Welcome to Definitive Healthcare's Q3 2024 Earnings Call. Later we will conduct a question-and-answer session. I would now like to turn the call over to your host. You may begin.

Good afternoon, and thank you for joining us today to review Definitive Healthcare's financial results. Joining me on the call today are Kevin Coop, Chief Executive Officer; and Rick Booth, Chief Financial Officer. During this call, we will make forward-looking statements, including, but not limited to, statements related to our market and future performance and growth opportunities, the benefits of our health care commercial intelligence solutions, our competitive position, customer behaviors and use of our solutions, our financial guidance, our planned investments, generating value for our customers and shareholders, and the anticipated impacts of global macroeconomic conditions on our business results and customers and on the health care industry generally. Any forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section and elsewhere in our filings with the SEC. Actual results may differ materially from any forward-looking statements. The company undertakes no obligation to revise or update any forward-looking statements to reflect events that may arise after this conference call, except as required by law. For more information, please refer to the cautionary statement included in the earnings release that we have just posted to the Investor Relations portion of our website. Additionally, we will discuss non-GAAP financial measures on this conference call. Please refer to the tables in our earnings release and investor presentation on the Investor Relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I'd like to turn the call over to Kevin.

Thanks, Matt, and thanks to all of you for joining us this afternoon to review Definitive Healthcare's Third Quarter 2024 financial results. It's been an exciting and active time here. And today, I will provide you with an update on the initial progress we have made to position the company for a return to top and bottom-line growth. Let me begin by reviewing our financial results for the quarter, which I'm pleased to share were above the high end of our guidance ranges on both the top and bottom line. Our total revenue was $62.7 million, down 4% year-over-year. This decline was expected as renewal rates improved year-over-year, but they are still well below our potential. And we also anniversaried the acquisition of Populi this quarter. Adjusted EBITDA was $20.6 million, down 5% year-over-year. And adjusted EBITDA margin was 33%, consistent with the prior year despite the decline in revenue, thanks to earlier cost actions and ongoing cost discipline. As indicated on our last earnings call, we do expect to see some volatility as we implement improvements in our operational execution focus areas. For example, the results this quarter were mixed. Positively, we delivered on our new logo and upsell expectations for the quarter. We saw improvement in expansion sales activity compared to Q2 as well as some nice wins that we call win-back customers, which are customers who had previously churned but have now returned as their financial situations improved or they realize the value they were missing out without access to our data and solutions. While early, we believe these dynamics are a positive indication for the future. Conversely, our churn rates remained elevated. While we did see some modest year-over-year improvement in churn overall, the pressures we have discussed over the last 2 years, especially in the…

Thanks, Kevin. The last 4 years have been an incredible experience, including multiple financings and the opportunity to work with an amazing team of people. I'm proud of the team's accomplishments and believe DH is well positioned to deliver long-term growth and profitability. On today's call, I'll start by reviewing our Q3 results in detail, then finish with our guidance for the remainder of the year and some comments on 2025. In all my remarks, I'll be discussing our results on a non-GAAP basis, unless otherwise noted. In Q3, we were pleased to deliver revenue, adjusted EBITDA and earnings per share all above the high end of our guided ranges. We remain focused on what we can control, and continue to advance our efforts to operate more efficiently while delivering innovation for our clients. In the third quarter, we delivered $62.7 million of revenue. This was down 4% compared to Q3 2023 because although renewal rates were better than in the same period in the prior year, they're not yet where we would like them to be, and we also anniversaried the acquisition of Populi. And we delivered $20.6 million of adjusted EBITDA in the period, down 5% from the same period in the prior year. Thanks to earlier cost actions and ongoing cost discipline, even on the declining revenue base, our adjusted EBITDA margins were nearly flat year-over-year at 33%. Reflecting our focus on shareholder value, adjusted net income and non-GAAP earnings per share each grew 6% and 5%, respectively, over Q3 '23 and we generated $24.3 million of unlevered free cash flow in the quarter and $85.2 million on a trailing 12-month basis, up 58% versus the 12 months prior. Turning to our results in more detail. Revenue for the third quarter was $62.7 million, down 4% from…

