Definitive Healthcare (DH) - 2024 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements The company reported revenue of $63.5 million for the first quarter of 2024, a 7% increase year-over-year, while the net loss widened to $12.7 million from $16.0 million in the prior year's quarter, and total assets decreased slightly to $1.81 billion from $1.83 billion at the end of 2023, primarily due to a decrease in cash and cash equivalents, with cash flow from operations remaining positive at $16.6 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 105,994 | 130,976 | | Goodwill | 1,082,137 | 1,075,080 | | Total assets | 1,810,145 | 1,825,901 | | Liabilities & Equity | | | | Term loan (current & long-term) | 253,017 | 256,317 | | Tax receivable agreements liability | 125,150 | 127,000 | | Total liabilities | 615,114 | 626,727 | | Total equity | 1,195,031 | 1,199,174 | Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended March 31, 2024 ($ thousands) | Three Months Ended March 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Revenue | 63,480 | 59,201 | | Gross Profit | 50,382 | 47,295 | | Loss from operations | (16,249) | (12,271) | | Net loss | (12,718) | (15,972) | | Net loss attributable to Definitive Healthcare Corp. | (9,518) | (12,063) | | Net loss per share (Basic and diluted) | $(0.08) | $(0.11) | Condensed Consolidated Statements of Cash Flows (Unaudited) | Activity | Three Months Ended March 31, 2024 ($ thousands) | Three Months Ended March 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 16,589 | 14,957 | | Net cash used in investing activities | (24,034) | (33,470) | | Net cash used in financing activities | (17,194) | (3,525) | | Net decrease in cash and cash equivalents | (24,639) | (22,038) | Notes to the Condensed Consolidated Financial Statements Key notes to the financial statements detail the acquisition of Carevoyance for $13.7 million, a 2024 restructuring plan incurring $7.2 million in charges, and a subsequent stock repurchase program of up to $20 million authorized in May 2024, with the company's revenue primarily from subscription services, which grew to $61.8 million, and the Tax Receivable Agreement (TRA) liability standing at $138.3 million as of March 31, 2024 - On January 16, 2024, the company acquired the Carevoyance business line for $13.7 million in cash, resulting in $7.1 million of goodwill and $7.0 million of intangible assets[40][41] - In Q1 2024, the company initiated a restructuring plan, reducing its workforce by approximately 150 people and incurring $7.2 million in related charges, primarily for severance[65] Revenue Disaggregation | Revenue Type | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :--- | :--- | :--- | | Subscription services | 61,752 | 58,517 | | Professional services | 1,728 | 684 | | Total revenue | 63,480 | 59,201 | - The company's liability under the Tax Receivable Agreement (TRA) was $138.3 million as of March 31, 2024, with a remeasurement gain of $2.3 million recognized in Q1 2024[108] - In May 2024, the Board of Directors authorized a stock repurchase program of up to $20.0 million of its Class A Common Stock, expiring on December 31, 2024[116] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 7% year-over-year revenue growth to both new customer acquisition and expansion within the existing customer base, despite facing macroeconomic headwinds leading to longer deal cycles and increased customer churn, particularly among smaller customers, and executed a significant restructuring plan in Q1 2024 to reduce operating costs, which involved a workforce reduction of approximately 150 people and changes to the go-to-market team, causing short-term sales disruption but intended to improve long-term profitability, with Adjusted EBITDA for the quarter at $20.0 million (32% margin), up from $15.7 million (26% margin) in the prior year, reflecting cost control measures - The company's customer count was approximately 2,800 as of March 31, 2024, down from 3,000 a year prior, reflecting higher churn among smaller customers, though Enterprise Customers (>$100k ARR) grew from 529 to 559 in the same period[121][134] - Macroeconomic conditions are causing longer deal cycles, deferred purchasing decisions, and heightened customer churn, which impacted revenue growth in Q1 2024 and is expected to continue impacting growth for the rest of the year[131] - A restructuring plan in Q1 2024 reduced the workforce by about 150 people and incurred $7.2 million in charges, with changes to the go-to-market team creating sales disruptions in Q1, expected to continue into Q2[129][132] Adjusted EBITDA Reconciliation (Non-GAAP) | Metric | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :--- | :--- | :--- | | Net loss | (12,718) | (15,972) | | Adjustments (Interest, Taxes, D&A, etc.) | 11,793 | 13,014 | | EBITDA | (925) | (2,958) | | Other Adjustments (Equity comp, Restructuring, etc.) | 20,948 | 18,625 | | Adjusted EBITDA | 20,023 | 15,667 | | Adjusted EBITDA Margin | 32% | 26% | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are interest rate risk and foreign currency exchange risk, with interest rate risk stemming from its variable-rate 2021 Term Loan, which had $254.4 million outstanding, partially mitigated by an interest rate swap agreement, and foreign currency risk currently not material as the majority of sales are denominated in U.S. dollars - The company is exposed to interest rate risk on its $254.4 million variable-rate 2021 Term Loan, where a hypothetical 1.0% change in interest rates would impact interest expense by approximately $0.6 million for the quarter, excluding the effect of an interest rate swap[210] - Foreign currency exchange risk is considered minimal as the majority of sales contracts are denominated in U.S. dollars, and the impact from foreign subsidiaries in Sweden and India has not been material[211] Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2024, due to a previously identified and still unremediated material weakness in the design of controls over the collection, remittance, and financial recording of sales taxes, for which the company is actively implementing remediation efforts, including engaging third-party tax experts and designing new review controls - Disclosure controls and procedures were deemed ineffective as of March 31, 2024, due to an unremediated material weakness[213] - The material weakness relates to the design of controls over sales tax collection and remittance, and the accurate recording of sales tax obligations[215] - Remediation efforts are underway, including engaging third-party tax experts and implementing additional sales tax nexus reviews and controls[217][218] Part II. OTHER INFORMATION Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business but does not expect the ultimate resolution of these matters to have a material adverse effect on its financial position or results of operations - The company states that the resolution of current legal proceedings is not expected to have a material adverse effect on its financial condition[222] Risk Factors There have been no material changes to the company's risk factors since the filing of its Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes in risk factors were reported since the 2023 Form 10-K filing[223] Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2024, a total of 51,308 LLC Units were exchanged for an equivalent number of newly issued Class A Common Stock shares on a one-for-one basis, with these transactions conducted in reliance on Section 4(a)(2) of the Securities Act LLC Unit Exchanges for Class A Common Stock (Q1 2024) | Date of Exchange | Number of Shares Exchanged | | :--- | :--- | | February 5, 2024 | 25,000 | | February 12, 2024 | 3,331 | | February 26, 2024 | 11,387 | | March 4, 2024 | 11,590 | | Total | 51,308 | Other Information Effective May 1, 2024, the company eliminated the position of President, held by Jonathan Maack, who will remain employed through May 31, 2024, and concurrently, Kate Shamsuddin Jensen was appointed as Chief Strategy Officer, transitioning from her role as Chief Product Officer - On May 1, 2024, the company eliminated the President position, resulting in the departure of Jonathan Maack[228] - Effective May 1, 2024, Kate Shamsuddin Jensen was appointed Chief Strategy Officer, moving from her previous role as Chief Product Officer[228]