Definitive Healthcare Corp. (NASDAQ:DH) Q4 2022 Earnings Call Transcript

Definitive Healthcare Corp. (NASDAQ:DH) Q4 2022 Earnings Call Transcript February 23, 2023

Operator: Ladies and gentlemen, greetings, and welcome to the Definitive Healthcare Fourth Quarter 2022 Earnings Conference Call. At this time, all participant lines are in a listen only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Matt Ruderman, General Counsel. Please go ahead.

Matt Ruderman: Good afternoon and thank you for joining us today to review Definitive Healthcare’s fourth quarter 2022 financial results. Joining me on the call today are Robert Musslewhite, CEO; Jason Krantz, Founder and Executive Chairman; and Rick Booth, CFO. 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 health care commercial intelligence solutions, our competitive position, customer behaviors, our financial guidance, our planned investments, and the anticipated impacts of global macroeconomic conditions on our business results and clients and on the health care industry generally.

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 sections 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. Additionally, we will discuss non-GAAP financial measures on this conference call.

Please refer to the tables in our earnings release on the Investor Relations portions 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 Robert.

Robert Musslewhite: Thanks Matt. I would like to thank all of you for joining us this afternoon to discuss Definitive Healthcare’s fourth quarter results. On today’s call, I will review our fourth quarter and full year results, offer some perspective on what we’re seeing in the market, and highlight some of the key value drivers of Definitive Healthcare’s differentiated data and platform, and then Jason will highlight some of our latest product innovations. We are pleased to have delivered strong fourth quarter results on both the top and bottom-line, with revenue and adjusted EBITDA both exceeding the high end of our guidance range. Our total revenue was $60.6 million, which represents 31% year-over-year growth and our adjusted EBITDA was $17.0 million, which translates into a 28% margin.

For the full year 2022, total revenue was $222.7 million, which represents 34% year-over-year growth, and our adjusted EBITDA was $63.7 million, which translates into a 29% margin. Taken together, we delivered a Rule of 63 performance in 2022, which we believe highlights our powerful combination of growth and profitability. Before diving into the fourth quarter in more detail, I would like to take a moment to highlight some of our key accomplishments across 2022. I’m proud of our success in what became a difficult macroeconomic environment. Our mission is to transform data, analytics, and expertise into health care commercial intelligence and we made significant progress against each element of that mission in 2022, which will position the business for sustainable growth over time.

We started off 2022 by expanding our analytics capabilities with the acquisition of Analytical Wizards, and then we released Passport Express six months later. I’m particularly proud of the Passport Express release because it integrated the analytics from Analytical Wizards with Definitive Healthcare’s industry-leading proprietary data set. The Passport product line extends our reach into both treatment pathway analytics and commercial marketing optimization, while significantly increasing the value that we can provide to life science customers across their entire lifecycle from research and development to product launch and commercial optimization. In the middle of the year, we released the next generation of our expert identification solution, Monocl ExpertInsight 2.0, which added a number of significant capabilities to the platform and expanded our data set to include more than 13 million key opinion leaders.

Perhaps most importantly, throughout the year, we continued to make significant investments in our data assets, increasing the breadth, depth, and uniqueness of our data, which we recently repackaged as the new Atlas Dataset. Jason will provide some more detail on the Atlas Dataset and other fourth quarter innovations in a bit. We accomplished all this in the midst of an economic backdrop that got progressively more challenging during the year. Conditions in the fourth quarter continued to exhibit what we saw in the third quarter with longer sales cycles, more stringent approval processes, and a sizable number of deferred purchasing decisions. Also, like in the third quarter, we saw this dynamic in both new logo and upsell activity and it remained more pronounced within the life sciences and provider markets.

As we’ve discussed in the past, our commercial teams have been adapting to this new backdrop and those efforts are showing early signs of yielding benefits. We are particularly encouraged by the continued strength in demand generation. Our sales pipeline was at an all-time high entering January and we have seen meaningful growth across all stages of the pipeline and in each vertical market. The increasing interest in the Definitive Healthcare platform is a strong validation of how mission critical we are to the success of our customers’ operations. We also kicked off 2023 with a more vertically-aligned go-to-market function, which will help us do a better job of understanding and responding to client needs. I’ve been impressed with the team’s early efforts to develop more in-depth account plans in the sales or upsell process, ensuring we understand and enfranchise all the key decision-makers who can impact the decision to avoid delays late in the cycle.

