10-Q
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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, 2022

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.)

 

 

550 Cochituate Road

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 3, 2022, the number of outstanding shares of the registrant’s Class A Common Stock was 97,660,738 shares.

 

 


 

Definitive Healthcare Corp.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2022

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

 

 

 

 

 

 

 

Glossary

3

 

 

 

 

Cautionary Note Regarding Forward-Looking Statements

4

 

 

 

Part I.

FINANCIAL INFORMATION

5

 

 

 

 

Condensed Consolidated Balance Sheets – March 31, 2022 and December 31, 2021

5

 

 

 

 

Condensed Consolidated Statements of Operations – Three Months ended March 31, 2022 and 2021

6

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss – Three Months ended March 31, 2022 and 2021

7

 

 

 

 

 

Condensed Consolidated Statements of Changes in Members’ Equity and Total Equity – Three Months ended March 31, 2022 and 2021

8

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Three Months ended March 31, 2022 and 2021

9

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

10

 

 

 

Item 2.

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

27

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

37

 

 

 

Item 4.

Controls and Procedures

38

 

 

 

Part II.

OTHER INFORMATION

39

 

 

 

Item 1.

Legal Proceedings

39

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

 

 

 

Item 5.

Other Information

39

 

 

 

Item 6.

Exhibits

40

 

 

Signatures

41

 

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 (1) prior to the consummation of the Reorganization Transactions, to Definitive OpCo and its consolidated subsidiaries, and (2) after the consummation of the Reorganization Transactions, to Definitive Healthcare Corp. and its consolidated subsidiaries unless the context indicates otherwise.

 

Advent” refers to funds affiliated with Advent International, a global private equity firm.
Advent Acquisition” refers to the purchase of a majority of the issued and outstanding units of DH Holdings by Advent on July 16, 2019. The acquisition was accounted for as a business combination and purchase accounting was applied.
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 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 annualized recurring revenue as of period end.
Blocker Company” or “Blocker Companies” refers to certain entities treated as corporations for U.S. 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.
Class B Units” refers to units granted by AIDH Management Holdings, LLC prior to the Reorganization Transactions intended to be treated as “profit interests” for U.S. federal income tax purposes which have economic interests similar to Stock Appreciation Rights (“SARS”) and which are subject to vesting.
Continuing LLC Members” refers to holders of LLC Units under the Amended LLC Agreement.
Definitive OpCo” refers to AIDH TopCo, LLC, a Delaware limited liability company, and a subsidiary of Definitive Healthcare Corp., following the Reorganization Transactions.
Definitive OpCo Units” refers to unvested Class B Units held by employees of the Company or indirectly through Definitive OpCo at the time of the Reorganization Transactions that were exchanged for unvested Definitive OpCo units based on their respective participation thresholds and the IPO price of $27.00 per share.
DH Holdings” refers to Definitive Healthcare Holdings, LLC, a Delaware limited liability company and wholly-owned subsidiary of Definitive Healthcare Corp.
LLC Units” refers to limited liability company interests in Definitive OpCo.
IPO” refers to the initial public offering of Class A Common Stock of Definitive Healthcare Corp.
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 a period.
Reorganization Transactions” refers to transactions completed in connection with the Company’s IPO as defined within Note 1 to our unaudited 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, 22C Capital, and Spectrum Equity.
22C Capital” refers to investment funds associated with 22C Capital LLC, a private equity firm.

 

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, 2021 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)

(Unaudited)

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

229,795

 

 

$

387,498

 

Short-term investments

 

 

109,027

 

 

 

 

Accounts receivable, net

 

 

38,465

 

 

 

43,336

 

Prepaid expenses and other current assets

 

 

7,208

 

 

 

6,518

 

Current portion of deferred contract costs

 

 

7,657

 

 

 

6,880

 

Total current assets

 

 

392,152

 

 

 

444,232

 

Property and equipment, net

 

 

4,818

 

 

 

5,069

 

Operating lease right-of-use assets, net

 

 

18,811

 

 

 

 

Other assets

 

 

2,876

 

 

 

