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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, 2023

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 August 11, 2023, the number of outstanding shares of the registrant’s Class A Common Stock was 113,299,336 shares.


 

Definitive Healthcare Corp.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended June 30, 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

10

Notes to the Condensed Consolidated Financial Statements

11

Item 2.

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

34

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

48

Item 4.

Controls and Procedures

49

Part II.

OTHER INFORMATION

50

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

50

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3.

Defaults Upon Senior Securities

50

Item 4.

Mine Safety Disclosures

50

 

 

 

Item 5.

Other Information

50

 

 

 

Item 6.

Exhibits

51

Signatures

52

 

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.

 

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.
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 a 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 22C Capital, 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, 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.

 

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 Amendment No.1 on Form 10-K/A to our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K/A”) filed with the Securities and Exchange Commission (“SEC”) on August 14, 2023, 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)

 

 

 

 

 

 

(As Restated)

 

 

 

June 30, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

132,385

 

 

$

146,934

 

Short-term investments

 

 

218,515

 

 

 

184,939

 

Accounts receivable, net

 

 

44,519

 

 

 

58,799

 

Prepaid expenses and other current assets

 

 

13,734

 

 

 

12,686

 

Current portion of deferred contract costs

 

 

11,889

 

 

 

10,387

 

Total current assets

 

 

421,042

 

 

 

413,745

 

Property and equipment, net

 

 

4,488

 

 

 

4,464

 

Operating lease right-of-use assets, net

 

 

8,697

 

 

 

9,681

 

Other assets

 

 

3,938

 

 

 

4,683

 

Deferred contract costs, net of current portion

 

 

16,171

 

 

 

14,596

 

Intangible assets, net

 

 

325,794

 

 

 

350,722

 

Goodwill

 

 

1,324,733

 

 

 

1,324,733

 

Total assets

 

$

2,104,863

 

 

$

2,122,624

 

Liabilities and Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

 

3,650

 

 

 

3,948

 

Accrued expenses and other current liabilities

 

 

33,238

 

 

 

26,855

 

Current portion of deferred revenue

 

 

97,495

 

 

 

99,692

 

Current portion of term loan

 

 

12,031

 

 

 

8,594

 

Current portion of operating lease liabilities

 

 

1,713

 

 

 

1,521

 

Total current liabilities

 

 

148,127

 

 

 

140,610

 

Long term liabilities:

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

150

 

 

 

236

 

Term loan, net of current portion

 

 

249,166

 

 

 

255,765

 

Operating lease liabilities, net of current portion

 

 

9,004

 

 

 

9,969

 

Tax receivable agreements liability, net of current portion

 

 

163,298

 

 

 

155,111

 

Deferred tax liabilities

 

 

78,569

 

 

 

75,737

 

Other long-term liabilities

 

 

1,090

 

 

 

3,251

 

Total liabilities

 

 

649,404

 

 

 

640,679

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Class A Common Stock, par value $0.001, 600,000,000 shares authorized, 113,085,164 and 105,138,273 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

 

 

113

 

 

 

105

 

Class B Common Stock, par value $0.00001, 65,000,000 shares authorized, 42,861,612 and 41,548,822 shares issued and outstanding, respectively, at June 30, 2023, and 50,433,101 and 48,923,952 shares issued and outstanding, respectively at December 31, 2022

 

 

 

 

 

 

Additional paid-in capital

 

 

1,050,714

 

 

 

970,207

 

Accumulated other comprehensive income

 

 

3,252

 

 

 

3,668

 

Accumulated deficit

 

 

(45,691

)

 

 

(25,062

)

Noncontrolling interests

 

 

447,071

 

 

 

533,027

 

Total equity

 

 

1,455,459

 

 

 

1,481,945

 

Total liabilities and equity

 

$

2,104,863

 

 

$

2,122,624

 

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,

 

 

 

 

 

 

(As Restated)

 

 

 

 

 

(As Restated)

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

 

$

60,957

 

 

$

54,548

 

 

$

120,158

 

 

$

104,672

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue exclusive of amortization

 

 

8,078

 

 

 

6,198

 

 

 

16,630

 

 

 

12,148

 

Amortization

 

 

3,090

 