These global account plans also enable us to pursue larger, more strategic customer engagements, and we are seeing early success with this strategy, with one life sciences customer now accounting for nearly $3 million of cumulative ARR across all of our product lines. All of these improvements will help us function more effectively against the more challenging backdrop. Overall, we are pleased with what we achieved in 2022. We have continued to effectively grow and scale the business, exceeding $200 million in revenue and generating $54 million in free cash flow. We have continued to manage the business with a clear focus on maximizing our long-term success and value creation for customers and shareholders and we enter 2023 having made some key improvements across data, analytics, expertise, and with a commercial focus that will serve us well.

As we turn our attention forward to 2023 and beyond, we expect to continue to have success in the market, as the Definitive Healthcare platform is increasingly seen as a must-have for any business looking to efficiently and effectively sell into the complex, fragmented $4 trillion US health care market. This is not easy to do in the best of times, and it is even harder when the economy is weaker. The good news is that our platform is purpose-built to deliver this outcome to clients. We enable meaningful improvements in sales productivity by combining our proprietary affiliation data with claims data, so customers can develop more granular sales territories, identify the right decision-makers, and develop sales pitches that are targeted and effective.

I would note that this is becoming even more important as life sciences and other companies increasingly leverage digital channels as part of their sales efforts. We also help customers maximize their R&D investments by helping them accurately assess and size market opportunities as well as to identify the most important experts in the field to increase the likelihood of a successful product launch. Part of what makes the Definitive Healthcare platform is so powerful is its ability to take the vast amount of data we collect, ensure it’s accurate with our proprietary data science capabilities and make it easily accessible to business users. In order to be truly useful to a customer, data has to be actionable, and we believe there is no other platform in the market that provides the breadth and depth of actionable intelligence that we do.

To show why customers are choosing Definitive Healthcare to tackle some of their most pressing business challenges, I would like to highlight a few of our key wins from the fourth quarter. One of the world’s largest and most renowned cancer treatment and research institutions purchased a multiyear enterprise subscription to inform their strategy for partnering with leading hospitals across the country. This client purchased subscriptions to HospitalView, PhysicianView, PhysicianGroupView, and our Atlas All-Payor Claims Dataset. A large biopharmaceutical company focused on the discovery, development and commercialization of RNA interference therapeutics purchased a multiyear enterprise subscription to our HospitalView and Atlas All-Payor Claims to design and execute a strategy for selling into integrated delivery networks.

One of the world’s largest cloud computing service providers purchased a subscription to our HospitalView product as they recently decided to enter the health care market after seeing a rise in data breach and ransom attacks in hospitals. As they look to build out a new sales and marketing team for health care, they chose to make Definitive Healthcare one of their first investments. Turning to upsell deals. The nation’s oldest and largest association dedicated to fighting heart disease and stroke already use Definitive Healthcare Reference & Affiliation data to support their commercial efforts with hospitals and other facilities. In Q4, they added our Atlas All-Payor Claims product to monitor hospital heart failure, heart attack, and stroke encounters by the number of procedures at each facility.

Armed with this information, the association can better educate these facilities on how to improve care for patients facing severe heart ailments. We also had a significant upsell deal at one of the nation’s largest health insurance and service companies. We originally sold to the healthcare services business, which was using our PhysicianView and PhysicianGroupView products to map physicians to provider organizations. In the fourth quarter, we expanded our contract to cover the entire organization and added multiple new products, including HospitalView, SurgeryCenterView, ImagingCenterView, and ConnectedCareView. The organization also purchased our integration services to import our data into their internal data environments. At the world’s largest private global pharmaceutical company, we had a six-figure expansion of Passport promotional analytics into two new therapy areas where we previously did not have relationships.

And as a result, the combined Definitive Healthcare ARR across all product lines at this company is now in excess of $1 million. Finally, we more than doubled the size of our Monocl Expert Suite contract at one of the world’s largest multinational pharmaceutical and biotechnology companies. This contract is now in excess of $1 million ARR, and our key opinion leader intelligence will be used by this company’s entire global medical affairs team. Now, I would like to look ahead at 2023. From a macro perspective, we expect 2023 will be similar to what we saw in the second half of 2022. Our financial outlook does not anticipate an improvement in the selling, upselling or renewing environment, and Rick will cover this financial outlook in more detail later.

