DH - NASDAQ

Welcome to Definitive Healthcare's Q4 2024 Earnings Call. [Operator Instructions] I would like to now turn the call over to your host. You may begin.

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

Thanks, Matt, and thanks to all of you for joining us this afternoon to review Definitive Healthcare's Fourth Quarter 2024 financial results. We continue to make important progress on several fronts. On today's call, I'll provide an update on that progress and outline the areas where we have more work to do and share some content about how we are thinking about 2025. Let me begin by reviewing our financial results for the fourth quarter, which were above the high end of our guidance ranges for both top and bottom line. Our total revenue was $62.3 million, down 6% year-over-year. The decline in revenue reflects the cumulative impact of the customer retention challenges we experienced throughout the year. Adjusted EBITDA was $17.5 million, down 12% year-over-year and adjusted EBITDA margin was 28%, which remained strong as we effectively balance the need to invest growth with the current decline in revenue. Unlevered free cash flow performance was also strong with 92% conversion from adjusted EBITDA up 6% year-over-year on a dollar basis. From an operational perspective, we are still experiencing mixed results but with signs of progress. Positively, we executed on securing new business in the quarter, both in terms of new logos and upsell/cross-sell activity with existing customers. We believe the ability to win new logos across each of our target end markets is an important validation of Definitive's value proposition and a reflection of the increased focus we have brought to bear on execution in this important area. We are committed to building upon the success throughout 2025. On the other hand, churn remained elevated and was unfavorable compared to Q4 2023 and after having shown improvement over the first 3 quarters of the year. It's important to note that much of the churn we experienced are downsells, not lost clients. While churn rates remained elevated, we continue to believe we can improve those over time. The fact that we are retaining many of these customers in some capacity demonstrates they continue to realize business value and that provides the opportunity to expand with them in the future. Improving our renewal rates remains the highest priority for the business and is essential to returning the company to growth, and therefore, we are aligning our operational and strategic focus on impacting this critical area. As mentioned, our continued focus on new logo growth in Q4 has produced some positive results, and I'd like to highlight a couple of new logo wins. First, a behavioral and mental health screening company is leveraging our reference affiliation and claims data to identify and build stronger relationships with the right doctors and practices. They've also helped create an AI-powered tool that uses our insights and data to compare physician prescribing habits, helping health systems improve both care and drive growth. Next, a leading U.S. supplier of industrial, medical and specialty gases chose Definitive to gain insights into complex IDN hierarchies, identify high-volume facilities, navigate the health care RFP process and expand into new markets like surgery centers and post-acute facilities. This partnership also helps them connect with key nursing, procurement and purchasing executives at both the facility and GPO distributor levels. Turning to the operational update. Last year, when I was new to the role, I told you that I had found our data to be of high quality and differentiated. I also observed that I had found our team to be comprised of talented and dedicated individuals focused on our customers with solutions that address critical business needs. Now 6 months into the job and at the start of the new year, my confidence in those initial findings are reinforced, but I have now had the experience of the past several months on the job, which has improved my insight into our remaining gaps and a more informed perspective on the key operational priorities for 2025. Additional changes are needed to simplify and further align our efforts across both sales and customer success and continue to make it easier for our customers to access and leverage the full capabilities of the Definitive platform. To that end, several initiatives are underway, including combining our med device sales channel into our existing biopharma team for a more focused and coordinated life sciences distribution channel; integrating our customer success and value delivery teams and aligning their compensation incentives with sales, which we believe will improve our pre- and post-sales efforts and drive more effective customer onboarding; and given the criticality of our focus on retention, we have augmented our leadership team with a new chief customer officer reporting directly to me to oversee this combined functional team; and we have centralized our analytics and data science capabilities into a center of excellence to provide more robust customer support, onboarding and attached services for improved customer intimacy. Taken together, we believe these changes will make us more responsive to customer needs and increase the value we deliver. The net result is that while we are making steady progress, it will take longer than originally anticipated for the business to start realizing the positive benefits of all of the changes being made across the business. While we have accomplished much in a short time, more remains to be done. Our focus going forward will be to build upon this initial success and develop a repeatable, predictable cadence in our go-to-market and product development efforts in each of our core customer verticals. I will continue to update you on our progress and how this will impact on our value proposition and our customer needs as we progress throughout the year. We are focused on 4 key pillars of our platform and value proposition: differentiated data, data delivery and integrations, driving customer success and enabling our customers' digital engagement with providers and consumers. How we manage the business and make investment decisions must orient around how something will positively impact the business across 1 of these 4 dimensions. Our core value proposition is built upon differentiated data. This is our foundational strength, and we are widely recognized for having the best data in the market. We are always investing in ways to expand and strengthen our data sets. As we look ahead, in addition to continuing to invest in and strengthen our foundational data set, a big part of our focus is on helping our customers leverage and act upon this highly valuable data by investing in other of the 3 core pillars. One area we are increasingly focused on is finding ways to enhance our data delivery and integrations to make it simpler for Definitive to be part of a customer's workflow in new and enhanced ways. For example, in a large fourth quarter customer arrangement, one of the world's leading business data and analytics company