Definitive Healthcare Corp. Q1 2023 Earnings Call
Greetings and welcome to the definitive health case first quarter 2023 earnings call.
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It is now my pleasure to introduce your host matched rudiment. Thank you ma'am you may begin.
Good afternoon, and thank you for joining us today to review a definitive healthcare's quarterly financial results. Joining me on the call today are Robert Musselwhite, CEO , Jason Krantz, founder and executive Chairman and Rick Booth CFO .
Physician customer behaviors, our financial guidance, our planned investments and the anticipated impacts of global macroeconomic conditions on our business results and clients 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've 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 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 Robert.
Thanks, Matt I appreciate you all joining us this afternoon to discuss definitive health Care's first quarter results.
On today's call I'll provide an overview of our first quarter results provide some perspective on business trends and what you're seeing in the market review some of our key wins from the first quarter and then turn it over to Jason to highlight some of our latest product innovations.
Let's begin by reviewing our first quarter financial results revenue exceeded the high end of our guidance range. While adjusted EBITDA was in line as we continue to deliver on our goal of balanced growth and profitability.
Our total revenue was $59 $2 million, which represents 18% year over year growth and our adjusted EBITDA was $15 $7 million, which translates into 26, 5% margin.
Overall, we got off to a solid start to the year given the context of the ongoing macroeconomic challenges.
We continue to have strong demand generation and customer interest in our commercial intelligence platform.
Our customers recognize that the definitive health care platform. This strategic role in their go to market and product development efforts and that our solutions will be critical in accelerating their business performance as market conditions improve.
The continued strength of our demand generation efforts is great validation that the fundamental value proposition of the definitive health care platform is resonating with customers.
While I'm generally pleased with how we executed in the quarter the business environment remains difficult.
Just as we saw in recent quarters, we continue to see a number of organizations follow a more comprehensive deal review processes as companies continue to closely scrutinize their budgets.
The net result continues to be an elevated level of deferred purchasing decisions across all markets due to the difficult economic environment. We.
We are working hard to do an effective job of managing through these challenges and we've put in place several changes that should help us perform in this environment, but until we see a strengthening macro we do not expect to see meaningful improvement from current dynamics.
From a sales perspective, we signed important wins in all of our target markets with both new and existing customers as I mentioned, our top of funnel and pipeline generation activity has been strong and our commercial teams are doing a good job adapting to the longer sales cycles and more comprehensive approval processes required to get transactions through the finish line.
As I mentioned on our last call. We have made moves to more vertically align our sales teams and institute more in depth account plans and as these changes mature through our teams in sales cycles, we will be in an even better position to engage with customers on the full value proposition of our platform.
The increasingly strategic conversations we're having with customers reflects the important role the definitive healthcare platform can play in their day to day operations.
As we mentioned last quarter recent independent market research ranked the Atlas dataset as first or second in each of the top 10 use cases for health care referenced an affiliation data.
We believe the success is due to our ability to provide proprietary actionable data in a cloud environment that enables thousands of customers to generate better returns on their sales and marketing investments and increase the probability of successful and profitable product launches.
Finding the right physicians physician groups and hospitals and then understanding how they all work together is critical for the success of any life science medical device provider or diversified company targeting the four trillion dollar U S health care market.
Our customers consistently tell us that the definitive health care platform delivers unique insights across numerous use cases that other vendors simply cannot match.
The breadth depth and accuracy of our data together with the speed at which business users can leverage that data to positively impact their business is a compelling competitive advantage and we continue to invest in our platform to create and deliver new insights for these customers Chase.
Jason will talk about some of our most recent innovations in a moment.
Now I'd like to spend a few minutes highlighting some exciting customer wins from Q1 that demonstrate the numerous ways customers are generating business value from the definitive health care platform.
Before I jump into specific customers I want to note that the staffing industry analysts trade group recently published their annual ranking of top health care staffing agencies and I was pleased to see that all of the top 11 firms where definitive health care customers as where 18 of the top 20 firms and 24 of the top 30 firms in our rankings.
I think we're all aware of the ongoing labor shortage in the health care sector and staffing agencies play a crucial role in filling those job openings, we're thrilled to provide them with access to our more than 2 million medical professionals and more than 1 million executives through our Atlas dataset.
We profiled one of these customers on our website recently.
Thanks to our data this interim leadership in locum tenants consulting company more than doubled its funnel of potential executives and doctors that they can recruit and then improved email response rate by forex by leveraging our highly accurate contact information.
Turning now to deals that closed in the first quarter, we saw solid performance in both new business and Upsells.
In Q4, 2022 deal that pushed to Q1 2023, the world's leading mrna therapeutic company expanded its relationship with us by adding a six figure enterprise deal to outer Ammonic expert insight product. So they can better identify clinical experts around the globe, who could accelerate their R&D.
Also in our life Science business, we had a significant deal that not only reversed customer churn from 2022, but also expanded our presence at a multinational pharmaceutical and biotechnology company.
This highly competitive win included a multi year platform commitment through 'twenty 'twenty five to our passport analytic suite. This.
This company plans to use the passport analytics suite to optimize its global marketing spend and reallocate precious investment dollars to the sales and marketing channels that are delivering the highest return.
