DH - NASDAQ

Welcome to Definitive Healthcare's Q2 2025 Earnings Call. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host. You may begin.

Good afternoon. 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. 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 differentiated data and health care commercial intelligence solutions, our competitive position, customer behaviors and use of our solutions, customer growth, renewals and retention, our financial guidance our planned investments and operational strategy, 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 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. 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. Kevin?

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 from our second quarter performance and an update on our progress against our key strategic priorities for the year. Let me begin by reviewing our financial results for the second quarter, which were above the high end of our guidance ranges on both the top and bottom line. 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. 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. Adjusted EBITDA was $18.7 million, which was ahead of expectations and represents a 31% margin. This reflects good expense discipline and the scalable nature of our business model, 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 the business has increased. 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. 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. 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 of last year. 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. 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. 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. 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. I would now like to spend a few minutes providing an update on our 4 pillars to our platform and the value proposition that we believe are the keys to returning the business to improve top and bottom line performance over time. As you'll recall, the 4 key pillars of our platform and value proposition are differentiated data, data delivery and integrations, driving customer success and innovation initially through the enablement of our customers' digital engagement with providers and consumers. I would like to take a moment to provide an update on the progress we have made across each of these focus areas. 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. 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 health care marketplace. 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 of data we receive and addresses the challenges that have hampered this market over the past year. 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. 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. 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. 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. 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. 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. We are seeing early signs that this flexible approach is helping to drive both new business wins and improved retention. In the second quarter, we have seen increased customer wins where our enhanced data integrations were specifically cited as the reason we won. One example was a new customer win where we beat a competitor in 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 their workflows. Another example was a successful renewal of a customer that had long wanted more flexibility in how they work with our data, flexible and responsible engagement that meets our customers where and how they need us is proving to be a winning approach. We are also seeing clear signs of progress in our third pillar, customer success. Having now successfully operationalized the steps we took to streamline and deepen our customer engagement, our focus expanded to ensuring we are delivering a consistent, repeatable and proactive service. As noted earlier, we are seeing initial evidence our strategy is working through the improvement in our retention rate. The benefit of these changes we have made will take time to fully impact the business. A significant driver of successful retention began at the start of a new customer engagement with a seamless onboarding process, which leads to quicker time to value. 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. 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, 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 health care audience segments to enhance targeting and performance for their media campaigns. These segments built from de-identified data on health care 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. These segments enable more precise digital ad delivery to ensure that the right message reaches the right health care 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. 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. And as we've discussed in prior quarters, agencies are only 1 channel. We also work directly with clients. Our direct efforts are progressing, and we are winning business in this channel, including 4 major health care systems since we've increased our focus on digital. A key part of positioning the company for success is having the right team in place. Having just reached my 1-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. 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. One of our most recent additions is Tina Hannagan, 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. 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 9 months, this has allowed me to clearly understand the type of go-to-market leader that we need. Tina meets all of those needs, and I'm excited 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. This newly constituted team will lead us forward in our evolution. With that, I would like to turn the call over to Casey in her first earnings call as our CFO, to walk you through our financial results and guidance. Casey?

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. 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 4 strategic pillars. 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. 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 $0.07 of non-GAAP earnings per share in the period, 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. 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. 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. 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. 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. The partnership contributed a couple of points of growth to overall revenue in the quarter, and as a reminder, that's a multiyear agreement. So we will continue to benefit from the partnership through 2027, but will anniversary its initial contributions in early 2026. 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 '24. This reflects the decline in revenue and the largely fixed nature of most of our current costs. We previously spoke of an expectation of a onetime credit of approximately $1 million in the second quarter associated with the renegotiation of a data agreement. We ended up with just under $2 million of onetime 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. 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. 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. 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. 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 points year-over-year on a trailing 12-month basis. This decline reflects higher than normal CapEx related to onetime 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 repurchase of approximately 6 million shares in the quarter for about $19 million. 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. 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. As we look ahead, we continue to be impacted by the pressures on renewals and remain cautious on the macro environment. For the third quarter, we expect to deliver $59 million to $60 million in revenue, a decrease of 4% to 6% compared to the third quarter of 2024. 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. From a non-GAAP profitability perspective, for the third quarter, we expect to deliver adjusted operating income of $12.5 million to $13.5 million. Adjusted EBITDA of $15.5 million to $16.5 million, reflecting a 26% to 28% adjusted EBITDA margin, adjusted net income of $7.5 million to $8.5 million or approximately $0.05 to $0.06 per diluted share on 146.1 million weighted average shares. 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. We now expect to deliver revenue of $237 million to $240 million for a 5% to 6% decline year-over-year. This raises the bottom end of our prior range by $3 million, while holding the upper end of the prior guide, 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 million to $55 million. adjusted EBITDA of $64 million to $67 million for a full year margin of 27% to 28%. Adjusted net income is expected to be between $32.5 million to $34.5 million and earnings per share are now expected to be $0.22 to $0.23 on a basis of 147.9 million weighted-average shares outstanding, which incorporates the share repurchase activity through the second quarter. I'd like to wrap up by reiterating that we are pleased with our performance for 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. And with that, I would like to open it up for questions.

