Q2 2025 Definitive Healthcare Corp Earnings Call

Speaker #3: Welcome to Definitive Healthcare's Q2 2025 earnings call. Later, we'll conduct a question and answer session. I will now elect to turn the call over to our host, you may begin.

Speaker #4: Good afternoon. 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 Casey Heller, Chief Financial Officer.

Speaker #4: During this call, we will make forward-looking statements, including but not limited to statements related to our market and ure performance and growth opportunities, the benefits of our differentiated data and healthcare commercial intelligence solutions, our competitive position, customer behaviors, and use of our solutions, customer growth, renewals and retention, our cial guidance, our planned investments, and operational strategy, generating value for our ustomers and shareholders.

Speaker #4: The anticipated impacts global macroeconomic conditions on our business results and customers and on the healthcare industry generally, and our ability to successfully transition executive leadership.

Speaker #4: Any forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involving 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: We will discuss non-GAAP financial measures on this conference call. Please refer to the tables in our arnings 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.

Speaker #4: With that, I'd like to turn the call over to Kevin. Kevin?

Speaker #5: Thanks, Jonathan. And thanks to all of you for joining us this afternoon to review Definitive Healthcare's second quarter 2025 financial results. On today's call, I'll provide highlights our second quarter performance and an update on our progress against our key strategic priorities for the year.

Speaker #5: Let begin by reviewing our financial results for the second quarter, which were above high end of our guidance ranges on both the top and bottom line.

Speaker #5: Our total revenue was $60.8 million, down 5% year over year, this was ahead of expectations driven in part by early signs of improvement in renewal rates.

Speaker #5: While it is still too soon to declare this trend durable, it is an encouraging data point that changes in investments we are making in customer success are working.

Speaker #5: Adjusted EBITDA was $18.7 million, which was ahead of expectations and represents a 31% margin. This reflects good expense discipline and a scalable nature of our business model.

Speaker #5: And we continue to generate solid cash flow, delivering $57 million of unlevered free cash flow for the trailing 12 months. Overall, we continue to make progress, and our conviction we are taking the right steps to improve business has increased.

Speaker #5: In the second quarter, new logo activity remained healthy in each of our core end markets. Our ability to attract new customers to the platform is an important validation of the value proposition of our differentiated data.

Speaker #5: We will continue to refine and evolve our business motion to more effectively and efficiently focus our efforts on the sales strategy showing the most promise in the field.

Speaker #5: We also had another encouraging quarter in terms of renewals. Following last quarter's stabilization and retention rate, we saw a modest improvement relative to recent quarters and the highest retention rate since the second quarter last year.

Speaker #5: Although the second quarter is a smaller renewal period for us, it is promising and reinforces our belief in the actions we are taking across the organization.

Speaker #5: We still need to get through the largest renewal periods in December and January, but we are tracking well versus our plan for the first half of the year.

Speaker #5: Our progress through the first half of the year gives us confidence to increase the midpoint of our revenue guidance and increase our adjusted EBITDA target for the year.

Speaker #5: Our goal for the remainder of the year is to build upon the initial progress in the first half and drive further improvement in our go-to-market product development and customer success efforts.

Speaker #5: I would now like to spend a few minutes providing an update on our four pillars to our platform and the value proposition that we believe are the keys to returning the business to improved top and bottom line performance over time.

Speaker #5: As you'll recall, the four key pillars of our platform and value proposition are differentiated data, data delivery and integrations, driving customer success, and innovation.

Speaker #5: Initially, through the enablement of our customers' digital engagement with providers and umers. I would like to take a moment to provide an update on the progress we have made across each of these focus areas.

Speaker #5: Let's start with differentiated data. This is the core of Definitive's value proposition for customers. We have been actively taking steps to expand the breadth and depth of our data assets while instituting rigorous data quality and data cleansing technology to ensure definitive is synonymous with the highest quality data in the market.

Speaker #5: As you know, our reference and affiliation data is a unique data set that leverages a variety of first and third-party data sources that provides customers with a 360-degree view of prospective buyers across the entire healthcare marketplace.

Speaker #5: We are expanding, improving, and diversifying our data sources and processes across the business. For example, part of that process is in developing new sources for claims data that broadens the amount data we receive and addresses the challenges that have hampered those market over the past year.

Speaker #5: Let me share an example where our data quality contributed to a win this quarter. A digital health organization returned to Definitive Healthcare after non-renewing in 2022.

Speaker #5: The client needed a strategic partner to help identify high-prescribing physicians treating conditions like psoriasis and rheumatoid arthritis. Our custom reporting capabilities, especially around Medicaid claims activity, including active rejected and reverse transactions, were critical in delivering the physician-level market intelligence they required.

Speaker #5: Another important part of our data strategy is leveraging partnership opportunities that expand our data sets and provide new ways to deliver value for customers.

Speaker #5: We are pleased with the early traction we are seeing with the global strategic data partnership that we signed at the end of last year.

Speaker #5: Seamless integration, our second pillar, is critical to ensuring customers are able to access our differentiated data in whatever manner is most convenient and valuable to their business and operational needs.

Speaker #5: Some customers prefer to utilize proprietary software, while others may elect to leverage our APIs to ingest our data directly into their internal workflow. Many also rely on our analytical capabilities to run complex data science queries to extract insights by combining our data with their own third-party data leveraging our unique DHID token.

Speaker #5: We are seeing early signs that this flexible approach is helping drive both new business wins and improve retention. In the second quarter, we have seen increased customer wins where our enhanced data integrations were specifically cited as the reason we won.

Speaker #5: One example was a new customer win where we beat a competitor and head-to-head bake-off due to the flexibility of our integrations and the ease with which they could incorporate a variety of data sets into the workflows.

Speaker #5: Another example was a successful renewal of a customer that had long wanted more flexibility in how they worked with our data. Flexible and responsible engagement that meets our customers where and how they need us is proving to be a winning approach.

Speaker #5: We are also seeing clear signs of progress in our third pillar, customer success. Having now successfully operationalized the ps we took to streamline and deepen our customer engagement, our ocus expanded to ensuring we are delivering a consistent repeatable and proactive service.

Speaker #5: As noted earlier, we are eing initial evidence our egy is working through the improvement in our retention rate. The benefit these changes we have made will take time to fully impact the business.

Speaker #5: A significant driver of successful retention begins at the start of a new customer engagement with a seamless onboarding process which leads to quicker time to value.

Speaker #5: But our clear focus on the customer is already driving improved results. Moving to our final strategic pillar, innovation, which initially is focused on digital engagement.

Speaker #5: We continue to make progress here. We believe our data assets will drive critical insights for customers that need to be automatically operationalized to fully unlock the business value of these insights.

Speaker #5: An area where we are seeing traction is with agencies that manage activation work on behalf of customers. For instance, this quarter we've enabled several new agencies, including a top agency, that license our healthcare audience segments to enhance targeting and performance for their media campaigns.

Speaker #5: These segments, built from de-identified data on healthcare professionals and patients, are delivered into demand-side platforms (DSPs) for activation. The agency selects specific audiences, such as migraine sufferers or cardiologists, that align with the objectives of their biopharma and provider clients.

Speaker #5: These segments enable more precise digital ad delivery to ensure that the right message reaches the right healthcare audience. Agencies rely on partners like Definitive to provide the needed data that augments the appropriate audiences so that they may deliver solid returns for their customers and to do so they are continuously evaluating campaign performance.

Speaker #5: Those insights optimize future efforts which increases their reliance on our data and builds repeatable revenue streams for us. To date, we've contracted with 15 agencies, with 6 already activating campaigns.

Speaker #5: And as we've discussed in prior quarters, agencies are only one channel. We also work directly with clients. Our direct efforts are progressing, and we are winning business in this channel, including four major healthcare systems since we've increased our focus on digital.

Speaker #5: A key part of positioning the company for success is having the right team in place. Having just reached my one-year anniversary as CEO, I am pleased with our progress on augmenting our key domain expertise which was critical to maintain for the continuity experience and corporate memory with new executive talent that brings needed new skills to the team.

Speaker #5: We believe that our newly constituted leadership team will continue to drive our progress forward with increased velocity as we look towards the second half of the year.

Speaker #5: One of our most recent additions is Tina Hannigan, our new chief commercial officer. Tina will oversee the company's go-to-market strategy, ensuring that sales marketing and customer success are fully aligned.

Speaker #5: Tina has decades of experience building and leading commercial organizations and has deep operational experience in both data and services businesses. Having had the sales organization report directly to me over the past nine months, this has allowed me to clearly understand the type of go-to-market leader that we need.

Speaker #5: Tina meets all of those needs, and I'm cited that she has joined the team. Recruiting and building a strong leadership team takes time and I am pleased to report that we've been able to assemble a fantastic leadership organization that consists of both new and veteran Definitive teammates over the past several months.

Speaker #5: This newly constituted team will lead us forward in our evolution. With that, I would like to turn the call over to Casey and her first earnings call as our CFO to walk you through our financial results and guidance.

Speaker #5: Casey?

Speaker #6: Thank you, Kevin. In all my remarks, I will be discussing our results on a non-GAAP basis unless otherwise noted. Before diving into the details, I want to take a step back to frame our quarter.

Speaker #6: We continue to operate in a dynamic environment that includes a tough macro backdrop. And we are continuing to execute with discipline, while advancing our progress on our four strategic pillars.

Speaker #6: Those efforts to operate prudently and with a shared vision are reflected in our Q2 results and helped us again deliver above the high end of our guidance on the top and bottom line.

Speaker #6: In the second quarter, we delivered revenue of $60.8 million down 5% year over year. Adjusted EBITDA of $18.7 million reflecting a 31% margin. And adjusted net income was $9.7 million resulting in 7 cents of non-GAAP earnings per share in the period.

Speaker #6: All of which were above the high end of our guidance for the quarter. We also delivered $11.5 million of unlevered free cash flow in the quarter and over $57 million on a trailing 12-month basis.

Speaker #6: Turning to our results in more detail, revenue of $60.8 million was above the high end of our guidance. While this represents a 5% decline year over year, it also demonstrates modest sequential growth over Q1 in total and subscription revenues.

Speaker #6: Subscription revenue declined 6%. While the second quarter is one of our smaller renewal periods, we are encouraged as we did see a modest improvement in renewal rates compared to our expectations for the quarter and when compared to recent periods.

Speaker #6: And we saw continued growth in our professional services revenue, which was up 46% year over year in the quarter, helping to partially offset subscription revenue pressures.

Speaker #6: And within our revenue results for the quarter, we have a full quarter of revenue from our data partnership that was launched earlier this year.

Speaker #6: The partnership contributed a couple points of growth to overall revenue in the quarter, and as a reminder, that's a multi-year agreement, so we will continue to benefit from the partnership through 2027, but we'll anniversary its initial contributions in early 2026.

Speaker #6: Moving on to adjusted gross profit, which was $50 million, and down 6% from Q2 2024. As a percentage of revenue, the adjusted gross profit margin of 82% decreased approximately 110 basis points from Q2 2024.

Speaker #6: This reflects the decline in revenue and the largely fixed nature most of our current costs. We previously spoke of an expectation of a one-time credit of approximately $1 million in the second quarter, associated with the renegotiation a data agreement.

Speaker #6: We ended up with just under $2 million of one-time credits within COGS in the quarter. Contributing to the profit beat above our expectations. Adjusted EBITDA of $18.7 million was also above the high end of our guidance and represents a 31% margin.

Speaker #6: As expected, this is down year over year, reflecting the flow-through from lower revenue but we're maintaining disciplined expense management while continuing to prioritize key strategic investments to position us for an eventual return to growth.

Speaker #6: Turning to cash flow, our business continues to generate strong free cash flow due to our high margin model upfront billing and low capex requirements.

Speaker #6: Operating cash flows were $62.9 million on a trailing 12-month basis, up 40% from the comparable period a year ago, as we benefited from strong collections and higher deferred revenue related to the data partnership entered into at the end of Q4.

Speaker #6: On a trailing 12-month basis, we generated over $57 million of unlevered free cash flow. Our conversion rate of adjusted EBITDA to unlevered free cash flow was 80%, which is down about 15.0 over year on a trailing 12-month basis.

Speaker #6: This decline reflects higher than normal capex related to one-time investments. Excluding capex, the conversion rate is up year over year. This cash generation provides flexibility to continue investing for growth while returning capital to shareholders as evidenced by our urchase of approximately $6 million shares in the quarter for about $19 million.

Speaker #6: That leaves $58 million remaining under our share repurchase authorization. At the end of Q2, current remaining performance obligations of $170 million were about flat year over year as reported.

Speaker #6: Total remaining performance obligations were up 1% year over year and deferred revenue of $101 million was up 5% year over year. We delivered a solid performance through the first half of the year and we exceeded our guidance range on top and bottom lines again for the quarter.

Speaker #6: As we look ahead, we continue to be impacted by the pressures on renewals and remain cautious about the macro environment. For the third quarter, we expect to deliver $59 to $60 million in revenue, a decrease of 4 to 6% compared to the third quarter of 2024.

Speaker #6: At the midpoint of the guide, subscription revenues declined 6%, similar to what we saw in Q2. And at the upper end of the guide, the subscription revenue trajectory improved modestly to a 5% year over year decline or about flat quarter over quarter in absolute dollars.

Speaker #6: From a non-GAAP profitability perspective for the third quarter, we expect to deliver adjusted operating income of $12.5 to $13.5 million dollars, adjusted EBITDA of $15.5 to $16.5 million dollars, reflecting a 26 to 28% adjusted EBITDA margin, adjusted net income of $7.5 to 8.5 million dollars or approximately 5 to 6 cents per diluted share on $146.1 million weighted average shares.

Speaker #6: Our third quarter expectations paired with our solid performance through the first half of the year gives us the confidence to further improve our full year guide on both revenue and non-GAAP profit.

Speaker #6: We now expect to iver revenue of $237 to $240 million dollars for a 5 to 6% decline year over year. This raises the bottom end of our prior range by $3 million dollars while holding the upper end of the prior guide.

Speaker #6: And we are in a position to take up the non-GAAP profit guidance for the year. We now expect adjusted operating income of $52 to $55 million dollars, adjusted EBITDA of $64 to $67 million dollars for a full year margin of 27 to 28%, adjusted net income is expected to be between 32.5 to 34.5 million dollars and earnings per share are now expected to be 22 to 23 cents on a basis of $147.9 million weighted average shares outstanding, which incorporates the share repurchase activity through the second quarter.

Speaker #6: I'd like to wrap up by reiterating that we are pleased with our performance through the first half of the year and remain focused on our key operational and strategic objectives focused on improving retention, returning Definitive to growth, and increasing long-term shareholder value.

Speaker #6: And with that, I would like to open it up for questions.

Speaker #2: If you would like to ask a question, please press star 1 on your phone now. You will be placed into the queue in the order received.

Speaker #2: Please be prepared to ask your estion when prompted. And please keep those keep and please keep to one question and one follow-up question. Once again, if you would like to ask a question, please press star 1 on your phone now.

Speaker #2: And our first question comes from Craig Hettenbach from Morgan Stanley. Please go head, Craig.

Speaker #7: Hi, this is Jay on for Craig. I'm wondering what are you seeing in the sales cycles for your biopharma or healthcare provider clients have timelines in those segments changed compared to earlier in the year?

Speaker #7: Are you showing signs improvement or lengthening? Thank you.

Speaker #8: Yeah, we're eing I wouldn't say there's been any significant change from last quarter. especially life sciences, which is still, experiencing some, latency. We're still seeing more RFPs and the time to decision is still elongated.

Speaker #7: Thank you. And, are there anything in the macro trends for like healthcare providers consolidations, or payer-provider dynamics that's influencing your go-to-market strategy?

Speaker #8: Well, while we're eing continuing pressures across the board, and this is, of course, due somewhat to the current funding environment, interest rates, regulatory uncertainty, which all seem to have a cooling effect on buying decisions and the evaluation timeline.

Speaker #8: We're still focusing on, and that introducing that introduces a little bit more a little bit more of environmental macro environmental volatility. We're really just focusing on what we think we can control.

Speaker #8: And that's ensuring the highest quality data, we're focused on building out our integration capabilities that will power our master data management strategy. We still need to be relentless on our focus on customer satisfaction.

Speaker #8: And powering our digital audience activation is an extension of our product offering. The rest of it, we just have to let the macro environment settle, which we're confident will.

Speaker #8: And in the meantime, what we're focusing , we we feel is going to produce the results that we hope to see soon.

Speaker #2: And our next question comes from Alan Lutz from Bank of America. Please go ahead, Alan. Hello, Alan. Are you ed? Are you ? Okay, we'll move .

Speaker #2: Our next question comes from David Grossman from. Please go ahead, .