8,273

 

Deferred contract costs, net of current portion

 

 

12,314

 

 

 

11,667

 

Deferred tax asset

 

 

 

 

 

158

 

Investment in equity securities

 

 

 

 

 

32,675

 

Intangible assets, net

 

 

387,241

 

 

 

352,470

 

Goodwill

 

 

1,323,516

 

 

 

1,261,444

 

Total assets

 

$

2,141,728

 

 

$

2,115,988

 

Liabilities and Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

 

6,207

 

 

 

4,651

 

Accrued expenses and other current liabilities

 

 

12,837

 

 

 

22,658

 

Current portion of deferred revenue

 

 

93,574

 

 

 

83,611

 

Current portion of term loan

 

 

6,875

 

 

 

6,875

 

Current portion of operating lease liabilities

 

 

2,522

 

 

 

 

Total current liabilities

 

 

122,015

 

 

 

117,795

 

Long term liabilities:

 

 

 

 

 

 

Deferred revenue

 

 

387

 

 

 

412

 

Term loan, net of current portion

 

 

262,226

 

 

 

263,808

 

Operating lease liabilities, net of current portion

 

 

17,728

 

 

 

 

Tax receivable agreements liability

 

 

154,673

 

 

 

153,529

 

Deferred tax liabilities

 

 

86,144

 

 

 

75,888

 

Other long-term liabilities

 

 

1,290

 

 

 

1,294

 

Total liabilities

 

 

644,463

 

 

 

612,726

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Class A Common Stock, par value $0.001, 600,000,000 shares authorized, 97,574,397 and 97,030,095 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

98

 

 

 

97

 

Class B Common Stock, par value $0.00001, 65,000,000 shares authorized, 57,666,776 and 55,040,110 shares issued and outstanding, respectively, at March 31, 2022, and 58,244,627 and 55,488,221 shares issued and outstanding, respectively at December 31, 2021

 

 

 

 

 

 

Additional paid-in capital

 

 

899,485

 

 

 

890,724

 

Accumulated other comprehensive income

 

 

918

 

 

 

62

 

Accumulated deficit

 

 

(26,301

)

 

 

(17,677

)

Noncontrolling interests

 

 

623,065

 

 

 

630,056

 

Total equity

 

 

1,497,265

 

 

 

1,503,262

 

Total liabilities and equity

 

$

2,141,728

 

 

$

2,115,988

 

See notes to condensed consolidated financial statements

5


 

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenue

 

$

50,124

 

 

$

36,936

 

Cost of revenue:

 

 

 

 

 

 

Cost of revenue exclusive of amortization shown below

 

 

5,950

 

 

 

4,196

 

Amortization

 

 

5,378

 

 

 

5,241

 

Gross profit

 

 

38,796

 

 

 

27,499

 

Operating expenses:

 

 

 

 

 

 

Sales and marketing

 

 

21,293

 

 

 

11,743

 

Product development

 

 

6,850

 

 

 

3,794

 

General and administrative

 

 

10,454

 

 

 

4,636

 

Depreciation and amortization

 

 

9,874

 

 

 

9,446

 

Transaction expenses

 

 

1,310

 

 

 

38

 

Total operating expenses

 

 

49,781

 

 

 

29,657

 

Loss from operations

 

 

(10,985

)

 

 

(2,158

)

Other expense, net:

 

 

 

 

 

 

Other (expense) income, net

 

 

(101

)

 

 

124

 

Interest expense, net

 

 

(1,884

)

 

 

(8,454

)

Total other expense, net

 

 

(1,985

)

 

 

(8,330

)

Net loss before income taxes

 

 

(12,970

)

 

 

(10,488

)

Provision for income taxes

 

 

(87

)

 

 

 

Net loss

 

 

(13,057

)

 

 

(10,488

)

Less: Net loss attributable to Definitive OpCo prior to the Reorganization Transactions

 

 

 

 

 

(10,488

)

Less: Net loss attributable to noncontrolling interests

 

 

(4,433

)

 

 

 

Net loss attributable to Definitive Healthcare Corp.