That said, we are committed to focusing on the things we can control that will best position the company for the long-term. We will accelerate investment in our data and platform to increase the insights we can provide to customers. Over the past 12 years, we have created unique and highly differentiated data sets and combined them with incredibly sophisticated analytics and decades of health care industry expertise. Part of the power of our platform is our ability to quickly apply AI and sophisticated data science to our growing data set to create new solutions that solve more of our customers’ business challenges. These investments are foundational to our long-term growth strategy and generate strong returns for us. We will build upon the success I mentioned earlier with our verticalization and global account team strategies.

As we continue to invest in the capabilities of the Definitive Healthcare platform, the opportunities we have to deliver value to customers will only get bigger. We are at the early stages of a $10 billion-plus market opportunity and believe we can dramatically expand our wallet share with customers over time. Investing to capitalize on this land-and-expand opportunity will continue to be our primary focus. Finally, we will continue to prudently manage our cost structure to fund these growth initiatives while maintaining our attractive margin profile. We have built a highly scalable and efficient business model that is highly cash generative. Prioritizing investments and rigorously measuring the returns we generate from a dollar spent is an important part of our success.

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Our ability to invest in our long-term priorities in a more challenging environment increases our competitive moat and long-term growth opportunity. Now, I’d like to turn the call over to Jason to talk about recent product innovation highlights.

Jason Krantz: Thanks Robert. I’d like to start by sharing some exciting news about the Atlas Dataset, which we announced to the market on February 2nd. Composed of multiple data sets, including Atlas Reference & Affiliations data, Atlas All-Payor Claims data, Atlas prescription claims data, and Atlas expert data, the Atlas Dataset provides a longitudinal comprehensive and complete picture of the health care market. Over the 12 years since I founded Definitive Healthcare, we’ve been recognized as a leader in Reference & Affiliations data, providing a complete view of the US health care ecosystem and have continued to build upon that foundation with our investment in new data types and data science, helping clients gain unique intelligence on health care entities.

And we’re excited to now package up all that data that our clients know and love into the Atlas Dataset. With the Atlas Dataset, we’re empowering customers to make strategic enterprise-wide data-driven decisions based on comprehensive up-to-date intelligence on the complex and broad health care ecosystem. Combining multiple data sets on more than 15 million health care experts and professionals and 300,000 health care organizations, the Atlas Dataset has multiple components, including Atlas Reference & Affiliations, which provides clients with unique visibility into the operations of and connections between health care providers and health care organizations. This data set spans more than 30 reference categories, including executive contact information, physical locations, care quality, technology infrastructure, and more.

Secondly, Atlas All-Payor Claims, previously known as our ClaimsMx, product contains billions of de-identified patient-level data points that enable longitudinal analysis of health care activity across all sites of care. This data includes claims for facilities and physicians across all payers, including commercial, Medicare, Medicaid, and other federal programs. We recently expanded our Atlas All-Payor Claims coverage significantly, including double-digit increases in key areas such as rare disease, oncology, and chronic conditions. Thirdly, Atlas Prescription Claims formerly known as our ClaimsRx product, contains billions of all payer life cycle pharmacy and direct prescription claims so users can understand the volume of claims that are paid, rejected and reversed.

When coupled with the broader Atlas Dataset, our claims products provide Definitive Healthcare customers with industry-leading intelligence on provider behavior, providers’ affiliation and referral patterns, patient care, and the activities taking place within a facility. As a result, clients can more easily find underdiagnosed patients, gain deeper insight into longitudinal patient journeys, leverage more accurate data in AGOR analytics, and access more precise commercial targeting. Finally, Atlas Expert, which contains information on more than 13 million global key opinion leaders, scientific researchers and health care providers. The data set also includes millions of data points from publications, clinical trials, social media activity, and news outlets, so clients can get an accurate understanding of the scientific activity and key providers for virtually any therapy area or disease state.

As part of the Atlas Dataset launch, not only did we significantly expand our coverage, but we also refined the methodology that we use to master payer and patient data, while implementing additional layers of data science to deliver more detailed and granular reporting and increased accuracy. Our plan is to continually expand and improve the Atlas Dataset by adding new data types as well as to continue to develop more sophisticated data science to help our customers instantly access the insight they need to drive the growth of their businesses. For example, just last week, our executive profiles crossed the 1 million threshold, thanks to the hard work from our data collection teams. Our in-depth industry-leading executive profiles cover executives and administrators at all levels of health care organizations.