Speaker #9: thank you. good afternoon. Just, you know, curious on just a couple of follow-ups to your prepared remarks. you know, obviously, you you talked about or some encouraging signs, I guess, on the retention side.

Speaker #9: And I know this isn't a huge renewal quarter, you know, that being said, you know, are you seeing anything in particular in terms of what you've done and what you've changed?

Speaker #9: You know, is favorably impacting the retention rate?

Speaker #8: Yeah, so David, you ow, as as we did mention our prepared remarks, the Q2 renewals were the strongest levels we've seen in in over a year.

Speaker #8: We do believe that it was in large part due to our primary focus and it's good to see those results. And that we saw that strength across both diversified and our life science segments, which those two end markets make up nearly 90% of our annual recurrent revenue.

Speaker #8: So while this is encouraging, we're only remaining cautious because Q2 is a lower volume renewal period. But nevertheless, we see it as a positive sign that our ational changes indicate that we're ing impact and reinforces our belief that we're going to ain traction there.

Speaker #8: some of that headwind dynamics that we've been talking previously, including the fact that, we're seeing a notable impact still in life science downsells, we we believe that our focus in some critical areas are are actually producing some good results.

Speaker #8: And I can maybe we can talk about the purely another question on that too. But, yeah, I think 's around the customer success focus that we started with.

Speaker #8: We've now moved into the commercial area. And we could probably get a little bit more into that if you'd e.

Speaker #9: Yeah, I guess I was just curious. I know you you mentioned specifically like seamless onboarding. You know, as being a big you know driver.

Speaker #9: I'm just wondering you ow are there anything any other dynamics in terms of you know the ay your contracting with the clients to get them back, you know whether it's you know a big change in the underlying product itself in terms of diversifying you know broadening the depth and breadth of the data set you mentioned that.

Speaker #9: I'm just trying to kind of see if we could hone in on maybe some of the more impactful changes?

Speaker #8: Yeah, so we know that our integrated customers renew at a substantially higher rate, approximately 10% higher. So it's pretty intuitive, right? Customers that have fully integrated your product into their systems of insight and system of record, are going to be happier, more engaged, and that's going to rease the likelihood of renewal.

Speaker #8: We've also made changes across talent process and visibility and maybe just to give a little more color around that. In talent, what we did is we've now invested in coverage over growth accounts which are our smaller accounts as well as our higher accounts which saw higher churn rates throughout '24.

Speaker #8: We refined our hiring process so that as our we've onboarded new customer success people, they've got better skills to match how we want to serve our ustomers.

Speaker #8: And we've changed our compensation structure to simplify the incentives around the impacts that they are driving, not activity, which we can directly correlate to GDR.

Speaker #8: And we think the compensation structure is driving the right behaviors. On process, we've ified core jobs to be done for each end market using those to drive customer conversations and ROI-type conversations and best practices.

Speaker #8: So we've created a business objective library so that we have a consistent understanding of those use cases and those are directly tied to the value that we're ivering to the customer.

Speaker #8: That's actually helped to improve significantly our resolution time of open tickets. We've aligned our analytic team resources to support our more complex claims analysis.

Speaker #8: And we've introduced a pilot program with executive sponsorship for our largest diversified customers so that we can actually have more customer intimacy with higher touch and higher value assets.

Speaker #8: Lastly, on visibility, we've basically have put into place now a much more rigorous internal process around upcoming renewals so we're out in front of that so that we're more disciplined on engagement and forecasting multiple quarters in ahead as opposed to what was historically done you know in quarter, which makes it a lot harder to affect changes.

Speaker #8: And lastly, a lot of the movement that we've brought in with some of the new talent has brought in an a significantly increased measurement, reporting, and engagement around the onboarding help and I expect that that is going to continue to progress now with the with the introduction of the new chief commercial officer, which we're now bringing similar focus to continue what we've ready been able to operationalize over the last nine months with even more more rigor.

Speaker #8: So hopefully, David, that gave you a little bit more color.

Speaker #9: No, very pful. I'm just wondering whether any of these operational changes, any chance that that the renewals that typically come in December and January may come earlier in the cycle?

Speaker #8: It's a good question. And we are focusing on larger, higher-value renewals that we can bring into that process and conversation earlier. Because as we've said before, really our you ow end-of-year Q4 and first quarter, especially January and December, are very important months for us.

