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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-40815

Definitive Healthcare Corp.

(Exact name of registrant as specified in its charter)

Delaware

86-3988281

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

492 Old Connecticut Path, Suite 401

Framingham, MA

01701

(Address of principal executive offices)

(Zip Code)

 

(508) 720-4224

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.001 par value

DH

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 2, 2024, the number of outstanding shares of the registrant’s Class A Common Stock was 117,934,713 shares.


 

Definitive Healthcare Corp.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2024

TABLE OF CONTENTS

 

 

Page

 

 

 

 

 

 

 

 

 

 

Glossary

3

 

 

 

Cautionary Note Regarding Forward-Looking Statements

4

 

 

 

Part I.

FINANCIAL INFORMATION

5

Item 1.

Condensed Consolidated Balance Sheets (Unaudited)

5

Condensed Consolidated Statements of Operations (Unaudited)

6

 

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

7

 

 

 

 

Condensed Consolidated Statements of Changes in Total Equity (Unaudited)

8

Condensed Consolidated Statements of Cash Flows (Unaudited)

9

Notes to the Condensed Consolidated Financial Statements (Unaudited)

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

45

Item 4.

Controls and Procedures

46

Part II.

OTHER INFORMATION

48

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 3.

Defaults Upon Senior Securities

48

Item 4.

Mine Safety Disclosures

48

 

 

 

Item 5.

Other Information

48

 

 

 

Item 6.

Exhibits

49

Signatures

50

 

2


 

GLOSSARY

 

As used in this Quarterly Report on Form 10-Q, the terms identified below have the meanings specified below unless otherwise noted or the context indicates otherwise. References in this Form 10-Q to “Definitive Healthcare Corp.” refer to Definitive Healthcare Corp. and not to any of its subsidiaries unless the context indicates otherwise. References in this Form 10-Q to “Definitive Healthcare”, “Definitive”, the “Company”, “we”, “us”, and “our” refer to Definitive Healthcare Corp. and its consolidated subsidiaries unless the context indicates otherwise.

 

AIDH Buyer” refers to AIDH Buyer, LLC, which is a wholly owned subsidiary of Definitive OpCo and the direct parent company of DH Holdings.
Advent” refers to funds affiliated with Advent International, a global private equity firm.
AIDH Management Holdings, LLC” is a special purpose investment vehicle through which certain persons, primarily employees and certain legacy investors, indirectly hold interests in Definitive OpCo.
Amended LLC Agreement” refers to the second amended and restated limited liability company agreement entered into by Definitive Opco pursuant to which members have the right to exchange all or a portion of their LLC units for newly issued shares of Class A Common Stock in Definitive Healthcare Corp.
ARR” refers to annual recurring revenue as of period end, which is calculated by aggregating annual subscription revenue from committed contractual amounts for all existing customers during that period. ARR may also include, in rare circumstances, existing customers with expired contracts who have provided oral or written commitments to renew.
Blocker Company” or “Blocker Companies” refers to certain entities treated as corporations for U.S. federal income tax purposes that held LLC units in Definitive OpCo which, through the Reorganization Transactions, were merged into Definitive Healthcare Corp. and are now holders of Class A Common Stock.
Continuing Pre-IPO LLC Members” refers to certain Pre-IPO LLC Members who retained their equity ownership in Definitive OpCo in the form of LLC Units immediately following the consummation of the Reorganization Transactions.
Definitive OpCo” refers to AIDH TopCo, LLC, a Delaware limited liability company, and a subsidiary of Definitive Healthcare Corp., following the Reorganization Transactions.
DH Holdings” refers to Definitive Healthcare Holdings, LLC, a Delaware limited liability company and wholly-owned subsidiary of AIDH Buyer.
IPO” refers to the initial public offering of Class A Common Stock of Definitive Healthcare Corp.
LLC Units” refers to limited liability company interests in Definitive OpCo.
NDR” or “Net Dollar Retention Rate” refers to net dollar retention rate, which we calculate as the percentage of ARR retained from existing customers across a defined period, after accounting for upsell, down-sell, pricing changes, and churn. We calculate net dollar retention as beginning ARR for a period, plus (i) expansion ARR (including, but not limited to, upsell and pricing increases), less (ii) churn (including, but not limited to, non-renewals and contractions), divided by (iii) beginning ARR for the same period.
Populi” refers to Populi, Inc., a Delaware corporation.
Pre-IPO LLC Members” refers to certain affiliates of Spectrum Equity, Jason Krantz, DH Holdings, AIDH Management Holdings, LLC, certain affiliates of Advent, and certain other minority equity holders of Definitive OpCo prior to the Reorganization Transactions.
Reorganization Parties” refers to the shareholders of the Blocker Companies prior to the merger of the Blocker Companies into Definitive Healthcare Corp.
Reorganization Transactions” refers to transactions completed in connection with the Company’s IPO as defined within Note 1 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Spectrum Equity” refers to investment funds associated with Spectrum Equity Management, L.P., a private equity firm.
Sponsors” refers collectively to Advent, and Spectrum Equity.
Tax Receivable Agreement” refers to the Tax Receivable Agreement, dated September 14, 2021, between Definitive Healthcare Corp., Definitive OpCo, and the TRA Parties.
TRA Parties” refers to the Continuing Pre-IPO LLC Members, the Reorganization Parties, and any future party to the Tax Receivable Agreement.