selected us based on the high quality of our data. They are also providing us with several solutions that will enhance the quality of our data and provide access to critical components of a complete master data management or MDM solution. We believe having a robust MDM capability that enables customers to integrate both first-party and third-party data with the Definitive platform strengthens the quality of our data and makes our solution stickier. This is a textbook example of the types of partnerships we intend to pursue that enable us to work with our customers in a more sophisticated manner based on their choice of engagement with us. We're also currently working with a large pharmaceutical company that is leveraging our data, along with their own internal and third-party data inside a robust MDM system they have built. They are using this integrated data set to develop a sophisticated patient and provider segmentation machine learning model, along with next-best action program to support the launch of a new pain medication. This initiative allows and enables a continuous learning model to identify high-potential health care organizations and optimizes field and commercial activities such as territory sizing, targeting, dashboard development and ad hoc queries. Definitive not only provides critical data and services to enable this integration, but our expertise also increases the value the customer derives from their existing platform investments. Another area where we are investing is to better enable customer success. It has become clear that what our customers need to be successful is not the same within each of our end markets. We need to have a more sophisticated and nuanced segmentation approach to how we service and target our end markets. This includes how we price and package our platform for each respective segment. For example, the needs of a life sciences customer is very different from that of a provider or diversified customer, and our platform and distribution needs to reflect this reality. Life science customers need to manage many different data sources and it is essential that we make it seamless for them to integrate their data with our data, which is another example for why we are enhancing our MDM capabilities and strategy. As we go through the year, we will continue to update you on our progress enhancing our customer success process to meet the specific needs of our different end markets, and it is important to note that this capability is not a new one. We already provide rich services to our customers and are simply looking to do more of this for our customers. Another more complex illustration of the power of our domain expertise is a global pharmaceutical customer that needed to provide their internal users with a 360-degree view of their customers and prospects. They expect that this will improve the efficiency of their marketing and sales efforts. To do this, we leverage the Definitive ID as the token for a pending HIN, the health industry number, a unique identified number for the health care supply chain entities; and GLN, global location number, a unique 13-digit code identifying business and legal entity location with their own internal customer account records. This was critical to track purchasing contracts and match to the IDN or the individual unique identifier; and the GPO, the group purchasing number, relationships. DH created the leveled hierarchy file based upon the purchasing power of each GPO network and facility allowing for more effective management oversight and business intelligence. We believe there is a significant opportunity to help diversified and provider customers engage with the physicians and consumers they are trying to directly target. These end markets are more focused on the ability to act based on our data and measure the results. Let me give you an example. Today, we provide customers a verified and up-to-date set of deep provider contact and affiliation data relevant to specific sales or product development outcomes that the customer is trying to drive. However, once we provide that data, it's up to the customers to initiate contact and carry the ball the rest of the way. Now imagine if Definitive were able to drive actions to directly engage our customer's customer, providing a faster and more effective outreach campaign. We have had this digital activation capability since acquiring Populi, but today it is a small and narrowly focused on the provider market. Over the course of 2025, we expect to build upon this capability and expand our digital activation engagement across the entire business. The common thread in each of these examples is that we are focusing on ways to make our platform more actionable and easier to incorporate into our customers' business workflow. These efforts are expected to increase our value proposition and make our business stickier. We believe that this will open new sales opportunities and should begin to alleviate the ongoing pressure on churn. We continue to believe that Definitive Healthcare can be a growth company in the long term. While fully acknowledging that it is going to take longer to reach stability and ultimately return to growth that we thought 90 days ago, we still think the fundamental opportunity is the same. We have confidence that we have identified the areas of operational focus that will positively impact retention and support continued success in new logo acquisition. We believe the simplified go-to-market motions will enable us to better deploy our enterprise resources efficiently and effectively for new logo acquisition, existing customer expansion and value delivery. I look forward to updating you with more details on these changes in the near future. I would like to finish by providing an exciting update on our senior management team. As mentioned earlier, we have augmented and expanded the leadership team with a senior chief customer officer as this is our most critical area of focus. We will also be announcing the addition of a new head of engineering, technology and data strategy next week. And after a thorough search process, I'm pleased to announce that Casey Heller, our Senior Vice President of Finance, will assume the role of Definitive Healthcare's Chief Financial Officer effective June 2, 2025. We expect the transition from Rick to Casey should be seamless as she is already responsible for a significant portion of the company's financial functions, including all aspects of commercial and operational finance, FP&A and investor relations. In addition, Rick will continue to serve as CFO until early June to give us time to backfill Casey's current position and enable her to hit the ground running as CFO with a full team. I want to congratulate Casey on this well-deserved promotion, and I am confident she will excel in this role. We've worked closely since I joined Definitive, which has given me ample time to appreciate her outstanding commercial and analytical skills as well as the strong relationships she has forged throughout the company and with the Board. I will now turn the call over to Rick to cover our financials in more detail. Rick?