Thanks, Rick. I want to reiterate my excitement about the future for Definitive Healthcare. We have an incredible team that is committed to driving real value for our customers in a market with a large and growing TAM. We have proprietary data assets that create a true competitive edge, and we are confident that the work we're doing to drive innovation and operational efficiency will translate into long-term growth and profitability. And with that, I would like to open it up for questions.

[Operator Instructions] And our first question will come from David Larsen with BTIG.

This is Jenny Shen on for Dave. Thanks for taking my questions and congrats on the quarter. Just wanting to ask more about the overall demand environment with pharma. I know you mentioned win-back customers. From what we've been seeing was a lot of the CROs they're facing a lot of pressure due to pharma undergoing some reprioritization with the IRA. I'm just wondering if that has had any impact on you guys? I know you guys are focused on a kind of different area than the CROs, but a lot of the pharma companies have actually reported pretty strong results. So just what you're seeing in the broader demand environment.

Thanks, Jenny. While we've seen some modest improvement in some of our segments like provider and diversified, the pressures in life science. But unlike perhaps other companies that may have more clinical assets or other solutions, Definitive primarily enters at Stage 2 clinical trials or later. And so we are not surprised to see a delayed impact from market improvements for our solutions. And as investments move through the clinical trial process, we do expect to benefit. And one of the good things about our business model is that it has a very attractive -- it has attractive economics as revenue grows, although right now we're experiencing the flip side of that equation. It's the reality of our fixed cost that we are focused on churn rate reduction right now as a way to help return to growth, which will also allow us to realize those inherent advantages in our business model. But I think the big -- the primary point though to try and make there is that I think given the fact that we are Stage 2 clinical trials or later and it's a very specific use case in that area, that's probably why perhaps sometimes that data point doesn't exactly line up.

And we'll move next to George Hill with Deutsche Bank.

Yes, thanks for taking the question. I guess could you guys talk about the kind of visibility you feel like you have to growth in the back half of 2025 and kind of like what drives the assumption that the growth will resume there? And I guess I would just kind of love the most current update that you guys could provide on like the selling funnel and the sales pipeline and the demand environment, whether you're seeing it kind of continue to weaken or whether it's stabilizing.

Yes. That's -- it's a good question. A couple of different components to that. I'm sure as part of this with -- if not this question and others will get to go to market, some of the learnings, you do have an element of what you just asked related to that. But as it relates to the growth forecast, and I'll let Rick talk a little bit more specifics about maybe some of the metrics and how to start to gauge that. I think it's important to frame it, though, from the perspective of, we're really focusing on operational execution, understanding that it is very important to regain trust and that means we need to realistically communicate in a transparent conservative fashion so that we really ensure that we're able to deliver on our promises to both the investors and stakeholders. And while we're seeing some early indication of improvements in many areas, and I'll talk shortly, I'm sure, about some of the more identified and promising opportunities for improvement, until we have more empirical data on that, we're trying to really remain cautious in our predictions. But I'll let -- Rick, maybe you want to amplify that a little bit with some of the specifics on how you think about that.

Yes. And first, let me be clear on two things. One, we're not formally guiding 2025 yet because fourth quarter is a really important quarter for us. And two, that although we expect the decline to moderate and to get to sequential growth in the second half of the year, we are guiding on a full year basis for revenue to be down. One, no mistake about that. There is inherent seasonality in our business, where our bookings begin to ramp in the fourth quarter and that tends to be a stronger quarter for pro services as well, although those are a small part of our business. Does that help inform your question?

Yes, it does. And I can circle up kind of offline with more detail.

Your next question will come from Craig Hettenbach with Morgan Stanley.