 

3


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, regional, national, or global political, economic, business, competitive, market, and regulatory conditions.

For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on February 28, 2024, and Part II, Item 1A in this Quarterly Report and the other cautionary statements that are included elsewhere in this Quarterly Report and in our public filings, including under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Any forward-looking statement made by us speaks only as of the date on which we make it. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law.


 

4


 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares and par value)

(Unaudited)

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

105,994

 

 

$

130,976

 

Short-term investments

 

 

189,174

 

 

 

177,092

 

Accounts receivable, net

 

 

56,655

 

 

 

59,249

 

Prepaid expenses and other assets

 

 

13,296

 

 

 

13,120

 

Deferred contract costs

 

 

13,598

 

 

 

13,490

 

Total current assets

 

 

378,717

 

 

 

393,927

 

Property and equipment, net

 

 

4,100

 

 

 

4,471

 

Operating lease right-of-use assets, net

 

 

9,022

 

 

 

9,594

 

Other assets

 

 

1,978

 

 

 

2,388

 

Deferred contract costs

 

 

16,219

 

 

 

17,320

 

Intangible assets, net

 

 

317,972

 

 

 

323,121

 

Goodwill

 

 

1,082,137

 

 

 

1,075,080

 

Total assets

 

$

1,810,145

 

 

$

1,825,901

 

Liabilities and Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

 

4,895

 

 

 

5,787

 

Accrued expenses and other liabilities

 

 

35,950

 

 

 

51,529

 

Deferred revenue

 

 

108,078

 

 

 

97,377

 

Term loan

 

 

13,750

 

 

 

13,750

 

Operating lease liabilities

 

 

2,307

 

 

 

2,239

 

Total current liabilities

 

 

164,980

 

 

 

170,682

 

Long term liabilities:

 

 

 

 

 

 

Deferred revenue

 

 

9

 

 

 

9

 

Term loan

 

 

239,267

 

 

 

242,567

 

Operating lease liabilities

 

 

8,690

 

 

 

9,372

 

Tax receivable agreements liability

 

 

125,150

 

 

 

127,000

 

Deferred tax liabilities

 

 

66,615

 

 

 

67,163

 

Other liabilities

 

 

10,403

 

 

 

9,934

 

Total liabilities

 

 

615,114

 

 

 

626,727

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Class A Common Stock, par value $0.001, 600,000,000 shares authorized, 117,790,025 and 116,562,252 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

118

 

 

 

117

 

Class B Common Stock, par value $0.00001, 65,000,000 shares authorized, 39,664,004 and 39,238,832 shares issued and outstanding, respectively, at March 31, 2024, and 39,762,700 and 39,168,047 shares issued and outstanding, respectively, at December 31, 2023

 

 

 

 

 

 

Additional paid-in capital

 

 

1,095,482

 

 

 

1,086,581

 

Accumulated other comprehensive income

 

 

1,658

 

 

 

2,109

 

Accumulated deficit

 

 

(236,968

)

 

 

(227,450

)

Noncontrolling interests

 

 

334,741

 

 

 

337,817

 

Total equity

 

 

1,195,031

 

 

 

1,199,174

 

Total liabilities and equity

 

$

1,810,145

 

 

$

1,825,901

 

See notes to condensed consolidated financial statements.