Thanks, Kevin. Before I get into the quarterly results, I'd like to congratulate Casey on her promotion to CFO. We hired her over a year ago with the view that she would be a successor candidate, and she's been an incredible partner during that time. I'll miss Definitive, but I'm also looking forward to some time off, and I know that I will be leaving you in good hands. Turning to business. I'll start with a detailed review of our Q4 results before finishing with our guidance for Q1 and the full year 2025. In all my remarks, I will be discussing our results on a non-GAAP basis, unless otherwise noted. In Q4, we are pleased to deliver above the high end of our guided ranges for the quarter and for the year. We remain focused on what we can control, and we continue to advance our efforts to operate more efficiently while also delivering innovation for clients. In the fourth quarter, we delivered $62.3 million of revenue, down 6% compared to Q4 2023; $17.5 million of adjusted EBITDA in the period, down 12% from the same period in the prior year. But adjusted net income and non-GAAP earnings per share each grew by 18% and 19%, respectively, over Q4 2023. And we generated $72.5 million of unlevered free cash flow on a trailing 12-month basis, which is up 6% versus the prior year. And for the full year, this resulted in 0.3% revenue growth and a 170 basis point expansion in adjusted EBITDA margin, thanks to cost controls implemented early in the year. Turning to our results in more detail. Revenue for the fourth quarter was $62.3 million, above the high end of our guided range and down 6% from the same period of the prior year. As expected, subscription revenue for the fourth quarter decreased by 4% from the same period of the prior year, while professional services revenue declined more significantly. The key driver of the revenue decrease is that renewal rates are not yet back to our desired levels, especially for our life science customers. We ended the quarter with 519 enterprise customers to find these customers with more than $100,000 in ARR. This was a decrease of 21 enterprise customers year-over-year and a decrease of 11 quarter-over-quarter. These customers represent 68% of our ARR and are a key focus of our go-to-market programs. Our total customer count, which includes smaller customers, was approximately 2,500 at the end of Q4 2024, down about 250 from Q4 of 2023 and down about 70 from the previous quarter as current conditions have disproportionately impacted smaller customers. Net dollar retention for 2024 was 90% for enterprise customers and 85% overall. Adjusted gross profit was $50.3 million, down 10% from Q4 2023. As a percentage of revenue, the adjusted gross profit margin of 80.7% decreased approximately 400 basis points from Q4 2023. This reflects the decline in revenue and the largely fixed nature of most of our costs. Adjusted sales and marketing expenses were $18.9 million, down 7% from Q4 2023. As a percentage of revenue, sales and marketing expenses were 30.4%, about 60 basis points lower than the prior year. For 2025, we expect sales and marketing as a percentage of revenue to increase approximately 150 basis points relative to the full year 2024 as a result of the revenue pressure. Adjusted product development expense was $7.3 million, down 8% from Q4 of 2023. As a percentage of revenue, product development expense was 11.8%, down from 12.1% in Q4 2023. We believe investing in our platform and using both existing and new data sets to launch or enhance multiple products is an efficient and effective way to increase the value we deliver for customers. We intend to continue prudently investing in the highest ROI opportunities on our long-term product road map, and we expect full year 2025 product development as a percentage of revenue to be up approximately 100 basis points compared to the full year 2024. Adjusted G&A expense was $7.7 million, down 10% from Q4 2023. As a percentage of revenue, G&A expenses were 12.4% of revenue, which is an improvement of 60 basis points compared to Q4 2023. We expect G&A expense as a percentage of revenue in 2025 to increase by approximately 100 to 150 basis points year-over-year. Adjusted operating income of $15.8 million was down 14% from Q4 2023. And as a percentage of revenue, adjusted operating income was 25%, down 250 basis points from Q4 2023 due to the revenue pressure in the period. Adjusted EBITDA was $17.5 million, a 12% decrease from Q4 2023. As a percentage of revenue, adjusted EBITDA was 28% of revenue down 190 basis points from Q4 2023, also reflecting our declining revenue. Adjusted net income was $12.6 million or $0.08 per diluted share based on 154.4 million weighted average shares outstanding in the fourth quarter of 2024. Turning to cash flow. Definitive Healthcare's high margins, upfront billing and low CapEx requirements provide substantial free cash flow generation. We focus on trailing 12-month cash flow due to seasonality. Operating cash flows were $58.2 million on a trailing 12-month basis, up 41% from $41.2 million in the comparable period a year ago as we benefited from strong collections and lower deferred commission costs. Unlevered free cash flow was negative $1.6 million in the quarter. This was due primarily to a onetime $10 million CapEx investment made in the fourth quarter related to the strategic data partnership that Kevin mentioned. On a trailing 12-month basis, unlevered free cash flow was $72.5 million, up 6% from the comparable period a year ago, and this is 92% of our TTM adjusted EBITDA of $79.1 million over the same time period. Within the fourth quarter, we repurchased approximately 