 

$

(8,624

)

 

$

 

Net loss per share of Class A Common Stock:

 

 

 

 

 

 

Basic and diluted (1)

 

$

(0.09

)

 

N/A

 

Weighted average Class A Common Stock outstanding:

 

 

 

 

 

 

Basic and diluted (1)

 

 

97,158,823

 

 

N/A

 

(1) Basic and diluted net loss per share of Class A Common Stock is applicable only for the periods beginning from September 15, 2021, which is the period following the IPO and related Reorganization Transactions. See Note 18 for the number of shares used in the computation of net loss per share of Class A Common Stock and the basis for the computation of net loss per share.

See notes to condensed consolidated financial statements

6


 

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(amounts in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(13,057

)

 

$

(10,488

)

Other comprehensive loss:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

6

 

 

 

163

 

Unrealized loss on available-for-sale securities

 

 

(309

)

 

 

 

Unrealized gain on interest rate hedging instruments

 

 

1,646

 

 

 

 

Comprehensive loss

 

 

(11,714

)

 

 

(10,325

)

Less: Comprehensive loss attributable to Definitive OpCo prior to the Reorganization Transactions

 

 

 

 

 

(10,325

)

Less: Comprehensive loss attributable to noncontrolling interests

 

 

(3,946

)

 

 

 

Comprehensive loss attributable to Definitive Healthcare Corp.

 

$

(7,768

)

 

$

 

See notes to condensed consolidated financial statements

7


 

 

DEFINITIVE HEALTHCARE CORP.

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY AND TOTAL EQUITY

(amounts in thousands, except share and unit 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, 2022

 

97,030,095

 

$

97

 

 

58,244,627

 

$

 

$

890,724

 

$

(17,677

)

$

62

 

$

630,056

 

$

1,503,262

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,624

)

 

 

 

(4,433

)

 

(13,057

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

856

 

 

487

 

 

1,343

 

Vested incentive units

 

 

 

 

 

 

 

 

 

(696

)

 

 

 

 

 

696

 

 

 

Effect of LLC unit exchanges

 

544,302

 

 

1

 

 

(544,302

)

 

 

 

5,080

 

 

 

 

 

 

(5,978

)

 

(897

)

Forfeited unvested incentive units

 

 

 

 

 

(33,549

)

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

4,377

 

 

 

 

 

 

2,495

 

 

6,872

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(258

)

 

(258

)

Balance at March 31, 2022

 

97,574,397

 

$

98

 

 

57,666,776

 

$

 

$

899,485

 

$

(26,301

)

$

918

 

$

623,065

 

$

1,497,265

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Other

 

Total

 

 

Members'

 

Comprehensive

 

Members'

 

 

Equity

 

(Loss) Income

 

Equity

 

Balance at January 1, 2021

$

1,195,694

 

$

(131

)

$

1,195,563

 

Net loss prior to Reorganization Transactions

 

(10,488

)

 

 

 

(10,488

)

Other comprehensive income (loss) prior to Reorganization Transactions

 

 

 

163

 

 

163

 

Equity-based compensation

 

406

 

 

 

 

406

 

Balance at March 31, 2021

$

1,185,612

 

$

32

 

$

1,185,644

 

See notes to condensed consolidated financial statements.

8


 

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows provided by operating activities:

 

 

 

 

 

 

Net loss

 

$

(13,057

)

 

$

(10,488

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

525

 

 

 

341

 

Amortization of intangible assets

 

 

14,727

 

 

 

14,346

 

Amortization of deferred contract costs

 

 

1,875

 

 

 

843

 

Equity-based compensation

 

 

6,872

 

 

 

406

 

Amortization of debt issuance costs

 

 

176

 

 

 

523

 

Provision for doubtful accounts receivable

 

 

9

 

 

 

35

 

Tax receivable agreement remeasurement

 

 

248

 

 

 

 

Deferred income taxes

 

 

69

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

8,526

 

 

 

4,399

 

Prepaid expenses and other current assets

 

 

692

 

 

 

(559

)

Deferred contract costs

 

 

(3,299

)

