.5 million, reflecting a 27% margin for the quarter [67] - Gross profit was $37.7 million, up 38% from Q3 2020, with a gross margin of 88% [57] - Operating income was $13.7 million, down 3% from Q3 2020, with an operating margin of 32% [62] Business Line Data and Key Metrics Changes - The company reported 377 enterprise customers, an increase of 125 year-over-year, which are a majority of annual recurring revenue (ARR) [55] - Total customer count increased to 2,761 from 2,370 in Q3 2020 [55] - Sales and marketing expenses rose to $13.7 million, up 67% from Q3 2020, representing 32% of revenue [58] - Product development expenses increased to $4.4 million, up 74% from Q3 2020, accounting for 10% of revenue [60] Market Data and Key Metrics Changes - The total addressable market (TAM) is estimated to be $10 billion, with less than 3% market penetration [24][31] - The healthcare sector is a $4 trillion market, representing 18% of annual U.S. GDP [12] Company Strategy and Development Direction - The company aims to continue acquiring new customers and expanding within existing client bases, leveraging a land and expand model [31][32] - Innovation is a key focus, with plans to accelerate product development and enhance existing offerings [33] - Strategic acquisitions will be pursued opportunistically to enhance capabilities and datasets [34] Management's Comments on Operating Environment and Future Outlook - Management highlighted the complexity of the healthcare ecosystem and the need for companies to adapt to changing market dynamics [12][92] - The company is well-positioned to address challenges in the industry, such as labor shortages and supply chain issues, by providing actionable insights [90][92] - Management expressed confidence in the company's ability to deliver growth and profitability in the long term [48][71] Other Important Information - The company completed a successful IPO in September 2021, raising $452 million in net proceeds [49][64] - Recent product innovations include enhancements to the PhysicianView and HospitalView products, aimed at improving customer targeting and understanding of healthcare organizations [41][42] Q&A Session Summary Question: How much of the growth in the quarter came from new customers versus upselling existing customers? - Management indicated strong growth contributions from both new customer acquisitions and expansion within existing customer relationships [72][73] Question: How is the sales approach changing as the company expands into healthcare providers? - The company is focusing on solving multiple problems for healthcare providers, including building physician networks and competitive benchmarking [76][78] Question: What is the current status of organic development for new modules? - Management confirmed that they plan to roll out a couple of key modules each year while also exploring inorganic growth through acquisitions [80][81] Question: How is the company addressing labor shortages and supply chain issues in the industry? - The company is working with clients to understand the healthcare ecosystem and identify areas where they can drive efficiencies and improvements [90][92] Question: How is the company planning to attract and retain talent in a competitive labor market? - Management emphasized the importance of company culture in retaining employees and attracting new talent [96][97]

Revenue and Growth - Revenue for the three months ended September 30, 2021, was $43,084,000, representing a 43% increase from $30,073,000 in the same period of 2020[15]. - Total revenue for the nine months ended September 30, 2021, was $119.8 million, compared to $84.7 million for the same period in 2020, indicating a year-over-year increase of 41.4%[60]. - For the three months ended September 30, 2021, platform subscription revenue was $42.8 million, up from $29.7 million in the same period of 2020, representing a growth of 43.8%[60]. - Revenues from the United States for the nine months ended September 30, 2021, were $114.339 million, compared to $84.659 million for the same period in 2020, indicating a growth of 35%[142]. Profit and Loss - The net loss attributable to Definitive Healthcare Corp. for the three months ended September 30, 2021, was $7,978,000, with a net loss per share of $0.09[15]. - Net loss for the three months ended September 30, 2021, was $20,966,000, compared to a loss of $9,962,000 for the same period in 2020, representing a 110% increase in losses[18]. - Comprehensive loss attributable to Definitive Healthcare Corp. for the nine months ended September 30, 2021, was $46,338,000, compared to $35,295,000 for the same period in 2020, indicating a 31% increase[18]. - The company reported a comprehensive loss for the three months ended September 30, 2021, of $20,955,000, compared to $9,962,000 for the same period in 2020[18]. Expenses - Operating expenses for the three months ended September 30, 2021, totaled $36,625,000, up from $23,600,000 in the same period of 2020, reflecting a 55% increase[15]. - Total operating expenses for the nine months ended September 30, 2021, were $102,857,000, compared to $69,998,000 in the same period of 2020, marking a 47.0% increase[15]. - Cash paid for interest was $27.6 million for the nine months ended September 30, 2021, compared to $23.0 million in the same period of 2020, indicating a 20% increase[29]. - Equity-based compensation expenses rose to $4,338 for the nine months ended September 30, 2021, compared to $1,330 in the same period of 2020, reflecting a 226.5% increase[29]. Assets and Liabilities - Total current assets increased to $226,639,000 as of September 30, 2021, from $63,845,000 as of December 31, 2020[12]. - Total liabilities rose to $586,715,000 as of September 30, 2021, compared to $549,796,000 as of December 31, 2020[12]. - Cash and cash equivalents significantly increased to $189,752,000 as of September 30, 2021, from $24,774,000 as of December 31, 2020[12]. - The balance of members' equity at September 30, 2021, was $1,283,084,000, reflecting a decrease from $1,195,563,000 at December 31, 2020[20]. Deferred Revenue - The current portion of deferred revenue increased to $69,811,000 as of September 30, 2021, compared to $61,060,000 as of December 31, 2020[12]. - The company reported a significant increase in deferred revenue to $9.0 million for the nine months ended September 30, 2021, compared to $1.4 million in the same period of 2020, representing a 548% increase[29]. - Deferred revenues increased to $70.2 million as of September 30, 2021, compared to $61.2 million at the end of 2020, reflecting a growth of 14.9%[64]. IPO and Financing - The company completed its IPO on September 17, 2021, raising net proceeds of $452.8 million from the sale of 17,888,888 shares at $27.00 per share[35]. - The issuance of Class A Common Stock in the IPO generated net proceeds of $441,400,000 after costs of $11,394,000[23]. - The company repaid $474.6 million of outstanding principal balances from the 2019 Term Loan using proceeds from the 2021 Term Loan of $275.0 million and net proceeds from the IPO of $199.6 million[76]. Acquisition - The company completed the acquisition of Monocl for a total estimated consideration of $46.3 million, with potential earnout payments of up to $60 million based on Annual Recurring Revenue (ARR) targets[50][51]. - Monocl's revenue for the year ended December 31, 2020, was $1.2 million, with a net loss of $1.6 million included in the company's consolidated results[58]. - The fair value of contingent consideration related to the Monocl acquisition was estimated at $6.9 million as of September 30, 2021[52]. - The acquisition resulted in the recognition of goodwill amounting to $28.3 million, along with customer relationships valued at $11.9 million and other intangible assets[53]. Stock-Based Compensation - The total unrecognized stock-based compensation expense was estimated to be $39.1 million as of September 30, 2021, to be recognized over a weighted-average period of approximately 4.0 years[115]. - The Company recognized $2.3 million in total compensation expense for the three months ended September 30, 2021, compared to $458,000 for the same period in 2020[111]. - The company had approximately $18.4 million of unrecognized unit-based compensation expense for unvested time-based units as of September 30, 2021, expected to be recognized over a weighted-average period of approximately 2.8 years[124]. Management and Governance - The company appointed Robert Musslewhite as President effective October 7, 2021, with an annual base salary of $400,000 and a potential bonus of 68%[151]. - Definitive Healthcare Corp. held 88,263,333 units in Definitive OpCo, resulting in an ownership interest of 60.7% as of September 30, 2021[149].