Q2 2021 Walkme Ltd Earnings Call

August 11, 2021

[music].

Good day and welcome to the Barclays Second quarter earnings call. Today's conference is being recorded at this time I would like to turn the conference over to MS. Nicole <unk> Investor Relations.

Please go ahead ma'am.

Great. Thank you Hello, everybody welcome to walk me second quarter of 2021 earnings Conference call on the call with me today are Dan <unk> CEO and co founder of Walk me profit theory, President and co founder of <unk> and Andrew Casey The Companys Chief Financial Officer certain statements. We make today may constitute forward looking statements and information.

Formation within the meaning of section 27, a of the Securities Exchange Act of 1933 section 21 E of the Securities Exchange Act of 1934 are in the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 19, 95% that relate to our current expectations and views of future events. These forward looking statements are subject to.

Risks uncertainties and assumptions some of which are beyond our control. In addition, these forward looking statements reflect our current views with respect to future events and are not a guarantee of future performance actual outcomes may differ materially from the information contained in forward looking statements as a result of a number of factors, including those.

Set forth in the section titled Risk factors in our prospectus filed with Securities and Exchange Commission on June 16th 2021, and other documents filed or furnished with the SEC.

These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this press release, you should not put undue reliance on any forward looking statements. Although we believe that the expectations reflected in the forward looking statements are reasonable we cannot guarantee that future results levels of activity.

Performance in events and circumstances reflected in the forward looking statements will be achieved or will occur except as required by applicable law. We undertake no obligation to update or revise publicly any forward looking statements, whether as a result of new information future events or otherwise.

After the date of which these statements are made or to reflect the occurrence of unanticipated events see our press release dated August 11th 2021 for additional information. In addition, certain metrics you will discuss today are non-GAAP metrics. The presentation of this financial information is not intended to be considered in isolation or as a substitute for or superior.

Or to the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures.

Our financial and operational decision, making and as a means to evaluate period to period comparisons. We believe that these measures provide useful information about operating results enhance our overall understanding of past financial performance and.

And our future prospects and allow for greater transparency with respect to key metrics used in management in its financial and operational decision, making more information on the non-GAAP financial measures. Please see the reconciliation tables provided in our press release dated August 11th 2021 with that I'll hand, the call over to Dan.

Thanks, Nicole and thanks, everyone for joining us on our call today to discuss our second quarter results I'm excited to be here today on our first call as a public company before I get started I would like to thank our employees customers partners and investors for their support over the years as we work towards a significant mindset.

Speak for the rest of the team when I say, we're looking forward to this next stage of growth as a public company.

The very strong quarter, and we're very pleased with the results for two hours.

Sales organization has continued to execute very well driving strong momentum in revenue <unk> customers metrics, Andrew will cover the financial <unk> in a few minutes, but on the high level total revenue grew 28% year over year to $46.8 million with subscription revenue growing 31% year over year to $42.2 million and <unk>.

<unk> over our growth in Q1.

<unk> at the end of the quarter totaled $191 million up 31% year over year and non-GAAP operating loss was $11.7 million in margin of negative 25%.

Sam This is our first earnings call I would like to provide some background on welcoming and opportunity ahead of US much has been said in technology industry, Andy and enterprises across the globe about digital transformation.

It can be a complex topic with far reaching implications Barclays basic leveling the common element in every digital transformation is buying in customizing software to create compelling user interfaces and experiences that improved business processes, sometimes its income as a website or mobile application.

Three forward does it sound there is a compounding problem that is hindering the digital transformation efforts or even the largest enterprises.

Probably heard the phrase there is enough for the organizations are improving that to be true as they buy and develop new cloud based application at the record breaking Greg.

Each with the aim to improving any one off an uncountable number of business processes, along with the related experiences of employees and customers.

So what's the problem there are actually two first when I took the CIO. The biggest challenge. They have is figuring out how they are multimillion dollar it budgets are driving improvement across their businesses.

He told me that they are liquid visibility and insight into digital assets and business processes, which make it very hard for them to extract value from applications, including those that may not control or even knowable.

Through long after alone in Europe after up to find the data that you need to even understand what is happening break down quickly each time someone in the organization and then you up it's just become that much harder to have visibility to the whole. This is why it's important to recognize the compounding nature of the problem.

Ken I will draw on it.

