Good morning, everyone, and welcome to the 52nd annual Global Technology, Media, and Communications Conference. My name is Annie Samuel, and I cover healthcare technology and distribution here at JPMorgan. Today, we are thrilled to have Definitive Healthcare presenting, and I'm joined on stage by founder and CEO Jason Krantz. We'll start off with a discussion, and then we'll open it up. If anyone has a question, please raise your hand. But, you know, Jason, maybe just to start, you know, for those who are a little bit newer to this story, you know, can you just explain to everyone who your customers are and how your solutions help them?
Sure. Well, thanks, everyone, for coming. Appreciate it. So let me start with what we provide. We are a data company, and we track data on the entire healthcare ecosystem. We track data on every single hospital, physician, physician group, all those clinics popping up everywhere, surgery centers, payers, what have you. We pull all of this data from many different sources, which we could talk a little bit more about later, pull it all together, apply a tremendous amount of data science, and deliver it to our clients in a SaaS solution so that they can commercialize more successfully within the large and complex healthcare vertical. Our clients really fall into four categories. The first is biopharma companies.
So these companies are using our data to figure out who are the most important physicians that can influence prescribing their new drug or therapy, or who can run their clinical trial. We sell to med tech companies who are using it similarly to develop new devices and figure out what is their total addressable market, who should they be selling to, both from a facility standpoint as well as a physician. We sell to the providers themselves. This is a smaller market for us, but growing pretty quickly. As providers have become much more strategic about how they think about their growth, they're using our product to identify new physicians to refer patients into their facilities, or they're identifying new geographic areas to expand into or new service lines that they wanna achieve greater growth in.
And then finally, we sell to a group we call their diversified clients. So these are companies that sell to many different verticals, but think healthcare is a really important vertical for them and want specific data to help them sell more successfully within that. And there's a wide range of companies in this, so this is software companies like a Microsoft, but also companies like Waste Management. So just to bring that one to life, Waste Management would use our product to actually price and target who they're going after from a physician group and facility standpoint. So what they want is biohazardous material because they make high profit margins off of that. So they'll use our data to figure out who's generating the most biohazardous material, how can they get that business, how can they price that business.
Great, thank you. And then, one thing that I think is maybe underappreciated is how proprietary your dataset is. So can you, you know, talk about what makes it so unique and so proprietary? And, you know, particularly on the hospital and provider side, we hear from a lot of the healthcare IT companies that we cover that your data is invaluable to them.
Well, I appreciate that. It is. So we get our data from many different sources, so we do a tremendous amount of first-party research that only we have. So we make several hundred thousand phone calls every single year out to providers. We've created technology to pull and collate data from hundreds of thousands of different publicly available websites. These would be things like research journals, industry journals, provider websites, payer websites, what have you. We get data from about 25,000 different government agencies, and then we buy some third-party data, which is mostly our claims data that we've bought. But the key is, first of all, we've gotten the data from many different places, but we've developed data science and algorithms over the last 14 years that help us pull all this data together.
The data is inherently missing information, it has gaps, it has areas that need to be cleaned up. We've developed algorithms to fill in blanks, to clean up data, to create mastering of data so that we know exactly how all these different organizations fit into the ecosystem, how they're all affiliated together, and when you pull all that data together, it's very difficult to recreate and extremely helpful to our clients.
Thanks. And then, could you just help us understand how your solutions integrate within the workflows for your various customers? You know, you've discussed data feeding into your customer CRM products. You know, how easy is that to do, and how important is it to be embedded within their systems?
Incredibly important, and it's a big focus area for us. So we deliver our data really however our clients want to consume it. So that starts with our SaaS tools, so you can log in directly to our tools and get all of our data, filter. If you're a sales rep, you can prepare for a meeting with a chief medical officer or CFO. But then we also integrate data directly into our client system. So within a Salesforce or Veeva, we're pushing data in every single day so that their reps and their teams and their marketing organizations have access to the most up-to-date data because it's changing all the time. We also integrate through things like Snowflake and Databricks. So really, however our clients want to consume our data, we have connectors to push the data into those various systems.