5


 

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share amounts and per share data)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenue

 

$

63,480

 

 

$

59,201

 

Cost of revenue:

 

 

 

 

 

 

Cost of revenue exclusive of amortization

 

 

9,736

 

 

 

8,552

 

Amortization

 

 

3,362

 

 

 

3,354

 

Gross profit

 

 

50,382

 

 

 

47,295

 

Operating expenses:

 

 

 

 

 

 

Sales and marketing

 

 

21,760

 

 

 

23,423

 

Product development

 

 

10,132

 

 

 

9,884

 

General and administrative

 

 

16,883

 

 

 

14,079

 

Depreciation and amortization

 

 

9,322

 

 

 

9,590

 

Transaction, integration, and restructuring expenses

 

 

8,534

 

 

 

2,590

 

Total operating expenses

 

 

66,631

 

 

 

59,566

 

Loss from operations

 

 

(16,249

)

 

 

(12,271

)

Other income (expense), net:

 

 

 

 

 

 

Interest income

 

 

3,927

 

 

 

2,834

 

Interest expense

 

 

(3,816

)

 

 

(3,614

)

Gain (loss) on remeasurement of tax receivable agreement liability

 

 

2,267

 

 

 

(3,552

)

Other income (expense), net

 

 

373

 

 

 

(79

)

Total other income (expense), net

 

 

2,751

 

 

 

(4,411

)

Net loss before income taxes

 

 

(13,498

)

 

 

(16,682

)

Benefit from income taxes

 

 

780

 

 

 

710

 

Net loss

 

 

(12,718

)

 

 

(15,972

)

Less: Net loss attributable to noncontrolling interests

 

 

(3,200

)

 

 

(3,909

)

Net loss attributable to Definitive Healthcare Corp.

 

$

(9,518

)

 

$

(12,063

)

Net loss per share of Class A Common Stock:

 

 

 

 

 

 

Basic and diluted

 

$

(0.08

)

 

$

(0.11

)

Weighted average Class A Common Stock outstanding:

 

 

 

 

 

 

Basic and diluted

 

 

117,433,520

 

 

 

108,234,043

 

See notes to condensed consolidated financial statements.

6


 

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net loss

 

$

(12,718

)

 

$

(15,972

)

Other comprehensive (loss) income:

 

 

 

 

Foreign currency translation adjustments

 

 

(181

)

 

 

19

 

Unrealized (loss) gain on available-for-sale securities

 

 

(164

)

 

 

89

 

Unrealized loss on interest rate hedging instruments

 

 

(240

)

 

 

(1,355

)

Comprehensive loss

 

 

(13,303

)

 

 

(17,219

)

Less: Comprehensive loss attributable to noncontrolling interests

 

 

(3,334

)

 

 

(4,281

)

Comprehensive loss attributable to Definitive Healthcare Corp.

 

$

(9,969

)

 

$

(12,938

)

See notes to condensed consolidated financial statements.

7


 

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY

(in thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

 

Class A

 

Class A

 

Class B

 

Class B

 

Paid-In

 

Accumulated

 

Comprehensive

 

Noncontrolling

 

Total

 

 

Stock

 

Amount

 

Stock

 

Amount

 

Capital

 

Deficit

 

Income

 

Interests

 

Equity

 

Balance at January 1, 2024

 

116,562,252

 

$

117

 

 

39,762,700

 

$

 

$

1,086,581

 

$

(227,450

)

$

2,109

 

$

337,817

 

$

1,199,174

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,518

)

 

 

 

(3,200

)

 

(12,718

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(451

)

 

(134

)

 

(585

)

Vested incentive units

 

 

 

 

 

 

 

 

 

(784

)

 

 

 

 

 

784

 

 

 

Issuance of Class A Common Stock upon vesting of RSUs

 

1,822,506

 

 

2

 

 

 

 

 

 

2,532

 

 

 

 

 

 

(2,534

)

 

 

Shares withheld related to net share settlement

 

(646,041

)

 

(1

)

 

 

 

 

 

(5,805

)

 

 

 

 

 

 

 

(5,806

)

Effect of LLC unit exchanges

 

51,308

 

 

 

 

(51,308

)

 

 

 

1,276

 