Is there a risk of creating poor user experiences for both employees and customers as I noted earlier one of the basic elements of digital transformation is to create compelling user experiences. These turn out to be extremely difficult under a new UI standards for application and software with a single use case doesn't by its nature.

Consider the user experience across all of the application required to complete business processes.

Does management, even though given the experience with working for the users as intended.

Walgreens, we recognize that the key to successful digital transformation is not about the software you buy or the experiences you accept it's about user adoption to.

To achieve user adoption organization with two critical things.

One deep visibility and insight into their tech stack <unk>.

And who isn't using each application where are using getting stuck and abandoning processes, where assistant and users errors are happening where integrations are breaking the permutation across all of your application in the enterprise are endless.

Compounding problem.

<unk> is an efficient and agile way to action.

Right.

Like experience using no quote cost structures and automation that could be employee and customers at the center.

Every change directly improve their experience and in turn drive the adoption.

Being data first is the most important thing when designing a digital transformation strategy without the visibility to the data and the ability to declare and measure the kpis. There was no way to improve application deliver the experienced employees and customers expect and fully realize the value of digital transformation.

Youre welcome to digital adoption platform or depth analyze and understand any application with a simple no code implementation.

<unk> and Cdos are provided with immediate insight to find the gaps between the user experience with technology and an organization's business as well with actionable insight organizations can create and deliver elegant experience with enable users to access the full functionality and value of your application, ensuring the adoption and ultimately.

<unk> fulfilling the promise of digital transformation. This is like what can you become not only a category leader by the category creator.

In Q2, we have continued to make huge investments in innovation and I'm excited to share with you the following infection with.

We completed the acquisition and integration of the enterprise search deals with four digital adoption now users of workstation, our unified employee solution can search whether you need at the moment they need it and get personalized AI driven result for example, you mentioned the productivity increasing sales when they no longer need to remember, which.

Application haystack searching to find the latest version of presentation order form or contract.

I'm also proud to share that we've completed another milestone in the development of our machine learning capabilities, we called <unk>.

<unk>, what can you analyze it how humans interact with software and proactively recommend ways to improve the user experience with actions that can be taken immediately right from the Watson platform. For example organization using Salesforce Lightning can turn on welcoming you are intelligent and expose in full detail.

Data driven insights for all forms that professional can now see which fields are redundant underscore where user waste a lot of time or make foreign feel Eric and charted the optimal path to form completion imagine how powerful it is for <unk> to deliver a radically better user experience across application in there.

Aligned to business processes without any configuration changes where human interaction from your team everything is done automatically powered by AI and machine learning to extracting data.

Better user experience equals better digital adoption and more value from the Chipotle turned formation.

The best way to understand walk me through our customer success stories and hearing about how they use data first approach to close the gap between user interactions with technology in their business goes we had a very strong Q2 in terms of both new logos and expansion with enterprise customer.

At the end of Q2, we service more than 2000 customers globally, giving our enterprise focused approach, we continue to see outsized growth in that market.

To that end, we added 50, new enterprise wide DAP customers in that quarter, which had growth of 110% year over year.

The growth we are seeing in these enterprise wide deployments demonstrate how our platform become a really strategic part of our customers' digital transformation strategy. Once they are reaping the benefits of data visibility and better employee and customer experiences delivered by walking.

I would like to share how our bank in southeast Asia extended with welcoming to support these hybrid workforce strategy. The bank permanently launch its hybrid work program 14 months ago with the goal to increase support from 700 to 45000 employees across eight markets today, nearly 37000 employees and a flexible working arrangements.

The hybrid work program.

Powered by four application service now and E learning platform talent marketplace and success factor welcoming connected business processes across these four application so managers of the data and visibility they need and the employees have the right user experiences.

Each can now optimize the use of all four application to push the banks future of work initiative forward inefficient in a small way.

With welcoming bank employees intuitively adult new platform, improving productivity and thus completion rates engagement trends or high 99, 9% of employees have interacted with walk me to complete business practices. When service now in 93, 9% of the banks you're learning platform.

Let's look at another expansion deal here is an example of a large multinational company that first became a customer in 2016 like organization around the globe. The company embraced the remote workforce model as a result of Covid and today is one of the most successful hybrid workforce success story.

Not to be derailed by the new normal while moving forward with our planned initiative. They started off with the walk me pilot primarily for its customer experience transformation. There golar worth to onboard 7000 customer service manager on new processes, and Salesforce dot com to better support the new software products as they move away from Europe.

Hardware focused strategy.

With the data and visibility the game with welcoming the company provided new user experiences to reduce the average handle time for critical business processes and salesforce by more than 50%, while improving profit completion rates.

Success of the pilot Doug the attention of the sales organization, who ultimately decided to onboard welcoming two facility their global sales transformation.

Since we first started working with them we expanded from one application to four applications 7000 users to 30000 users and we closed the two year optical and renewing in Q2, we're now in talks to extend their use of walking it up so they can realize even more value from our transformation initiatives.

Next the data and action on the walkway platform to deliver outstanding business outcomes.

Customers are at the center of everything we do now, let's widened alone and look at our category and its ecosystem.

While we have directly seen the positive Inc. Pocket and the ROI of data across our customer base major industry analyst at Gartner and Forrester have increasingly been featuring walk me as enabler of digital transformation and it recognizes the category of digital adoption platform, which we have helped to define and shape in 2019 Gartner.

Classified digital adoption solution is an emerging category across software landscape alongside the likes of HCM and CRM software recognizing that what we couldnt be put into a narrow category. That's underappreciated the value of what our platform can deliver Gartner stated that by 2025, 70% of organization.

<unk> will use digital adoption solution. They believe that the number is only somewhere between 5% to 20% today.

Most recently Gartner feature walk me and digital adoption solution and to hype cycle, where digital adoption solution has advanced the staging the maturity phase. In addition, Forrester has done extensive research on the economic impact of walk me for enterprises.

Forster founded welcoming drove an ROI.

368% based on cost saving across employee facing applications and customer facing services.

This translates to a payback period of less than three months and over $20 million in savings to the company over a three year period for the composite company studies in their report.

Strong ecosystem are important the most valuable companies in the world having them walk me has made important strides in this area. Our ecosystem walk me beyond is about expanding beyond walk news Corps platform by bringing together two key element talent and technology to drive new opportunities. This echo.

System is built around our digital adoption Institute, which empowers our customers partners and users to become skilled working professionals.

Self study courses and certification program and ecosystem of welcome to users and collaborators is growing rapidly over 2000 individuals actively engaging the institutes to grow their skill set in Q2 and over 15000 have joined that to develop the skills over the future since its launch last fall.

Experienced dot professionals are championing walk me in their professional industry network, which increases mindshare and awareness and we define with industry best practices around digital adoption to realize more value from digital transformation more than 3500 professional features digital adoption platform and walking skills underlying.

<unk> profile and there are more than 30 companies with open job requisition for this skill set.

The ecosystem also provides another layer of resources to increase the strategic value of walk me for our customers, including access to community service marketplace market research integration ops and solution. This is the power of our ecosystem, which enable our customers to maximize the value of our platform.

As we look ahead, we're excited about what the future has in store for walking in particular, we look forward to the launch of new products that leverage the power of AI to enhance the intuitive nature of our platform the.

The expansion of our ecosystem to amplify the power of our network effect and the investment in our sales and marketing organization to drive increasing brand awareness and further recognition of our leadership as a leader in digital adoption platform.

While we have made great progress to become a category leader in the chiefs came to date, we strongly believe that we're still in the very early stage of our journey, we look forward to discussing our progress with you in the quarters ahead.

With that I will turn the call over to Andrew to walk through our financial results.

Thanks, Dan and thanks to everyone for joining us before I get into the results for the quarter I want to provide a quick overview of our business model and the key metrics that we look to measure our business, we deliver our digital adoption platform through a subscription SaaS offering in the cloud, which represents our subscription revenue or services revenue includes professional services and training.

In terms of key retro refocus on remaining performance obligations or RVO as well as annual recurring revenue or <unk>, which we believe provide a better view of our current business momentum relative to revenue growth.

Our IPO represents all the contracted revenue or not yet recognized including both deferred revenue and noncancelable contracts amounts that will be invoiced and recognized as revenue in future periods.

Moving on to the second quarter results as Dan discussed we had a very.

Strong second quarter with great customer momentum.

The strength that Youre seeing is reflective of strong value proposition of our platform.

Arizona application of our solutions strong operational focus and sales execution.

In the second quarter total revenue was $46.8 million, an increase of 28% year over year.

Subscription revenue grew 31% year over year to $42.2 million.

Remaining performance obligation or RPE O ended the quarter at $265 million representing growth of 48% year over year.

Current RVO, which is contracted subscription revenue expected to be recognized over the next 12 months grew 36% year over year to $151 million.

