SEC Filing | Definitive Healthcare Corp

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10-Q

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, 2023

☐ 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 1, 2023, the number of outstanding shares of the registrant’s Class A Common Stock was 110,214,798 shares.

Definitive Healthcare Corp.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2023

TABLE OF CONTENTS


		Page

	Glossary	3

	Cautionary Note Regarding Forward-Looking Statements	4

Part I.	FINANCIAL INFORMATION	5

Item 1.	Condensed Consolidated Balance Sheets	5

	Condensed Consolidated Statements of Operations	6

	Condensed Consolidated Statements of Comprehensive Loss	7

	Condensed Consolidated Statements of Changes in Total Equity	8

	Condensed Consolidated Statements of Cash Flows	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	40

Item 4.	Controls and Procedures	41

Part II.	OTHER INFORMATION	42

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	43

Signatures		44

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.

•

“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 annualized recurring revenue as of period end.

•

“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.

•

“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.

•

“Pre-IPO LLC Members” refers to certain affiliates of Spectrum Equity, Jason Krantz, DH Holdings, AIDH Management Holdings, LLC, certain affiliates of 22C Capital, certain affiliates of Advent and certain other minority equity holders of Definitive OpCo prior to the Reorganization Transactions.

•

“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.

•

“Reorganization Parties” refers to the shareholders of the Blocker Companies prior to the merger of the Blocker Companies into Definitive Healthcare Corp.

•

“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.

•

“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.

•

“22C Capital” refers to investment funds associated with 22C Capital LLC, a private equity firm.

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, 2022, or our “2022 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.

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, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	124,961		$	146,934
Short-term investments		218,955			184,939
Accounts receivable, net		51,801			58,799
Prepaid expenses and other current assets		14,711			12,686
Current portion of deferred contract costs		11,064			10,387
Total current assets		421,492			413,745
Property and equipment, net		4,452			4,464
Operating lease right-of-use assets, net		9,118			9,681
Other assets		3,697			4,683
Deferred contract costs, net of current portion		15,080			14,596
Intangible assets, net		338,295			350,722
Goodwill		1,323,102			1,323,102
Total assets	$	2,115,236		$	2,120,993
Liabilities and Equity
Current liabilities:
Accounts payable		4,535			3,948
Accrued expenses and other current liabilities		20,770			18,748
Current portion of deferred revenue		105,362			99,692
Current portion of term loan		10,313			8,594
Current portion of operating lease liabilities		1,640			1,521
Total current liabilities		142,620			132,503
Long term liabilities:
Deferred revenue, net of current portion		138			236
Term loan, net of current portion		252,465			255,765
Operating lease liabilities, net of current portion		9,491			9,969
Tax receivable agreements liability, net of current portion		161,721			156,311
Deferred tax liabilities		78,315			75,737
Other long-term liabilities		1,035			3,251
Total liabilities		645,785			633,772

Equity:
Class A Common Stock, par value $0.001, 600,000,000 shares authorized, 110,162,665 and 105,138,273 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		110			105
Class B Common Stock, par value $0.00001, 65,000,000 shares authorized, 45,626,933 and 44,217,344 shares issued and outstanding, respectively, at March 31, 2023, and 50,433,101 and 48,923,952 shares issued and outstanding, respectively at December 31, 2022		—			—
Additional paid-in capital		1,020,709			972,077
Accumulated other comprehensive income		2,793			3,668
Accumulated deficit		(35,531	)		(23,714	)
Noncontrolling interests		481,370			535,085
Total equity		1,469,451			1,487,221
Total liabilities and equity	$	2,115,236		$	2,120,993

See notes to condensed consolidated financial statements

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Revenue	$	59,201		$	50,124
Cost of revenue:
Cost of revenue exclusive of amortization		8,552			5,950
Amortization		3,354			5,378
Gross profit		47,295			38,796
Operating expenses:
Sales and marketing		23,423			21,293
Product development		9,884			6,850
General and administrative		13,640			10,454
Depreciation and amortization		9,590			9,874
Transaction, integration, and restructuring expenses		2,590			1,310
Total operating expenses		59,127			49,781
Loss from operations		(11,832	)		(10,985	)
Other income (expense), net:
Interest income		2,834			70
Interest expense		(3,614	)		(1,954	)
Other expense, net		(3,698	)		(101	)
Total other expense, net		(4,478	)		(1,985	)
Net loss before income taxes		(16,310	)		(12,970	)
Benefit from (provision for) income taxes		710			(87	)
Net loss		(15,600	)		(13,057	)
Less: Net loss attributable to noncontrolling interests		(3,783	)		(4,433	)
Net loss attributable to Definitive Healthcare Corp.	$	(11,817	)	$	(8,624	)
Net loss per share of Class A Common Stock:
Basic and diluted	$	(0.11	)	$	(0.09	)
Weighted average Class A Common Stock outstanding:
Basic and diluted		108,234,043			97,158,823

See notes to condensed consolidated financial statements

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(amounts in thousands)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Net loss	$	(15,600	)	$	(13,057	)
Other comprehensive loss:
Foreign currency translation adjustments		19			6
Unrealized gain (loss) on available-for-sale securities		89			(309	)
Unrealized (loss) gain on interest rate hedging instruments		(1,355	)		1,646
Comprehensive loss		(16,847	)		(11,714	)
Less: Comprehensive loss attributable to noncontrolling interests		(4,155	)		(3,946	)
Comprehensive loss attributable to Definitive Healthcare Corp.	$	(12,692	)	$	(7,768	)

See notes to condensed consolidated financial statements

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY

(amounts in thousands, except share amounts)

(Unaudited)


	Three Months Ended March 31, 2023
																	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		$	—	$	972,077		$	(23,714	)	$	3,668		$	535,085		$	1,487,221
Net loss		—			—		—			—		—			(11,817	)		—			(3,783	)		(15,600	)
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	)		—		42,028			—			—			(52,554	)		(10,521	)
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		$	—	$	1,020,709		$	(35,531	)	$	2,793		$	481,370		$	1,469,451


	Three Months Ended March 31, 2022
																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

See notes to condensed consolidated financial statements.

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Cash flows provided by (used in) operating activities:
Net loss	$	(15,600	)	$	(13,057	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		513			525
Amortization of intangible assets		12,431			14,727
Amortization of deferred contract costs		2,860</