 

 

 

 

 

(1,892

)

 

(616

)

Forfeited unvested incentive units

 

 

 

 

 

(47,388

)

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

11,682

 

 

 

 

 

 

3,900

 

 

15,582

 

Balance at March 31, 2024

 

117,790,025

 

$

118

 

 

39,664,004

 

$

 

$

1,095,482

 

$

(236,968

)

$

1,658

 

$

334,741

 

$

1,195,031

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

 

Class A

 

Class A

 

Class B

 

Class B

 

Paid-In

 

Accumulated

 

Comprehensive

 

Noncontrolling

 

Total

 

 

Stock

 

Amount

 

Stock

 

Amount

 

Capital

 

Deficit

 

Income

 

Interests

 

Equity

 

Balance at January 1, 2023

 

105,138,273

 

 

105

 

 

50,433,101

 

 

 

 

970,207

 

 

(25,062

)

 

3,668

 

 

533,027

 

 

1,481,945

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(12,063

)

 

 

 

(3,909

)

 

(15,972

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(875

)

 

(372

)

 

(1,247

)

Vested incentive units

 

 

 

 

 

 

 

 

 

(505

)

 

 

 

 

 

505

 

 

 

Issuance of Class A Common Stock upon vesting of RSUs

 

380,676

 

 

 

 

 

 

 

 

828

 

 

 

 

 

 

(828

)

 

 

Shares withheld related to net share settlement

 

(127,829

)

 

 

 

 

 

 

 

(1,530

)

 

 

 

 

 

 

 

(1,530

)

Effect of LLC unit exchanges

 

4,771,545

 

 

5

 

 

(4,771,545

)

 

 

 

41,881

 

 

 

 

 

 

(52,352

)

 

(10,466

)

Forfeited unvested incentive units

 

 

 

 

 

(34,623

)

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

7,811

 

 

 

 

 

 

3,317

 

 

11,128

 

Balance at March 31, 2023

 

110,162,665

 

$

110

 

 

45,626,933

 

$

 

$

1,018,692

 

$

(37,125

)

$

2,793

 

$

479,388

 

$

1,463,858

 

See notes to condensed consolidated financial statements.

8


 

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows provided by (used in) operating activities:

 

 

 

 

 

 

Net loss

 

$

(12,718

)

 

$

(15,972

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

554

 

 

 

513

 

Amortization of intangible assets

 

 

12,130

 

 

 

12,431

 

Amortization of deferred contract costs

 

 

3,692

 

 

 

2,860

 

Equity-based compensation

 

 

15,582

 

 

 

11,128

 

Amortization of debt issuance costs

 

 

176

 

 

 

176

 

Provision for doubtful accounts receivable

 

 

211

 

 

 

22

 

Non-cash impairment charges related to office leases

 

 

 

 

 

157

 

Tax receivable agreement remeasurement

 

 

(2,267

)

 

 

3,552

 

Changes in fair value of contingent consideration

 

 

270

 

 

 

 

Deferred income taxes

 

 

(847

)

 

 

(773

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

2,999

 

 

 

6,966

 

Prepaid expenses and other assets

 

 

(1,399

)

 

 

(3,796

)

Deferred contract costs

 

 

(2,699

)

 

 

(4,021

)

Contingent consideration

 

 

(602

)

 

 

 

Accounts payable, accrued expenses, and other liabilities

 

 

(8,231

)

 

 

(3,855

)

Deferred revenue

 

 

9,738

 

 

 

5,569

 

Net cash provided by operating activities

 

 

16,589

 

 

 

14,957

 

Cash flows (used in) provided by investing activities:

 

 

 

 

 

 

Purchases of property, equipment, and other assets

 

 

(266

)

 

 

(1,338

)

Purchases of short-term investments

 

 

(83,826

)

 

 

(90,252

)

Maturities of short-term investments

 

 

73,588

 

 

 

58,120

 

Cash paid for acquisitions, net of cash acquired

 

 

(13,530

)

 

 

 

Net cash used in investing activities

 

 

(24,034

)

 

 

(33,470

)

Cash flows used in financing activities:

 

 

 

 

 

 

Repayments of term loans

 

 

(3,438

)

 

 

(1,719

)

Taxes paid related to net share settlement of equity awards

 

 

(5,806

)