1.6 million shares at an average price per share of $4.46 for a total of $7.3 million. This leaves $98 million remaining under the existing authorization. At year-end, current revenue performance obligations of $188 million were flat year-over-year as reported, and total revenue performance obligations were up 6% year-over-year. Deferred revenue of $93.4 million was down 4% year-over-year. Subsequent to quarter end, we amended and extended our existing credit facilities. To improve balance sheet efficiency, we reduced the term loan to $175 million and the revolving credit facility to $50 million, and we extended the tenor through January 16, 2030. After completing the transaction, as of January 31, we held $220 million of cash and investments and $175 million in total debt. Additionally, we executed an interest rate cap, protecting us against rate increases if SOFR rises above 4.5% on 80% of the balance of the term loan. If the SOFR rate drops below 4.5%, we would benefit from the lower rate. Full details are available in the 10-K. And then one final bit of accounting before guidance. The recent stock price decline caused us to book a further $97 million goodwill impairment charge as of December 31. And that write-down also generated approximately $11 million of gain on the remeasurement of the TRA liability and a $6 million deferred income tax benefit. As a reminder, these are noncash accounting charges, have no impact on our debt covenants and all impacts are excluded from our adjusted earnings. Moving now to guidance for Q1. After observing the continued pressure on renewals, we now expect total Q1 revenue of $55.5 million to $57 million, a decrease of 10% to 13% year-over-year compared to Q1 of 2024. One important note is that Q1 revenue includes only a partial quarter of revenue from our new data partnership. Although the deal was signed before year-end, the customers access began mid-quarter. In contrast, we will benefit from the full quarterly run rate for the remainder of the year, which we anticipate will improve the revenue trajectory in Q2 relative to Q1. From a non-GAAP profitability perspective, we expect Q1 to be the low point of the year for 2 reasons: first, because we expect to incur a full quarter of the data partnership costs despite only a partial quarter of revenue; and second, as in each Q1, we expect to experience an increase in payroll tax and other benefit costs associated with the start of the year. Taking these factors into account, in Q1, we expect adjusted operating income of $7.5 million to $8.5 million; adjusted EBITDA of $10.5 million to $11.5 million or a 19% to 20% adjusted EBITDA margin in Q1, adjusted net income of $3 million to $4 million or approximately $0.02 per diluted share on 153.3 million weighted average shares outstanding. For the full year 2025, we expect revenue of $230 million to $240 million for a 5% to 9% decline year-over-year. And within the year, we see Q1 as a low point and we expect that year-over-year decreases in revenue will moderate as we move through the year. For the full year, we expect revenue to increase in Q2 relative to Q1, in part due to having a full quarter of the partnership revenue mentioned previously and to increase further before the end of the year due to the seasonality of our professional services business. The high end of our guidance range assumes modest improvements in both renewal rates and sales productivity, thanks to our new data sources and enhanced service approach. While the low end of the revenue guidance reflects a scenario in which renewal rates continue to worsen from the low rates observed in the second half of 2024 while sales productivity trends are similar to those observed in 2024. The total revenue guidance decreases by more than cRPO, primarily because we have taken our recent renewal results into account. Both Q4 and January renewal rates were down year-over-year, and therefore, we assume an NDR in the low to mid-80s in 2025. From a non-GAAP profitability perspective, the largely fixed nature of our cost means that most of that revenue decrease will flow through and create negative operating leverage. So we expect sales and marketing expense of 32% to 33% of revenue, development expense of 11.5% to 12.5% of revenue and G&A expense of 12% to 13% of revenue. Translating that into dollars. In 2025, we expect adjusted operating income of $49 million to $53 million, adjusted EBITDA of $61 million to $65 million for a full year margin of 26% to 28%. Adjusted net income is expected to be between $30 million and $34 million. Earnings per share are expected to be between $0.19 and $0.22 on 153.9 million weighted average shares outstanding. This estimate does not contemplate additional purchases under the existing share repurchase program, but full execution against the remaining authorization would impact 2025 EPS by approximately $0.01. I'd like to reiterate that despite the top line pressures, we remain committed to non-GAAP profitability improvement through the year. We expect Q2 adjusted EBITDA margins to be stronger than Q1 and for adjusted EBITDA margins in the second half to be stronger than in the first half. So in conclusion, we're pleased to have delivered revenue and adjusted EBITDA above the top end of our guidance and increased operating and unlevered free cash flow generation versus the prior year. We remain confident that we're participating in a large and attractive market, and our strategy is designed to improve retention, return us to growth and to increase long-term shareholder value. And with that, I'll turn the call back to Kevin for a few thoughts before we take questions.