Speaker #9: Right. And just one last question with really a maybe Casey for you. I'm looking at you know CRPO usually is seasonally down sequentially. In the June quarter, is my recollection, you know just because maybe the timing of renewals, etc.

Speaker #9: So you know just thinking about that number, did it come in more or ess kind of where you thought it would come in you know given where we you know where we were at the end of March?

Speaker #6: I think CRPO came in roughly in line with our expectations, maybe slightly better given the performance on renewals. Because we certainly were not expecting the level of improvement we saw in the second quarter.

Speaker #6: So as we mentioned, that certainly leads us encouraged. I think the other element to look at when you're taking a look at CRPO is I don't know if you've called in prepared remarks, but we mentioned that the data partnership is contributing about two points of revenue growth.

Speaker #6: To our revenue results within the quarter, now that it's fully ramped, the data partnership has an impact on CRPO as well. So that's not necessarily going to be something that's going to rive a sequential element there.

Speaker #6: But the printed CRPO was flat year over year. But CRPO has a smaller base than our annual revenue. So the data partnership is actually having a larger impact than more than just of more than just a uple of points on CRPO.

Speaker #6: So I think that you know given that it is our best leading indicator, but it is imperfect, I think 's important to look at it with that that associated commentary attached.

Speaker #6: But obviously, you know with the second half ahead of us, we're ocused on continuing to drive progress. And it's also associated with data partnership.

Speaker #6: It's a multi-year agreement. So while we'll wrap an anniversary on the initial list that we're getting in revenue and its contribution to CRPO, it will remain in the base for the next couple of years.

Speaker #2: And our next question comes from Alan Lutz from Bank of America. Please go ahead, Alan.

Speaker #10: Hi. This is Hannah Leon for Alan Lutz. You talked a bit about seeing traction with agencies and some have started to activate campaigns. Are these contracts expected to come on like towards the end of 2025 or is this more going be in 2026?

Speaker #10: And are these agencies primarily working with pharma clients or are these agencies typically span across different industries?

Speaker #8: Yeah, so Hannah, let me let me answer that first with you know as we referenced in our prepared remarks, we see digital as the logical next step for our businesses and association to our existing data assets.

Speaker #8: And it might be helpful as I talk about the agency component to just give a little bit of context around what digital activation means for us in both the direct as well as agency context.

Speaker #8: So our customers today already rely us for insights through our data. And they often use those insights to inform how they're going to target a potential customer or audience.

Speaker #8: We already had built purpose-built technology in our provider segment. And we're actively investing to expand that capability to all so that we can deliver this whether directly or through agencies.

Speaker #8: So I'd note that our effort here is proceeding as planned. And it's a relatively straightforward opportunity in that we provide already greatly differentiated data that can be directly activated by the customer either through us, through Google, HubSpot, or live ramp as examples.

Speaker #8: Or through their agency of record, which is what a lot larger biopharma customers would prefer to do. And so it enables us to not only reach our existing customers that might already have an agency of record to enable that, but it also reaches prospective customers that need access to our data that we may not have a ationship with yet.

Speaker #8: And so enabling those agencies directly with our data is well underway. And what it does is, in essence, pre-positions the data in audiences that allows the agency, depending on what that use case or audience need is, to just simply provision that.

Speaker #8: So it's a little less predictable because you're, in essence, you're relying the agency to activate those campaigns over time. But once it scales, it becomes a kind of a volume play.

Speaker #8: And we expect to start to see that play into the fourth quarter and really start to pick up into 2026.

Speaker #10: Got it. Thank you. That's helpful.

Speaker #2: And our next estion comes from George Hill from Deutsche Bank. Please go head, George.

Speaker #11: Yes. Thanks for taking the question. Kevin, if I try to compare to like the decline in enterprise customers versus the decline in revenue, and the decline in earnings, I guess can you k about how you think like what I would call the retention component versus the wallet share or dollar retention component?

Speaker #11: And really what I'd be interested in hearing you talk about is kind of how like that looks like 's improving pretty well and kind of are the expectations that that trend can continue to improve through the balance of the year and into 2026.

Speaker #6: Hey, George. It's Casey. 'm actually going to take that one if you don't mind. You know, as we're looking at the modest decline in the enterprise clients, there's a couple of different dynamics going in there.