 

 

(1,530

)

Payment of contingent consideration

 

 

(1,000

)

 

 

 

Payments under tax receivable agreement

 

 

(6,950

)

 

 

(246

)

Payments of equity offering issuance costs

 

 

 

 

 

(30

)

Net cash used in financing activities

 

 

(17,194

)

 

 

(3,525

)

Net decrease in cash and cash equivalents

 

 

(24,639

)

 

 

(22,038

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(343

)

 

 

65

 

Cash and cash equivalents, beginning of period

 

 

130,976

 

 

 

146,934

 

Cash and cash equivalents, end of period

 

$

105,994

 

 

$

124,961

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

3,642

 

 

$

3,475

 

Income taxes

 

$

 

 

$

79

 

Acquisitions:

 

 

 

 

 

 

Net assets acquired, net of cash acquired

 

$

13,675

 

 

$

 

Working capital adjustment receivable

 

 

(145

)

 

 

 

Net cash paid for acquisitions

 

$

13,530

 

 

$

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

Capital expenditures included in accrued expenses and other liabilities

 

$

 

 

$

333

 

 

See notes to condensed consolidated financial statements.

9


 

DEFINITIVE HEALTHCARE CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation

Description of Business and Organization

Definitive Healthcare Corp. (the “Company”) was formed on May 5, 2021 as a Delaware corporation to facilitate an initial public offering (“IPO”) and other related transactions to carry on the business of AIDH TopCo, LLC (“Definitive OpCo”). Following consummation of the Reorganization Transactions as described below, Definitive OpCo became a subsidiary of Definitive Healthcare Corp. The Company, through its operating subsidiaries, provides comprehensive and up-to-date hospital and healthcare-related information and insight across the entire healthcare continuum via a multi-tenant software-as-a-service (“SaaS”) platform which combines proprietary and public sources to deliver insights. The Company is headquartered in Framingham, Massachusetts.

In connection with the IPO, the Company completed the following transactions (the “Reorganization Transactions”). Definitive OpCo entered into an amended and restated limited liability company agreement (the “Amended LLC Agreement”) pursuant to which members of Definitive OpCo prior to the IPO who continued to hold limited liability company interests (“LLC Units”) in Definitive OpCo following the consummation of the Reorganization Transactions acquired the right to require Definitive OpCo to redeem all or a portion of their LLC Units for newly issued shares of Class A Common Stock on a one-for-one basis. Until redeemed or exchanged, each LLC Unit is paired with one share of Definitive Healthcare Corp. Class B Common Stock. The total shares of Class B Common Stock outstanding is equal to the number of vested LLC Units outstanding, excluding LLC Units held by the Company. Unvested LLC Units are paired with Class B Common Stock, which are issued but do not have voting rights and are deemed not outstanding until the corresponding LLC Units have vested. Certain entities treated as corporations for U.S. federal income tax purposes that held LLC Units (individually, a “Blocker Company” and collectively, the “Blocker Companies”) each merged with a merger subsidiary of Definitive Healthcare Corp., and subsequently merged into Definitive Healthcare Corp. (the “Mergers”). The former shareholders of the Blocker Companies collectively received a number of shares of Class A Common Stock in the Mergers equal to the number of LLC Units held by the Blocker Companies prior to the Mergers.

Following the Reorganization Transactions, Definitive Healthcare Corp. became a holding company, with its sole material asset being a controlling equity interest in Definitive OpCo. Definitive Healthcare Corp. operates and controls all of the business and affairs of Definitive OpCo, and through Definitive OpCo and its subsidiaries, conducts its business. Accordingly, Definitive Healthcare Corp. consolidates the financial results of Definitive OpCo, and reports the noncontrolling interests of unexchanged LLC Unit holders on its condensed consolidated financial statements.

In connection with the Reorganization Transactions and the IPO, Definitive Healthcare Corp entered into a tax receivable agreement. See Note 15. Income Taxes.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and in conformity with rules applicable to quarterly financial information. Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative nongovernmental GAAP as found in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 are unaudited and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2023. All adjustments, consisting of normal recurring adjustments, except as otherwise noted, considered, in the opinion of management, necessary for a fair presentation of the unaudited interim condensed consolidated financial statements for these interim periods have been included.