Last year, you announced an expansion of Atlas Dataset. can you discuss, you know, what the expansion was, how that went, you know, what some of the results were of that?
Yeah. So we are always expanding our dataset. This is a constantly growing set of information to help solve new clients' needs. So last year, we added more claims data, so we increased the number of patient lives that we cover. And when you think about a patient life, we're covering all of their medical claims, we're looking at all of their prescription drug claims, and then we're looking at them longitudinally so that we can see over time, how does a patient interact with the health system at different times? And are they staying within the system? Are they becoming immune to different therapies and then having to go to a different therapy? All that type of analytics is really important for our clients. In addition, we're adding information this year on new affiliations, which is a hallmark of Definitive.
We have the best affiliation data, so we know how all of these organizations are connected to each other. So we're adding Management Service Organizations, Independent Practice Associations. Those are new areas that we're adding this year. We're also adding new facility types that we track that really don't exist anywhere else until you do first-party research: cancer centers, infusion centers. We're adding data on labs so that people can understand where all the different volumes are going from a lab standpoint, and how that drives referral patterns throughout the ecosystem.
Who do you find yourself up against competitively? And with so much scrutiny on budgets from your end market customers, are you seeing any changes in the competitive backdrop?
Yeah, so our competition varies a little bit dependent on our end market. So as I mentioned, we sell into life sciences. Our biggest competitor there would be IQVIA. We compete with Komodo a little bit as well, sometimes a Clarivate or a Symphony. On the diversified side, we'll typically compete with the ZoomInfo. So for companies that are selling to a lot of different verticals, they'll probably buy ZoomInfo, and then they'll buy our product for their healthcare sales and marketing organization. Certainly, macro has been an issue for many companies, including us. I don't think it's necessarily changed the competitive environment. It's just created a more competitive environment, as people are chasing smaller amounts of business until the macro environment improves.
So just getting a little bit deeper into the macro conversation, as we think about all of the different end markets you sell into, they're all facing different macro challenges, but are still somehow all facing, you know, macro challenges at the same time. You know, can you maybe, you know, talk a little bit about that and, you know, how your go-to-market strategy maybe is different, or, you know, how you're approaching them in this current environment?
Yeah. So I'd say overall, there's a macro overhang. Companies across all our different markets are certainly... There's more scrutiny on every cost that they have. They are more cost-conscious overall. Sales cycles tend to be elongated. But as you think about this cycle is pretty interesting within healthcare. Because we sell to all parts of healthcare, they have gone through different periods where one segment is weaker. So for example, it really started with providers. So providers, a couple of years ago, were having a tremendous amount of trouble with labor shortages that were really increasing their costs. Elective surgeries basically came to a halt during COVID, so that one hit us first, and then as that started to improve, biotech last year was a very challenged market.
We're starting to see some improvement there as financing start up again. And right now, I would say, you know, that besides the just general overhang, I would say pharma has sort of come into the cost-cutting environment a little bit later than everybody else. So we're seeing a little bit more pressure from them than we did in previous years.
We're starting to see a little bit of funding come back into the biotech space, though. You know, it seems like large pharma is still really focused on, you know, cutting those budgets. Are you seeing any difference in your conversations between, you know, some of the large pharma versus, you know, some of those biotech companies in terms of, of their demand?
I mean, it's early still. That. You know, it was really first quarter where there was pretty good biotech funding, so we believe that that will help us. Biotech was a great market for us. It will be a great market for us again, as funding improves. What I also like, though, about the biotech turnaround is when biotechs are getting funded, they that puts pressure on pharma to think about growth again. So pharma's been able to think about cost structure and those types of things. Now, as biotechs start to come back, they need to start thinking about growth again, and that will be a benefit to us.
What is your exposure to... I mean, this was something that was a really big conversation when biotech funding was coming down, but I think it should be a conversation as it's coming back as well, is, what is your exposure to emerging biopharma versus, you know, large pharma?
Yeah, so as we've talked about, about 50% of our business is broader life sciences, which would be med tech and biopharma. If you start to break that down, call it, you know, two-thirds to 75% of that is biopharma, and maybe 20% of that is biotechs. You end up with, you know, it's kind of ±10%, but it's a nice 10%. They're very good clients. They tend to be larger clients. They spend quickly. So we're excited for that to return.