And when combined with our world-class Reference & Affiliations data, allows our customers to not only find the right executive target, but to deliver a message that hits that mark every time. This is just one example of Definitive Healthcare’s innovation flywheel, which allows us to quickly and continuously build out new data sets, new analytics, and new functionality to drive more value for our customers and continue to sell more use cases across our clients’ organizations. This results in a higher ROI and the ability for our customers to reach that ROI more quickly, which in this market environment is absolutely critical. The impact that we are having on our customers is highlighted in the results of an independent market and customer research study that we completed in the fourth quarter.

At a summary level, the Atlas Dataset ranked first or second in every single one of the top 10 use cases for health care Reference & Affiliation data. This shows up more specifically as follows; within life sciences, Definitive Healthcare ranked first or second out of nine companies as the best option in multiple categories, including: comprehensive quality clinical and financial metrics, total addressable market analysis and identifying new physicians or health care organizations. In fact, biotech and medical device respondents ranked Definitive Healthcare as having the best intelligence to understand parent-child relationships by a 2:1 margin over the competition. Even more importantly, Definitive Healthcare users, which includes current and previous customers, ranked Definitive Healthcare as having the best intelligence to understand these relationships by a 3:1 margin over competing solutions.

Finally, more than 90% of life science respondents said that the completeness, accuracy, and ease of accessing Reference & Affiliation data are the most important evaluation criteria of health care data and analytics providers, which, of course, plays right into our unique strengths. Looking forward, the same survey showed that there is still plenty of opportunity for Definitive Healthcare to grow our business as nearly half of the respondents said their organizations are spending too much time managing and matching data across data sets. This is a problem we can help them with. As you can tell, I’m tremendously excited about what we learned in this survey as it shows the tremendous need for health care commercial intelligence and that Definitive Healthcare is perceived as a leader in that market, putting us in a perfect position to take advantage of the opportunity.

I’d now like to turn it over to our CFO, Rick Booth, to walk through Definitive Healthcare’s financial performance in more detail.

Rick Booth: Thanks Jason. I’ll start with a detailed review of our Q4 results before finishing with our guidance for Q1 and full year 2023. As always, in all my remarks, I will be discussing our results on a non-GAAP basis, unless otherwise noted. Our strong business model allowed us to deliver solid results in Q4, highlighted by strong revenue growth and profitability despite the continuing economic conditions. Highlights include 31% revenue growth compared to Q4 2021, 28% adjusted EBITDA margin, and a 24% unlevered free cash flow margin over the last 12 months, and revenue growth plus the trailing 12-month unlevered free cash flow margin was 55%, putting us well above the Rule of 40. Turning to our results in more detail. Revenue for the fourth quarter was $60.6 million, up 31% from prior year and 4% above the midpoint of our guidance.

This performance was driven by strong organic innovation and execution. As in the fourth quarter, we demonstrated our deepening analytics capabilities by delivering some large projects for global pharmaceutical clients. Pro forma organic revenue growth was 21% in the quarter and 27% for the full year. We ended the quarter with 538 enterprise customers, which we define as customers with at least $100,000 in ARR. This was an increase of 121 enterprise customers or 29% year-over-year and an increase of 34 enterprise customers from the previous quarter. As a reminder, these customers represent the majority of our ARR and are a key focus of our go-to-market programs. Our total customer count, which includes smaller customers, was 3,047 at the end of Q4, up from 2,865 in Q4 of 2021.

Overall, economic conditions continued to be challenging in Q4. Despite the continuing headwinds, we believe new business and expansion opportunities remain strong even if realization is slightly delayed in this environment. Gross profit was $53.4 million, up 31% from Q4 2021 and gross margin of 88.2% increased 31 basis points from Q4 2021 as our prior year investments in Prescription Claims data scaled. We invested in additional data sources earlier this year and we expect to see approximately 200 to 300 basis points of temporary gross margin compression for full year 2023 as these sources come online. Because two large data sources came online in January, the margin pressure is expected to be greatest in the first half of the year. Sales and marketing expense was $21.1 million, up 33% from Q4 2021.