Refer to Note 2. Summary of Significant Accounting Policies in the notes to the consolidated financial statements in the 2023 Form 10-K for the Company’s significant accounting policies and estimates.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, revenue recognition, allowance for doubtful accounts, contingencies, valuations, useful lives of intangible assets acquired in business combinations, equity-based compensation, and income taxes. Actual results could differ from those estimates.

10


 

Recently Issued Accounting Pronouncements Not Yet Adopted

From time to time, new accounting pronouncements are issued by the FASB or other accounting standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed, we do not believe that the adoption of recently issued standards have had or may have a material impact on our condensed consolidated statements or disclosures.

Restatement of Previously Issued Financial Statements

As described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 28, 2024, the Company filed an Amendment No. 1 on Form 10-Q/A to amend the Quarterly Report on Form 10-Q for the three months ended March 31, 2023 with the SEC on August 14, 2023 to restate the Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2023 and 2022.

The restated prior-year results are reflected in the condensed consolidated financial results disclosed within this Quarterly Report on Form 10-Q.

 

11


 

2. Acquisitions

Carevoyance

On January 16, 2024, the Company completed the purchase of assets comprising the Carevoyance business line of H1 Insights, Inc. (“Carevoyance”), a product that helps medical technology (“MedTech”) customers to improve segmentation, targeting, and prospect engagement, for $13.7 million in cash consideration. The Carevoyance assets meet the definition of a business and accordingly, the Company has accounted for the Carevoyance transaction under the acquisition method. The assets acquired and liabilities assumed were recorded at their estimated fair values and the results of operations were included in the Company’s consolidated results prospectively from the acquisition date.

The purchase price allocations for the Carevoyance acquisition are provisional and are based on the information that was available as of the acquisition date to estimate the fair values of assets acquired and liabilities assumed. The Company is gathering and reviewing additional information necessary to finalize the values assigned to the acquired assets and liabilities assumed, as well as acquired identified intangible assets and goodwill. Therefore, the provisional measurements of fair values reported as of March 31, 2024 are subject to change. The Company is expected to finalize the purchase price allocations as soon as practicable, but no later than one year from the acquisition date. Acquisition-date fair values of assets and liabilities pertaining to this business combination have been allocated as follows:

 

(in thousands)

 

 

 

Purchase price allocation:

 

Preliminary

 

Accounts receivable

 

$

605

 

Intangible assets

 

 

7,000

 

Deferred revenue

 

 

(987

)

Total assets acquired and liabilities assumed

 

 

6,618

 

Goodwill

 

 

7,057

 

Purchase price

 

$

13,675

 

As a result of the Carevoyance acquisition, the Company recorded goodwill, developed technology, customer relationships, and tradename of $7.1 million, $6.8 million, $0.2 million, and $0.1 million, respectively, as of the acquisition date. The goodwill recognized includes the fair value of the assembled workforce, which is not recognized as an intangible asset separable from goodwill, and any expected synergies gained through the acquisition. The Company determined that the goodwill resulting from the acquisition is deductible for tax purposes. All goodwill has been allocated to the Company’s one reportable segment.

The developed technology represents Carevoyance’s proprietary solutions that are designed to assist MedTech customers with improving segmentation, targeting, and prospect engagement. The Company used the income approach, specifically the multi-period excess earnings method, to determine the value of developed technology. Significant assumptions include an obsolescence factor, tax rate, and discount rate. The developed technology was valued at $6.8 million and is amortized using the economic value method, which represents the pattern of cash flows over the estimated 7-year life of this asset.

Customer relationships represent the estimated fair value of the underlying relationships with the acquired entity’s business customers. The Company valued customer relationships using the income approach, specifically the multi-period excess earnings method. Significant assumptions include estimated attrition rates, discount rates, and tax rates reflecting the different risk profiles of the asset depending upon the acquisition. The value assigned to customer relationships is $0.2 million and is amortized using the straight-line method over the estimated remaining useful life of 5 years.

The tradename represents the estimated fair value of the registered trade name associated with the Carevoyance corporate brand. The Company estimated the fair value of the trademark using a relief from royalty method of the income approach. Significant assumptions include forecast of royalty rate, tax rate, and discount rate. The trademark was valued at $0.1 million and is amortized using the straight-line method over the estimated remaining useful life of 2 years.