Great. Something that you talked about on your most recent earnings call was you recently restructured your, your go-to-market team, and that maybe caused a little bit of disruption in the quarter. Can you discuss maybe, you know, what was involved in that restructuring, you know, what the reasoning behind it was, and is it past us now? You know, you said on the call you're starting to see some positive indications from that.
Yeah. So we made a big restructuring on January fourth to our go-to-market team, and there was really three things that we did. The first is we realigned our cost structure to reflect the current growth environment, and this was really about reducing some levels of management, as well as reducing overlays. So these would be people that are helping the sales process but don't carry a quota, and we determined they were not additive enough to continue to have the cost right now. So we restructured our costs in a very positive way that should drive sales rep productivity. The second thing we did is we've allocated a greater percentage of our resources towards our enterprise clients. These are our clients that are $100,000 or greater.
These clients renew at a higher rate, and they represent our largest expansion opportunity, so we've allocated more of our go-to-market resources on those clients.... At the same time, the third thing we did is we took all of our small and mid-sized clients, and we put them into a separate growth group, which we call our growth group. And this is all about high volume, more transactional sales. So it's really a reflection of we want more resources on our biggest clients, and we wanna be very intentional about the fact that small clients have a very different sales process and sales motion than our big clients, and this has represented this. So what we expect over time is this will drive sales rep productivity, and it should drive increased growth as a result. What we saw, though, was a tremendous amount of disruption from this.
So a lot of our clients got new relationship managers. A lot of our prospects had new people because we did so much restructuring, and that took longer to work its way through the system than I would have expected at the beginning of the year. So January was a very slow month as we got all the pieces in place. February was pretty slow as well, and then March, we started getting back to a pipeline adds that would be more in line with what I've expected from a March. So over the course of the year, we would expect that this will continue to benefit the sales organization as we get this back into motion.
And then you've also done some, retention initiatives, you know, around your customers. Can you maybe just discuss a little bit about, you know, what you've done there and what some of those results have been?
Yeah, so customer retention is probably our number one initiative right now. We've been, over the last 6-9 months or so, we've been changing our delivery model to drive more value more quickly for our customers. So in a tough macro environment, they want to see value, they want to see that ROI quickly. So we've changed the way that our customer success team is addressing our customers, making sure that they're focused on all of the different ways that you can use our data to drive the business. How do you get them using as many of those different opportunities as possible? Similarly, we did a lot of work on how do we speed up our delivery of claims analytics for our clients.
But more importantly, we're spending a lot of time on product right now, things that we think will drive up our renewal rate long term. Specifically, as we've talked a little bit about, we bought a company last year called Populi. Populi has a claims analytics and visualization platform that allows us to take our claims data, combine it with our proprietary reference and affiliation data, and create analytics and visualization that solve very specific use cases for our clients. So in the provider world, this might be about driving up the number of referrals you can get within a specific geography or understanding when patients are leaking out of your health system.
Now what we're doing is, once we bought that, we saw that we had almost an immediate improvement in our renewal rate within our provider market, because these analytics and visualizations drove that time to value much more quickly. We're taking this technology, and we are building it out to apply to our life sciences vertical and our diversified vertical, which makes up a much larger amount of our ARR. We'll be rolling out these analytics and visualizations in the second half of this year, and we think that will have an impact on our renewal rate. At the same time, we're continuing to invest in more integrations. How do we get our data into our client system even easier than we are today to drive up the percentage of clients that are fully integrated with our data?
And then maybe just, you know, one more on the quarter. CRPO growth was 1% in the quarter. And obviously, that's a lot lower than your kind of historical growth rate, and a lot of CRPO for this year is gonna drive next year's growth. So how do we think about, you know, how that ramps back up as we kind of think about the year and how you're thinking about, you know, the longer-term growth?