As a percentage of revenue, sales and marketing expense was 35% of revenue, up 44 basis points from Q4 2021. The year-over-year increase is a result of modest investment in our go-to-market organization, primarily focused on continued verticalization of our sales and marketing teams. Product development expense was $7.5 million, up 50% year-over-year. As a percentage of revenue, product development expense was 12% of revenue, up from 11% in Q4 2021. We believe that investing in our platform and using our existing data sets to launch or enhance multiple products is a highly effective and efficient way for us to increase the value we deliver to customers. Robert and Jason touched on some examples of these earlier and we expect to continue to invest in the multiple opportunities we have identified on our long-term product roadmap.

G&A expense was $8.1 million, up 16% from Q4 2021. As a percentage of revenue, G&A expenses were 13% of revenue, down approximately 180 basis points from 15% in Q4 2021. We expect to see continued leverage from G&A, both because these costs are relatively fixed as well as due to ongoing efforts to lower administrative costs. Operating income was $16.3 million, up 33% from Q4 of 2021. As a percentage of revenue, operating income was 27% of revenue, up approximately 50 basis points versus Q4 2021. The year-over-year margin improvement was a result of favorable gross margin as noted as well as an approximately 180 basis point decline in G&A costs. These were partially offset by approximately 40 basis points of continued investment in sales and marketing and approximately 160 basis points of innovation investments in product and development.

Adjusted EBITDA was $17 million, a 30% increase from Q4 2021. As a percentage of revenue, adjusted EBITDA was 28% of revenue, approximately the same as Q4 2021. As we move through 2023, we will continue to look for areas in which we can reallocate investments to optimize growth while delivering adjusted EBITDA margins consistent with the Q4 run rate despite the impact of gross margin pressures noted above. Net income in Q4 was $10.5 million or $0.07 per diluted share based on 154 million weighted average shares outstanding. Turning to cash flow. Definitive’s high margins, upfront billing and low CapEx requirements provide substantial free cash flow generation. We focus on trailing 12-month cash flows due to seasonality. Operating cash flows were $35.6 million on a trailing 12-month basis, up 41% from $25.5 million in the comparable period a year ago.

Unlevered free cash flow was $54.2 million on a trailing 12-month basis, down 2% from the comparable period a year ago. Unlevered free cash flow was 24% of revenue on a TTM basis, effectively converting 85% of our adjusted EBITDA of $63.7 million for the same period into cash. Like any SaaS company, when bookings growth slows, so does deferred revenue, which is the biggest driver of unlevered free cash flows. As growth rates stabilize and recover, so should unlevered free cash flow. On the balance sheet, we ended the quarter with $332 million in cash and short-term investments, with only $266 million of debt and with our strong profitability, we are well positioned to fund both organic and inorganic growth initiatives. Current revenue performance obligations of $183.5 million were up 18% year-over-year, and total revenue performance obligations were up 11% year-over-year.

Deferred revenue of $99.9 million was up 19% year-over-year. You will note that cRPO and deferred revenue grew more slowly than revenue, and you saw that show up in unlevered free cash flow as I mentioned before. Moving now to guidance for Q1, we believe it’s prudent to assume that current conditions extend through the first quarter as well. Assuming this is the case, in Q1, we would expect: total revenues of $56.5 million to $58.5 million for a growth rate between 13% and 17%. Adjusted operating income of $13.5 million to $14.5 million; adjusted EBITDA of $15 million to $16 million for a 27% adjusted EBITDA margin; and adjusted net income of $6.5 million to $7.5 million or $0.03 to $0.05 per diluted share on 154.5 million weighted average shares outstanding.

For the full year 2023, we expect revenue of $249 million to $255 million for a growth rate of 12% to 15%. This assumes current conditions continue throughout 2023 and this growth will be almost entirely organic as we owned Analytical Wizards for all, but two months of the prior year, it will contribute less than 100 basis points to growth. As we move through 2023, we will keep a careful eye on costs and operating efficiency to ensure we drive growth in the most efficient way as possible. When we see revenue upside, we will try to reinvest it to deliver efficient growth while also ensuring that we continue to deliver attractive margins. Following this strategy, adjusted operating profit is expected to be between $61.5 million and $65.5 million; adjusted EBITDA is expected to be between $67 million and $71 million for a full year margin of 27% to 28%; and adjusted net income is expected to be between $30 million and $34 million, providing earnings per share of $0.19 to $0.23 on 155.5 weighted average shares outstanding.