In the provider market. The Atlas dataset also played a big role in our win at a leading children's hospital in the Western region of the United States as part of an enterprise deal. This hospital purchased access to our Atlas all payer claims dataset.
Atlas referenced an affiliation dataset and our executive contact data along with our latitude analytics suite to help it understand the pediatric market in its region, including market share patient flow network leakage and competitive analysis.
Moving to our diversified market. The Atlas data set also played an important role in our Q1 upsell win.
Non profit humanitarian organization that provides emergency assistance disaster relief and disaster preparedness education across the United States signed an upsell enterprise agreement that more than doubled the size of our relationship.
A long time user of our hospital via product an internal champion at this customer reach out to US following our Atlas data set launch in the first quarter of this organization purchased Atlas all payer claims dataset, which you'll use to transform its sales strategy and identify the U S hospitals and departments offering the most opportunity for growth.
Finally, I want to highlight one last new customer in our software and I T market that selected us based on the strength of our new data integration capabilities. This customers the largest virtual musculoskeletal clinic in the United States. This customer will be using our new definitive connect products to directly import data from our Atlas dataset into their sales force incentives to drive there.
Your business development strategy.
In addition, this company strategy team will use our connected care of your product to get better insurance coverage in their core markets of hospitals and long term care facilities.
As we look ahead to the remainder of the year, we are highly focused on execution and hitting our targets for the full year.
We are at the early stages of penetrating our 10 billion dollar plus market and there are tremendous opportunities to add thousands of new logos and greatly increase our a R per customer overtime.
To that end, we continue to focus on customer success operational excellence and ongoing investment in our platform and go to market initiatives to keep us moving forward.
We made great progress in Q1 on our product roadmap and investments in our vertical position in global account team strategies, and we'll continue to invest throughout the year.
We're making these investments while remaining vigilant in managing our expense structure, we've built definitive health care from day, one to be highly scalable and efficient which has been the foundation for our consistently strong track record of profitability.
We are proud of the scalable business model, we've built and believe it will support both faster growth and expanded margins over time as the economy improves.
I'd now like to turn it over to Jason to discuss our product innovation.
Thanks, Robert the.
The innovation flywheel continue to spin here a definitive healthcare does.
Pace and quality of our product innovation is a key competitive differentiator that we are constantly focused on expanding it.
I'd like to share the details about two significant recent product enhancements.
Two weeks ago, we launched three new offerings to significantly enhance our data integration capabilities when.
When we deliver health care commercial intelligence, our goal is to make that intelligence available where and when our clients want it in any form in any system in.
In addition to our best in class platform and in depth analytics, our customers have asked us to make our data available in the internal tools and systems that they use every day, including Salesforce and other CRM tools.
With our new integration capabilities customers can choose from a range of flexible options and support services to seamlessly integrate our health care commercial intelligence into their it infrastructure.
Our three new data integration offerings are one definitive connect optimized to work with Salesforce Lightning platform definitive connect provides users with access to more than 300 data elements that are continuously updated directly in their sales force environment through automated data thinking this access to our mission critical health care commercial intelligence.
And our clients CRM allows them to leverage the depth of data we provide in every interaction they have with their physician and hospital clients.
Definitive connect App is available now on the Salesforce App exchange.
Snowflake customers of one of the industry, leading data warehouse platforms Snowflake can now leverage and secure data sharing technology to access the Atlas dataset existing clients can opt to work with our professional services team to ingest the data they need into snowflake unite multiple datasets and create data marts to perform.
Advanced analytics.
We already have three example, datasets under snowflake marketplace to showcase our health care commercial intelligence to prospects with more to come.
Third a P S.
We've launched a new suite of modern commercial API to support automated synchronization of definitive health care data into a broad range of applications and systems developers can use these aps to request and retrieve definitive health care data through virtually any CRM software system or business intelligence data warehouse.
With these new tools, our customers can now more efficiently access our health care commercial intelligence within their existing workflows, while also ensuring that they're working with the most up to date and highest possible quality data.
I want to highlight the launch of Atlas AI, which we announced just last week.
Well, we've always had proprietary analytics embedded throughout our solutions and services, we're deepening our investment in this area, even more and making these analytics available to help drive the success of our vast customer base.
Let's say is built on the Atlas dataset, which contains robust claims reference affiliation and extra data that provides a longitudinal comprehensive and current picture of the health care market to.
Definitive healthcare's data science team Leverages, the Atlas dataset applies deep domain expertise natural language processing machine learning graph networks and proprietary algorithms to create new intelligence Atlas AI enables clients to better target opportunities allocate resources and informed strategic planning to drive <unk>.
Critical business decisions.
Let's say I expands a competitive moat that separates definitive health care from our competition, we've long talked about the virtuous flywheel, where we ingest clean and linked data from multiple disparate data sources and how we apply our proprietary data science to create new intelligence and new types of data that help our customers understand and win in the complex health care Mark.
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Atlas say I'd take her commitments in the next level by delivering some of the most unique insights into the U S health care system that I've ever seen these.
These insights help our clients become more productive and more effective every single day.
Let's say I is available through our view and medical data products as well as our latitude analytics suite and passports analytic suite.
Additionally, clients can use Atlas AI analytics and offline reports in custom projects for even more complex analysis.
