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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 September 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)
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Delaware |
86-3988281 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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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:
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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.
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Large Accelerated Filer |
☒ |
Accelerated Filer |
☐ |
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|
|
Non-accelerated Filer |
☐ |
Smaller reporting company |
☐ |
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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 October 31, 2023, the number of outstanding shares of the registrant’s Class A Common Stock was 116,328,089 shares.
Definitive Healthcare Corp.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2023
TABLE OF CONTENTS
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) |
|
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
77,460 |
|
|
$ |
146,934 |
|
Short-term investments |
|
|
229,565 |
|
|
|
184,939 |
|
Accounts receivable, net |
|
|
41,308 |
|
|
|
58,799 |
|
Prepaid expenses and other current assets |
|
|
14,667 |
|
|
|
12,686 |
|
Current portion of deferred contract costs |
|
|
12,396 |
|
|
|
10,387 |
|
Total current assets |
|
|
375,396 |
|
|
|
413,745 |
|
Property and equipment, net |
|
|
4,628 |
|
|
|
4,464 |
|
Operating lease right-of-use assets, net |
|
|
9,951 |
|
|
|
9,681 |
|
Other assets |
|
|
3,414 |
|
|
|
4,683 |
|
Deferred contract costs, net of current portion |
|
|
16,132 |
|
|
|
14,596 |
|
Intangible assets, net |
|
|
336,027 |
|
|
|
350,722 |
|
Goodwill |
|
|
1,073,986 |
|
|
|
1,324,733 |
|
Total assets |
|
$ |
1,819,534 |
|
|
$ |
2,122,624 |
|
Liabilities and Equity |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
|
|
5,567 |
|
|
|
3,948 |
|
Accrued expenses and other current liabilities |
|
|
35,986 |
|
|
|
26,855 |
|
Current portion of deferred revenue |
|
|
89,713 |
|
|
|
99,692 |
|
Current portion of term loan |
|
|
13,750 |
|
|
|
8,594 |
|
Current portion of operating lease liabilities |
|
|
2,126 |
|
|
|
1,521 |
|
Total current liabilities |
|
|
147,142 |
|
|
|
140,610 |
|
Long term liabilities: |
|
|
|
|
|
|
Deferred revenue, net of current portion |
|
|
68 |
|
|
|
236 |
|
Term loan, net of current portion |
|
|
245,866 |
|
|
|
255,765 |
|
Operating lease liabilities, net of current portion |
|
|
9,873 |
|
|
|
9,969 |
|
Tax receivable agreements liability, net of current portion |
|
|
138,736 |
|
|
|
155,111 |
|
Deferred tax liabilities |
|
|
65,461 |
|
|
|
75,737 |
|
Other long-term liabilities |
|
|
8,938 |
|
|
|
3,251 |
|
Total liabilities |
|
|
616,084 |
|
|
|
640,679 |
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
Class A Common Stock, par value $0.001, 600,000,000 shares authorized, 116,281,962 and 105,138,273 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively |
|
|
116 |
|
|
|
105 |
|
Class B Common Stock, par value $0.00001, 65,000,000 shares authorized, 39,781,946 and 39,129,867 shares issued and outstanding, respectively, at September 30, 2023, and 50,433,101 and 48,923,952 shares issued and outstanding, respectively at December 31, 2022 |
|
|
— |
|
|
|
— |
|
Additional paid-in capital |
|
|
1,077,332 |
|
|
|
970,207 |
|
Accumulated other comprehensive income |
|
|
3,051 |
|
|
|
3,668 |
|
Accumulated deficit |
|
|
(217,217 |
) |
|
|
(25,062 |
) |
Noncontrolling interests |
|
|
340,168 |
|
|
|
533,027 |
|
Total equity |
|
|
1,203,450 |
|
|
|
1,481,945 |
|
Total liabilities and equity |
|
$ |
1,819,534 |
|
|
$ |
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 September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
(As Restated) |
|
|
|
|
|
(As Restated) |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Revenue |
|
$ |
65,325 |
|
|
$ |
57,382 |
|
|
$ |
185,483 |
|
|
$ |
162,054 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue exclusive of amortization |
|
|
8,663 |
|
|
|
6,569 |
|
|
|
25,293 |
|
|
|
18,717 |
|
Amortization |
|
|
3,232 |
|
|
|
3,155 |
|
|
|
9,676 |
|
|
|
14,113 |
|
Gross profit |
|
|
53,430 |
|
|
|
47,658 |
|
|
|
150,514 |
|
|
|
129,224 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
22,804 |
|
|
|
21,184 |
|
|
|
70,929 |
|
|
|
66,062 |
|