In tonight's call, we've tried to present a balanced view of the current conditions and our strategic intent in navigating those conditions. We are focused on 4 key pillars of our platform and value proposition that of continuing to strengthen our differentiated data, streamlining our data delivery and integrations, driving customer success in the way that customers want to engage with us and enabling our customers' digital engagement with providers and consumers. At the same time, we acknowledge that these efforts will take longer than I initially anticipated to implement and achieve their full effect. Throughout 2025, we intend to keep you updated on our progress in these key strategic pillars. And with that, I would like to open it up for questions.

[Operator Instructions] And our first question comes from Jared Haase of William Blair.

Jared, you there?

Yes. Can you hear me okay now?

Yes, we can, thank you.

Okay. Perfect, perfect. Great. So just wanted to double-click, I guess, first, on the churn dynamics that you experience into year-end. I guess just any more color you can share, maybe sizing or any directional commentary in terms of the magnitude of how that compared to the prior quarters in 2024? And then anything incremental in terms of what's really driving the downsells in particular? Is that still just the broader macro? Anything new in terms of those decisions? And then also, is that still concentrated to life sciences?

This is Rick. I'll provide the quantification at a high level and then Kevin will address more of the root churn -- the root causes and how we're responding. So first, absolutely, it's more of a life sciences challenge than the other verticals. Our fourth quarter churn was similar to our third quarter churn, but unfavorable when compared to the 2024 Q4. You see that we reported 85% NDR and that we're guiding to low to mid-80s NDR in the upcoming year because despite all of the actions that we're taking, we're not assuming their success in our guide. And Kevin, you can address more of the root cause and our responses.

Yes. So as Rick said, while generally challenging, it was definitely more pronounced in life sciences. I would also add that it was heavily impacted by downsells, not outright churn. So we do have some comfort in that our customers are still seeing value, which offers future ability to come back to them. And our efforts around that are really evolving as while our GTM has always been segmented based on product and end user, other areas were not. And different end markets have certainly different needs. Data and solutions need to reflect that and the reality with both pricing, packaging and how we support those customers. So the expectation here is as we are allocating our focus and resources with configurability in those end markets, we expect our consolidation around value delivery, the master data management, which I'm sure we're going to talk a little bit more about here in digital activation, and really increasing our integrations which enhances our customer intimacy, will improve our retention rates and will lead to success over time.

Okay. That's great. Appreciate that color. And then the follow-up that I had, just wanted to also clarify. I think recently, you've talked a little bit about seeing some elongation in the sales cycle. I guess in terms of the 2025 outlook that you provided here, are you assuming that, that elongation kind of persists? And is there any possibility of upside of seeing sort of quicker realization of deals if you see any favorable developments there?

