Buy Definitive Healthcare Stock On Weakness, Analyst Says As Revised Outlook Appears Achievable

Tuesday, Definitive Healthcare Corp DH reported first-quarter adjusted EPS of $0.08, up from $0.06 a year ago, in line with the consensus.

The company reported sales of $63.48 million, up 7%, missing the consensus of $63.99 million.

Adjusted EBITDA was $20 million, or 32% of revenue, compared to $15.7 million, or 26% of revenue in Q1 2023.  

In the first quarter, Definitive Healthcare grew its enterprise customer base by 30 or 6% Y/Y, ending with 559 enterprise customers.

Guidance: Definitive Healthcare sees second-quarter revenues of $62M– $63.5M versus a consensus of $65.19 million.

The company forecasts second-quarter adjusted EPS of $0.08–$0.09 versus a consensus of $0.09.

Definitive Healthcare sees fiscal year 2024 revenues of $255M– $261M versus a consensus of $266.27 million.

Definitive Healthcare anticipates 2024 adjusted EPS of $0.36–$0.38 versus a consensus of $0.38.

William Blair notes that the management attributed the relative weakness to two primary factors:

• The broader macro environment continues to pressure the company’s end markets, translating into tighter budgets and increased spending scrutiny. 
• Compounded by greater-than-expected disruption in sales activity following the organization’s go-to-market restructuring actions taken earlier in the year. 
• The analyst notes that the company substantially restructured its salesforce to prioritize larger enterprise clients in core client verticals in January.

In general, William Blair considers the recent quarter somewhat disappointing as it anticipated stronger indications of a rise in organic growth, particularly after management mentioned a slight improvement in retention trends towards the end of 2023 and the start of 2024.

“We would be buyers on the weakness for two primary reasons,” the analyst writes: 

• Management’s revised guidance is reasonable despite a modest implied sequential revenue uptick in the second half of the year.
• While the topline growth story remains depressed, the analyst remains positive on management’s commitment to making select investments to support the platform while prioritizing profitability.

Price Action: DH shares are down 27.70% at $5.24 at last check Wednesday.