 

 

5,580

 

 

 

6,444

 

 

 

10,958

 

Gross profit

 

 

49,789

 

 

 

42,770

 

 

 

97,084

 

 

 

81,566

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

24,702

 

 

 

23,585

 

 

 

48,125

 

 

 

44,878

 

Product development

 

 

10,229

 

 

 

8,706

 

 

 

20,113

 

 

 

15,556

 

General and administrative

 

 

13,670

 

 

 

10,056

 

 

 

27,749

 

 

 

21,091

 

Depreciation and amortization

 

 

9,688

 

 

 

10,194

 

 

 

19,278

 

 

 

20,068

 

Transaction, integration, and restructuring expenses

 

 

3,571

 

 

 

2,107

 

 

 

6,161

 

 

 

3,417

 

Total operating expenses

 

 

61,860

 

 

 

54,648

 

 

 

121,426

 

 

 

105,010

 

Loss from operations

 

 

(12,071

)

 

 

(11,878

)

 

 

(24,342

)

 

 

(23,444

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

3,572

 

 

 

180

 

 

 

6,406

 

 

 

250

 

Interest expense

 

 

(3,793

)

 

 

(2,760

)

 

 

(7,407

)

 

 

(4,714

)

Other (expense) income, net

 

 

(797

)

 

 

4,103

 

 

 

(4,428

)

 

 

4,088

 

Total other (expense) income, net

 

 

(1,018

)

 

 

1,523

 

 

 

(5,429

)

 

 

(376

)

Net loss before income taxes

 

 

(13,089

)

 

 

(10,355

)

 

 

(29,771

)

 

 

(23,820

)

Benefit from income taxes

 

 

1,484

 

 

 

213

 

 

 

2,194

 

 

 

639

 

Net loss

 

 

(11,605

)

 

 

(10,142

)

 

 

(27,577

)

 

 

(23,181

)

Less: Net loss attributable to noncontrolling interests

 

 

(3,039

)

 

 

(4,656

)

 

 

(6,948

)

 

 

(9,114

)

Net loss attributable to Definitive Healthcare Corp.

 

$

(8,566

)

 

$

(5,486

)

 

$

(20,629

)

 

$

(14,067

)

Net loss per share of Class A Common Stock:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.08

)

 

$

(0.06

)

 

$

(0.19

)

 

$

(0.14

)

Weighted average Class A Common Stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

111,768,782

 

 

 

99,203,697

 

 

 

110,011,177

 

 

 

98,186,909

 

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,

 

 

 

 

 

 

(As Restated)

 

 

 

 

 

(As Restated)

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net loss

 

$

(11,605

)

 

$

(10,142

)

 

$

(27,577

)

 

$

(23,181

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(124

)

 

 

(216

)

 

 

(104

)

 

 

(210

)

Unrealized loss on available-for-sale securities

 

 

(352

)

 

 

(143

)

 

 

(264

)

 

 

(452

)

Unrealized gain (loss) on interest rate hedging instruments

 

 

1,111

 

 

 

1,694

 

 

 

(244

)

 

 

3,340

 

Comprehensive loss

 

 

(10,970

)

 

 

(8,807

)

 

 

(28,189

)

 

 

(20,503

)

Less: Comprehensive loss attributable to noncontrolling interests

 

 

(2,863

)

 

 

(4,076

)

 

 

(7,144

)

 

 

(8,047

)

Comprehensive loss attributable to Definitive Healthcare Corp.

 

$

(8,107

)

 

$

(4,731

)

 

$

(21,045

)

 

$

(12,456

)

See notes to condensed consolidated financial statements

7


 

 

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY

(amounts 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, 2023, as restated

 

105,138,273

 

$

105

 

 

50,433,101

 

$

 

$

970,207

 

$

(25,062

)

$

3,668

 

$

533,027

 

$

1,481,945

 

Net loss, as restated

 

 

 

 

 

 

 

 

 

 

 

(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, as restated

 

4,771,545

 

 

5

 

 

(4,771,545

)

 

 

 

41,881

 

 

 

 

 

 

(52,352

)

 

(10,466

)

Forfeited unvested incentive units

 

 

 

 

 

(34,623

)

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

7,811