We'll be adding new analytics frequently to Atlas AI to help our clients optimize their commercialization efforts.
The first release of Atlas AI includes 11 proprietary analytics each designed by our data science team to address a specific customer challenge I'll highlight a few here.
First ace projections are all claims estimations are as projections allows our clients to gain a deeper understanding into the total addressable market of the diseases or procedure areas that are most important to them.
Earlier this year, we increased our Atlas prescription claims coverage by more than 60% and our Atlas all payer claims coverage also increased significantly including nearly 20% increase in key areas, such as rare disease oncology and chronic conditions.
However, no claims data provider has 100% of all claims transactions that happened in the U S, which makes our A's projections model pretty much the only way that clients can get a view of the entire U S health care market.
These projections apply advanced data modeling techniques and machine learning to the data and our Atlas all payer claims dataset to generate reliable estimations of clinical activity to compensate for the fact that every claims vendor has only part of the overall picture.
We believe that our proprietary projection is unique in the industry because we use our reference an affiliation data as explanatory variables to train our AI models we.
We identified groups of features that best represent the drivers of clinical volume for a segment of facilities or providers and then we extrapolate missing claims volumes based on the provider facility level characteristics.
Second expert ranking this insight utilizes natural language processing and AI to create a proprietary scoring system that allows our clients to immediately identified the top drink scientific and clinical experts within a specific therapeutic area.
Rather than ranking extra solely by volume of activity definitive healthcare's data science team Leverages, the Atlas expert and Atlas all payer claims datasets and applies graph networks centrality scores and a proprietary algorithm to rank experts and physicians according to their positions within a community of practice.
This saves our clients from trying to do this work on their own by pouring through thousands of publications clinical trial results and claims analytics and it results in a much better and more accurate prediction given that we do it at scale across nearly 14 million experts.
Third Rx decision insights.
Our ex decision insights is critical for our Biopharma clients. These insights help our clients understand which physicians are the heaviest prescribers, which are more likely to prescribe a brand name therapy in which prescribers are most likely to switch from our competitors therapy.
Our data science team derived Rx decision insights from a complex computational process and methodology and scaled that across the entire Atlas prescription claims dataset.
Our proprietary methodology processes billions of lunch digital prescription claims curates them into individual patient journeys and buckets them into decision, making events. These insights hubbard customers refine their commercial targeting better align and research their sales force and arrive at the most efficient and high opportunity targets for their sales teams.
We have dozens more analytics in development each of which we believe will help our customers become smarter and more efficient and deepen our competitive advantage in the marketplace.
We plan to rollout continuous enhancements of our Atlas air offering in the coming quarters and years.
I'd now like to turn it over to our CFO , Rick Booth to walk through definitive healthcare's financial performance in more detail.
Thank you Jason.
I'll start with a detailed review of our Q1 results before finishing with our guidance for Q2 and Reconfirming guidance for the full year.
And all my remarks, I will be discussing our results on a non-GAAP basis, unless otherwise noted.
Our strong business model allowed us to deliver solid results in Q1, despite tough economic conditions and a challenging compare.
Our financial highlights for the quarter include 18% revenue growth compared to Q1 2022.
26% adjusted EBITDA margin.
And 22% Unlevered free cash flow margin over the last 12 months.
Revenue growth plus the trailing 12 month Unlevered free cash flow margin was 40% putting us at the rule of 40 on an unlevered free cash flow basis or at 44% using adjusted EBITDA.
Turning to our results in more detail.
Revenue for the first quarter was $59.2 million up 18% from prior year and 3% above the midpoint of our guidance.
This performance was driven by new business and upsell as in the first quarter, we continued to experience heightened churn, especially in life sciences and providers due to industry conditions.
Pro forma organic growth revenue growth was 15% in the quarter.
We ended the quarter with 529 enterprise customers, which we define as customers with at least 100000 and are are this.
This was an increase of 81 enterprise customers were 18% year over year.
But a decrease of nine enterprise customers from the previous quarter.
Our total customer count, which includes smaller customers was 3011 at the end of Q1 up from 2939 in Q1, 2022, but down 34 from the previous quarter.
Overall economic conditions continued to be challenging in Q1.
Despite the continued headwinds, we believe new business and expansion opportunities remain strong even if realization is slightly delayed in this environment.
Gross profit was $49.8 million up 13% from Q1 2022.
And gross margin of 84.2% decreased 380 basis points from Q1 2022 as the additional data sources in the Atlas dataset came online as.
As we had communicated previously.
We expect to see gross margin expansion as we move through the year. So that the full year impact is two to 300 basis points for the full year.
Sales and marketing expense was $27 million up 18% from Q1 2022.
And as a percentage of revenue sales and marketing expense was 35% of revenue consistent with Q1 'twenty two.
Product development expense was $6.9 million up 24% from Q1 2022 is.
As a percentage of revenue product development expense was 12% of revenue up from 11% in Q1 2022.
Investing in our platform and using our existing datasets to launch or enhance multiple products into highly efficient and effective way for us to increase the value we deliver to customers.
Robert and Jason touched on some examples of these earlier.
And we will continue to invest in the multiple opportunities we have identified on our long term product roadmap.
