Description of Business | 1. Organization and Basis of Presentation Description of Business and Organization Definitive Healthcare Corp. (the “Company”) was formed on May 5, 2021 as a Delaware corporation to facilitate an initial public offering (“IPO”) and other related transactions to carry on the business of AIDH TopCo, LLC (“Definitive OpCo”). Following consummation of the Reorganization Transactions as described in the Company’s 2022 Form 10-K/A, Definitive OpCo became a subsidiary of Definitive Healthcare Corp. The Company, through its operating subsidiaries, provides comprehensive and up-to-date hospital and healthcare-related information and insight across the entire healthcare continuum via a multi-tenant software-as-a-service (“SaaS”) platform which combines proprietary and public sources to deliver insights. The Company is headquartered in Framingham, Massachusetts. In connection with the IPO, the Company completed the following transactions (the “Reorganization Transactions”). Definitive OpCo entered into an amended and restated limited liability company agreement (the “Amended LLC Agreement”) pursuant to which members of Definitive OpCo prior to the IPO who continued to hold limited liability company interests (“LLC Units”) in Definitive OpCo following the consummation of the Reorganization Transactions acquired the right to require Definitive OpCo to redeem all or a portion of their LLC Units for newly issued shares of Class A Common Stock on a one-for-one basis. Until redeemed or exchanged, each LLC Unit is paired with one share of Definitive Healthcare Corp. Class B Common Stock. The total shares of Class B Common Stock outstanding is equal to the number of vested LLC Units outstanding, excluding LLC Units held by the Company. Unvested LLC Units are paired with Class B Common Stock, which are issued but do not have voting rights and are deemed not outstanding until the corresponding LLC Units have vested. Certain entities treated as corporations for U.S. federal income tax purposes that held LLC Units (individually, a “Blocker Company” and collectively, the “Blocker Companies”) each merged with a merger subsidiary of Definitive Healthcare Corp., and subsequently merged into Definitive Healthcare Corp. (the “Mergers”). The former shareholders of the Blocker Companies collectively received a number of shares of Class A Common Stock in the Mergers equal to the number of LLC Units held by the Blocker Companies prior to the Mergers. Following the Reorganization Transactions, Definitive Healthcare Corp. became a holding company, with its sole material asset being a controlling equity interest in Definitive OpCo. Definitive Healthcare Corp. operates and controls all of the business and affairs of Definitive OpCo, and through Definitive OpCo and its subsidiaries, conducts its business. Accordingly, Definitive Healthcare Corp. consolidates the financial results of Definitive OpCo, and reports the noncontrolling interests of unexchanged LLC Unit holders on its condensed consolidated financial statements. In connection with the Reorganization Transactions and the IPO, Definitive Healthcare Corp entered into a tax receivable agreement. See Note 15. Income Taxes . Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and in conformity with rules applicable to quarterly financial information. Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative nongovernmental GAAP as found in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The condensed consolidated financial statements as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 are unaudited and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2022. All adjustments, consisting of normal recurring adjustments, except as otherwise noted, considered necessary for a fair presentation of the unaudited interim condensed consolidated financial statements for these interim periods have been included. Refer to Note 2. Summary of Significant Accounting Policies in the notes to the consolidated financial statements in the 2022 Form 10-K/A for the Company’s significant accounting policies and estimates. Use of Estimates in the Preparation of Financial Statements The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, revenue recognition, allowance for doubtful accounts, contingencies, valuations, useful lives of intangible assets acquired in business combinations, equity-based compensation, and income taxes. Actual results could differ from those estimates. Adoption of Recently Issued Financial Accounting Standards In June 2016, the FASB issued ASU No. 2016-13— Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments . This standard is intended to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope, such as trade receivables. The amendment is effective for fiscal years beginning after December 15, 2022. The Company adopted the update effective January 1, 2023 and the adoption of the standard did not have a material impact on the Company's consolidated financial statements for the quarter ended June 30, 2023. Recently Issued Accounting Pronouncements Not Yet Adopted From time to time, new accounting pronouncements are issued by the FASB or other accounting standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed, we do not believe that the adoption of recently issued standards have had or may have a material impact on our condensed consolidated statements or disclosures. Restatement of Previously Issued Financial Statements The financial statements for the three and six months ended June 30, 2022, have been restated to reflect the correction of misstatements related to the collection of sales taxes from sales of services to customers further described below (the “Misstatements”), along with other immaterial adjustments. The Company also restated all amounts within the notes to the financial statements. A description of adjustments and their impact on the previously issued financial statements are included below. 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, 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 each affected period. 