This is [ph]Jay on for Craig. Thanks for taking my question. First, thanks for the preliminary color for 2025. I'm just wondering if there has been any changes in the approach how Definitive is looking into next year given the, I guess, management changes this year and the continued headwind.

Yes. Let's say Kevin's approach is very helpful. He is focused on spending time with customers. He's very operational. And so I think it on the margin provides a little bit of conservatism, not getting ahead of changes in operating results.

And my follow-up is, I know kind of tuck-in acquisitions has been historically part of the growth strategy. But I believe you guys have also talked about Kevin bringing in the idea of partnership. Can you provide more color on what's the strategy there? And what are the types of companies or assets that Definitive would partner versus own?

Yes. I think a very -- to have a sophisticated and well-developed go-to-market, you need to have both your indirect and direct channels working in harmony. And so we have added to the team, to the go-to-market team. We have brought in to augment that team with folks that I've worked with in the past that are able to bring in a slightly different focus around partnerships. It is going to be a pillar of what we want to do going forward. And as Rick stated, as far as going into next year, it will be something that we will be talking about at the end of next quarter as part of our go-forward plan. But that will be one of the pillars that we are going to rely on to help get us back to the growth trajectory.

[Operator Instructions] And we'll move next to Stephanie Davis with Barclays.

This is Anna Kruszenski on for Stephanie. Thank you for taking our questions. Kevin, now that you have had a little bit more than a quarter under your belt evaluating the organization, I was hoping you could revisit your comments from last quarter around product development in strategic areas where you'll be a top three player in the category. And then as you were talking about stepping back from the nondifferentiated offerings into more of a partnership strategy. So if you could just talk more about maybe where you see opportunities for market leadership versus your partnership opportunities?

Sure. And I think specifically I think I may have said we need to be a number two or number three. I don't even know if it was top three. I think it was actually top one or two. And that was primarily focusing on as you enter new markets and you're doing your product marketing, your advancing into new solutions. But in the meantime, and as I mentioned I think in my prepared remarks today, the reality of changing last quarter with my assumption of the direct management of our selling team has really been a blessing. And I've been spending a lot of time with our customers, prospects, partners, sellers and support teams, which was giving me more of a direct access to those folks than I probably would have had otherwise. And I now have more empirical data from first-hand experience that not only validates that we have solid data assets, good customer relationships, the opportunity to help our customers do more with our data, but the strategy of remaining focused on a simplified offering, more integrated solutions within a common platform for ease of use, our focus on the enterprise customers, which has shown a lot of promise in far as improvement and early indications that that's working, we need to take that same approach to other segments as well. We think that's replicable. And frankly, deploying our advanced analytics teams in a more direct manner to assist our customers with their complex master data management needs as well as direct connections to drive better revenue and value is going to help our retention efforts. So I think the notion around simplification, better and more intimate access to the customer is proving to be the right one, and we are just -- now the question is just to get more velocity into the system.

[Operator Instructions]

While we're waiting for the next question, I will just add on a tiny bit to Kevin's answer there. We are absolutely not out of the M&A market. I wouldn't want to create the impression that we are. Certainly, anyone who's listening that has an attractive candidate, please bring it to us. We've got plenty of capital on our balance sheet to support those moves in addition to the significant buyback which we announced today.

And we do have a question from David Larsen with BTIG.

Can you talk about the demand environment you're seeing in the health system space for pop health, value-based care as well as the med tech space and sort of your growth expectations in that -- in those divisions.

It was a little bit garbled. I didn't get.

Healthcare systems. So asking about the appetite for the population intelligence and then also in med tech.

Yes. So I think the -- you're looking at the market demand, the way we have been assessing this. And we've been thinking of it in terms of our provider market, diversified and then broadly which medtech would fall within our life sciences area. And we're seeing pretty robust demand in most areas. So I don't think there's a differentiation there that there's been any change. I think the challenge for us has been you're seeing elongated sales time, sales cycles, you are seeing different budgetary pressures in different areas. And frankly, the decision tree of the number of people that would be involved in the decision is actually increased. And so it's more of a -- I think it's a time issue than you're seeing any sort of fundamental shift in market demand.