 

 

(2,854

)

Contingent consideration

 

 

(6,400

)

 

 

 

Accounts payable, accrued expenses and other current liabilities

 

 

(3,579

)

 

 

(3,908

)

Deferred revenue

 

 

6,249

 

 

 

10,443

 

Net cash provided by operating activities

 

 

13,633

 

 

 

13,527

 

Cash flows used in investing activities:

 

 

 

 

 

 

Purchases of property, equipment and other assets

 

 

(794

)

 

 

(3,842

)

Purchases of short-term investments

 

 

(109,559

)

 

 

 

Cash paid for acquisitions, net of cash acquired

 

 

(56,499

)

 

 

 

Net cash used in investing activities

 

 

(166,852

)

 

 

(3,842

)

Cash flows used in financing activities:

 

 

 

 

 

 

Repayments of term loans

 

 

(1,719

)

 

 

(1,170

)

Payment of contingent consideration

 

 

(1,100

)

 

 

 

Payments of equity offering issuance costs

 

 

(1,299

)

 

 

(126

)

Member distributions

 

 

(258

)

 

 

 

Net cash used in financing activities

 

 

(4,376

)

 

 

(1,296

)

Net (decrease) increase in cash and cash equivalents

 

 

(157,595

)

 

 

8,389

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(108

)

 

 

(84

)

Cash and cash equivalents, beginning of period

 

 

387,498

 

 

 

24,774

 

Cash and cash equivalents, end of period

 

$

229,795

 

 

$

33,079

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

1,771

 

 

$

8,039

 

Acquisitions:

 

 

 

 

 

 

Net assets acquired, net of cash acquired

 

$

97,499

 

 

$

 

Initial cash investment in prior year

 

 

(40,000

)

 

 

 

Contingent consideration

 

 

(1,000

)

 

 

 

Net cash paid for acquisitions

 

$

56,499

 

 

$

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

Capital expenditures included in accrued expenses

 

$

3,500

 

 

$

 

 

See notes to condensed consolidated financial statements

9


 

DEFINITIVE HEALTHCARE CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business

Definitive Healthcare Corp., through its operating subsidiary, Definitive OpCo, 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. Unless otherwise stated, references to “we,” “us,” “our,” “Definitive Healthcare” and the “Company” refer (1) prior to the consummation of the Reorganization Transactions (as defined below), to Definitive OpCo and its consolidated subsidiaries, and (2) after the consummation of the Reorganization Transactions, to Definitive Healthcare Corp. and its consolidated subsidiaries.

Organization

Definitive Healthcare Corp. 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 Definitive OpCo, a Delaware limited liability company. Following consummation of the Reorganization Transactions, Definitive OpCo became an indirect subsidiary of Definitive Healthcare Corp.

The Company is headquartered in Framingham, MA.

Initial Public Offering

On September 17, 2021, Definitive Healthcare completed its IPO, in which it sold 17,888,888 shares of Class A Common Stock (including shares issued pursuant to the exercise in full of the underwriters’ option to purchase additional shares) at a public offering price of $27.00 per share for net proceeds of $452.8 million, after deducting underwriters’ discounts and commissions (but excluding other offering expenses and reimbursements).

Definitive Healthcare used net proceeds from the IPO to (i) acquire 14,222,222 newly issued limited liability company interests (“LLC Units”) from Definitive OpCo; (ii) purchase 1,169,378 LLC Units from certain holders of LLC Units prior to the IPO; and (iii) repurchase 2,497,288 shares of Class A Common Stock received by the former shareholders of certain Blocker Companies (as defined below). Definitive OpCo used proceeds from the IPO to pay fees and expenses of approximately $11.4 million incurred in connection with the IPO and the Reorganization Transactions and to repay $199.6 million, inclusive of accrued interest expense, of the outstanding borrowings under our 2019 Credit Agreement, with the remaining proceeds intended to be used for general corporate purposes.

