Definitive Healthcare Corp. recently held its Q1 2024 Earnings Call, where Founder, Executive Chairman, and Interim CEO Jason Krantz and CFO Rick Booth discussed the company’s financial performance. The call included forward-looking statements about market performance, growth opportunities, and more, in accordance with Safe Harbor provisions.
While revenue met expectations, new logo and upsell performance fell short due to macroeconomic headwinds and restructuring efforts at the start of the year. Despite this, adjusted EBITDA margin expanded, and customer renewal rates improved. The company remains optimistic about its long-term prospects, with a focus on operational efficiency and profitability.
Total revenue for the quarter was $63.5 million, with a 32% adjusted EBITDA margin and record unlevered free cash flow. However, due to a slower start to the year, revenue and adjusted EBITDA guidance will be adjusted downwards. The restructuring of the go-to-market team led to disruptions in sales efforts but is expected to benefit the company in the long run.
Despite challenges, positive signs are emerging, such as increased pipeline opportunities and improved customer renewal rates. The company is focusing on driving consistent performance and managing expenses efficiently. With a new claims analytics platform and emphasis on operational excellence, Definitive Healthcare is confident in its ability to deliver value to customers and shareholders in the future. This quarter saw a strong growth in adjusted EBITDA, which increased by 28% year-over-year, along with an improved adjusted EBITDA margin that rose over 500 basis points compared to the previous year. The company plans to maintain this cost discipline as they continue to focus on growth. Additionally, they have been able to consistently deliver value to their customers, with the average ACV across their client base increasing by 13% year-over-year.
Moving forward into 2024, the company will concentrate on three key areas. Firstly, they will continue to focus on operational excellence by driving data-driven performance within their sales engine and working closely with customers to provide the data and products needed for growth. Secondly, they will focus on expanding their core data assets to include new affiliation and provider types, such as infusion and cancer centers. This expansion is aimed at providing valuable insights to their customers and setting them apart from typical data vendors.
The company is also investing in AI and data science to turn their proprietary data into actionable insights for customers. An example of this is the upcoming launch of DH market forecast, a tool that predicts changes in healthcare utilization and trends in supply and demand over the next 10 years. This tool will empower customers across all verticals to anticipate trends and make informed decisions.
Furthermore, the company will continue to focus on the success of their existing customers by improving processes and providing support to help customers get more value out of their data and products. This customer-centric approach has already shown results, with the heart pump manufacturer mentioned earlier citing the excellent support from the customer success team as a key factor in their expansion efforts.
Overall, the company remains focused on operating efficiently and delivering innovation for clients, positioning themselves well for future growth as the market recovers. Despite revenue being at the low end of expectations for the quarter, they saw growth in revenue, adjusted EBITDA, adjusted net income, and core EPS compared to the same period last year. With a 32% adjusted EBITDA margin for the quarter, showing an increase of over 500 basis points year-over-year, the company is optimistic about the future. In the first quarter, the company saw significant growth in revenue and adjusted EBITDA margin, with a 38% increase in revenue and a 43% increase in unlevered free cash flow compared to the previous year. Revenue for the quarter was $63.5 million, up 7% from the prior year, driven by professional services engagements with large clients. The company ended the quarter with 559 enterprise customers, representing a 6% increase year-over-year.
Adjusted gross profit for the quarter was $53.1 million, up 7% from the previous year, with a gross profit margin of 83.6%. Sales and marketing expenses were down 6% from the previous year, while product development expenses were up 6%. G&A expenses were down 5% from the previous year. Adjusted operating income increased by 32% from the first quarter of the previous year.
In terms of cash flow, operating cash flows were $42.8 million on a trailing 12-month basis, up 16% from the previous year. Unlevered free cash flow was $28.3 million in the quarter and $76.1 million on a trailing 12-month basis, representing a 43% increase from the previous year.
The company ended the quarter with over $295 million in cash, cash equivalents, and short-term investments, with $254 million of debt. Revenue performance obligations and deferred revenue were up 1% and 2% year-over-year, respectively.
Looking ahead, the company adjusted its guidance for the second quarter, expecting total revenue of $62 million to $63.5 million, with a growth rate of 2% to 4% year-over-year. Operating income is expected to be $17 million to $18.5 million, with adjusted EBITDA of $18.5 million to $20 million and adjusted net income of $13.5 million to $14.5 million. Looking ahead to the full year 2024, Definitive Healthcare expects revenue to be in the range of $255 million to $261 million, representing a growth rate of 1% to 4%. The company anticipates a moderation in growth rate in the first few quarters of the year due to current economic conditions and the completion of the Populi acquisition in the second half of the year.
In terms of profitability, Definitive Healthcare is actively managing operating efficiency and costs to safeguard margins. The company now projects adjusted operating income to be between $75 million and $78 million, and adjusted EBITDA to be in the range of $81.5 million to $84.5 million, resulting in a full year margin of 32% to 33%. Adjusted net income is expected to fall between $56.5 million and $59.5 million, with earnings per share projected to be between $0.36 and $0.38 based on 157.5 million weighted average shares outstanding.
The company’s guidance for the second quarter and the full year takes into account current market conditions. Definitive Healthcare remains committed to driving operational efficiency and meeting the needs of its clients while preparing for future growth opportunities.
Additionally, Definitive Healthcare recently announced a share buyback program, authorizing the repurchase of up to $20 million of stock through the end of 2024. This decision reflects the company’s strong cash flow generation, confidence in its long-term prospects, and dedication to enhancing shareholder value.
In conclusion, Definitive Healthcare has taken steps to enhance its margin profile and expand its capabilities through organic innovation and strategic acquisitions. The company is optimistic about its position in the market and believes it is well-equipped to deliver long-term value to shareholders. The team is focused on driving innovation and operational efficiency to support future growth and profitability.
During the Q&A session, CEO Jason Krantz expressed excitement about the company’s future prospects, highlighting Definitive Healthcare’s commitment to delivering value to customers in a growing market. The company’s proprietary data assets provide a competitive advantage, and its efforts to drive innovation and efficiency are expected to contribute to long-term success.