Okay. That's great. And can you maybe talk a bit more about the competitive environment, Veeva and IQVIA, they have very deep, robust data systems. Obviously, you have some very significant competitive advantages there. But just any color on the competitive market win rate, stuff like that would help on the Life Sciences side.

So I don't know if we're actually quoting win rates, Rick. Do we have statistics?

Yes, we do not tend to get into those. I would say that we're seeing strong support from our existing customers, particularly around renewals, more pressure on upsells. We're not hearing a ton of competitive losses against the Veevas of the world. IQVIA is always in the mix one way or the other. We haven't noticed a profound shift there.

And we'll move next to Allen Lutz with Bank of America.

This is Hanna Lee on for Allen Lutz. Could you just talk about, like with the unified platform, are you thinking about any potential pricing changes?

Well, there's the components around the competitive dynamic of you can compete on quality, service and price. And I don't know if I would characterize it as pricing changes as much as a more sophisticated delivery option where you have the ability for the customer to dictate what is most important to them. It's very difficult to have a single size offering that provides the same white-glove service at all price points. So if you choose -- we're going to have and we're going to maintain a ruthless vigilance around quality, and we're going to continue to maintain leadership as the premier data quality standard. But the notion around are you optimizing for service, which could mean speed, it could mean access to more resources around master data management or you're going to optimize to price, that's the change that we're considering here is how to become a more sophisticated delivery mechanism for those folks that are actually optimizing for price.

And our next question will come from Ryan MacDonald with Needham.

I apologize if this was covered earlier. But as you think about this unified product strategy and sort of the integrations required, the progress you're going to make here, can you just talk about general time frame for when you think this can be completed. And then as you think about sort of the preliminary commentary you gave for '25 and sort of I think it was a return to sort of sequential growth in the back half on the top line, is completion of this sort of unification on the product strategy side a crucial or sort of a critical component to being able to get back to that growth in the back half of next year? Or is that more market dependent, if you will?

Yes. That's -- it's a good question. And the way I would think about sort of unified product strategy, there's multiple elements to that. And I think the first and most important rung of that ladder, so to speak, is you've got to have -- it's because of the way you access and use the product, right? So the simplified and ease of access to our product strategy with single sign-on, it needs to be easy to access, and that's really sort of that UI.UX interface, which once that's "unified" the fact that we might not have completely unified, let's say, the data supply chain or some of the back-office components or infrastructure, from the customer's perspective it really doesn't matter. It does put pressure on the infrastructure, the cost and potentially what we have to do to support the customer. But that's something that's relatively straightforward, and we're working on that now, and that is sort of imminent. So I think that's the first step. And so that will start to show some immediate improvements. To get the fully integrated back-office, data supply chain and all the other things comes along with that, that may take longer. Well, not may take longer, it will take longer. But that's sort of behind the scenes. So as we talk about this more, especially going into the 2025 annual operating plan and our 3-year plan, which we're underway right now, I think we'll be able to give you better color on that as we start to talk about forecasting how that's going to be impacted next year. But I do see the unification and the ease of use is a very important pillar to start to address some of the retention and churn dynamics that we have to address. And it is improving, and we have seen improvement over the past three quarters. But in order for that to start to show meaningful improvement to allow us to get back to those growth rates and accelerate the velocity to get to those growth rates, we've got to see more improvement on that. So I think that's going to be very important.

And this concludes our question-and-answer session. I'd like to turn the conference back to Mr. Coop for any additional or closing remarks.

I just want to thank everybody for their time. Appreciate you joining, and we look forward to continue to keep updating you on our progress and talking to you next quarter. Thank you.

And this concludes today's conference call. Thank you for joining.