G&A expense of $7.6 million was up 4% from Q1, 2022, and as a percentage of revenue G&A expenses were 12.9% of revenue down approximately 170 basis points from 15% in Q1 2022, we expect to see continued.
<unk> leverage from G&A, both because these costs are relatively fixed and due to ongoing efforts to lower administrative costs.
Operating income of 14.4 million was up 6% from Q1 2022.
As a percentage of revenue operating income was 24% of revenue down 260 bps versus Q1 2020 to the.
The year over year margin decline was primarily a result of the gross margin impact of the Atlas dataset expansion.
Offset by G&A cost improvement.
Adjusted EBITDA, a 15.7 million was a 12% increase from Q1 2022 and at the upper end of our guidance range as it on a dollar basis.
As a percentage of revenue adjusted EBITDA was 26% of revenue approximately 160 basis points lower than in Q1 2022 due to the investments described earlier.
Which were in line with how we planned the year.
As we move through 2023, we expect adjusted EBITDA margins expand allowing us to deliver the full year adjusted EBITDA in line with guidance. Despite the impact of the gross margin pressure noted Abbas.
Net income in Q1 was $9.2 million or six cents per diluted share based on 154.3 million weighted average shares outstanding.
Turning to cash flow definitive high margins upfront billings and low capex requirements provide substantial free cash flow generation.
We focus on trailing 12 month cash flows due to seasonality.
Operating cash flows were $36 9 million on a trailing 12 month basis.
Up 46% from $25 3 million in the comparable period a year ago.
Unlevered free cash flow was $57 million on a trailing 12 month basis down 16% from the comparable period a year ago.
Unlevered free cash flow was 22% of revenue on a TTM basis.
Effectively converting 77% of our TTM adjusted EBITDA of $65 4 million into cash.
Like any SaaS company when bookings growth slows soda is deferred revenue, which is the biggest driver of unlevered free cash flow as.
As growth rates stabilize and recover social unlevered free cash flow.
On the balance sheet, we ended the quarter with $344 million in cash and short term investments with.
With strong profitability and only $265 million of debt, we are well positioned to fund both organic and inorganic growth initiatives.
Current revenue performance obligations of 180.9 million were up 10% year over year and total revenue performance obligations were up 2% year over year.
Deferred revenue of $105 5 million was up 12% year over year.
You'll note that as expected C. R. P O and deferred revenue grew more slowly than revenue.
Mary driver its E. R. P. O is of course, new business and Upsells, but.
But we also saw a continued financial distress, particularly in life sciences and providers and those cancellations show up immediately as reductions from C. R. P O.
These factors have been largely anticipated and we believe that we remain on track to hit the guidance for the year.
Moving now to guidance for Q2, we believe it's prudent to assume that current conditions continue and extends through the first quarter as well.
Assuming this is the case in Q2, we would expect total revenue.
Of $60.5 million to $61.5 million for a growth rate of 11% to 13%.
Adjusted operating income of 14.5 million to $15.5 million.
Adjusted EBITDA of $16 million to $17 million for 26% to 28% adjusted EBITDA margin.
Adjusted net income of $7 million to $8 million or three cents to five cents per diluted share on $155 2 million weighted average shares outstanding.
For the full year, there is no change to our previously communicated guidance.
We continue to expect revenue of $249 million to $255 million for growth rate of 12% to 15%.
Adjusted operating profit of $61.5 million to $65.5 million.
Adjusted EBITDA of $67 million to $71 million for full year margin of 27% to 28% adjusted.
Adjusted net income of $30 million to $34 million.
And earnings per diluted share of.
Of 19 to 23 cents on $155 5 million weighted average shares outstanding.
Within this guidance the key expected cost drivers are at a gross margin impact of the new data sources coming online early in Q1.
The annualized <unk> of expenses associated with people hired in 2022.
The impact of cost of living increases unemployed wages.
And selective investment in the very highest group's priorities.
We expect that these costs will be partially offset by continued efficiencies and costs not directly associated with revenue growth.
So to summarize Q1 was a solid quarter for definitive health care, despite current economic headwinds and uncertainty.
We are well positioned for long term, because we did want to clear leadership position in large and attractive market that we believe will support high levels of predictable revenue growth profitability and capital efficiency.
And with that I'll hand, it back to Robert for a few closing thoughts before we take questions.
Thanks, Rick I wanted to take a moment and recognize all the time and energy that are definitive health care team has put into building an award winning employee centric culture.
Just in the first quarter alone we had multiple events both in the office and remote that celebrated our diverse and inclusive culture.
I had the opportunity to turn many of these events, including a virtual global celebration of the Hindu holiday of Holly.
Handle discussion on the importance of self advocacy and our women's history month, and a talk by medical expert been has seen in honor of transgender day of visibility.
I haven't had a chance to serve as a judge for the first annual definitive healthcare Tilly's hookup benefiting definitive cares and my stomach has not fully recovered yet.
All kidding aside its these types of events that forge important relationships across the company and they are a huge part of the reason why I consider myself. So fortunate to serve as CEO of this fabulous organization.
Before opening the call for questions I want to reiterate that we are off to a solid start in 2023, and well positioned to deliver on our objectives for the year or.
Our team is doing a great job remaining focused on our customers and executing on our key product and growth initiatives.