In total, intangible assets acquired in the Carevoyance acquisition are estimated to be amortized over a weighted average of 6.9 years. See Note 7. Goodwill and Intangible Assets for the estimated total intangible amortization expense during the next five years.

In connection with the acquisition, the Company recognized acquisition related costs of $0.1 million which were recorded within transaction, integration, and restructuring expenses in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2024.

During the three months ended March 31, 2024, Carevoyance’s post-acquisition revenue and net loss on a standalone basis were not material.

 

12


 

Populi, Inc.

On July 21, 2023, the Company completed the acquisition of Populi, Inc. (“Populi”), a provider-focused data and analytics company that works with healthcare organizations to optimize physician relationships, reduce network leakage, and expand market share, for total estimated consideration of $54.1 million, consisting of approximately $46.4 million of cash paid at closing, $0.1 reimbursement from sellers for working capital adjustments, and up to $28.0 million of contingent consideration, with an initial estimated fair value of $7.8 million. The contingent consideration relates to earn-out payments that may be paid subject to meeting certain revenue metrics during calendar years 2024 and 2025. In addition to the purchase consideration and pursuant to holdback agreements with certain key Populi employees, the Company agreed to pay $4.8 million to certain key Populi employees in quarterly installments beginning on December 31, 2023, and continuing through September 30, 2025. The payout of the holdback is subject to continued employment, and therefore recognized as compensation expense over the requisite service period as a component of transaction, integration and restructuring expenses in the accompanying condensed consolidated statements of operations. The assets acquired and liabilities assumed were recorded at their estimated fair values and the results of operations were included in the Company’s consolidated results as of the acquisition date.

The consideration transferred for the transaction is summarized as follows:

 

(in thousands)

 

 

 

Cash consideration paid at closing

 

$

46,446

 

Working capital adjustment

 

 

(145

)

Contingent consideration

 

 

7,800

 

Purchase price

 

$

54,101

 

The contingent consideration is based on the achievement of certain revenue metrics during the two-year period following the acquisition date, with potential earn-out payouts ranging from $0 to $28.0 million. The Company estimated the fair value of the contingent consideration to be $7.8 million as of July 21, 2023, based on the estimated achievement of the revenue metrics and time to payment. The contingent consideration was recorded in Other liabilities in the accompanying condensed consolidated balance sheet as of March 31, 2024. Refer to Note 11. Fair Value Measurements.

The Company finalized the purchase price allocations of the Populi acquisition during the three months ended March 31, 2024. Acquisition-date fair values of assets and liabilities pertaining to this business combination have been allocated as follows:

 

(in thousands)

 

 

 

 

 

 

 

Purchase price allocation:

 

Preliminary, as originally reported

 

Measurement period adjustments

 

As adjusted

 

Cash

 

$

1,423

 

$

 

$

1,423

 

Accounts receivable

 

 

2,662

 

 

 

 

2,662

 

Prepaid expenses and other assets

 

 

153

 

 

 

 

153

 

Property and equipment

 

 

42

 

 

 

 

42

 

Intangible assets

 

 

22,830

 

 

(500

)

 

22,330

 

Accounts payable and accrued expenses

 

 

(3,316

)

 

 

 

(3,316

)

Deferred revenue

 

 

(4,010

)

 

 

 

(4,010

)

Other liabilities

 

 

(2,354

)

 

(576

)

 

(2,930

)

Total assets acquired and liabilities assumed

 

 

17,430

 

 

(1,076

)

 

16,354

 

Goodwill

 

 

36,652

 

 

1,095

 

 

37,747

 

Purchase price

 

$

54,082

 

$

19

 

$

54,101

 

As a result of the Populi acquisition, the Company recorded goodwill, developed software, customer relationships, and tradename of $37.7 million, $21.4 million, $0.8 million, and $0.1 million, respectively, as of the acquisition date. The goodwill recognized includes the fair value of the assembled workforce, which is not recognized as an intangible asset separable from goodwill, and any expected synergies gained through the acquisition. The Company determined that the goodwill resulting from the acquisition is not deductible for tax purposes. All goodwill has been allocated to the Company’s one reportable segment.