Thanks for that question. Since it relates specifically to the guide -- this is Rick and I'll lay it out for you. I'm going to go into a bit more detail just because the seasonality of 2025 is more pronounced than we usually see. So Q1 is expected to be the low point of the year from a revenue perspective for several reasons: first, the volume of renewals in Q4 and early 2025 means that the churn dynamics that we just discussed had their biggest impact on Q1 revenue, and we recognized only a partial quarter of revenue from our new data deal despite incurring a full quarter of cost. So when you begin building out your models, you're going to see Q1 is a tough quarter. Now the good news is we expect revenue declines to moderate as we move through the year for 3 other specific reasons: one, Q2 benefits from a step up to a full quarterly revenue from the new data partnership. We expect, therefore, sequential growth in Q2 and revenue declines will be in the high single-digit range in Q2 and mid-single digit in the second half of the year. That is, in particular, because Q2 and Q3 have fewer maturing contracts, which mitigates the impact of churn and should allow new business and upsell to show their impact, and in the second half of the year our compares get easier. So we would expect the second half revenue declines to be in the mid-single-digit range. And then in the fourth quarter, we generally benefit from an increase in services revenue and the impact of churn in the quarter is minimized by the concentration of December renewals. And then finally, and sorry for a long answer to a short question, we believe that we're taking the right actions to improve our positioning, but those actions will take time to affect results and our guidance reflects the range of outcomes. The high end of the guidance range for revenue reflects modest improvement in renewal rates and sales productivity, thanks to our new data sources and enhanced service approach, while the low end of the revenue guidance range reflects a scenario in which renewal rates continue to worsen from the low rates observed in the second half of 2024 while sales productivity trends are similar to those observed in 2024. So long answer, but did that give you everything you need, Jared?

Our next question is from Allen Lutz of Bank of America.

This is Hanna Lee on for Allen Lutz. Could you share what's embedded in the outlook as it relates to new customers versus cross-sell and upsell opportunities? And are there any end markets or type of customers where you expect to see a faster recovery or opportunity for win backs?

We don't generally break out our guidance between new logo versus upsell. I would say that we've experienced recently stronger performance with new logos and a little bit more pricing pressure that's been impacting upsells. Anything you'd add to that, Kevin?

No, I think that's probably pretty accurate there.

And our next question is from David Larsen of BTIG.

Jenny Shen on for Dave. So we've heard some large pharma brand managers say that they plan to allocate more of their marketing dollars to physical in-person channels like sales reps again and away from digital channels now that COVID is largely over. Have you seen that dynamic at all? And just that's really asking more about the downsells. Is that pharma companies moving their budgets to other channels? Or are you hearing your discussions with clients as it being more of a not-now issue? And once they recover, they expect to bring those dollars back?

So I would characterize the question on shifting of dollars from digital to in person, in life sciences, for us, it's really primarily concentrated in there's a macro environment, which has remained relatively unchanged over the last 90 days. There is funding dynamics in place in general in biopharma and life sciences. And then our positioning in life sciences, in particular, and biopharma is we're more of a lagging indicator because our stage in market is really more around second stage. So that takes a little longer for that to show up. I think it's less pronounced for us in any kind of shift in budgeting and where they're positioning it around digital, although we do have plans and we're seeing it with our current digital activation customers, we are getting some traction there. And we have plans for that in other verticals as well. So I don't think that particular situation is impacting us in our life sciences business, but that's probably as best as I can answer that question.

Okay. Great. And if I could ask a quick follow-up. So a lot of the large CROs have come under significant pressure. Are the CROs your clients? And is your own performance related to theirs at all? There's been some pressure for, we've heard, earlier stage clinical trials. Has that impacted Definitive at all?

Again, we're not as oriented to first stage. So I think the short answer to that would be no.

Our next question comes from David Grossman of Stifel.

Kevin, I know we've already kind of hit the churn question a couple of times here already, but I'm wondering if you could maybe just provide a little more specificity around why clients are downselling. And then maybe you could relate that to some of the specific operational changes that you're making that, again, specifically address what you're seeing in the customer base and why they're either downselling or leaving?

Sure, David. So we're looking at this in how I would characterize this in 2 buckets. There are the things that we can control outside of any kind of macro or funding dynamics and that would be around areas that are already in motion around bringing together our kind of centers of excellence like we've done with the go-to-market already. You've got success in value delivery coming together in an integrated organization. We've changed the compensation plans for our sellers to also be correlated with the post-sales customer onboarding and success teams. We've got our centralized data science team now as we brought together our advanced analytics teams and -- across the organization and brought professional services and post-sales implementation and onboarding together under the new customer success officer. So when you combine all of those things, what you start to get is a more holistic view of the customer not only from an integration perspective, but that you're delivering what you've actually promised in a way that they expected. If you do that, your chances for having a happier customer that's delighted with the service and more on the renewal and they've extracted more value from it, even though they may be still getting some value, it's going to alleviate some of the pressure on the downsells. And so that's the first area that we're focusing on is really just kind of the operational execution around things that we do regardless of the macro. The second part of it, though, is now you have to look at it from your pricing and packaging perspective, and I alluded to that, Dave, a second ago in that end markets have different needs. And historically, while we've had our go-to-market organization segmented by vertical, we didn't necessarily have that across the board in supporting of those verticals. And so the expectation here is that having the right pricing packaging, resource allocation across that, especially even getting into, for example, the size of customer that needs a higher level of white glove service, that is how we're now deploying our resources against those customers that have both bought and also new customers that are onboarding. So through a lot of that, there's a lot there that I know I just covered, but that's how we expect to start to see the performance start to improve over time with just simply better allocation of resources that are segment and vertical appropriate.

So is it fair to say then that the product itself wasn't the issue in whether you're losing customers completely or downselling, it's just that the delivery of the product and the care of the customer and their ability to kind of derive all the benefits from the product probably wasn't as good as it could be. I mean, is that -- I know I'm paraphrasing a lot of stuff that you said and it's a lot deeper than that, but is that a fair characterization of what's been going on?

David, I think that like you did -- you obviously paraphrased it there, but when you -- what we did this time on the -- in my prepared remarks is I tried to give more than normal descriptions of the types of sophisticated solutions we're providing. We're actually helping our customers solve some very sophisticated and complicated problems. And when you look at what we're doing in our, for example, master data management solution post sale, we're helping with data mapping; data mastery; creating master files; developing the hierarchies of the data relationships across very complicated delivery mechanisms; ETL, extract, transform load. All of that, that's happening, you need to make sure that you're delivering that in a way that is delivering on not only the promise of what we've done, but if you're doing it in a much more intentional, coordinated fashion, that's how you not only extend the customer, but that's where the upsells come in and you find future and more things to do, which is what we're already doing. And so I know that's -- you had asked a relatively simple question, what I think is the optimistic side of this is when you look at the types of engagement that we have with our customers with master data management and digital activation, we're already doing that today. So that's kind of a theme that I really wanted to make sure we got out there is that when we talk about product, new sales motions and new interactions with our customers, we don't have to go out there and do anything, right? We've already got it. We just need to do it with more intention and we need to do it with more organizational design, which is what we're in the process of doing.

Got it. Great. And then I just have one follow-up maybe for you, Rick, that I'm not sure I heard you right, but it sounds like G&A as a percentage of revenue is going to increase more than product development and sales and marketing. And if I did get that right, what's the underlying driver of that?

Yes, you did hear that correctly and it's some expansion of the senior leadership team as we get later in the year. You've already heard about some of the new additions and so you'll see that impact in 2025. And then more broadly, if I can take the opportunity, I wanted to speak to the margin profile of the year as well. So you saw that we put out a wider range on revenue for the full year guide than we historically have, which acknowledges the increased uncertainty that we're facing. But we've kept a narrower view on profitability. That was intentional, and it underscores our commitment to profitability, our culture of discipline and our willingness and ability to adjust as needed depending on revenue performance. Overall, that discipline means that for the full year, the midpoint of our guide holds OpEx approximately flat year-over-year. And Q1 suffers from a lower margin than the rest of the year for 3 specific reasons: first, the biggest driver, of course, is the change in revenue caused by the churn dynamics that we discussed in Q4 and early 2025; second, normal Q1 increases in payroll and benefits expense associated with the start of the year; and third, the fact that we absorbed a full quarter of the cost of the new data partnership with only a partial quarter of revenue. As we move toward the rest of the year, we expect to deliver improving margins. There's 4 reasons for this: first, the revenue benefits we discussed earlier in which the rest of the year benefits from the full run rate revenue of the partnership, along with later renewal volumes that should allow new business and upsell to show their impact; second, we're rationalizing some of our third-party costs and should see benefits as early as Q2 with more to come later in the year; and third, we intend to adjust as needed as we continue through the year and have plans for the full range of revenue guidance. Taking all this into account, by the time we're in Q3 and Q4, we expect to be delivering $18 million to $19 million of adjusted EBITDA per quarter with Q4 margins at or above Q4 of 2024. I hope that gives people enough color to help them in modeling out the year.

[Operator Instructions] And our next question comes from George Hill of Deutsche Bank.

It's Maxi on for George. So we have been talking about the pressure from elongated sales cycles and elevated churn for a few quarters and you just mentioned some pricing pressure affecting upsell. Are you seeing any pressure on pricing among new prospects? And would you consider lowering prices as an option to drive growth in 2025?

I would say -- I think you said Maxi, price is always a factor, especially in a competitive environment, for sure. Interestingly, though, our average contract size actually has increased. So it's always a factor, but we are not and we do not intend to be a low price leader. We are not competing on price, we're competing on quality. We believe we have the best quality data. We're focusing more efforts on increasing and ensuring that our data quality remains best-in-class, and we are adding to that service.

And our next question comes from Brian Peterson of Raymond James.