We've built an incredible business and a large dynamic and growing market that provides great opportunity to meaningfully scale, our revenue and profitability in the coming years, and we remain incredibly confident in the long term opportunity for definitive health care and our ability to generate substantial value for our customers and shareholders.
With that we would now like to start the Q&A operator.
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One moment, please while this call for questions.
The first question Ryan Daniels of William Blair. Please go ahead.
Thanks for taking the question. This is Jared haase in for Ryan.
Wanted to start just hoping you could dive a little bit further into some of the dynamics in the life Sciences segment in particular, and Rick and Robert I think you both mentioned some of the headwinds and the churn dynamics that you saw there.
I think overall it seems like a bit of mixed commentary coming from that market from what we've seen where it seems like there's still some concern over funding dynamics, but we've also seen in <unk>.
Uptick a nice pace of M&A, which maybe suggests some organizations are kind of pursuing growth initiatives. So maybe you could just dive into some of the dynamics in that segment in particular.
Yeah sure. Thanks Jared.
I'd say life Sciences, we felt pretty similar to the way that segment felt at the end of last year.
You know in our perspective, it's been slower we have all of those dynamics with longer sales cycles, and greater deal scrutiny and just a little bit tighter feeling like a tighter spending environment, though we feel from from that segment.
Also if you kind of go smaller biopharma, that's been a group that's been particularly.
Trouble some out of our group and we've talked about that before you feel like you know a combination of financial distress and just some funding difficulties. There have certainly played out in their ability to purchase.
On the flip side of it is there is still great demand in that group our top of funnel is great. We're having incredible conversations we've been the buyers the buyers and the clients who would work with definitive are still incredibly enthusiastic about what we're doing.
Net interest in Atlas since we launched it in marketing across our client base. So there's no shortage of interest and that feels really good. It's just been the same dynamic if things progressing all the way through the sales cycle.
Like I mentioned my remarks, we did a nice win back we had also awareness of and the push from last year. So these things do come through it's just at a slower pace.
Yeah, we're doing everything we can to try to accelerate that a longer term, it's still a great end market for us the value that we deliver there is fantastic we have a lot of million dollar clients there were delivering tons of value.
A couple of them expanded relationships with us this year. So it's it's a place where you know medium long term I feel great about just some of the short term dynamics have been have been challenging.
Yeah.
Yeah.
I appreciate the puts and takes in that market specifically, just one follow up from us. So on the gross margin. It looks like that came in just a bit lower than our expectations coming into the quarter. Obviously I appreciate the commentary around the investments and timing of those data assets coming online.
I'm, just curious with EBITDA still registering towards the high end of guidance were there any operating efficiencies specifically that you identified in the quarter and if that was the case is that anything that could maybe drive upside to EBITDA targets over the course of the year.
So.
The key areas, where we've been where we've been making sure that we're pivoting investment away from us in the areas of G&A you saw that 280 bps expansion year over year.
We managed to do that with a nice combination of automation and other efficiencies. So we feel like it's very sustainable.
Early in the year to talk about upside.
But yeah. We were pleased that we were able to provide provide a small beat on revenue and not raise the outlook for the year.
Salary and congrats on a solid update here.
Thanks Jay.
The next question is from Ryan Macdonald of Needham. Please go ahead.
Wanted to I wanted to touch on the churn in the quarter I guess relative to the commentary about pharma in the provider market being weaker, especially at the lower end, we werent totally surprised to see customers ticked down quarter over quarter, but may be more surprised at the higher end with the 100 K plus customers. So just curious if you're seeing some of that weakness.
Bubble up to some of your larger accounts or if you could just kind of comment on some of the churn dynamics, you're seeing with some of those bigger accounts. So we maybe haven't seen prior.
Yeah.
Good question. Thanks.
In two ways I think number one those numbers can change based on both pace of sales and up sells and churn.
So obviously the number of enterprise customers is partially impacted by sales dynamics not as many upselling or joining above that 100 K level. So that certainly was a factor.
That said, we did see a little bit higher churn in the quarter as well kind of across the base and I think that you have.
Slight uptick from what we might've seen not unexpected like you said.
And I think the dynamics there with I had to characterize it is a little more incidents of just financial distress, where people find themselves in a position where they're just unable to continue and that's something that was.
It was probably that we saw a little more of this quarter that might have seen in the past.
Again overall you know.
We still feel really good about the value, we deliver to enterprise customers and for some of the stories, where we might have lost one on churn we have a bunch of stories, where we were able to expand the relationship and get.
Get more dollars in the door from someone who is already paying us a lot of money even in this environment. So.
Again, I do feel like.
This is a great we have great value proposition, we always strive to keep all of our customers and typically enterprise customers have been some of our best and that'll continue to be the case going forward with especially with a little more normalized macro the other nuance in terms of seeing how that plays out within the enterprise customer base.
The depth and power of the platform proportionately more of our lifestyle science and provider customers or enterprise customers. So you can be a very small.
Very small company feel.
Sure.
Be spending 100000 hearing more from us. So that's one thing to bear in mind as you think about it intuitively.
Luckily this is consistent with what we talked about in our fourth quarter call, where we said that we were allowing for a little bit more conservative assumptions on churn as we entered 2023.
