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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 June 30, 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 August 2, 2022, the number of outstanding shares of the registrant’s Class A Common Stock was 100,511,143 shares.

 

 


 

Definitive Healthcare Corp.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended June 30, 2022

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

 

 

 

 

 

 

 

Glossary

3

 

 

 

 

Cautionary Note Regarding Forward-Looking Statements

4

 

 

 

Part I.

FINANCIAL INFORMATION

5

 

 

 

Item 1.

Condensed Consolidated Balance Sheets – June 30, 2022 and December 31, 2021

5

 

 

 

 

Condensed Consolidated Statements of Operations – Three and Six Months ended June 30, 2022 and 2021

6

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss – Three and Six Months ended June 30, 2022 and 2021

7

 

 

 

 

 

Condensed Consolidated Statements of Changes in Members’ Equity and Total Equity – Three and Six Months ended June 30, 2022 and 2021

8

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Six Months ended June 30, 2022 and 2021

9

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

11

 

 

 

Item 2.

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

29

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

 

 

 

Item 4.

Controls and Procedures

39

 

 

 

Part II.

OTHER INFORMATION

41

 

 

 

Item 1.

Legal Proceedings

41

 

 

 

Item 1A.

Risk Factors

41

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

 

 

 

Item 3.

Defaults Upon Senior Securities

41

 

 

 

Item 4.

Mine Safety Disclosures

41

 

 

 

Item 5.

Other Information

41

 

 

 

Item 6.

Exhibits

42

 

 

Signatures

43

 

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 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 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 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, 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, or our “2021 Form 10-K”, 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)

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

228,202

 

 

$

387,498

 

Short-term investments

 

 

118,216

 

 

 

 

Accounts receivable, net

 

 

31,734

 

 

 

43,336

 

Prepaid expenses and other current assets

 

 

9,591

 

 

 

6,518

 

Current portion of deferred contract costs

 

 

8,469

 

 

 

6,880

 

Total current assets

 

 

396,212

 

 

 

444,232

 

Property and equipment, net

 

 

4,760

 

 

 

5,069

 

Operating lease right-of-use assets, net

 

 

10,552

 

 

 

 

Other assets

 

 

3,243

 

 

 

8,431

 

Deferred contract costs, net of current portion

 

 

12,933

 

 

 

11,667

 

Investment in equity securities

 

 

 

 

 

32,675

 

Intangible assets, net

 

 

372,196

 

 

 

352,470

 

Goodwill

 

 

1,322,959

 

 

 

1,261,444

 

Total assets

 

$

2,122,855

 

 

$

2,115,988

 

Liabilities and Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

 

6,692

 

 

 

4,651

 

Accrued expenses and other current liabilities

 

 

14,682

 

 

 

22,658

 

Current portion of deferred revenue

 

 

88,714

 

 

 

83,611

 

Current portion of term loan

 

 

6,875

 

 

 

6,875

 

Current portion of operating lease liabilities

 

 

2,225

 

 

 

 

Total current liabilities

 

 

119,188

 

 

 

117,795

 

Long term liabilities:

 

 

 

 

 

 

Deferred revenue

 

 

278

 

 

 

412

 

Term loan, net of current portion

 

 

260,646

 

 

 

263,808

 

Operating lease liabilities, net of current portion

 

 

10,596

 

 

 

 

Tax receivable agreements liability

 

 

155,900

 

 

 

153,529

 

Deferred tax liabilities

 

 

85,596

 

 

 

75,888

 

Other long-term liabilities

 

 

1,951

 

 

 

1,294

 

Total liabilities

 

 

634,155

 

 

 

612,726

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Class A Common Stock, par value $0.001, 600,000,000 shares authorized, 100,484,715 and 97,030,095 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

 

 

100

 

 

 

97

 

Class B Common Stock, par value $0.00001, 65,000,000 shares authorized, 54,745,380 and 52,196,192 shares issued and outstanding, respectively, at June 30, 2022, and 58,244,627 and 55,488,221 shares issued and outstanding, respectively at December 31, 2021

 

 

 

 

 

 

Additional paid-in capital

 

 

929,842

 

 

 

890,724

 

Accumulated other comprehensive income

 

 

1,994

 

 

 

62

 

Accumulated deficit

 

 

(31,451

)

 

 

(17,677

)

Noncontrolling interests

 

 

588,215

 

 

 

630,056

 