Yeah, so cRPO gets pretty technical, so I guess I'll focus more on longer-term growth. You know, as you think about what drives the growth of our business, it's renewal rate of our customers, absolutely critical. I talked a little bit about the things we're doing there. Continuing to drive up the number of new logos and making sure that we expand within that. It's a big market out there. There's 100,000 companies that we think can be buyers of our product. We need to get to them quicker. The way we've structured our organization, of having that growth group focus on that high volume of deals, we believe that that will help start to turn the tide on our new logos. And then upsells are absolutely critical.
Upsells historically have made up about 30%-40% of our expansion revenue. That is increasing over time as we get more and more big clients and have a larger product, offering that we can sell to those clients. So our go-to-market restructuring, where we put more of our resources on those enterprise clients, we believe will drive up our growth of upsells over time. So if you think about those three things together, that's what drives growth. That, of course, translates into CRPO.
Then maybe just a follow-up on that. You know, as we think about the cross-sell, upsell opportunity within your existing client base, how much of your growth can come from products that you already have today versus, you know, products that you need to develop in the future?
So we're super innovative. We're always gonna be expanding our products, both to make our current products better and drive up ACV. You've seen our, if you looked at the last earnings, our ACV has gone up sequentially every single quarter since we've been public, and the reason for that is we continue to innovate within our current products. The products that we are adding on and expanding and developing right now, we believe, can drive a significant amount of growth. So this is analytics and visualizations within the rest of our, within the rest of our verticals. This is more datasets and more, more coverage of the entire healthcare universe. So all of that, we believe, can drive a tremendous amount of growth, but we will keep innovating.
We look to launch or buy 1-2 new products per year, and that will continue to drive growth into the future.
... That's really helpful. You know, maybe we could just pivot to, you know, AI, in terms of maybe new products-
Sure.
-that might be coming. You know, it's been an area of real focus from everyone lately. It still feels like it's pretty nascent in terms of use cases within healthcare, and maybe, you know, some healthcare customers might be a little bit more hesitant just 'cause everything in healthcare takes a little bit longer for everyone. But, maybe you could just discuss how you're thinking about AI, both from a product perspective and also maybe internally to create more efficiency within your business.
Yeah, so let me, let me talk about internally first. So we're using AI in a lot of different ways. How do we—First of all, we've been using data science and AI for a long time, since the beginning of how do we collect data more efficiently? How do we collate data, link data in ways that we never have been able to before? We're also, you know, from a product standpoint, we're trying to create and derive new insights for our clients based on our data, using large language models and other data science techniques. So this is about, you know, rather than giving our clients a set of data, we want to give them insights. So who are the physicians that are influencing prescriptions within a particular therapy area?
Or how do you think about who are the key opinion leaders, and who really influences the standard of care for a particular drug or a disease area? So those types of things. Our data science team is constantly deriving new insights. One thing we did about three or four years ago that is interesting is, when COVID hit, people were trying to figure out who's adopting telehealth. So we used data science in order to calculate, based on all these different variables we had, who was the most likely to adopt telehealth most quickly, which physician groups, which hospitals, which health systems, because our clients were very interested in reaching out to them and figuring out how can they deliver their service and their patient care through telehealth in that type of way.
So we'll continue to do things like that, is what our main focus is.
Great. And then maybe just one more, you know, kind of going back to the quarter in terms of, you know, new logos and growth from that. You said on the first quarter call that you added over 80% more pipeline in March than in January, in new logo business, and was hoping maybe you could talk a little bit about, you know, what drove that. And then also, if you could just help us understand, how long does it take to convert bookings to revenue? As things start to improve in the macro environment, how long should it take for us to see that translate to the P&L?
Yeah, it's a good question. So just to make sure that that stat is right. So March is really about a return to more normal levels. So January was very low. Obviously, as I mentioned, it was highly disrupted by all of our go-to-market changes. By March, we were back to a level that I would have expected, which was 80% higher than January. So there's really, I guess, two answers. There's how does pipeline turn into deals, and then how does deals turn into revenue? So our sales cycle, you can think of between sort of 120 and 150 days. Typically speaking, bigger deals, more complex deals take a little bit longer. We have, of course, some that go much quicker than that.
So that gives you a sense of sort of when we should start to see this turn into actual ARR, and bookings for us. And then the way that that turns into revenue is just, you know, really defers over 12 months from when we get the deal.
Great. Maybe just, you know, kind of pivoting to, you know, commercialization of biopharmaceuticals. Your data is really important there. Do you see a difference in terms of win rates with newer therapies hitting the market versus mature ones? Or, you know, are your customers that are maybe a little bit more established, have a bigger appetite for your product?
So if you think about... the way to think about this is different therapy areas-
Mm-hmm.
Really. So, therapy areas that are more complex tend to be good for us. Therapy areas that require maybe hospitalizations or infusion centers tend to be good for us. So think about, like, oncology, rheumatoid arthritis, rare disease is a very good market for us. Sort of basic stuff, diabetes, stuff like that, is some areas we're quite successful in, but more basic stuff is not really a market for us. We don't spend as much time there.
Great. And, you know, you talked about, you know, the, you know, kind of getting back towards a longer-term, you know, higher growth rate than, you know, kind of where we're at now. You know, obviously, you know, the restructuring issue that you have right now is transient, but, you know, your historical growth rate was 30%. Is that still a reasonable target to be thinking about for the long term? And I guess, what are the pieces that need to happen for you to, you know, kind of get back to that growth rate?
Yeah, so I think there's 2 ways to think about it. There's organic growth, and then there's just overall growth that we can, we can add on top to that through inorganic. So on an organic basis, you know, what we'd really like to get back to is kind of this 15%-20% organic growth. We think that's realistic based on products that we either have today, have in the pipeline, or could be building in the short to medium term. So that's what we're looking to do internally, build a better go-to-market organization, be more efficient, so on and so forth. And then we'll complement that with inorganic activity. So we generate a ton of cash, so almost all of our EBITDA, Adjusted EBITDA, turns into unlevered free cash flow. We also have an incredibly strong balance sheet.
We will use that for acquisitions, and that will continue to drive growth as well. As you think about, next question probably is about acquisitions.
Mm-hmm.
So what do we look for in acquisitions? Really two key things. We either wanna get new data that we can add into our Atlas Dataset and strengthen the overall dataset that we have, do more data science on it, do more sophisticated things to create insights for our clients, or new ways to use the data that we have. So I'll give you two examples of acquisitions we've done that meet each of those. When we bought Monocl, a couple of years ago, that was about adding new data. So they had information on about 15 million experts across the globe, scientific and medical experts. They have data on clinical trials and publications they're doing, and which meetings they're attending, which conferences they're going to. Really powerful data to link to the rest of the information that we have.
Most recently, we bought Populi. Populi is about how do we take data that we already have, claims, reference and affiliation data, expert data, and put that into a new analytical use case for our clients to leverage in new ways. In both cases, it's all about how do we make our product better and innovate quicker, but we get to take that innovation and then push it through our very large commercial team and our large, client footprint.
I guess, you know, as we think about that, you know, how many acquisitions can you know, as you're thinking about a dataset, like, how long does it take to, you know, kind of digest and integrate that data? Is it something that can happen very quickly, where you could do, you know, kind of multiple acquisitions in a year to kind of really bolster your solution set, or is that something that you have to be a little bit more mindful of, and temper the growth there?
It depends a little bit on the acquisition. So we look to integrate very, very quickly is the goal. So back office, we integrate almost immediately for tuck-in acquisitions. And then product-wise, we will tend to try to integrate the data as quick as humanly possible, feed our data into products to make those products better as quick as possible. I think the question is really, how quickly do you take your commercial teams and start to integrate those together? And that varies a little bit depending on the product. But in general, we would like to do 1-2 acquisitions per year. We think that's a pace that we can consume, it can drive some growth, and drive innovation more quickly.
Are you focused on, you know, datasets that can be leveraged with your current end-market customers? So, you know, life sciences, hospitals, and, you know, healthcare IT, or, you know, would you ever consider maybe kind of branching out beyond that for an acquisition?
No, definitely, we're looking at datasets that would help our current customers.
Okay.
We're staying within healthcare. There's a tremendous amount of opportunity within the U.S. healthcare system.
Great. You know, despite all of the volatility on the top line that everybody's been seeing, you've been really sure to keep a keen eye on the bottom line. So was hoping maybe you could discuss some of the actions that you've taken, you know, on the margin front. How do you think about balancing investment and growth from here?
