Definitive Healthcare Corp. Q3 FY2024 earnings call

• Financial results for Q3 were above the high end of guidance ranges on both top and bottom line.
• Delivered on new logo and upsell expectations, with improvement in expansion sales activity and win-back customers (customers who previously churned but returned).
• Focus on simplifying the business by moving towards a common product platform to integrate solutions, which would simplify product development and go-to-market efforts. This includes addressing siloed products to create a unified UI/UX and single sign-on.
• Introduced new product enhancements such as Market Forecast (a predictive analytics solution) and Monocl Conferences (to help biopharma and medtech customers leverage conference attendance).
• Highlighted customer wins, including a leading Alzheimer's care organization returning to Definitive, a California pharmaceutical company using Definitive to assess market potential for a new drug delivery platform, and a specialty food and beverage company using Definitive for sales and marketing efforts.

Total revenue for the quarter was $62.7 million, a 4% year-over-year decline. Adjusted EBITDA was $20.6 million, down 5% year-over-year, with an adjusted EBITDA margin of 33%. Subscription revenue decreased by low single digits, while professional services revenue declined more significantly. Enterprise customers (defined as those with >$100,000 in ARR per year) ended the quarter at 530, representing roughly 2/3 of ARR. Total customer accounts were approximately 2,570, down from prior periods, with smaller customers disproportionately impacted. Adjusted gross profit was $51.7 million, down 8% from Q3 2023, and the adjusted gross profit margin was 82.4%, a decrease of approximately 330 basis points from Q3 2023.

• Expect revenue to decrease sequentially in Q4, with total revenue for Q4 expected to be $60 million to $61 million, a 7% to 9% year-over-year decline.
• There is a modest improvement in the full year 2024 profit outlook compared to prior expectations.
• For Q4, adjusted operating income is expected to be $14 million to $15 million, adjusted EBITDA $16 million to $17 million (26%-28% adjusted EBITDA margin), and adjusted net income $10.5 million to $11.5 million.
• 2025 revenue is expected to be less than 2024, with adjusted EBITDA margin expected to contract a few hundred basis points, and formal guidance for 2025 will be provided when Q4 results are announced.

• Pressures in the life science market affecting customers' financial health and their ability to invest in growth investments.
• Elevated churn rates, and it will take time for operational changes to positively impact financial results.
• Revenue volatility and seasonality posing challenges to accurately forecasting and guiding financial performance.

Q: Jenny Shen asked about the demand environment in the pharma sector and its impact on Definitive.

A: Kevin Coop stated that while there has been modest improvement in some segments, there continue to be pressures in the life science market. Definitive primarily enters at Stage 2 clinical trials or later, and is focused on reducing churn rate as a way to return to growth.

Q: George Hill inquired about visibility to growth in the back half of 2025 and the selling funnel.

A: Kevin Coop and Richard Booth discussed the focus on operational execution, seasonality in bookings with the fourth quarter being an important sales and renewal period, and CRPO (contractual revenue performance obligations) as a key predictor of 2025 revenue.

Q: An unidentified Analyst asked about strategy changes due to management changes and the approach to partnership vs acquisition.

A: Richard Booth mentioned that Kevin's operational focus provides a degree of conservatism, and Kevin Coop talked about partnership as a pillar in the go-to-market strategy, emphasizing the importance of indirect and direct channels working in harmony.

Q: Anna Kruszenski asked about product development and the distinction between market leadership and partnership opportunities.

A: Kevin Coop discussed the focus on simplification, the importance of enterprise customers, and the direct access to customers to improve retention efforts, stating that simplification and better customer access are proving to be effective strategies.

Q: Jenny Shen asked about the demand environment in the health system and med tech divisions.

A: Kevin Coop said there is robust demand in most areas, but sales cycles are elongated and decision trees have increased.

Q: Hanna Lee asked about potential pricing changes with the unified platform.

A: Kevin Coop explained that there would be a more sophisticated delivery option based on customers optimizing for service or price, while maintaining a focus on data quality.

Q: Ryan MacDonald asked about the time frame for the unified product strategy and its impact on 2025 growth.

A: Kevin Coop said simplifying the UI/UX is imminent, but full integration of back-office and data supply chain will take longer, and the unification is important for improving retention and driving growth.