Speaker #6: Some that decline is actually driven by the downsell dynamic that we've talked about for a couple of quarters now. Within life sciences, where you've got clients that previously were spending 100K, now aren't.

Speaker #6: So that contributes to it. So it's really necessarily a full set of client losses. And you know, we did actually add $12 brand new enterprise clients within the quarter.

Speaker #6: So it's a little bit difficult to kind of look at that as kind of standalone metric. You know, I think as we take a look at a net dollar and gross dollar retention metrics, you know, certainly it's not something that we guide explicitly on.

Speaker #6: But given what we're seeing right now, we do expect net dollar retention to decline year over year as we continue to face some pressures.

Speaker #6: While we're making progress from a gross dollar retention perspective and we're seeing that within our renewal rates, I do expect the gross dollar retention to improve year over year.

Speaker #6: And that's a direct result of the actions that we've been taking really being operationalized throughout the business and seeing the improvements. Within the net dollar retention space, what we're seeing play out a little bit is some upsell pressures again within the life sciences space.

Speaker #6: Creating a little bit of downward pressure there. So a couple of moving pieces and dynamics going on. But you know, we're remaining focused on driving those near-term operational improvements.

Speaker #6: And trying to make progress against our four pillars. And obviously, as Kevin mentioned, we've got those key renewal periods coming up towards the back end of the year that are going to be ally important in setting that '26 trajectory.

Speaker #10: Casey, that's a great point. I kind of had mind blanked on the downselling perspective. If I could have a quick follow-up. But Kevin, one of the things I was thinking about was organization size.

Speaker #10: And you ys have kind of shrunk the business from an operating perspective as the market retrenched. I guess do you guys feel like you're right-sized now as the business seems poised to stabilize a bit?

Speaker #10: It looks like the Q4 exit run rate versus Q3 seems pretty flat. Do you feel like you're right-sized if the market were to rebound?

Speaker #8: Well, I hope you can see in the results one the things that we are really very laser-focused on is we want to be efficient stewards of capital and we want to ensure that we have as much predictability in the forecasting that we can share with you as possible.

Speaker #8: And we are looking to maintain our margin as you know that we can operate this business effectively. In short term, as we really start to look at where we're esting around our digital audience and activation, we're looking at some new areas that we think we can really drive value going into next year.

Speaker #8: We've got our integration effort, which is really ramping. And we can talk a little bit about that as far as how we're bringing it into the workflows and systems of insights and our data mapping and our mastering of data and our advanced analytics team.

Speaker #8: We want to be sure that we are using our resources effectively and efficiently, which could mean we have to redeploy them. But we are keeping an eye to ensure that we're delivering it the most effective way as possible.

Speaker #8: And if for whatever reason, certain avenues that we're pursuing are not as fertile, then we will certainly make the appropriate operational decisions that we need.

Speaker #6: Yeah. And I ink that's one of the things that we've extremely focused on is making sure that we've got the optionality with the business and we've got the ability to pivot and make decisions to be reactive depending on how the top line is really shaping up.

Speaker #6: So that's reflected within our guide in the second half of the year. And it certainly is too early to guide on anything for 2026.

Speaker #6: But that is kind of the thought process in terms of how we're approaching our planning for 2026 currently. You know, given where we are in the year, we're going through that planning cycle right now.

Speaker #6: And you know, we've a number of good ROI projects being evaluated. And we're assessing varying levels of investments you know across management and live discussions with the board.

Speaker #6: So as we firm up and lock in any of those decisions, we'll ide more color around our '26 expectations as we go through the remainder of year.

Speaker #2: And our next estion comes from Brian Peterson from Raymond James. Please go ahead, Brian.

Speaker #12: Hi. Thank you for ing the question. This is actually Jonathan McCarry on for Brian. So I wanted to touch on the boomerang customers and competition.

Speaker #12: It was good to hear about the digital health org that came back and then the head-to-head bake-off when that you mentioned, Kevin. So I wanted to ask about if you're seeing boomerang customers emerge as a broader trend.

Speaker #12: And then just see if there has been any change in the competitive environment or any change in what you guys are typically coming up against or what you're displacing?

Speaker #12: Thanks.

Speaker #8: Yeah, so James, it's the competitive vironment, as I mentioned, I think earlier, we haven't really seen a major shift. But we're seeing really two different sort of situations.