Yeah, so it's all about control the things that you can control. So we've been very mindful of making sure that we watch expenses. Obviously, 2023 became a bit of a defensive year as we had to do significant cost cutting to reflect the new growth environment. That's largely behind us now, which puts us in a really good spot to refocus our attention on innovation and growth, and getting back to doing all the things that has made this company so amazing for 14 years. Luckily, we are in an enviable position of we can grow and be profitable at the same time. So as you look back to the early years of being public, and even well before that, we were growing 30%-40% with 30%-40% margins.
So, you know, tremendous Rule of 40 type of opportunity for us, Rule of 70, 80. I think we might've hit 100 one year. So, you know, we can manage both. These are amazing business models. As we resume growth again, we continue to spit off a tremendous amount of cash, and we get a lot of leverage out of our cost base as we start to grow. Obviously, we saw the negativity of that in 2023, so we had to cut costs to get away from that. But as we grow, you add costs at a slower pace.
So we'll take some of the money that we make as we start to grow, we'll put that back into investment, figure out how do we drive product, how do we increase our go-to-market capacity to continue to grow, and then some of that will be returned to shareholders in terms of slightly higher margin.
As we think about, you know, maybe kind of investments and growth, you know, is it something that you're planning to invest in advance of revenue growth coming back? Or is it, you know, something where you're going to need to see that revenue growth come back before you can start to make those investments?
We are in a great cost position right now, where we can grow based off of our current cost structure. So we've got plenty of R&D resources working on some really unique and amazing products, and we like where our go-to-market team is right now. Obviously, we can add incrementally to our go-to-market team with little impact.
Great. I want to open up the room for questions in the last couple of minutes, if there's any in the room. Okay, I'll keep going then. Maybe just one more, you know, kind of on M&A. You know, we've seen a pretty significant pullback in valuations in the healthcare IT space. Do you feel like that has happened in the, you know, private market, where things are looking a little bit more reasonable for you to go out there and acquire?
It is happening, for sure, finally. So the private markets have taken a long time to correct, for a variety of reasons. So we've been pretty picky over the last year or so. We think it should be a very good buying market for us over the next couple of years, so valuations are definitely coming down.
And then, you know, maybe as we think about your portfolio of solutions, is there anything that you feel like now is, you know, maybe missing or that you can talk to in terms of, you know, what you think would be important going forward?
Yeah, an area of interest right now for us is expanding into more digital marketing, and this is both on the data side, how do we link in data about how physicians and executives respond to different types of digital marketing, but also helping our clients activate in a more omni-channel way. So we have tremendous data assets that allow you to figure out: What are the markets I want to go after? Who are the specific people I want to go after? When do I want to go after them, and what are the messages? Right now, that's pushed into CRMs so that sales reps and marketing teams can use that every day. If we can expand that to also push it out to digital marketing, and then bring the results of that back in and measure the impact, that's very powerful.
As you think about sort of that omni-channel approach, we're in a very unique position to take advantage of that. So that's an area that we're very interested in.
Great. And then maybe just one final one in the last couple minutes here. As we look out over the next, you know, couple of years, what are you most excited about for Definitive Healthcare?
Yeah, we play in a fantastic market that is changing rapidly. What we've done really well over the last 14 years is we've innovated quickly to stay ahead of the market. As things change, as new regulations come in, as M&A picks up and consolidation happens within the industry, as EMR systems, you know, exploded 10 years ago, we've always stayed ahead of that and been able to provide our clients with the data that they need to adjust to that. Getting back to that highly innovative approach, where we're changing all the time and we're evolving our solution to meet the changing needs of the market, creates a huge amount of opportunity for us, so I'm excited about that.
Great. Anything we didn't touch on today that you think we should?
No, I think, you know, we touched a little bit about the, you know, the financial dynamics of this business are just extremely attractive. So our ability to have profitability, growth, and generate a tremendous amount of free cash flow is something that I think is going to be exciting and will compound over time.
Great. Well, thank you so much for joining us today, and thank you to everyone in the room.
Thanks. Appreciate it, everyone.