Total equity

 

 

1,488,700

 

 

 

1,503,262

 

Total liabilities and equity

 

$

2,122,855

 

 

$

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$

54,548

 

 

$

39,821

 

 

$

104,672

 

 

$

76,757

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue exclusive of amortization

 

 

6,198

 

 

 

4,570

 

 

 

12,148

 

 

 

8,766

 

Amortization

 

 

5,580

 

 

 

5,299

 

 

 

10,958

 

 

 

10,540

 

Gross profit

 

 

42,770

 

 

 

29,952

 

 

 

81,566

 

 

 

57,451

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

23,585

 

 

 

12,884

 

 

 

44,878

 

 

 

24,627

 

Product development

 

 

8,706

 

 

 

4,277

 

 

 

15,556

 

 

 

8,071

 

General and administrative

 

 

9,392

 

 

 

6,375

 

 

 

19,846

 

 

 

11,011

 

Depreciation and amortization

 

 

10,194

 

 

 

9,608

 

 

 

20,068

 

 

 

19,054

 

Transaction and restructuring expenses

 

 

2,107

 

 

 

3,431

 

 

 

3,417

 

 

 

3,469

 

Total operating expenses

 

 

53,984

 

 

 

36,575

 

 

 

103,765

 

 

 

66,232

 

Loss from operations

 

 

(11,214

)

 

 

(6,623

)

 

 

(22,199

)

 

 

(8,781

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

4,002

 

 

 

(100

)

 

 

3,901

 

 

 

24

 

Interest expense, net

 

 

(2,580

)

 

 

(8,316

)

 

 

(4,464

)

 

 

(16,770

)

Total other income (expense), net

 

 

1,422

 

 

 

(8,416

)

 

 

(563

)

 

 

(16,746

)

Net loss before income taxes

 

 

(9,792

)

 

 

(15,039

)

 

 

(22,762

)

 

 

(25,527

)

Income tax benefit

 

 

213

 

 

 

 

 

 

126

 

 

 

 

Net loss

 

 

(9,579

)

 

 

(15,039

)

 

 

(22,636

)

 

 

(25,527

)

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

 

 

 

 

 

(15,039

)

 

 

 

 

 

(25,527

)

Less: Net loss attributable to noncontrolling interests

 

 

(4,429

)

 

 

 

 

 

(8,862

)

 

 

 

Net loss attributable to Definitive Healthcare Corp.

 

$

(5,150

)

 

$

 

 

$

(13,774

)

 

$

 

Net loss per share of Class A Common Stock:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted (1)

 

$

(0.05

)

 

N/A

 

 

$

(0.14

)

 

N/A

 

Weighted average Class A Common Stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted (1)

 

 

99,203,697

 

 

N/A

 

 

 

98,186,909

 

 

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 19 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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net loss

 

$

(9,579

)

 

$

(15,039

)

 

$

(22,636

)

 

$

(25,527

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

105

 

 

 

(19

)

 

 

111

 

 

 

144

 

Unrealized loss on available-for-sale securities

 

 

(143

)

 

 

 

 

 

(452

)

 

 

 

Unrealized gain on interest rate hedging instruments

 

 

1,694

 

 

 

 

 

 

3,340

 

 

 

 

Comprehensive loss

 

 

(7,923

)

 

 

(15,058

)

 

 

(19,637

)

 

 

(25,383

)

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

 

 

 

 

 

(15,058

)

 

 

 

 

 

(25,383

)

Less: Comprehensive loss attributable to noncontrolling interests

 

 

(3,849

)

 

 

 

 

 

(7,795

)

 

 

 

Comprehensive loss attributable to Definitive Healthcare Corp.

 

$

(4,074

)

 

$

 

 

$

(11,842

)

 

$

 

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

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,150

)

 

 

 

(4,429

)

 

(9,579

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

1,076

 

 

580

 

 

1,656

 

Vested incentive units

 

 

 

 

 

 

 

 

 

(358

)

 

 

 

 

 

358

 

 

 

Issuance of Class A Common Stock upon vesting of RSUs

 

11,729

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

(45

)

 

 

Effect of LLC unit exchanges

 

2,898,589

 

 

2

 

 

(2,898,589

)

 

 

 

24,818

 

 

 

 

 

 

(29,438

)

 

(4,618

)

Forfeited unvested incentive units

 

 

 

 

 

(22,807

)

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation