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Definitive Healthcare Corp. (DH -16.45%)
Q2 2022 Earnings Call
Aug 04, 2022, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the Definitive Healthcare conference call. [Operator instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Mr.
David Samuels, chief legal officer. Please go ahead.
David Samuels -- Chief Legal Officer
Good morning, and thank you for joining us today to review Definitive Healthcare second quarter 2020 financial results. Joining the call today are Robert Musslewhite, Definitive Healthcare's CEO; Jason Krantz, Definitive Healthcare's founder and executive chair; and Rick Booth, Definitive Healthcare's chief financial officer. During the call, we will make forward-looking statements, including, but not limited to, statements relating to our markets and future growth opportunities, the benefits of our healthcare commercial intelligence solutions, our competitive position, customer behaviors, our financial guidance, our planned investments and the anticipated impact from the COVID-19 pandemic on our business and results of operations, as well as on our clients, the healthcare industry generally and the macroeconomic environment. 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 section of our filings with the SEC. Actual results may differ materially from forward-looking statements. The company undertakes no obligations 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 statements included in the earnings release that was just posted to the investor relations portion of our website.
Additionally, we will discuss non-GAAP financial performance measures on this conference call. References on this call to profitability are on an adjusted EBITDA basis. Please refer to the tables in our earnings release on the investor relations portion of our website for a reconciliation of these measures to the most directly comparable GAAP financial measures. With that, I'd like to turn the call over to Robert.
Robert Musslewhite -- Chief Executive Officer
Thanks, David. I would like to thank all of you for joining us this afternoon to discuss Definitive Healthcare's second quarter results. Let me start by saying that I'm incredibly excited to lead this terrific company. We are at the early stages of delivering on our mission to transform data, analytics and expertise into healthcare commercial intelligence, and I believe we are in a great position to generate strong growth at scale for years to come.
I'm also thrilled to be able to continue to partner with Jason in his new role as executive chairman. I'm sure we will all continue to benefit from his passion for product development and delivering value to our customers. On today's call, I will review our second quarter results, provide some color on what we are seeing in the market and discuss several important recent wins before turning it over to Jason to discuss our latest product innovations. We had a solid second quarter, signing significant wins in each of our markets: life sciences, providers, healthcare IT and diversified with both new and existing customers.
Customer interest in our healthcare commercial intelligence platform remains very high due to the value we can deliver across a variety of use cases from clinical trials and product development to sales force enablement to talent acquisition and many others. Customers are looking for technology that can improve their top and bottom line performance and Definitive Healthcare is well positioned to deliver on both. This backdrop powered our second quarter financial results, which exceeded the high end of our guidance on both the top and bottom line and demonstrated our ability to deliver strong revenue growth and high profitability. Our total revenue was $54.5 million, which represents a 37% year-over-year growth, and our adjusted EBITDA was $16.3 million, which translates into a 30% margin.
This was well ahead of our expectations for the quarter and reflected the timing of investments, as well as the inherent scalability of our business model. While our financial results in the quarter were strong, we did begin to see some lengthening of deal cycles toward the end of the quarter. Some prospects in each of our markets instituted additional approval processes or deferred making final decisions due to the uncertainty in the broader economy. This was largely concentrated among new prospects as upsell activity remains strong, and importantly, the deals that have been delayed remain active sales opportunities.
In the near term, we think it is prudent to assume these dynamics we saw in the second quarter will persist across the second half of the year. As I mentioned earlier, however, demand generation across all channels remains very healthy, and we feel very good about Definitive Healthcare's continued strong growth prospects. We will continue to benefit from the fact that the healthcare market is not only incredibly durable in all macroeconomic environments but has continued strong tailwinds, including an aging population, heavy focus on value-based care and as an industry in the early stages of a digital transformation that plays right into our strength. Plus, we support companies' and organizations' growth and sales activities, critical activities where they are most in need of help and most likely to prioritize for external spend.
As a result, we remain on track to deliver revenue growth of approximately 34% for the year and to exit the year at or above a 30% adjusted EBITDA margin. I would now like to spend a few minutes discussing how we believe our value proposition will resonate with customers in current market conditions and highlighting several wins from the quarter. At its core, the Definitive Healthcare platform is built to simplify the complexity of the healthcare ecosystem for any company selling into this $4 trillion market, which is not only the largest segment of the economy but also the most misunderstood and difficult to navigate. The Definitive Healthcare platform can help any company looking to sell into the healthcare market, make more informed decisions about their business.
For example, we help all kinds of companies in various industries, ranging from software to staffing to life sciences, optimize their sales and marketing efforts across the entire spectrum of the healthcare ecosystem. Building an efficient sales organization that targets the complicated healthcare marketplace requires a deep understanding of who are the most important decision-makers and the relationships among all the relevant facilities, physicians and health systems in order to create compelling messaging to drive effective sales and marketing campaigns that maximize precious investment dollars. Our platform does all of this quickly and easily. Provider organizations routinely select Definitive Healthcare to help them influence referral patterns, reduce out-of-network leakage and ultimately grow market share.