[Operator Instructions] And our first question comes from Craig Hettenbach from Morgan Stanley.

This is [ Jay ] on for Craig. I'm wondering, what are you seeing in the sales cycles for your biopharma or health care provider clients. Have time lines in those segments changed compared to earlier in the year? Are you showing signs of improvement or lengthening?

Yes, we're seeing -- 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 RPs and the time to decision is still elongated.

And are there anything in the macro trends where like health care provider consolidation or payer provider dynamics that's influencing your go-to-market strategy?

Well, while we're seeing 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 time line. We're still focusing on -- and that introducing -- that introduces a little bit more of a macroenvironmental volatility. We're really just focusing on what we think we can control, 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 and powering our digital audience activation is an extension of our product offering. And the rest of it, we just have to let the kind of macro environment settle, which we're confident it will. And in the meantime, what we're focusing on, we feel is going to produce the results that we hope to see soon.

And our next question comes from Allen Lutz from Bank of America. Okay. We'll move on. Our next question comes from David Grossman from Stifel.

Just curious on just a couple of follow-ups to your prepared remarks. Obviously, you talked about some encouraging signs, I guess, on the retention side. And I know this isn't a huge renewal quarter. That being said, are you seeing anything in particular, in terms of what you've done and what you've changed is favorably impacting the retention rate?

Yes. So David, as we did mention in our prepared remarks, the Q2 renewals were the strongest levels we've seen in over a year. We do believe that it was in the 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 2 end markets make up nearly 90% of our annual recurring revenue. So while this is encouraging, we're only remaining conscious because Q2 is a lower volume renewal period. But nevertheless, we see it as a positive sign that our operational changes indicate that we're making impact and reinforces our belief that we're going to gain traction there. Some of that headwind dynamics that we've been talking about previously, including the fact that we're seeing a notable impact still in life science down sells. We do believe that our focus in some critical areas are actually producing some good results. And I can -- maybe we can talk about the -- surely another question on that, too. But yes, I think it's around the customer success focus that we started with. We've now moved into the commercial area, and we could probably get a little bit more to that, if you'd like.

Yes. I guess I was just curious, I know you mentioned specifically like seamless onboarding as being a big driver. I'm just wondering, are there anything -- any other dynamics in terms of -- the way you're contracting with the clients to get them back, whether it's a big change in the underlying product itself in terms of diversifying or broadening the depth and breadth of the data set you mentioned that. I'm just trying to kind of see if we could hone in on maybe some of the more impactful changes.

Yes. 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 systems of record are going to be happier and more engaged and that's going to increase the likelihood of renewal. 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. 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 customers. And we changed our compensation structure to simplify the incentives around the impacts that they are driving, not activity. which we can directly correlate to GDR. And we think the compensation structure is driving the right behaviors. On process, we've identified core jobs to be done for each end market using those to drive customer conversations and ROI-type conversations and best practices. 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 delivering for the customer. 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. And we've introduced a pilot program with executive sponsored on our largest diversified customers so that we can actually have more customer intimacy with higher touch with higher-value assets. Lastly, on visibility, we 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 ahead as opposed to what was historically done in quarter, which makes it a lot harder to affect changes. And lastly, a lot of the movement that we bought in with some of the new talent has brought in a significantly increased measurement reporting and engagement around the onboarding health, and I expect that, that is going to continue to progress now with the introduction of the new Chief Commercial Officer, which we're now bringing similar focus to continue what we've already been able to operationalize over the last 9 months with even more rigor. So hopefully, David, that gave you a little bit more color.