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 were material, and the Company has also corrected other immaterial errors, which are further described below. As described in additional detail in the Explanatory Note in our 2022 Form 10-K/A, the Company restated its audited consolidated financial statements as of and for the years ended December 31, 2022, 2021 and 2020, as well as the unaudited condensed consolidated quarterly financial information for the quarterly periods in the fiscal years ended December 31, 2022, 2021, and 2020, to reflect the correction of the Misstatements and other immaterial adjustments, and to make corresponding disclosures. The Company also filed an Amendment No. 1 on Form 10-Q/A to amend the Quarterly Report on Form 10-Q for the three months ended March 31, 2023 with the SEC on August 14, 2023, to restate its unaudited condensed consolidated financial statements for the three months ended March 31, 2023 and 2022. A summary of the impacts of the Misstatements and other immaterial adjustments is as follows: Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 (in thousands) As previously reported As Restated As previously reported As Restated Net loss $ ( 9,579 ) $ ( 10,142 ) $ ( 22,636 ) $ ( 23,181 ) Net loss attributable to noncontrolling interests ( 4,429 ) ( 4,656 ) ( 8,862 ) ( 9,114 ) Net loss attributable to Definitive Healthcare Corp. ( 5,150 ) ( 5,486 ) ( 13,774 ) ( 14,067 ) As of June 30, 2022 (in thousands) As previously reported As Restated Total assets $ 2,122,855 $ 2,124,165 Total liabilities 634,155 639,727 Total equity 1,488,700 1,484,438 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 balance sheet 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 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 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. e) Currency Translation Adjustments – The Company made currency translation adjustments of $ 0.3 million between certain long-lived assets and total equity on the condensed consolidated balance sheets as of June 30, 2022. The following table sets forth the corrections in each of the line items affected in the consolidated statements of operations for each respective period: (in thousands) Three Months Ended June 30, 2022 Six Months Ended Increase in general and administrative expense (a) $ 664 $ 1,245 Increase in gain on remeasurement of TRA liability (other income) (b) 101 187 Increase in benefit from income taxes (c) — 513 Increase in net loss due to restatement items 563 545 Increase in net loss attributable to noncontrolling interests due to restatement items (d) 227 252 Increase in net loss attributable to Definitive Healthcare Corp. due to restatement items 336 293 See footnote descriptions above Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 (in thousands, except share amounts and per share data) As previously reported As Restated As previously reported As Restated Revenue $ 54,548 $ 54,548 $ 104,672 $ 104,672 Cost of revenue: Cost of revenue exclusive of amortization 6,198 6,198 12,148 12,148 Amortization 5,580 5,580 10,958 10,958 Gross profit 42,770 42,770 81,566 81,566 Operating expenses: Sales and marketing 23,585 23,585 44,878 44,878 Product development 8,706 8,706 15,556 15,556 General and administrative 9,392 10,056 19,846 21,091 Depreciation and amortization 10,194 10,194 20,068 20,068 Transaction, integration, and restructuring expenses 2,107 2,107 3,417 3,417 Total operating expenses 53,984 54,648 103,765 105,010 Loss from operations ( 11,214 ) ( 11,878 ) ( 22,199 ) ( 23,444 ) Other income (expense), net: Interest income 180 180 250 250 Interest expense ( 2,760 ) ( 2,760 ) ( 4,714 ) ( 4,714 ) Other expense, net 4,002 4,103 3,901 4,088 Total other expense, net 1,422 1,523 ( 563 ) ( 376 ) Loss before income taxes ( 9,792 ) ( 10,355 ) ( 22,762 ) ( 23,820 ) Benefit from income taxes 213 213 126 639 Net loss ( 9,579 ) ( 10,142 ) ( 22,636 ) ( 23,181 ) Less: Net loss attributable to noncontrolling interests ( 4,429 ) ( 4,656 ) ( 8,862 ) ( 9,114 ) Net loss attributable to Definitive Healthcare Corp. $ ( 5,150 ) $ ( 5,486 ) $ ( 13,774 ) $ ( 14,067 ) Net loss per share of Class A Common Stock: Basic and diluted $ ( 0.05 ) $ ( 0.06 ) $ ( 0.14 ) $ ( 0.14 ) Weighted average Common Stock outstanding: Basic and diluted (1) 99,203,697 99,203,697 98,186,909 98,186,909 The following table sets forth the corrections in each of the line items affected in the condensed consolidated balance sheets for June 30, 2022: (in thousands) As previously reported Restatement Adjustments As Restated Property and equipment, net $ 4,760 $ ( 64 ) $ 4,696 Operating lease right-of-use assets, net 10,552 ( 76 ) 10,476 Intangible assets, net 372,196 ( 181 ) 372,015 Goodwill 1,322,959 1,631 1,324,590 Total assets 2,122,855 1,310 2,124,165 Accrued expenses and other current liabilities 14,682 6,572 21,254 Total current liabilities 119,188 6,572 125,760 Tax receivable agreements liability, net of current portion 155,900 ( 1,000 ) 154,900 Total liabilities 634,155 5,572 639,727 Additional paid-in capital 929,842 ( 1,795 ) 928,047 Accumulated other comprehensive income 1,994 ( 321 ) 1,673 Accumulated deficit ( 31,451 ) ( 456 ) ( 31,907 ) Noncontrolling interests 588,215 ( 1,690 ) 586,525 Total equity 1,488,700 (4,262 ) 1,484,438 Total liabilities and equity 2,122,855 1,310 2,124,165 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 June 30, 2022: Additional Paid-In Accumulated Other Accumulated Noncontrolling Total (in thousands) Capital Comprehensive Income Deficit Interests Equity As reported $ 929,842 $ 1,994 $ ( 31,451 ) $ 588,215 $ 1,488,700 Adjustment due to cumulative error correction ( 1,795 ) ( 321 ) ( 456 ) ( 1,690 ) ( 4,262 ) As restated $ 928,047 $ 1,673 $ ( 31,907 ) $ 586,525 $ 1,484,438 The Company did not present tables for quarterly adjustments within the consolidated statements of cash flows since all of the foregoing adjustments only affected financial statement line items within cash flows from operating activities. The adjustments did not affect total cash flows from operating activities, financing activities, or investing activities for any period presented. |