The developed software represents Populi’s proprietary solutions that are designed to assist organizations in optimizing physician relationships, reducing network leakage, and expanding market share. The Company used the income approach, specifically the multi-period excess earnings method, to determine the value of developed software. Significant assumptions include an obsolescence factor, tax rate, and discount rate. The developed software was valued at $21.4 million and is amortized using the economic value method, which represents the pattern of cash flows over the estimated 7-year life of this asset.

 

13


 

Customer relationships represent the estimated fair value of the underlying relationships with the acquired entity’s business customers. The Company valued customer relationships using the income approach, specifically the multi-period excess earnings method. Significant assumptions include estimated attrition rates, discount rates, and tax rates reflecting the different risk profiles of the asset depending upon the acquisition. The value assigned to customer relationships is $0.8 million and is amortized using the straight-line method over the estimated remaining useful life of 15 years.

The tradename represents the estimated fair value of the registered trade name associated with the Populi corporate brand. The Company estimated the fair value of the trademark using a relief from royalty method of the income approach. Significant assumptions include forecast of royalty rate, tax rate, and discount rate. The trademark was valued at $0.1 million and is amortized using the straight-line method over the estimated remaining useful life of 1 year.

In total, intangible assets acquired in the Populi acquisition are estimated to be amortized over a weighted average of 7.2 years. See Note 7. Goodwill and Intangible Assets for the estimated total intangible amortization expense during the next five years.

In connection with the acquisition, the Company recognized acquisition related costs of $0.7 million which were recorded within transaction, integration, and restructuring expenses in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2024.

Unaudited Pro Forma Supplementary Data as if the Populi acquisition had occurred on January 1, 2023:

 

 

 

Three Months Ended March 31, 2023

 

(in thousands)

 

 

 

Revenue

 

$

60,675

 

Net loss

 

 

(18,451

)

These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the operating results of the Company that would have been achieved had the acquisition actually taken place on January 1, 2023. In addition, these results are not intended to be a projection of future results and do not reflect events that may occur after the acquisition, including but not limited to revenue enhancements, cost savings or operating synergies that the combined Company may achieve as a result of the acquisition.

 

14


 

3. Revenue

The Company disaggregates revenue from its arrangements with customers by type of service as it believes these categories best depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The following table represents a disaggregation of revenue from arrangements with customers for the three months ended March 31, 2024 and 2023, respectively:

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Subscription services

 

$

61,752

 

 

$

58,517

 

Professional services

 

 

1,728

 

 

 

684

 

Total revenue

 

$

63,480

 

 

$

59,201

 

The opening and closing balances of the Company’s receivables, deferred contract costs and contract liabilities from contracts with customers are as follows:

(in thousands)

 

March 31,
2024

 

 

December 31,
2023

 

Accounts receivable, net

 

$

56,655

 

 

$

59,249

 

Deferred contract costs, current portion

 

 

13,598

 

 

 

13,490

 

Deferred contract costs, long-term

 

 

16,219

 

 

 

17,320

 

Deferred revenues

 

 

108,087

 

 

 

97,386

 

Deferred Contract Costs

A summary of the activity impacting the deferred contract costs for the three months ended March 31, 2024 and the year ended December 31, 2023 is presented below:

(in thousands)

 

Three Months Ended March 31, 2024

 

 

Twelve Months Ended December 31, 2023

 

Balance at beginning of period

 

$

30,810

 

 

$

24,983

 

Costs amortized

 

 

(3,692

)

 

 

(12,963

)

Additional amounts deferred

 

 

2,699

 

 

 

18,790

 

Balance at end of period

 

 

29,817

 

 

 

30,810

 

Classified as:

 

 

 

 

 

 

Current

 

 

13,598

 

 

 

13,490

 

Non-current

 

 

16,219

 

 

 

17,320

 

Total deferred contract costs (deferred commissions)

 

$

29,817

 

 

$

30,810

 

Contract Liabilities

A summary of the activity impacting deferred revenue balances during the three months ended March 31, 2024 and for the year ended December 31, 2023 is presented below:

(in thousands)

 

Three Months Ended March 31, 2024

 

 

Twelve Months Ended December 31, 2023

 

Balance at beginning of period

 

$

97,386

 

 

$

99,928

 

Revenue recognized

 

 

(63,480

)

 

 

(251,415

)

Additional amounts deferred

 

 

74,181

 

 

 

248,873

 

Balance at end of period

 

$

108,087

 

 

$