Got it appreciate the color it sounds like it's it's all baked in and then so wanted to touch on Atlas sounds like a lot of great success. There in driving a lot of demand curious does this change your thinking around M&A at all with future deals maybe be more similar to an atlas like purchase and focus on datasets over and out of that.
<unk> module and what other datasets might be interesting that that definitive could add.
I think nothing's changed on our sort of perspective on what we want to bring into the company and I consider those a little bit different endeavors. One is to continue to fortify our data, we generally do that by finding sources or investing in <unk>.
Collection capability to continue to bring data and keep ourselves.
Really best in class and unique to our clients and delivering on new use cases that clients have asked about our express interest in so that's kind of the endeavor behind the investments in Atlas in the in particular the uptake in our claims investment this year from an M&A standpoint.
We continue at the same philosophy on M&A, which is we like to find an additional capability out there it could be an additional data source, but.
More likely an additional capability is something that we can do that brings a new source in and of itself a value to clients that we can then take out across our 3000 client client base.
Accelerate expanding that to new clients build it into our dataset and into our platform such that it becomes an integral part of what we do and that tends to create a lot of value through M&A.
So we continue to be on the lookout and many conversations and searching for opportunities like that and I would anticipate.
We've always talked about one to two per year I would anticipate us staying on that pace, it's been about a year.
Primarily driven by the fact that valuations in the private market hasn't really caught up to valuations in the public market. My sense is that's gradually starting to change and so I'd be optimistic that over the next year you would get if we can get back on pace.
Got it thanks for the color guys.
Thank you.
The next question is from Greg.
<unk> of Morgan Stanley . Please go ahead.
Yes. Thanks, so it sounds like there hasn't been any meaningful changes to the backdrop, but now that you have four months of the year complete was hoping to get your sense kind of month to month. This year, if you're seeing any nuances in that backdrop and in particular, what you call out in this backdrop on new logo growth versus upsell.
Yes, so I'll speak to the first quarter, Craig because it's kind of what we are.
Looking back on that quarters, what we're reporting on.
I would say there was nothing out of line with what we expected I would say that it's.
As Rick mentioned, maybe a slight uptick in churn, which we had projected coming into the year.
Right on course, with what we expected around new.
So there's not a lot of dynamics that are different from what we expected coming into the year.
Sorry, that's not a super detailed answer, but I'd say first quarter was kind of where we expected as.
Both new up sell and churn and no discernible trend.
Got it and month by month by month by month came in kind of as expected as well.
Okay, and then just a follow up on just margins you guys have talked about some of the investments you are taking in a little bit of a drag this year, Rick how do we think about al. It's early to think about 2024, but guess what type of operating leverage do you see in the model and particularly.
You have some more cost reductions coming in this year.
Yes.
I think the.
Economic model is very clean and we continue to have high gross margins, even with these data investments data investments in G&A are largely fixed.
But it's still too early too early to talk about 2024.
We're never done in terms of continuing to improve the product and so we're going to continue to manage for the combination of growth and profitability.
Thank you.
Thank you.
I would just add to that Craig you know our model which is.
Every incremental revenue dollar brings with it a lot of incremental profitability.
Think do do a good job of thinking about how much of that we reinvest in future growth and how much that would deliver out but the model provides.
A lot of room over time to do both.
Thanks.
Thank you.
The next question is from Chad.
Inc of Big Please go ahead.
Alright.
Everyone.
Hey, maybe Robert.
I'll start with.
Something you said in your prepared remarks, just implementing changes.
Within the company with MGH to help with performance not guiding to improvement going forward.
On things internally.
<unk>.
You may be elaborate on in your mind.
The biggest actions or maybe the actions that could bear fruit. The earliest stars when some of those things might be.
Sure I'll go through those.
And yes, youre right like where we're trying a lot and were working hard to try to.
Inflect things upward, but it's hard in this environment to confidently state that those things will pay off within some specific timeframe, but I know there are good things to do over time.
The first and we've talked about a couple of these before is getting much better at account planning and really mapping out.
The full range of decision makers within our client and being sure that we're getting in front of them early in the sales cycle.
In the old days, usually the person, we talked too could get the budget authority and get it done and we're finding that is rarely the case today and theres usually.
Rick Booth twin somewhere in our client who are sitting there with.
With a spreadsheet in the budget that has a lot of questions that if you don't.
Talk to that person early in the process tends to create issues at the backend of the process. So getting much better about that and I think we've done a nice job of that it doesn't make us immune from stuff slipping at the end of the corridor new decision processes coming in Thats still happening, but I think it does get US ahead of some of those issues better than better than we might have been last year.
The second is we've really made more moves to verticalizing, that's particularly in the provider and life science segments. Obviously, they are a little bit more of our challenged segments right now, but I think we've we've recognized that our people on the front lines in those markets as we've grown.
Deeper and more complex than what we can do with our clients.
We need people, who can speak the language of our clients in those markets and have a little greater depth of experience in those markets. So this year, we've really made some positive moves too.
<unk> moved to a little more vertical position each of those markets and I know that'll pay dividends just to hear about the conversations we're having and the depth to which we're discussing the use cases that we can provide.
It's definitely definitely a click above where we've been in the past.
And then I think third.