Within this guidance, the key expected cost drivers are the gross margin impact of the new data sources coming online early in the first quarter, the annualization of expenses associated with people hired in 2022, the impact of cost of living expenses on employee wages, and selective investment in the very highest growth priorities. We expect these costs will be partially offset by continued efficiencies in costs not directly associated with revenue growth. So, to summarize, 2022 was a solid year for Definitive Healthcare despite economic headwinds and uncertainty. We’re well-positioned for the long-term because we’ve developed a clear leadership position in a large and attractive market that we believe will support high levels of predictable revenue growth, profitability, and capital efficiency.

And with that, I’ll hand it back to Robert for a few closing thoughts before we take questions.

Robert Musslewhite: Thanks Rick. Before opening the call for questions, I just wanted to share how proud I am of our employees and the culture and community they have created and continue to cultivate. It is a testament to them that we continue to receive important honors and recognition, including having been awarded the 2023 Best Places to Work in Boston Award from Built In, the Energage 2023 Top Workplaces Culture Excellence Award, the 2022 Stevie Award for Great Employers, and for the sixth consecutive year, the 2022 Top Place to Work by the Boston Globe. Another area of pride is our commitment to our community, where the volunteer work and generosity of our employees earned us recognition as a top charitable contributor in Massachusetts by the Boston Business Journal, and where last year, our employees had over 3,400 volunteer hours and we donated nearly $500,000 to charitable organizations.

And to further our mission and action towards sustainability and transparency, we are proud to have joined the United Nations Global Compact, the largest corporate sustainability initiative in the world. As we look ahead to 2023, I expect our team to continue to do valuable work not only in their roles at Definitive Healthcare, but also in sustaining our strong culture and in making a difference outside the office and our communities. With that, we’ll open the line for questions. Operator?

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Q&A Session

Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. Our first question comes from the line of David Grossman from Stifel. Please go ahead.

David Grossman: Thank you. Good afternoon. I know it’s a really difficult environment to forecast anything right now, but as you obviously had to come up with guidance for 2023. So, as you think about the assumptions that you’re making that underlie that guidance, where do you think are the areas where you could have the most variability, whether it be kind of positively or negatively relative to the assumptions that you’re using?

Rick Booth: Well, we have an extremely predictable business model so we’re very lucky in that. The new bookings is the most variable component. That’s actually a little bit de-risked in the guidance that we’ve provided. And we expect that we’ll see some uptick as we get into the second half of the year as the economy improves. But that’s the widest variability that we have.

David Grossman: And I saw the deck that came out during the call. So, it looks like obviously, revenue retention went down consistent with the backdrop and everything you’ve been saying. So, as we think about 2023, should we think about retention, no improvement, meaning that the retention levels would look similar to 2022? Or should we expect to see some improvement in the back half of the year?

Robert Musslewhite: David, I think like — David, can you hear me? It’s Robert.

David Grossman: I can, yes.

Robert Musslewhite: Okay, great. From a math perspective, here’s what we did. We basically looked ahead. We now have another quarter of information on how things went last year. And like Rick said, it looked a lot like Q3 last year. We don’t have any reason to believe it’s going to differ from the quarter we just saw and the quarter before that. So, we’ve assumed that, that environment is going to continue for the rest of this year. To Rick’s point, there are things that can change across the year. If the macro environment improves, we would see better new sales and upsell. That would have some effect this year, obviously, but it will primarily have an impact on 2024 revenues because like Rick said, our business model is set up so that commercial performance in one year really does lock in commercial performance in the following year.

You asked about retention. Retention can impact a year, obviously, if it were to really change, but our retention rates have been reasonably consistent year-over-year. Certainly, we see a little bit more, especially for small bio of late, where we’ve seen mostly financial distress cases that have popped up, and we try to work with them and try to keep them as much as we can, obviously. But sometimes, you just end up in a place where you can’t get to an agreement on what that means and you lose the client and that’s a bummer. But I don’t think we’d expect to see that number move markedly in such a way that it would impact drastically the projections we put out now. So, long way of saying, look, there’s a lot of variability. We do our best to predict it.

We made assumptions based on what we knew looking back and what we feel going forward and feel good about that.

David Grossman: All right, got it. Thanks very much for that. And just about the 1Q guidance, can you help us understand? It looks like we’re going to be down sequentially. Is there some anomaly there? I know seasonally, that’s not typically the case. So, is that just kind of consistent with everything we’ve been saying? Or is there some anomaly in there that’s taken the revenue down sequentially?