Definitive Healthcare provides intelligence around patient populations, provider and payer behavior to help providers understand where and how to invest capital, understand expansion opportunities and determine what types of service line changes might be necessary to optimize revenue in a value-based world. Life science companies, in addition to the sales and marketing needs I outlined earlier, must be able to accurately size patient populations, assess market opportunities and identify the right experts for a specific disease area before undertaking clinical trials that can take years and cost tens or hundreds of millions of dollars. Our platform helps them do all of that. Solving these business needs for customers is especially important in more challenging economic times when investment decisions are more heavily scrutinized and the cost of a failed drug launch or sales campaign can be particularly costly.
The Definitive Healthcare platform is uniquely positioned to solve these and other business challenges for several reasons. The first is our ability to provide a comprehensive view of the entire healthcare ecosystem. Last quarter, I discussed with you how we've amassed nearly 100% coverage of the healthcare market through our sophisticated data ingestion engine, proprietary data research and extensive use of artificial intelligence. Today, I want to focus on why a comprehensive view is so important to a customer.
When companies are selling into the healthcare industry, they need more than a quantitative picture of their target market to identify the right physicians who can be the best partners and key influencers, organizations need to understand more than practice locations, number of patients and prescribing history. To be sure, that's high-value quantitative data that, in many cases, only Definitive Healthcare has, but to truly maximize sales force efficiency, these organizations need behavioral data about their provider population and their patient population, including a provider's willingness to try new therapies and whether the policies of their affiliate delivery network permit them to make that decision. At Definitive Healthcare, our algorithms generate these qualitative insights, which we then marry to the quantitative data to generate real commercial intelligence. The second is our SaaS-based platform.
In rapidly changing markets, speed and flexibility are paramount. Customers need the right information at their fingertips and need to be able to find that information on their own. It is simply too costly and inefficient, having wait weeks for an answer from a third-party services organization. With a Definitive Healthcare platform, customers are able to directly leverage our various data sets and customize their queries immediately as needed.
This is critically important at a time when market conditions are evolving quickly, and customers need to ensure they're using the most relevant and up-to-date data when making business decisions. Finally, the breadth and depth of our historical data allows us to respond to customer demand quickly with new insights. Over the last 11 years, we've created a longitudinal view of the healthcare ecosystem that helps our clients understand how this dynamic industry is changing and how they need to adapt their business. For example, we have historical affiliations data to ensure our clients understand how physician loyalty and referral patterns are changing over time.
We understand the history of technology infrastructure at hospitals, so we can help our clients predict when it changes likely. And we have details on where executives have been so that our clients can understand how to personalize their message to have the greatest impact. These mission-critical questions can only be answered because we have the history to understand the past and therefore, better predict the future. And this history of highly proprietary data does not exist anywhere else creating a competitive moat that continues to deepen over time.
I'd now like to spend a few moments reviewing some of our key wins in the quarter. Once again, we saw a good deal of momentum across each of our key customer segments for a growing variety of different use cases. First, we continue to see significant traction across the life sciences market. We sold a multiyear enterprise deal at medical device company manufacturing compression pumps for lymphedema patients.
This was a very competitive deal, where we displaced the existing data and analytics provider with our Latitude Reporting product that we launched in Q4 of last year. This customer will use Definitive Healthcare reference data, lab data and account profiles to improve targeting account profiles and competitive analysis. Our recent acquisition of Analytical Wizards continued to perform in the second quarter as well. We won a multiyear upsell deal for Passport Promotional mix and one of the world's largest independent biotechnology companies.
This customer is a longtime user of the Analytical Wizards product suite, and they significantly increased their investment with us in the second quarter by adding seats and functionality to enable quarterly reporting and analysis of their marketing investments as opposed to the previous reporting set that was delivered annually. Our Monocl product line also continued its track record of success, winning multiple deals within the quarter, including a large deal at a leading global biotech in the oncology space. This company is launching a new key compound and they had an immediate need for key opinion leader data in the Asia Pacific region. They selected and Monocl because of the depth of our expert data, our medical liaison-driven approach and the fact that we'll be able to offer them access to experts around the globe as they move beyond their initial APAC launch to other global regions.
In addition to our success in the life sciences space, we had our usual wide spectrum of deals in a variety of industries. Health care staffing and recruiting continues to be a strong market for us with both growth in new logos and expansion with existing clients. We also saw multiple wins at both national and state level insurance companies. We plan to use our physician and physician group data to strengthen their provider networks.
In the provider market, we had several significant wins including a three-year deal at a managed services organization that will utilize our platform to help build out its ambulatory network for outpatient cardiac surgeries. In our diversified segment, we had wins ranging from the world's leader in electronic signatures and agreements to the largest specialty distributor of rehabilitation and sports medicine products in the United States to one of the world's largest coffee retailers, which wants to use Definitive Healthcare to target hospitals for both its foodservice business and to put coffee shops in their lobbies. These are great examples of the value we are delivering to both new and existing customers today and will continue to do for years to come. I'd now like to turn the call over to Jason to review some of our recent product innovations and takeaways from our user conference, Definitive LIVE! that we hosted during the quarter.
Jason Krantz -- Founder and Executive Chairman
Thanks, Robert. We had a busy second quarter in product development. including the introduction of Monocl ExpertInsight 2.0 and Monocl ExpertGO, as well as continued innovation across our entire integrated platform. But let me start with our recent user conference, Definitive LIVE!, which we held virtually on May 17 with almost 1,100 customers in attendance.
This is a great opportunity for us to showcase the full breadth and depth of the Definitive Healthcare platform. Over the course of the day, we held more than 20 breakout sessions that highlighted some of the most innovative ways customers in each of our end markets are using our platform. It was incredibly powerful to hear firsthand testimonials for numerous customers on how they're utilizing the data and context our platform provides to drive significant tangible value to their business. There are a number of these testimonials on the investor relations section of our website.
I encourage you to listen for yourselves. One of the key takeaways for us is that the challenges and opportunities facing our customers continues to grow, and there's the desire to use our platform to solve even more of these challenges. This underscores the opportunity for us to continue to innovate and as a result, expand not only our total number of customers, but also to grow our relationships with existing customers through more data, analytics and tools. The most significant product announcement within the quarter was a simultaneous release of Monocl ExpertInsight 2.0 and ExpertGO.
Monocl ExpertInsight 2.0 is the next generation of our expert identification solution that significantly expands the capabilities of this product and provides customers access to nearly 13 million key opinion leaders. In this latest version, customers can use live filters that provide realtime updates of scientific activity by expert or a therapeutic area, as well as more granular key opinion leader mapping. These capabilities make Monocl even more effective at helping medical affairs teams find the right experts that can help develop better medical strategies and bring new drugs for medical devices to market quicker. We've also made it even easier to access Monocl with the release of our new mobile app, ExpertGO.
This is an important release as medical science liaisons are common users the Monocl, and most of them spend the bulk of their time in the field visiting experts in person. ExpertGO, they'll now be able to use Monocl no matter where they are. We also worked hard during the quarter to continue to leverage the value of the technology platform we acquired with Analytical Wizards. Last week, we launched Passport Express, the first product that integrates the comprehensive analytics built by Analytical Wizards with the proprietary data from Definitive Healthcare.
We acquired Analytical Wizards in February of this year. And in less than six months, our combined product and engineering teams were able to design and ship this new product, a great proof point of the speed at which we look to integrate acquisitions and the innovation this can drive. Available for more than 20 therapy areas, Passport Express delivers fast and easy access to off-the-shelf healthcare commercial intelligence, enabling biopharma companies to better understand treatment pathways, brand behavior and market share. For a given therapy area, we've extracted mission-critical data from our industry-leading commercial intelligence platform, including payer claims, physician affiliation information and healthcare reference data.
These data are then pre-populated at the Analytical Wizards environment where customers can instantly query flexible dashboards and powerful visualization tools to quickly get answers to their questions. The integrated data and analytics and Passport Express practically eliminates the research requirements and time lines traditionally require for commercial teams to source real-world data, normalize and link it and then build analytical models on top. With Password Express, you get that right out of the proverbial box. This is the first of many innovations to come that will combine the power of the highly proprietary Definitive Healthcare data with the best-in-class commercial analytics platform that Analytical Wizards has developed.
These are great examples of how we're able to quickly innovate and iterate on existing solutions to provide additional value to customers. This is a key part of our product development strategy. And you should expect to see continued enhancement of our existing modules over time, as well as in the development of brand-new solutions. I'd like to now turn it over to Rick to walk through Definitive Healthcare's financial performance in more detail.
Rick Booth -- Chief Financial Officer
Thanks, Jason. Our Q2 results reflect another quarter of steady execution highlighted by ongoing revenue growth and very strong profitability. I'll start with a quick overview of our business model from a financial perspective, then provide a detailed review of our quarterly results before finishing with our guidance for Q3 and full year 2022. In all my remarks, I'll be discussing our results on a non-GAAP basis, unless otherwise noted.
I'll start by reminding everyone of some of the key attributes to make Definitive Healthcare's business model so compelling. We're a high-growth subscription business, selling into a $10 billion and growing total addressable market with low single-digit market penetration. We have excellent forward-looking visibility through our multiyear contracts and high net dollar retention rates. We operate profitably with high gross margins and a very efficient customer acquisition engine.
We innovate efficiently by building on our proprietary data asset and data science platform. And finally, up-front billings and low capex requirements help us translate profits directly into cash flows and shareholder value. Our Q2 results illustrate how the business model plays out in practice. Highlights include: 37% revenue growth compared to Q2 2021, 30% adjusted EBITDA margin ahead of schedule, 33% unlevered free cash flow margin over the last 12 months.
In revenue growth, plus trailing 12-month unlevered free cash flow margin was 70%, putting us well above the Rule of 40. We believe that Definitive's combination of high growth, high visibility and attractive profitability positions us well in current conditions and for many years ahead. Turning to our results in more detail. Revenue for the second quarter was $54.5 million, up 37% from prior year and 2% midpoint of our guidance.
This performance is driven by strong organic innovation and execution as pro forma organic revenue growth was approximately 29%. Our revenue growth continues to be driven by strong sales momentum. We ended the quarter with 486 enterprise customers, which we define as customers with at least $100,000 in ARR. This was an increase of 136 enterprise customers or 39% year-over-year growth and an increase of 38 customers from the previous quarter.
As a reminder, enterprise customers represent the majority of our ARR and are a key focus of our go-to-market programs. Our total customer count, which includes small customers was 2,993 at the end of Q2 and up from 2,714 in Q2 '21. We also continue to have success upselling into our existing customers, which is a core component of our growth strategy. We have strong retention rates among the enterprise customers and multiple avenues to increase their spending with us over time, both through the adoption of additional modules and expanding usage to additional users and new functions and therapeutic areas within their organizations.
Gross profit was $48.3 million, up 38% from Q2 '21. Gross margin of 88.5% increased 60 basis points from Q2 '21 as our prior year investments in prescription claims data scaled. We continue to invest in additional data sources, and we expect to see some temporary gross margin compression in the second half those investments and as Analytical Wizards continues to grow. Sales and marketing expense was $18.5 million, up 48% from Q2 '21.
As a percentage of revenue, sales and marketing expense was 34% of revenue, up from 31% in Q2 '21. The year-over-year increase is a result of investments in our go-to-market organization such as expanding our digital marketing capabilities and building out our sales and customer success teams, as well as the addition of Analytical Wizards. Product development expense was $6.8 million, up 63% from Q2 '21. As a percentage of revenue, product development expenses were 13% of revenue, up from 11% in Q2 '21.
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 will continue to invest in the multiple opportunities we have identified on our long-term product road map. G&A expense was $7 million, up 67% from Q2 '21. As a percentage of revenue, G&A expenses were 13% for revenue, up from 10% in Q2 '21 when we were still a private company.
The good news is that we are already seeing scale effects as SG&A as a percentage of revenue has dropped 230 basis points from Q4. We expect to see continued leverage from G&A, both because these costs are relatively fixed, as well as due to success in ongoing efforts to lower administrative costs. Operating income was $15.3 million, up 11% from Q2 '21. As a percentage of revenue, operating income was 28% of revenue compared to 35% in Q2 '21.
The year-over-year change in margin is related to three key investments. First, 250 bps of continued investment in sales and marketing; second, 200 bps of innovation investments in product and development; and third, 230 bps of public company G&A costs. A brief comment on hiring in the quarter. We set very aggressive hiring goals, both in terms of the skills we need and the number of people.
In Q2, as in Q1, we fell slightly behind our planned rate of hiring, especially in some technology roles, which drove some short-term favorability in margins. With the ability to recruit talent in more markets via Analytical Wizards and in virtual roles, we continue to target making up the shortfall in the remainder of the year. Adjusted EBITDA was $16.3 million, a 13% increase from Q2 '21. As a percentage of revenue, adjusted EBITDA was 30% of revenue compared to 36% in Q2 '21 due to the investments outlined earlier.
Net income in Q2 was $8.9 million or $0.06 per diluted share based on 154.7 million weighted average shares outstanding. Turning to cash flow, Definitive's high margins, up-front 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 $32.4 million on a trailing 12-month basis, up 3% from $31.4 million in the comparable period a year ago.
Historically, cash flow has been strongest in Q1 and Q2 due to the timing of year-end invoicing, and we expect that trend to continue. Unlevered free cash flow was $63.4 million on a trailing 12-month basis, up 10% from the comparable period a year ago. Unlevered free cash flow was 33% of revenue on a TTM basis, effectively converting more than 100% of our TTM adjusted EBITDA into cash. We expect this ratio to return closer to 100% on a TTM basis by the end of the year as we make payments on our additional data investments.
On the balance sheet, we ended the quarter with $346 million in cash and investments, with only $268 million of debt. And with our strong profitability, we're well positioned to fund both organic and inorganic growth initiatives. Current revenue performance obligations of $163 million were up 32% year over year, and total performance obligations were up 31% year over year. Deferred revenue of $89 million was up 29% from $69 million in Q2 '21.
Investors will note that CRPO and deferred revenue grew more slowly than revenue. As CRPO grown at the same rate as revenue, it would be about $6 million higher as of the end of Q2. About one half of that difference is normal seasonality due to the timing of renewals and the remainder is due to longer booking cycle that Robert mentioned, as well as because Analytical Wizards business model generates less CRPO per dollar of revenue. Turning to Analytical Wizards.
It's early days, and they're a small tuck-in. So I won't spend much time on them other than say that they are performing very well, and we're pleased with the launch of Passport Express, which brings their analytics to bear on Definitive's unique proprietary data. As a company, they're still just below breakeven adjusted EBITDA margins and so impacted our consolidated margins by about 160 basis points, but we're confident they will eventually operate at our customary profitability levels. Moving now to guidance for Q3 and full year 2022.
While demand remained strong, we saw the lengthening of some deal cycles in Q2. Our guidance reflects what we experienced in the first half of 2022 and assumes a continuation of this pattern in the second half of the year. In Q3, we expect total revenue of $56 million to $57 million for a median growth rate of 31%, non-GAAP income from operations of $15 million to $16 million, adjusted EBITDA of $16 million to $17 million or 29% median EBITDA margin and non-GAAP net income of $7.5 million to $8.5 million or $0.04 to $0.05 per diluted share on 155.4 million weighted average outstanding. For the full year 2022, we're maintaining our full year revenue guidance of $220 million to $224.5 million for a median growth rate of 34%.
We are tightening our ranges for adjusted operating profit and adjusted EBITDA, through adjusted operating profit is now expected to be between $58.5 million and $61.5 million, and adjusted EBITDA is now expected to be between $63 million and $66 million. for a full year median margin of 29%. Moving below operations to adjusted net income, we are lowering our guidance for adjusted net income to $29 million to $32 million and earnings per diluted share of $0.18 to $0.21 on 155.1 million weighted average shares outstanding. This decrease is due primarily to higher interest rates and secondarily due to the non-GAAP tax effects of onetime restructuring and M&A integration costs.
To summarize, Q2 was a solid quarter for Definitive Healthcare, and despite current economic uncertainty, we are well positioned for the remainder of 2022 and beyond. We've developed a clear leadership position in a large and attractive market that we believe will support high levels of predictable revenue growth and profitability for the foreseeable future. We believe we've built a unique business that can deliver strong growth at scale and do so in a capital-efficient manner. We feel good about the opportunity Definitive Healthcare has to become a much larger, more valuable business for our shareholders over time.
And with that, I'll hand it back to Robert for a few closing thoughts before we take questions.
Robert Musslewhite -- Chief Executive Officer
Thanks, Rick. Before I close out, I want to take a moment to congratulate our customer success team who won three Stevie Awards in Q2 at the 20th Annual American Business Awards, including Customer Service Department of the Year and Customer Service Executive of the Year. And I also want to quickly recognize that Definitive Healthcare was recognized by Energage into as a top workplace culture excellence winner in five categories, including innovation, compensation and benefits and purpose and values. A huge thanks to all of our employees for their dedication and hard work they put into building our incredible culture and making Definitive Healthcare such a special place to be.
I'll finish by reiterating the strength of Definitive Healthcare's performance in the first half and our confidence to generate strong growth at scale over time. We have clearly established healthcare commercial intelligence as a large, growing and strategically important market in which we are tremendously well positioned. Our solutions help customers drive profitable growth across all stages of the healthcare market in a way that nobody else can. With that, we will now open the line for your questions.
Questions & Answers:
Operator
[Operator instructions] Your first question comes with Craig Hettenbach. Please go ahead.
Craig Hettenbach -- Morgan Stanley -- Analyst
Yes, thank you. Just starting with a question on the macro and the lengthening of sales cycles. Are you seeing any impact in terms of the length contracts that customers are looking for? And then, also just want to be clear on the distinction. It sounded like these are new customer engagements versus existing customers in terms of where it might be more pronounced.
Jason Krantz -- Founder and Executive Chairman
No, we're not going to --
Rick Booth -- Chief Financial Officer
Craig, thanks for the question. Yes, with regarding to sales cycles, it's primarily in new customers, as we said, that's mostly where we saw it and generally in some of the larger, more complex deals. And no, we haven't seen changes in the terms of the deals. They remain pretty consistent throughout the year.
Craig Hettenbach -- Morgan Stanley -- Analyst
Got it. And then, I just wanted to follow up M&A is an important part of the strategy, just to kind of touch on the pipeline. And in particular, are you seeing maybe any compression in valuations out there or any changes in terms of potential targets and their appetite to be acquired?
Robert Musslewhite -- Chief Executive Officer
On the M&A side, we've seen continuing good activity. We're always out there talking to companies. We have a really good formula for M&A, as you know, finding a unique capability that brings something new to us that we can then take out broadly across our customer base in that kind of sweet spot of size range and have had good success with Monocl and Analytical Wizards as you've seen. So we're always out looking for those and, we have a strong balance sheet, and we're hopeful that we'll continue to find those opportunities going forward.
We'll still expect to do one to two per year moving forward. And like I said, still seeing some good targets out there.
Craig Hettenbach -- Morgan Stanley -- Analyst
Thank you.
Robert Musslewhite -- Chief Executive Officer
Thanks, Craig.
Operator
Your next question comes with George Hill with Deutsche Bank. Please go ahead.
Maxi Ma -- Deutsche Bank -- Analyst
Hi, it's Maxi on for George. Thanks for taking the question. So just want to follow up on the question on slowing deal process. Can you provide some more color on demand by subsegments and by regions? Which ones are seeing the most impact from economic uncertainties and which ones are more resilient?
Robert Musslewhite -- Chief Executive Officer
Yes. The only sort of categorization of those that I think is -- that we've seen is that it's more on new business. It was kind of the same across each of our core end markets. And of course, most of our business is here in the U.S.
So there wasn't a real difference in geographical impact there. But we saw it across each of our end customer segments roughly similar trends.
Maxi Ma -- Deutsche Bank -- Analyst
OK. I know it's still early, but on a very high level, can you talk about how do you see the demand trending in 2023 and whether the growth rate will hold?
Robert Musslewhite -- Chief Executive Officer
Sure. I mean, it's obviously too early to comment on 2023 in terms of demand, but we're still seeing good demand. I mean, the nice thing is while there's a little congestion in moving through the pipeline during these times of uncertainty, revenue-generating solutions get prioritized and funded. We're having great conversations.
We think it's just a matter of when, not if on these deals. And particularly as we look at the types of solutions that we offer and the type of end market that we play into, which is healthcare, people need our help and people need our kinds of solutions that they're going to sell into healthcare. So it's a massive end market. It's generally not as cyclical as the rest of the economy has really strong demographic tailwinds, and it's confusing.
So as it continues to move toward digitization, we really feel good about what we're hearing out there about people needing our solutions and feel good about demand continuing.
Jason Krantz -- Founder and Executive Chairman
Yes. Well said, Robert, I think top of the funnel demand is strong. On a short-term basis, we are seeing a little bit of pipeline elongation. As I mentioned in my remarks, the year-to-date CRPO was about $3 million below where we would normally expect it to be.
I think it's prudent, and we've considered in our guidance that the second half of the year could look a lot like the second quarter. So simple math would then translate that to around the 2% to 3% headwind if things don't change. in 2023. So not major, but certainly something that we're aware of, and we're paying attention to.
Operator
Thank you. Your next question comes with David Grossman with Stifel Financial. Please go ahead.
David Grossman -- Stifel Financial Corp. -- Analyst
Thank you. You know, I know you don't really disclose retention quarterly, but perhaps you could give some qualitative commentary about what you're seeing on the retention side. Obviously, you've given us some good color on what you're seeing in new customer activity. But just given your recurring revenue model, just curious kind of what the retention trends are looking like as you went through the second quarter.
Rick Booth -- Chief Financial Officer
Yes. Thanks, David. Retention has been good. I mean, I think we continue to see the dynamic when a customer starts using our solution, they get very high return from it.
And they tend to -- a lot of cases, embed our information into their CRM or into the workings of their sales force or marketing team. And so, once they start using it, it's something that they want to keep using because they recognize that value. So we continue to see consistent retention trends and feel like that's exactly what I said. It's because of the value that our solution provides, and we'd expect that to continue.
David Grossman -- Stifel Financial Corp. -- Analyst
And sorry -- go ahead.
Jason Krantz -- Founder and Executive Chairman
I was just going to point out, what we see is exactly what other people are talking about. When you're talking about a new incremental investment, so a new logo, things are just going through more scrutiny. And we, like everyone else, are doing that. But ultimately, the things that drive growth and things that have fast ROI are going to get [Inaudible].
David Grossman -- Stifel Financial Corp. -- Analyst
Right. And I'm sorry, Rick, you had mentioned, I think you gave us both the current and noncurrent RPO numbers. Can you just repeat those? I didn't get them when you mentioned them on the call.
Rick Booth -- Chief Financial Officer
Yes. Current RPO is $163 million. Total RPO is actually very close to the CRPO, but let me pull that up to you. I will hop back into the line and on the second with that.
Till then we can take another one.
David Grossman -- Stifel Financial Corp. -- Analyst
Sure. Just one other quick question, if I could. So the margin, I think, headwind, I think you said in your prepared remarks for AW was about 160 basis points. And I think when we talked before, it was closer to 200.
So is it just the second quarter was lower and it's 200 for the year? Or is the margin headwind a little bit less than you thought it would be at the beginning of the year or post-acquisition, I should say.
Rick Booth -- Chief Financial Officer
We're making really strong progress with integration of AW, we've already integrated their North American operations on to our ERP. And so, we're very pleased with our progress there. And you've asked about CRPO and total RPO. CRPO, $163.3 million and total RPO $256.6 million.
David Grossman -- Stifel Financial Corp. -- Analyst
All right. Thanks very much, guys.
Robert Musslewhite -- Chief Executive Officer
Thank you.
Operator
Your next question comes from Jonathan Yong with Credit Suisse. Please go ahead.
Jonathan Yong -- Credit Suisse -- Analyst
Thanks. I'll just kind of jump on the sales cycle again. What's -- do you have a sense of how long the elongation is kind of taking? Is it adding three months, six months? Kind of is there any color that you have on that in terms of the sales cycle will take kind of on a go-forward basis? And then secondly, if this does persist throughout the second half, is there anything that you can do on your side to try to loosen that up a bit?
Robert Musslewhite -- Chief Executive Officer
Yes. Thanks, Jonathan, great questions. I think on the first part, we just started seeing it this past quarter. And so, our sales cycles are typically kind of two to four months.
So I can't give you a quantitative answer on that, only that it just feels like we're getting a little bit greater budget scrutiny, a little bit additional approval steps driven by procurement or CFOs or new executives getting inserted kind of late in the sales process. So it's really more process steps than a sort of overall fundamental change in the sales cycle. And like I said, we're working hard to continue to get those deals signed and all our deals signed. When you talk about like the -- what we can do, first and foremost, we really feel like this is a short-term issue.
Like I've said, we remain confident that revenue-generating solutions like ours will get prioritized and funded. It just might take a few extra steps to do that. Second, we continue to drive innovation, as we've talked about today. And innovation is great because it lets you accelerate sales conversations in many cases.
And ExpertGO, Passport Express and all the things we're doing, give us some use cases to come in and accelerate some of those. And then, of course, we're doing a lot of work just enabling our sales team to match their messages to today's environment. And that's things like training the teams to focus really heavily early in the cycle on the process required to close deals. So understanding every required step, every key decision maker mapping out that full path, being sure we're not surprised in any sales cycle.
Things like frequent deal level process management. So ensuring that the deals progress through all the required steps and the reps and franchise all expect individuals early in the process, things like that. And finally, things like retraining on ROI. Obviously, we have great ROI in our products.
We want to be sure that our clients recognize that. So when our sales reps are out talking to prospects. They have really good case examples, really good proof points, really good product marketing materials to be able to articulate that value in a compelling and clear way so that clients know they'll get the value really quickly. And if you look on our website, we have more than 40 client testimonial stories.
Those are great to use with prospects just to highlight the really high ROI. So we're doing a lot to be sure that in this environment, sales reps are matching their message to this environment.
Jonathan Yong -- Credit Suisse -- Analyst
Great. And then, just on the upsell into existing clients. Presumably, there doesn't seem to be much elongation there, but just one, I want to confirm that. And two, given the commentary about the higher ROI for people that are already using your solutions, is there an -- is there greater upsell opportunity because of that given the current environment?
Robert Musslewhite -- Chief Executive Officer
We've seen upsell continuing to perform well. So we're still very bullish, and that's really part of our land and expand strategy. So once we have clients and they start seeing the value, exactly like you said, we want to be bringing them new solutions and upselling into new use cases and increasing our revenue with those customers because we're increasing the value we deliver to them. So that continues to be a big focus.
Jonathan Yong -- Credit Suisse -- Analyst
Thank you.
Robert Musslewhite -- Chief Executive Officer
Thank you.
Operator
[Operator instructions] The next quest comes with Saket Kalia with Barclays. Please go ahead.
Saket Kalia -- Barclays -- Analyst
OK. Hey, guys. Hey, Robert. Hey, Rick.
Thanks for taking my questions here.
Robert Musslewhite -- Chief Executive Officer
Sure.
Saket Kalia -- Barclays -- Analyst
Well, I joined late, so apologies if these questions have been asked. But Robert, maybe just to start with you, totally get it increased scrutiny from new logos. Can you just talk about whether that was maybe focused in any particular subvertical like life sciences or healthcare IT? Or was it more of a trend kind of across the subverticals that you serve?
Robert Musslewhite -- Chief Executive Officer
We've seen similar trends across each of our core end markets. So it's been something we kind of have perceive across the board. I don't think it was focused in any particular area. The one thing we did say, if you missed the early part of the call, is it's been primarily with new business and particularly the larger deals in new business where we have a little more complexity and already more process steps.
Saket Kalia -- Barclays -- Analyst
Got it. Got it. Rick, maybe for you, again, apologies if this was mentioned, but how much did Analytical Wizards add to billings and RPO, if you have that handy, just to sort of get a sense of the organic growth rate for billings and bookings.
Rick Booth -- Chief Financial Officer
So Analytical Wizards performed strongly in the quarter. So we're very pleased by its performance. As I mentioned earlier, it's running ahead in terms of its profitability. It contributed almost $3 million of revenue.
We don't break out CRPO and bookings and billings by subsegment. AW is less than 5% of our revenue. I would say that their business model by its very nature, generates less CRPO per dollar of revenue. So that gives you a sense.
But less to 5%, we don't break out.
Saket Kalia -- Barclays -- Analyst
Understood. Thanks very much.
Robert Musslewhite -- Chief Executive Officer
Thank you.
Operator
The next question comes with Ryan MacDonald with Needham. Please go ahead.
Ryan MacDonald -- Needham and Company -- Analyst
Appreciating the commentary that sort of all the end markets have remained resilient. As we enter the back half of the year, if you see some end markets start to slip can you factor that into your sales motion and dynamically adjust the changes in the market? Meaning, for example, like if health systems are struggling, but pharma is resilient, do you dial up efforts on pharma and maybe pull back on health systems?
Robert Musslewhite -- Chief Executive Officer
It's a good question. I mean, obviously, if we saw a longer term secular trend, we would adjust where we make investments in our sales and marketing investments to target more in areas of opportunity, which we've done that across the past couple of years as we've added teams to our provider we started to focus more there and seen really good growth there and added more to life sciences as we've seen opportunity there and have more products targeted there. I think it would be a hard thing to do kind of mid-quarter given our sales cycles are typically two to four months, and we're out there seeing really strong opportunity in all our end markets. That's kind of where we're out pushing.