Great top of funnel activity, it's basically saying, let's really focus on what we know we can control and that's getting opportunities in the door. So leads converting leads and opportunities being as good as we can on those once things are opportunities really bringing the best of the company behind those to work on converting them, whether they're new business up sell or merge.
<unk> opportunities.
And I've gotten involved on a personal level and way more opportunities than than I had in the past and I think that's true of our executive team and it's our teams are pushing hard to be sure that we're we're engaging at the right level of depth and urgency so.
Look these are all things that.
They will pay off I'm reluctant to kind of put a timeline on that just as we've seen in the macro would be kind of stubbornly.
Blocking of it.
Really turning the corner upwards, but it's making us better.
Okay.
Great detail.
I wanted to talk on the IPO.
10% growth.
Coronary.
Maybe organically.
Yes, accounting for analytical Wizards, maybe similar rates of growth in CRE last coronary so maybe it's the ability there.
How should we think about kind of the trend.
Backlog for the remainder of the year, just given where the revenue guidance.
Would it be the expectation that credit rates and crts are inching higher as the year goes.
Yeah.
Let me just.
Explain to you a little bit of the <unk> dynamics. In addition to our normal earnings dynamic.
Remember that we have more renewals in the fourth quarter.
And then those are those lose CRP O as we go through the quarter and the year.
That consume <unk> in Q1, we also saw an increase particularly in financial distress, especially in life Sciences and providers.
It shows up as lower renewal rates and therefore increased churn. This was consistent with our planning and we remain on track to deliver against our full year guidance.
We guide based on revenue and our other financial metrics, We don't guide CRP O itself.
Yes.
Okay. Thank you very much.
Thanks, Jeff.
The next question is from David Grossman of Stifel. Please go ahead.
Thank you and good afternoon.
I'm wondering if I could just ask.
To ask a quick follow up to the question that was just asked because it sounds like you know the demand backdrop is stable, but still challenging.
And if I understand your guidance right on the revenue side into it does imply some sequential revenue acceleration as the year progresses. So.
Perhaps you could particularly given the C. R. P. O dynamic you just talked about do you want to give us a little more color on what kind of visibility you have on that does it relate to some of the new data products that were introduced in the first quarter, just give us a little bar.
Right and to kind of how you got there and why revenue should accelerate as the year goes on.
Oh, Great question as always David we started the year with revenue favorability.
It's a little early in the year to raise full year guidance, we do gain increased visibility as we proceed through the year. We are confident in our ability to meet our full year guidance.
Right, Rick, but just again talking about stability and is there are there are some dynamics that would give you that confidence that sequential revenue growth would accelerate as the year progresses here for the back half because I think that's what your guidance implies.
That's generally what we've seen on an organic basis.
I think David just at a high level I know you said that but we kind of the assumptions behind the guidance, we put out assume that the dynamics, we're seeing on the macro side or what's in place across the rest of this year and then we kind of ran all the numbers about what that means.
For the year and quarter over quarter, and that's how we came up with it so nothing's changed about that from kind of how we walked into the year I don't know if that's helpful or not but at least gives you the context in which we set that.
Right, Okay, well, thank you for that.
And I guess the second question I had was about.
Some of your commentary around expense management.
When we look at the first quarter and perhaps what's implied for the second quarter is that really the baseline right now for operating expenses.
Most margin out of it was just on the Opex line is there.
There are more opportunity than what we've seen if necessary or should we look at the current run rates.
On Opex as being kind of where the baseline is going forward.
I think it's a reasonable first cut at the at the baseline of course, you know we've got we've got some additions and you always have some.
Some open positions.
It's not a crazy baseline.
Great and if I could just squeeze one last one in just curious.
What is the pricing environment like.
I don't know if you've ever encountered a downturn like this in the history of the company before but.
And any perspective on.
What impact pricing has on revenue growth this year, perhaps versus prior years, when you face an environment like this.
Okay.
Yeah, I mean, what we've seen in the first quarter on pricing is pretty consistent with the past. So we haven't really seen any material change from what we've seen in prior years I wouldn't say the company has been through this extended downturn before there was a blip after COVID-19 hit in 2020.
Look at that year that year saw.
Pretty consistent levels of pricing stability as well so.
We always are.
Our sales team is always have some discretion to discount to get things across the finish line and they are certainly continuing to do that now but overall, if you kind of look at our our realized pricing.
It's up a little over last year, which so we would've expected.
Alright, thanks, very much and good luck.
Thank you.
The next question is from Alan lit of Bank of America. Please go ahead.
Thanks for taking the questions. Robert you mentioned that life Sciences felt the same at the end of the year I guess is there anything to call out any other segment Med Tech providers health systems, not health care was there anything that changed from <unk> to <unk> did any of those segments improve at all or was it basically all kind of the same.
<unk> versus <unk>. Thanks.
Yeah, I'm, sorry to be boring, but things were pretty much. The same we've seen a little more pressure comparatively in the biopharma part of our life science business, although still some in med device, we lump those together and life Sciences.
And providers providers had a pretty rough year last year I don't think they fully emerged from it yet although again, we are optimistic that over time things will get better because last year was a pretty all around bad year for their financials.
And then diversified relative to the others has been has been better throughout.