Speaker #8: There's the top end or the higher end market. We are competing with integrated software platforms that primarily are looking to sell SaaS software. And they do include devalued data as part of it.

Speaker #8: Which we believe we have a very good right to win with our differentiated data significantly better data in many cases. And for those customers that need accuracy and they need high veracity, of the data, we find our right to win there very, very compelling.

Speaker #8: Part of the integration strategy is to ensure that we integrate with the systems record and systems of insight agnostically so that the customer can actually use the data and consume it in the most effective way.

Speaker #8: And then at the lower end, we are still seeing quite a bit of what I would call point solutions that are relatively small and scale often.

Speaker #8: And they compete on price. And we, as I've said before, and it has not changed since I started, we don't believe that competing on price is a long-term strategy that will maximize value for our shareholders.

Speaker #8: And we are going to compete on quality and service. And we like our chances there. Although it does actually have some volatility and occasionally you will have customers that will go for the low-cost leader, then they've experienced it, the value is not there, and they've come back.

Speaker #8: So I ink a lot of the boomerang aspect of it is typically when we may have lost something occasionally on price or there's been pricing pressure to move away.

Speaker #8: But we also see it at the top end too. Because you may have integrated data as part of a software solution, but if you need accuracy and you need the right data at the right time at the right place, you ow people will pay for that.

Speaker #8: And so I feel very good that having that quality and service as your lead value proposition is is a winning long-term strategy.

Speaker #2: Thanks, Kevin. And our next estion comes from Joe Ruing from Baird. Please go ahead, Joe.

Speaker #13: Hi, Greg. Thanks for taking my questions. Kevin, I think you were going to here several questions ago. But the focus on stemming the downsells in life sciences is that related to the higher touch delivery model for those customers you've mentioned in the past?

Speaker #13: And just given the current state of macro for biopharma, is receptivity to higher touch changing at all?

Speaker #8: Yeah, I think the in particular life sciences and in biopharma, that we do see often that those customers in particular need attached services. They need tech-enabled services.

Speaker #8: They need the data. They also need data science assistance with it. And they need higher integration. So the two-pronged approach that we have: one is we've got our services, and by the way, we know that once they've adopted it and we've helped them do that, they're going to retain. We know from the data that they're going to renew at a higher rate.

Speaker #8: And so our focus on master data, which what that really means is matching a pen services that link our customers' data to an often leveraging the DHID or our token for account to contact to people.

Speaker #8: That helps them create master files that link our differentiated data to their first and third-party data to create those complex data relationships and hierarchies which are so valuable.

Speaker #8: And then by helping to effectuate the ease data sharing across systems of records and insights, and that can be through you know ETL, extract, transfer, load, SFTP, S3 Snowflake, Databricks, those are just examples.

Speaker #8: By making that really easy and assisting with that integration directly to those systems, you've sort of moved from just being a data vendor, you become a thought partner and you become a you know an analytics and insight unlock for them.

Speaker #8: And we've actually gone out into the market earlier in the year, or last year actually, and secured additional tools that would allow us to bring in consumer intelligence on individuals, more contact data, providing additional tools for that enhanced matching of pen services.

Speaker #8: That helps us map things like physicians to consumers and gives us those advanced matching capabilities, which we know takes us up a notch and allows us to be significantly more integrated, not only as a data provider but in helping them within their data workflow and the data lake.

Speaker #8: And that is probably a lot there that I just kind of touched upon. But I hope that it's sort of intuitive that if you're not only providing the data, but you're also providing those higher-end data science and analytical matching assistance along with the data, you become a much, much more valuable partner. We know the renewal rates are following along with that too.

Speaker #8: We think we can drive those integration not only integrations higher, but we know that we can drive the renewal rate based on those ations even higher based on the type of actions that we're taking e.

The back half of the year, um, but I, I did mention earlier that we're seeing some upsell pressures within Life Sciences, um, which really is an extension almost of the, the downsell dynamic we've been talking about is, uh, that life sciences pipeline. Um, from an upsell perspective is a looking a bit more challenged in in the back half of the year. Um, but to Kevin's Point that's why we're taking all these actions in order to help address. You know, how we're serving these clients including some of these attached Services place

At this time, we have no further questions. So this now concludes today's conference call, we want to thank everyone for attending. You may now disconnect and have a great rest of your day.