Reorganization Transactions

In connection with the IPO, the Company completed the following transactions (the “Reorganization Transactions”). Definitive OpCo entered into a second amended and restated limited liability company agreement (the “Amended LLC Agreement”) pursuant to which members of Definitive OpCo prior to the IPO who continue to hold LLC Units have the right to require Definitive OpCo to exchange all or a portion of their LLC Units for newly issued shares of Class A Common Stock. Until exchanged, each LLC Unit is coupled with one share of Definitive Healthcare Corp. Class B Common Stock. The total amount of shares of Class B Common Stock outstanding is equal to the number of vested LLC Units outstanding. Entities treated as corporations for U.S. tax purposes that held LLC Units (individually, a “Blocker Company” and collectively, the "Blocker Companies") each merged with a merger subsidiary and subsequently merged into Definitive Healthcare Corp. and are now holders of Class A Common Stock.

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 consolidated financial statements.

In connection with the Reorganization Transactions and the IPO, Definitive Healthcare Corp entered into a tax receivable agreement. See Note 17. Income Taxes.

Follow-On Offering

On November 22, 2021, Definitive Healthcare Corp. completed a follow-on offering, in which it sold 11,000,000 shares of Class A Common Stock at a public offering price of $36.00 per share for net proceeds of $382.1 million, after deducting underwriters’ discounts and commissions (but excluding other offering expenses and reimbursements).

Definitive Healthcare Corp. used net proceeds from the follow-on offering to (i) acquire 7,000,000 newly issued LLC Units from Definitive OpCo; (ii) purchase 1,766,762 LLC Units from certain unitholders; and (iii) repurchase 2,233,238 shares of Class A Common Stock received by the former shareholders of certain Blocker Companies. Definitive OpCo used net proceeds from the

10


 

follow-on offering to pay fees and expenses of approximately $1.6 million incurred in connection with the follow-on offering, with the remaining proceeds intended to be used for general corporate purposes.

2. Summary of Significant Accounting Policies

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, 2022 and for the three months ended March 31, 2022 and 2021 are unaudited. Amounts for the period from January 1, 2021 through March 31, 2021 presented in the condensed consolidated financial statements and notes to the condensed consolidated financial statements herein represent the historical operations of Definitive OpCo. The amounts as of March 31, 2022 and December 31, 2021 and for the period from January 1, 2022 through March 31, 2022 reflect the consolidated operations of Definitive Healthcare Corp. and its consolidated subsidiaries. All adjustments, consisting of normal recurring adjustments, except as otherwise noted, considered necessary for a fair presentation of the unaudited interim condensed consolidated financial statements for these interim periods have been included.

Refer below and to Note 2. Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 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 relate, but are not limited to, revenue recognition, allowance for doubtful accounts, contingencies, valuations and useful lives of intangible assets acquired in business combinations, equity-based compensation, and income taxes. Actual results could differ from those estimates.

Leases

Effective January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02—Leases (Topic 842) (“ASC 842”).

In accordance with ASC 842, the Company, at the inception of the contract, determines whether a contract is or contains a lease. For leases with terms greater than 12 months, the Company records the related operating or finance right of use asset and lease liability at the present value of lease payments over the lease term. The Company is generally not able to readily determine the implicit rate in the lease and therefore uses the determined incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate represents an estimate of the market interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. Renewal options are not included in the measurement of the right of use assets and lease liabilities unless the Company is reasonably certain to exercise the optional renewal periods. Some leases also include early termination options, which can be exercised under specific conditions. Additionally, certain leases contain incentives, such as construction allowances from landlords. These incentives reduce the right-of-use asset related to the lease.

Some of the Company's leases contain rent escalations over the lease term. The Company recognizes expense for operating leases on a straight-line basis over the lease term. The Company’s lease agreements contain variable lease payments for common area maintenance, utility, and taxes. The Company has elected the practical expedient to combine lease and non-lease components for all asset categories. Therefore, the lease payments used to measure the lease liability for these leases include fixed minimum rentals along with fixed non-lease component charges. The Company does not have significant residual value guarantees or restrictive covenants in the lease portfolio.

Derivative Instruments and Hedging Activities

FASB Accounting Standards Codification (“ASC”) 815—Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why a