This is actually Johnathan McCary on for Brian. So I wanted to ask on the macro trends outside pharma. We talked a lot about the retention dynamic in life sciences, but of course, Definitive caters to a broad swath of organizations that sell into health care. So just curious, how would you characterize the demand environment outside of pharma? And are some of those go-to-market initiatives applying across the customer base or is that primary in life sciences? Just kind of curious what you're seeing throughout other parts of the customer base.

Yes. So Johnathan, for sure. Yes, we are focusing -- I did focus a little bit on life sciences, but they're applicable to both. And the 2 primary initiatives that we've highlighted here in addition to just general execution and improved retention and value delivery efforts is really around expanding with more intentionality around the master data management, which is part of what we've gotten there, Johnathan, I want to make sure I'll just add on why we're focusing there. The partnership that we alluded to or that we talked about in our prepared remarks and Rick did just get into, we're getting several new components that allow us in that configurability aspect that I was talking about. We've got an identity graph that helps us with mapping of physicians to consumers. We've gotten a vast amount more consumer data, contact data, contacts and people, enhanced matching algorithms, which helps our Definitive ID and we have -- we're receiving, we've now been able to bring into the master data strategy our consumer intelligence component, which is more information on people. And so what that allows us to do, especially around digital activation, which we already have, people coming to us for our high-quality data, we've now allow them to actually execute on that and to leverage that for their digital strategies. And at the same time, through those hierarchies and extract, transform and load needs around creating and solving more sophisticated challenges in the back, which is definitely a part of what the life sciences world is looking at, but that also extends into providers as well. So for example, we had a customer in the provider space that -- just to give you -- to kind of highlight how this works, they needed to leverage the DHID and our expertise to create a centralized database for data purchases and routing all analysis, analytics and invoices through Databricks to create an aggregated claims view. And then from that claims view, they're able to refresh that regularly without having to do any kind of ETL processing and that became a much more effective and efficient way for them to do that without any human intervention. And that would be an area and an application that has nothing to do with life sciences, that's just sort of an efficiency and automation play in our more traditional and provider and diversified space. And so we are not only focusing on life sciences, it just happens to be one of the areas it has more of the elevated challenge. But we've got -- as you fix that, that allows us to start to grow in the other areas as well.

Our next question comes from Craig Hettenbach of Morgan Stanley.

Kevin, just building on the last comment around the provider market and then perhaps an update on Populi. Understanding that current conditions are difficult, what are you seeing in terms of opportunity set there? And anything else from Populi you're able to leverage more broadly across life sciences?

Yes. So Populi, Craig, is what is the new UI/UX, which we've talked about in the past, our single sign-on and the unification of our products through that front-end data visualization layer. And Populi is and remains that component in that configuration when needed. The change though is in addition to those that need to go through a user interface, there's also larger customers that prefer to just simply leverage their existing investment in other ways, including people that may have purchased through a CRM or some other platform, where we can actually help them as well through APIs and through master data. So Populi is critical in that small P platform strategy and that, that is our single sign-on, consolidated UI/UX visualization layer, which is absolutely critical, especially for people that are looking to do that through a direct interface. It's just that we're not expecting everybody to have to utilize that, and we've become more sophisticated in our ability to bring that in a configurable way. I hope that made sense.

Our next question comes from Jeff Garro of Stephens.

Yes. Maybe ask a little bit more about this new master data management deal and just that as a deal type in general to throw a few questions out there. Curious, how long that deal took to develop versus other deal types? How we should think about the pipeline for similar relationships? And how we should generally think about economics for these types of deals?

Yes. So Jeff, probably if I was going to give you, and I hadn't really thought about the length of time, it probably took about 90 days, I would say, give or take, from the beginning to the end. It is in line with something that we talked about earlier last year once I joined that in our go-to-market and product strategy that it was not always needs to be built here, that there is a way to accelerate your product strategy through strategic partnerships, especially in areas that you believe it's a radical acceleration in that. And that is, in fact, what we were able to do here, especially as it supports both digital activation and MDM. And the way I would think about that is if you're in the process and we -- again there are some examples in the prepared remarks that gave you some examples of the types of customers that we are helping there, you've got basically a simple enablement of their workflow. And one of the strategic assets that Definitive has is the Definitive Healthcare ID, which is the unique identifier that you can map not only Definitive data to, but also -- which we've done, but also first-party and third-party data. And that is the next evolution of this that is going to really allow us to do a lot more around the more sophisticated mastering of data. And so this is the first. We believe that there is more, and we are looking at partnerships, and strategic partners in particular, with intention.

And with that, I think we'll have to wrap this call in order to get on to our follow-ups. Thank you, everyone, for your time and attention. We look forward to seeing you in upcoming months as we travel.