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

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 end of year, Q4 and first quarter, especially January and December are very important months for us.

Right. And just one last question, really maybe, Casey, for you. I'm looking at -- yes, CRPO usually is seasonally down sequentially in the June quarter. It's my recollection, just because maybe the timing of renewals, etc. So -- just thinking about that number, did it come in more or less kind of where you thought it would come in, given where we were at the end of March?

I think CRPO came in roughly in line with our expectation, maybe slightly better given the performance on renewals. Because we certainly were not expecting the level of improvement we saw in second quarter. So as we mentioned that certainly, leaves 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 caught in the prepared remarks, but we mentioned that the data partnership is contributing about 2 points of revenue growth 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 drive a sequential element there. 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 and more than just a couple of points on CRPO. So I think that given that it is our best leading indicator, but it is imperfect. I think it's important to look at it with that associated commentary attached. But obviously, with the second half ahead of us, we're focused on continuing to drive progress, and it's also associated with the data partnership, it's a multiyear 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.

And our next question comes from Allen Lutz from Bank of America.

This is Hanna Lee on for Allen 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 RECONNECT going to be in 2026. And are these agencies primarily working with pharma clients or these agencies typically span across different industries?

Yes. So Hanna, let me answer that first with -- as we referenced in our prepared remarks, we see digital as a logical next step for our business as an association to our existing data assets. 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. So our customers today already rely on us for insights through our data and they often use those insights to inform how they're going to target a potential customer audience. 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. 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 LiveRamp as examples. or through their agency of record, which is what a lot of 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 relationship with yet. And so enabling those agencies directly with our data is well underway. And what it does is, in essence, prepositions the data in audiences that allows the agency depending on what that use case or audience need is to just simply provision that. So it's a little less predictable because you're, in essence, you're relying on the agency to activate those campaigns over time. But once it scales, it becomes kind of a volume play, and we expect to start to see that play into the fourth quarter and really start to pick up into 2026.

And our next question comes from George Hill from Deutsche Bank.

Kevin, if I try to compare like the decline in enterprise customers versus the decline in revenue and the decline in earnings. I guess can you talk about how you think about like what I would call the retention component versus the wallet share or dollar retention component. And really what I'd been hearing you talk about is kind of how like that looks like it'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.

George, it's Casey. I'm actually going to take that one, if you don't mind. As we're looking at the modest decline in the enterprise clients. There's a couple of different dynamics going in there. Some of 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 over $100,000, now aren't. So that contributes to it. So it's not really necessarily a full set of client losses. And we did actually add 12 brand-new enterprise clients within the quarter. So it's a little bit difficult to kind of look at that as kind of a stand-alone metric. I think we are going to take a look at a net dollar and gross dollar retention metrics, certainly, it's not something that we guide explicitly on. But given what we're seeing right now, we do expect net dollar retention to decline year-over-year, as we kind of continue to see -- to face some pressures. 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, 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. creating a little bit of downward pressure there. So a couple of moving pieces and dynamics going on, but we're remaining focused on driving those near-term operational improvements and trying to make progress against our 4 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 really important in setting that '26 trajectory.

Casey, that's a great point. I kind of had mind blind on the downselling perspective. If I can have a quick follow-up, Kevin, one of the things I was thinking about was organization size. And you guys have kind of shrunk the business from an operating perspective as the market retrenched. I guess do you guys feel like you're rightsized now as the business seems placed to stabilize a bit. Looks like the Q4 exit run rate versus Q3 seems pretty flat. And kind of do you guys feel like you're rightsized if the market were to rebound?

Well, I hope you can see in the results, one of 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. And we are looking to maintain our margin as that we can operate this business effectively. In the short term, as we really start to look at where we're investing 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. 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. 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 are delivering it the most effective way as possible. 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.

Yes. And I think that's one of the things that we've been 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 decision to be reactive depending on how the top line is really shaping up. So that's reflected within our guide in the second half of the year. And it certainly it's too early to guide on anything for 2026. But that is kind of the thought process in terms of how we're approaching our planning for 2026 currently. Given where we are in the year, we're going through that planning cycle right now. And we've got a number of good ROI projects being evaluated, and we're assessing varying levels of investments across management and in live discussions with the Board. So as we firm up and lock in any of those decisions, we'll provide more color around our '26 expectations as we go through the remainder of the year.