So the hope is that we continue to deliver strong growth in each of those verticals across the rest of this year. But if we get to the end of the year and felt like there was some change like that, certainly, we would take that into account and going into commercial planning for 2023.
Rick Booth -- Chief Financial Officer
Yes. I think more broadly, we measure everything. It's a big part of our culture, and we have very strong returns on sales and marketing. We manage this business over a multiyear perspective.
And so, there's nothing that indicates to us that there is anything longer term going on. But we would, of course, adjust as appropriate if we saw a continuing trend of a change in those investments. So rest assured we pay attention to it, but there's nothing here indicating something long term.
Ryan MacDonald -- Needham and Company -- Analyst
Makes sense. Appreciate that. And then, it seems like with some of the product innovations that the product strategy for pharma is moving earlier in the drug approval time line. We've also heard with some of these earlier-stage biotech or pharma companies that are constrained, data vendors might be, what ends up getting cut from the spending budget.
So have you seen that at all in your go-to-market motion? And then, maybe if you could just compare and contrast the differences of selling to some of these earlier stage pharma companies versus some of the larger pharma clients you have today?
Jason Krantz -- Founder and Executive Chairman
Yes. Overall, we, as you think about where we innovate and where we focus within life sciences, we are really later stage with these organizations. So we don't tend to sell much into research level, research stage life sciences companies. And those are the ones that have really gotten hit the hardest by the financing crunch within that market.
So as companies start bringing a drug through market and start thinking about commercialization, that's really where our product is most impactful on their ability to commercialize that in size markets and figure out where to find the best experts and invest their resources. So we don't see an outsized impact within that market as a result.
Ryan MacDonald -- Needham and Company -- Analyst
Got it. Thanks, guys.
Robert Musslewhite -- Chief Executive Officer
Thanks, Ryan.
Operator
The next question comes with Brian Peterson with Raymond James. Please go ahead.
Johnathan McCary -- Raymond James -- Analyst
Hi, gentleman. This is Johnathan McCary on for Brian. Thanks for taking the question. Just the one from us.
So one of the themes that we're hearing in software is that there's efforts to consolidate vendor relationships. Do you feel as though there's point solutions that could be a source of share gains for you? Or how do you think about that dynamic? Thanks.
Robert Musslewhite -- Chief Executive Officer
It was a little hard to hear your question, but I think I got it, which is as people are trying to consolidate vendors or software vendors, do we see impact to that? And I think what's great about our solution is we're unique, and we have a distinctive set of data and a distinctive solution that no one else has. So if you kind of look at any of our end markets, we represent something that if people want the value of understanding how to sell into healthcare and how to navigate the complex healthcare ecosystem. They're going to need to work with Definitive. So for example, if you're someone who's outside of healthcare and wants to focus on selling into healthcare, you might have services you use that look across the industry, but they're not going to be deep in healthcare.
And so, if you really want to penetrate healthcare, you got to work with Definitive. We're the only one that has the unique data that we have around navigating that ecosystem and all the affiliations, all the reference data, all the specific players in the market, we have nearly 100% of the market mapped. If you're inside the industry, like a life science company, you might have, for example, claims data from a couple of other sources that you work with, but you don't have that claims data combined with our 11-year buildup of that map of the ecosystem and all the references and affiliations. And when you put those together, it creates much more powerful data set.
So if you're inside the industry, even though you might work with other vendors, if you want to get the information that's critical, you're going to be working with Definitive as well, and we sit side by side with them. So we don't really have someone that we could be "consolidate" into in terms of that spend, and that's because we've really created a lot of differentiation over time in building up over 11 years, our proprietary data and building that into our SaaS platform, which provides quick return on our clients' investments.
Johnathan McCary -- Raymond James -- Analyst
Thank you.
Operator
This concludes our question-and-answer session. I would like now to turn the conference back over to Mr. Robert Musslewhite for any closing remarks. Please go ahead.
Robert Musslewhite -- Chief Executive Officer
Thank you, everybody, for joining the call today, and I look forward to seeing and talking to many of you in the coming weeks, where at several conferences coming up, and thank you very much.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
David Samuels -- Chief Legal Officer
Robert Musslewhite -- Chief Executive Officer
Jason Krantz -- Founder and Executive Chairman
Rick Booth -- Chief Financial Officer
Craig Hettenbach -- Morgan Stanley -- Analyst
Maxi Ma -- Deutsche Bank -- Analyst
David Grossman -- Stifel Financial Corp. -- Analyst
Jonathan Yong -- Credit Suisse -- Analyst
Saket Kalia -- Barclays -- Analyst
Ryan MacDonald -- Needham and Company -- Analyst
Johnathan McCary -- Raymond James -- Analyst
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Definitive Healthcare Corp. (DH) Q2 2022 Earnings Call Transcript - The Motley Fool
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