Restatement of Previously Issued Financial Statements | 2. Restatement of Previously Issued Financial Statements The unaudited consolidated financial statements for the quarters ended March 31, 2023 and 2022 have been restated to reflect the correction of misstatements related to the collection of sales taxes on sales of services to customers as further described below (the “Misstatements”), along with other immaterial adjustments. The Company also restated all amounts impacted within the notes to the financial statements in this Amendment. A description of the adjustments and their impacts on the previously issued financial statements are included below. Description of Restatement Adjustments In the first quarter of 2023, the Company began a review of its sales tax positions, and related accounting matters, with the assistance of outside consultants. As a result of the review, subsequent to the filing of the Original Report, the Company determined during the second quarter of 2023 that sales in certain states were subject to sales tax and that the Company had not assessed such sales tax on sales of its services to customers. The Company determined that it did not accrue sales taxes and corrected these Misstatements by recording sales tax accruals through general and administrative expense as of the end of the Affected Periods. These accrual amounts assume that (i) customers who have not yet provided certificates or other documentation of exemption from sales tax are taxable, (ii) maximum interest and penalty assessments may be imposed, and (iii) the Company will not receive waivers of interest and penalties or other benefits under agreements it may obtain with jurisdictions from its outreach with voluntarily disclosures. The Company expects to make adjustments to the sales tax liability in future periods as and if it obtains any waivers of interest and penalties or other benefits from its voluntary disclosures and as and if it obtains additional documentation from customers supporting exemption from sales tax. The Misstatements that appeared in the previously issued financial statements of the Company were material. In light of the foregoing, the Company, in accordance with ASC 250, is restating the previously issued financial statements as of and for the quarters ended March 31, 2023 and 2022 to reflect the effects of the Misstatements and other immaterial adjustments, and to make certain corresponding disclosures. The balance sheets, statements of operations, total equity, statements of comprehensive loss, cash flows, and Notes 3, 8, 9, 16, and 17 were updated to reflect the restatement. A summary of the adjustments described above is as follows: Three Months Ended March 31, 2023 March 31, 2022 (in thousands) As previously reported As Restated As previously reported As Restated Net loss $ ( 15,600 ) $ ( 15,972 ) $ ( 13,057 ) $ ( 13,039 ) Net loss attributable to noncontrolling interests ( 3,783 ) ( 3,909 ) ( 4,433 ) ( 4,458 ) Net loss attributable to Definitive Healthcare Corp. ( 11,817 ) ( 12,063 ) ( 8,624 ) ( 8,581 ) As of March 31, 2023 December 31, 2022 (in thousands) As previously reported As Restated As previously reported As Restated Total assets $ 2,115,236 $ 2,116,867 $ 2,120,993 $ 2,122,624 Total liabilities 645,785 653,009 633,772 640,679 Total equity 1,469,451 1,463,858 1,487,221 1,481,945 The categories of restatement adjustments and their impacts on previously reported financial statements are described below: a) Sales Tax and Related Misstatements – Sales tax on sales of services to customers who were subject to sales tax, inclusive of maximum penalties and interest, that was not previously accrued by the Company is corrected by an increase to accrued expenses and other current liabilities on the condensed consolidated balance sheets and an increase to general and administrative expenses on the condensed consolidated statements of operations. b) Related Impact on Tax Receivable Agreement ("TRA") – Any impact on tax receivable gains and losses due to the corrections in (a) above is reflected as a change in the tax receivable agreement liability on the condensed consolidated balance sheets and a change in other expense on the condensed consolidated statements of operations. c) Purchase Price Allocation Misstatement – In connection with the Company’s acquisition of Monocl Holding Company, the Company had previously failed to record a deferred tax liability related to identified intangible assets of Monocl Holding Company. Therefore, the Company corrected the opening purchase price allocation of Monocl Holding Company to record an opening deferred tax liability with an offset to goodwill on the condensed consolidated balance sheets. The opening deferred tax liability subsequently resulted in an increase in benefit from income taxes on the condensed consolidated statements of operations through the period ending March 31, 2022. d) Related Impact on Noncontrolling Interests – Any impact on noncontrolling interests resulting from the allocation of net loss due to the corrections in (a) and (c) above is reflected as (i) a change in the net loss attributable to noncontrolling interests on the condensed consolidated statements of operations, and (ii) a change in noncontrolling interests on the condensed consolidated balance sheets. The following summarizes the impacts of the correction of the Misstatements and other adjustments for the quarters ended March 31, 2023 and 2022. The following table sets forth the corrections in each of the individual line items affected in the condensed consolidated statements of operations for each respective period: Three Months Ended (in thousands) March 31, 2023 March 31, 2022 Increase in general and administrative expense (a) $ 439 $ 581 Increase in gain on remeasurement of TRA liability (other income) (b) 67 86 Increase in benefit from income taxes (c) — 513 Increase (decrease) in net loss due to restatement items 372 ( 18 ) Increase in net loss attributable to noncontrolling interests due to restatement items (d) 126 25 Increase (decrease) in net loss attributable to Definitive Healthcare Corp. due to restatement items 246 ( 43 ) See footnote descriptions above Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 (in thousands, except share amounts and per share data) As previously reported As Restated As previously reported As Restated Revenue $ 59,201 $ 59,201 $ 50,124 $ 50,124 Cost of revenue: Cost of revenue exclusive of amortization 8,552 8,552 5,950 5,950 Amortization 3,354 3,354 5,378 5,378 Gross profit 47,295 47,295 38,796 38,796 Operating expenses: Sales and marketing 23,423 23,423 21,293 21,293 Product development 9,884 9,884 6,850 6,850 General and administrative 13,640 14,079 10,454 11,035 Depreciation and amortization 9,590 9,590 9,874 9,874 Transaction, integration, and restructuring expenses 2,590 2,590 1,310 1,310 Total operating expenses 59,127 59,566 49,781 50,362 Loss from operations ( 11,832 ) ( 12,271 ) ( 10,985 ) ( 11,566 ) Other income (expense), net: Interest income 2,834 2,834 70 70 Interest expense ( 3,614 ) ( 3,614 ) ( 1,954 ) ( 1,954 ) Other expense, net ( 3,698 ) ( 3,631 ) ( 101 ) ( 15 ) Total other expense, net ( 4,478 ) ( 4,411 ) ( 1,985 ) ( 1,899 ) Loss before income taxes ( 16,310 ) ( 16,682 ) ( 12,970 ) ( 13,465 ) Benefit from (provision for) income taxes 710 710 ( 87 ) 426 Net loss ( 15,600 ) ( 15,972 ) ( 13,057 ) ( 13,039 ) Less: Net loss attributable to noncontrolling interests ( 3,783 ) ( 3,909 ) ( 4,433 ) ( 4,458 ) Net loss attributable to Definitive Healthcare Corp. $ ( 11,817 ) $ ( 12,063 ) $ ( 8,624 ) $ ( 8,581 ) Net loss per share of Class A Common Stock: Basic and diluted $ ( 0.11 ) $ ( 0.11 ) $ ( 0.09 ) $ ( 0.09 ) Weighted average Common Stock outstanding: Basic and diluted (1) 108,234,043 108,234,043 97,158,823 97,158,823 The following table sets forth the corrections in each of the line items affected in the condensed consolidated balance sheets for each respective period: (in thousands) As previously reported Restatement Adjustments As Restated March 31, 2023 Goodwill $ 1,323,102 $ 1,631 $ 1,324,733 Total assets 2,115,236 1,631 2,116,867 Accrued expenses and other current liabilities 20,770 8,546 29,316 Total current liabilities 142,620 8,546 151,166 Tax receivable agreements liability, net of current portion 161,721 ( 1,322 ) 160,399 Total liabilities 645,785 7,224 653,009 Additional paid-in capital 1,020,709 ( 2,017 ) 1,018,692 Accumulated deficit ( 35,531 ) ( 1,594 ) ( 37,125 ) Noncontrolling interests 481,370 ( 1,982 ) 479,388 Total equity 1,469,451 ( 5,593 ) 1,463,858 Total liabilities and equity 2,115,236 1,631 2,116,867 December 31, 2022 Goodwill $ 1,323,102 $ 1,631 $ 1,324,733 Total assets 2,120,993 1,631 2,122,624 Accrued expenses and other current liabilities 18,748 8,107 26,855 Total current liabilities 132,503 8,107 140,610 Tax receivable agreements liability, net of current portion 156,311 ( 1,200 ) 155,111 Total liabilities 633,772 6,907 640,679 Additional paid-in capital 972,077 ( 1,870 ) 970,207 Accumulated deficit ( 23,714 ) ( 1,348 ) ( 25,062 ) Noncontrolling interests 535,085 ( 2,058 ) 533,027 Total equity 1,487,221 ( 5,276 ) 1,481,945 Total liabilities and equity 2,120,993 1,631 2,122,624 The following table sets forth the corrections in each of the line items affected in the condensed consolidated statements of changes in total equity for each respective period: Additional Paid-In Accumulated Noncontrolling Total (in thousands) Capital Deficit Interests Equity December 31, 2022 As reported $ 972,077 $ ( 23,714 ) $ 535,085 $ 1,487,221 Adjustment due to cumulative error correction ( 1,870 ) ( 1,348 ) ( 2,058 ) ( 5,276 ) As restated $ 970,207 $ ( 25,062 ) $ 533,027 $ 1,481,945 March 31, 2023 As reported $ 1,020,709 $ ( 35,531 ) $ 481,370 $ 1,469,451 Adjustment due to cumulative error correction ( 2,017 ) ( 1,594 ) ( 1,982 ) ( 5,593 ) As restated $ 1,018,692 $ ( 37,125 ) $ 479,388 $ 1,463,858 The following table sets forth the corrections in each of the line items affected in the condensed consolidated statements of cash flows for each respective period: (in thousands) As previously reported Error correction As Restated March 31, 2023 Net loss $ ( 15,600 ) $ ( 372 ) $ ( 15,972 ) Adjustments to reconcile net loss to net cash provided by operating activities: Tax receivable agreement remeasurement gain 3,619 ( 67 ) 3,552 AP, accrued expenses, and other current liabilities ( 4,294 ) 439 ( 3,855 ) March 31, 2022 Net loss $ ( 13,057 ) $ 18 $ ( 13,039 ) Adjustments to reconcile net loss to net cash provided by operating activities: Tax receivable agreement remeasurement gain 248 ( 86 ) 162 Deferred income taxes 69 ( 513 ) ( 444 ) AP, accrued expenses, and other current liabilities ( 3,579 ) 581 ( 2,998 ) |