Product development |
|
|
10,759 |
|
|
|
9,205 |
|
|
|
30,872 |
|
|
|
24,761 |
|
General and administrative |
|
|
14,545 |
|
|
|
14,349 |
|
|
|
42,294 |
|
|
|
35,440 |
|
Depreciation and amortization |
|
|
9,795 |
|
|
|
10,037 |
|
|
|
29,073 |
|
|
|
30,105 |
|
Transaction, integration, and restructuring expenses |
|
|
3,505 |
|
|
|
2,945 |
|
|
|
9,666 |
|
|
|
6,362 |
|
Goodwill impairment |
|
|
287,400 |
|
|
|
— |
|
|
|
287,400 |
|
|
|
— |
|
Total operating expenses |
|
|
348,808 |
|
|
|
57,720 |
|
|
|
470,234 |
|
|
|
162,730 |
|
Loss from operations |
|
|
(295,378 |
) |
|
|
(10,062 |
) |
|
|
(319,720 |
) |
|
|
(33,506 |
) |
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
3,464 |
|
|
|
608 |
|
|
|
9,870 |
|
|
|
858 |
|
Interest expense |
|
|
(3,897 |
) |
|
|
(3,074 |
) |
|
|
(11,304 |
) |
|
|
(7,788 |
) |
Other income, net |
|
|
29,589 |
|
|
|
5,628 |
|
|
|
25,161 |
|
|
|
9,716 |
|
Total other income, net |
|
|
29,156 |
|
|
|
3,162 |
|
|
|
23,727 |
|
|
|
2,786 |
|
Net loss before income taxes |
|
|
(266,222 |
) |
|
|
(6,900 |
) |
|
|
(295,993 |
) |
|
|
(30,720 |
) |
Benefit from income taxes |
|
|
17,534 |
|
|
|
15 |
|
|
|
19,728 |
|
|
|
654 |
|
Net loss |
|
|
(248,688 |
) |
|
|
(6,885 |
) |
|
|
(276,265 |
) |
|
|
(30,066 |
) |
Less: Net loss attributable to noncontrolling interests |
|
|
(77,162 |
) |
|
|
(3,865 |
) |
|
|
(84,110 |
) |
|
|
(12,979 |
) |
Net loss attributable to Definitive Healthcare Corp. |
|
$ |
(171,526 |
) |
|
$ |
(3,020 |
) |
|
$ |
(192,155 |
) |
|
$ |
(17,087 |
) |
Net loss per share of Class A Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(1.50 |
) |
|
$ |
(0.03 |
) |
|
$ |
(1.72 |
) |
|
$ |
(0.17 |
) |
Weighted average Class A Common Stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
114,527,514 |
|
|
|
102,904,565 |
|
|
|
111,533,166 |
|
|
|
99,776,742 |
|
See notes to condensed consolidated financial statements
6
DEFINITIVE HEALTHCARE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
(As Restated) |
|
|
|
|
|
(As Restated) |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Net loss |
|
$ |
(248,688 |
) |
|
$ |
(6,885 |
) |
|
$ |
(276,265 |
) |
|
$ |
(30,066 |
) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(30 |
) |
|
|
(207 |
) |
|
|
(134 |
) |
|
|
(417 |
) |
Unrealized gain (loss) on available-for-sale securities |
|
|
205 |
|
|
|
46 |
|
|
|
(59 |
) |
|
|
(406 |
) |
Unrealized (loss) gain on interest rate hedging instruments |
|
|
(442 |
) |
|
|
3,333 |
|
|
|
(686 |
) |
|
|
6,673 |
|
Comprehensive loss |
|
|
(248,955 |
) |
|
|
(3,713 |
) |
|
|
(277,144 |
) |
|
|
(24,216 |
) |
Less: Comprehensive loss attributable to noncontrolling interests |
|
|
(77,228 |
) |
|
|
(2,931 |
) |
|
|
(84,372 |
) |
|
|
(10,978 |
) |
Comprehensive loss attributable to Definitive Healthcare Corp. |
|
$ |
(171,727 |
) |
|
$ |
(782 |
) |
|
$ |
(192,772 |
) |
|
$ |
(13,238 |
) |
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 |
|
|
— |
|
|
— |
|
|
3,317 |
|
|
11,128 |
|
Balance at March 31, 2023, as restated |
|
110,162,665 |
|
$ |
110 |
|
|
45,626,933 |
|
$ |
— |
|
$ |
1,018,692 |
|
$ |
(37,125 |
) |
$ |
2,793 |
|
$ |
479,388 |
|
$ |
1,463,858 |
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(8,566 |
) |
|
— |
|
|
(3,039 |
) |
|
(11,605 |
) |
Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
459 |
|
|
176 |
|
|
635 |
|
Vested incentive units |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(390 |
) |
|
— |
|
|
— |
|
|
390 |
|
|
— |
|
Issuance of Class A Common Stock upon vesting of RSUs |
|
309,694 |
|
|
— |
|
|
— |
|
|
— |
|
|
620 |
|
|
— |
|
|
— |
|
|
(620 |
) |
|
— |
|
Shares withheld related to net share settlement |
|
(105,249 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(1,085 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(1,085 |
) |
Effect of LLC unit exchanges |
|
2,718,054 |
|
|
3 |
|
|
(2,718,054 |
) |
|
— |
|
|
23,934 |
|
|
— |
|
|
— |
|
|
(29,817 |
) |
|
(5,880 |
) |
Forfeited unvested incentive units |
|
— |
|
|
— |
|
|
(47,267 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Equity-based compensation |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
8,943 |
|
|
— |
|
|
— |
|
|
3,420 |
|
|
12,363 |
|
Distributions to noncontrolling interests |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,827 |
) |
|
(2,827 |
) |
Balance at June 30, 2023 |
|
113,085,164 |
|
$ |
113 |
|
|
42,861,612 |
|
$ |
— |
|
$ |
1,050,714 |
|
$ |
(45,691 |
) |
$ |
3,252 |
|
$ |
447,071 |
|
$ |
1,455,459 |
|
Net loss |
|
|