Again, there are pockets within there that are tougher we do have some software companies in there and they've obviously got a little bit tougher arrived but we also have some other types of companies that maybe its been a little bit less.
Again, we still see the sales cycle dynamics and the difficulties getting tough closed in those segments as well, but <unk>.
Comparatively less so in diversified relative to the others.
And then one for Robert or Rick I know that you talked about kind of the outlook for M&A a little bit in the current environment I'm, just sort of postulating here, but I would think that some of your smaller less capitalized peers may be under some pressure at some point do.
Do you think that you could be maybe more aggressively opportunistic over the next six to 12 months versus kind of the one to two deals you've talked about historically, if that was something that sort of came to fruition.
I mean, I never want to hypothesize too much but if we found three great companies to buy.
Kind of that fit our criteria and that we felt like we could successfully onboard and integrate we would do it. So it's one to two is not an absolute guideline, it's sort of a general indication I think the realities are that it does take up.
We're not enormous as a company and when we bring someone on board, who want to do it really well and capitalize on all the synergies associated with it. So that takes that takes a companywide effort not to say, we couldnt do three but we would look really carefully to be sure that we could manage those to maximize the value.
But no I don't want to say there is any artificial barrier to it and as valuations come in I do think we will find some really nice opportunities on the M&A front.
Great. Thank you.
Sure.
Next question is from Brian Peterson of Raymond James. Please go ahead.
Hey, good afternoon. This is Jonathan the Carryon can Bryan when they keep them for one.
Where do you think about a longer term and are settling.
Maybe even just qualitatively once we reach the other solvable unpredictable macro thanks.
Yes, the biggest driver.
Increase in existing client revenue comes from cross selling into new divisions, and new products the number of seats.
At best a tertiary driver for us.
Very different from what you may be used to with some of the other.
The other companies out there.
And that's in some part because a lot of times our clients will have an enterprise license. So that the big opportunity is getting them using more of our functionality.
Versus just having more people on the client use it.
Thank you.
Sure.
The next question is from Jonathan Young of Credit Suisse. Please go ahead.
Hi, Thanks for taking the question just to go back to churn again, I guess, one the churn you saw in the quarter was that in line with what you kind of expected for the quarter and then looking ahead does your guidance also account for possible consolidation within the verticals, where there may be additional churn outside of the outside of the financially.
Yes firms.
Yes, so churn was about where we expected it to be it was a little higher than we saw at the end of last year, which we projected would be the case just based on what's going on in the macro.
We've always had original.
The original amount of non res amount is pretty steady amount of M&A throughout our client base. That's something we always manage with I don't think that was necessarily any more elevated or decline this quarter versus any other quarter and will always fight hard to keep the full amount of the revenue from that as long as we can.
To your point inevitably that's that's sometimes a cost synergy for the acquirer and so they want to come in.
Find ways to renegotiate, sometimes it's an opportunity to expand our relationship with one of the companies doesn't have us and the other one does.
So it's not always a negative but.
We would tend to prefer non consolidation versus some consolidation there, but it wasn't any different than any other quarter in terms of pacing and impact.
And we did not model that as a separate variable as we were looking at as we were looking at 2023.
Okay, Great and then I'm just going to the.
The elongation of deals so I guess I wanted to better understand this but.
I guess, Mike utilization if it was that deals were just being pushed out a little bit but they were still in the pipe. I guess are you seeing basically that these deals are now completely off for now and you know as.
The macroeconomic headwinds ease that companies will have to reevaluate everything at that point and so it.
Somewhat of a longer sales cycle overall, where maybe it was nine months now.
Stopped then once we get to that point, where things open is going to be another three six months after that where we might take a little bit longer to really.
We accelerate revenue growth.
Sure it's hard to know.
That's pretty specific fortunetelling.
I guess, what I'd say is yes, we have a lot in our pipelines.
Deals that you would expect to close one month end up in the next month.
Now.
Not as many are closing as they did a year plus ago either so your you are not getting all of those across the finish line even in the delayed circumstance my sense would be if you look at prior downturns here, which was after the COVID-19 downturn. The short Covid downturn and then my experience historically would be that once people feel like.
There is stability and kind of feel like they have a reasonable understanding of what's ahead for the next 12 months.
That certainty tends to pretty quickly lead to buying decisions.
And I kind of analogize that to us we've been really careful with external spend.
Once the economy had a pretty clear outlook and we started seeing that play through in our commercial activity.
Would make spending decisions based on that very quickly.
And if you think about definitive healthcare, what's great about what we do for clients is that it helps people grow and help people sell so the minute people feel like there is.
A good opportunity ahead of them to inflect sales upwards or to start growing their business at the levels. They were used to again I think we get the dollars pretty quickly.
Alright. Thanks.
So long way of saying I don't think there is another two to four month pause once things stabilize I think one thing once things stabilize I would expect in our business.
To pick to pick up certainly beyond the levels, we've seen right now.
Okay.
And I think that we have hit the top of the hour I.
I appreciate everyone's time, we're going to be out at conferences in the upcoming weeks and look forward to seeing many of you in person.
Goodbye. Thank you.
Ya.
Okay.
Ladies and gentlemen, the definitive health care call and webcast has concluded. Thank you for your participation you may disconnect.