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

This is actually Johnathan McCary on for Brian. So I wanted to touch on the boomerang customers and competitions. It was good to hear about the digital health org that came back and then the head-to-head bake-off win that you mentioned, Kevin. So I wanted to ask about if you're seeing boomerang customers emerge as a broader trend? And then just see if -- has there been any change in the competitive environment or any change in what you guys are typically coming up against or what you're displacing?

Yes. James, it's -- the competitive environment, as I mentioned, I think, earlier, we haven't really seen a major shift, but we're seeing really 2 different sort of situations. 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 devalue data as part of it, 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. Part of the integration strategy is to ensure that we integrate with the systems of record and systems of insight agnostically so that the customer can actually use the data and consume it in the most effective way. And then at the lower end, we are still seeing quite a bit of what I would call point solutions that are relatively small in scale often 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. 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. So I think 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, 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, people will pay for that. And so I feel very good that having that quality and service as your lead value proposition is a winning long-term strategy.

And our next question comes from Joe Vruwink from Baird.

Kevin, I think you were going to go here several questions ago, but the focus on stemming the down sales in life sciences, is that related to the higher touch delivery model for those customers you've referenced in the past? And just given the current state of macro for biopharma, is receptivity to higher touch changing at all?

Yes. I think the -- in particular, life sciences and in biopharma that we do see often that those customers, in particular, need attach services, they need tech-enabled services. 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 integrated it and we help them do that, they're going to be -- we know from the data that they're going to renew at a higher rate. And so our focus on master data, which what that really means is matching the pen and services that link our customers' data to -- and often leveraging the DHID or our token for account to contact to people 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. And then by helping to effectuate the ease of data sharing across systems of records and insights, and that could be through ETL, extract transfer load, SFTP, S3, Snowflake, Databricks, those are just examples. By making that really easy and assisting with that integration directly to those systems, you sort of moved from just being a data vendor, you become a thought partner and you become an analytics and insight unlock for them. 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 the pen services that help 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 with -- again, the data provider, but helping them within their data workflow and the data lake. And that is probably a lot there that I just kind of touched upon, but I hope that it's sort of like intuitive that if you're not only providing the data, but you're providing those higher-end data science and analytical matching assistance along with the data, you become a much, much more valuable partner and we know the renewal rates are following along with that, too. We think we can drive those integration, not only integrations hire, but we know that we can drive the renewal rate based on those integrations even higher based on the type of actions that we're taking here.

That's great detail. I wanted to ask, and I get the second outlook is meant to be prudent. But I think it does entail sequentially lower absolute revenue relative to what you did in the second quarter. And looking at what you disclosed as revenue coming from new customers and the filings, that's been a pretty healthy contribution even excluding the agency partnership. Is there something about the pipeline into the second half where you're maybe assuming like conversion rates aren't what they have been on kind of the new business opportunities you've been seeing? Anything like that that's baked into the second half outlook?

Yes. So certainly, our approach to guidance is making sure that the guidance range accounts for a number of scenarios. The midpoint of the Q3 guide is down quarter-over-quarter in terms of total revenue, but there's a chunk of that, that we expect to be driven by the professional services revenue. So if we kind of were to pick the midpoint of the third quarter guide, at that level, we would see subscription revenues declining 6% year-over-year, which is consistent with what they declined in the second quarter. And at the upper end of the third quarter guide, you're seeing more of that dollar level stabilization in subscription revenues quarter-over-quarter. So I think that's kind of what's implied there. Similarly, the upper end of the implied Q4 guide would be the same on a subscription revenue basis. Really just trying to really approach this prudently and knowing that there still is a little bit of a level of uncertainty around the back half of the year. I wouldn't say that we've got any concerns on a new logo perspective for the back half of the year. But I did mention earlier that we're seeing some upsell pressures within life sciences, which really is extension almost of the downsell dynamics we've been talking about is that life sciences pipeline from an upsell perspective is looking a bit more challenged in the back half of the year. But to Kevin's point, that's why we're taking all these actions in order to help address how we're serving these clients, including some of these attached services plays.