<unk> at the end of Q2 was $191 million representing growth of 31% year over year, an acceleration from Q1.

The strong top line metrics are reflective of the growing importance of digital adoption within the world's largest organizations.

As Dan mentioned, we are seeing continued strong momentum with larger enterprises, which we measure as organizations with more than 500 employees.

Looking at <unk> from customers with more than 500 employees. This grew 38% year over year in Q2 to $165.2 million, representing 87% of our total <unk> up from 86% in Q1, 21, and 82% in Q2 of 2020.

In addition, we look at enterprise wide digital adoption platform customers or DAP customers and the additions as a sign of a growing strategic nature of our platform across our customer base we.

We added 15, new DAP customers in the second quarter, which represents a growth of 110% year over year.

<unk> from these GAAP customers grew 129% year over year and represented 34% of our total <unk> up from 19% in Q2 last year.

Taking a look at dollar base net retention the natural land and expand motion of our platform translates into a strong net retention rate. We look at dollar based retention with our enterprise customers, who are normally stickier through the disruption that COVID-19 costs with smaller businesses last year, our enterprise dollar based net retention, which includes customers with more than 500 employee.

Please.

117% as of the end of Q2 on a trailing four quarter basis. This was down slightly from the prior quarter due in part to the continued impact of Covid on customers and their specific industries, we serve.

If we look at the quarterly view of dollar based net retention. It was 121% in Q2 up from 118% in the first quarter.

Before turning to gross margin expenses and profitability I would like to note that I will be discussing non-GAAP results going forward.

Gross margin was 76, 8% up 120 basis points year over year.

Gross profit was $35.9 million up 30% year over year.

We expect our overall gross margins will increase over time as we continue to optimize our hosting operations and improve our services engagement model leveraging partners where feasible.

Turning now to operating expenses, we remain focused on investing for growth to capture share in the large market opportunity that Dan described.

Sales and marketing expenses for Q2 was $28.1 million compared to $19.3 million in Q2 last year.

This represents 60% of total revenue compared to 53% in the second quarter last year the.

The year over year increase in sales and marketing expenses as a direct result of the hiring freeze we put in place at the onset of the global pandemic last year.

Followed by an acceleration in hiring as the business activity return to more normalized levels in subsequent quarters. We're also investing aggressively in our go to market teams to address the increasing opportunities we see in U S federal market partner expansion and broader coverage across all geographies.

R&D expenses in Q2 was $10.7 million compared to $6.7 million in Q2 last year. This represents 22% of total revenue versus 18% in the same period last year.

We've been making investments in our platform and plan to continue to invest in R&D as we build out our product and invest in our ecosystem in the quarters ahead.

G&A expense was $8.8 million for the second quarter compared to $4.5 million in the second quarter last year G&A.

G&A was 19% of revenue versus 12% of revenue last year.

We are investing in the infrastructure of our business to continue to drive long term scale in our business.

Going forward the primary areas of investment for us will be R&D sales and marketing as we look to capitalize on our large market opportunity.

Operating loss in the quarter was $11.7 million compared to a loss of $2.9 million last year.

Operating margin of negative 25% was down 17 point compared to the same period last year.

We held back on spending and investing meaningful last year during the pandemic as we chose to preserve cash.

As discussed we've Reaccelerate, our investment plans as we look to capitalize on our opportunity.

Longer term, we expect to see ongoing improvements in operating leverage as we scale and are structuring our investments in sales and marketing and R&D Accordingly.

Net loss per share in Q2 was 16, using 75 million weighted average shares outstanding.

Free cash flow was negative $7.4 million in Q2 compared to a negative <unk> 1 million patients who last year.

Free cash flow margin was negative 15, 9% down from negative 3% in Q2 last year and.

In the near term, we expect to see fluctuations in cash flow longer term, we would expect that increasing operating level drew will result in positive free cash flow, though margins will fluctuate on a quarterly basis in the near term.

And improvement will not be linear.

Turning to the balance sheet we.

We ended the quarter with $371.7 million in cash cash equivalents and short term deposits.

Turning now to guidance for the third quarter of 2021, we expect revenue in the range of $48.5 million to $50 million.

Representing growth of 25% to 29% year over year.

Non-GAAP operating loss in the range of $17 million to $15 five revenue.

For the full year 2021, we expect revenue in the range of $189.5 million to $191.5 million representing growth of 28% to 29% year over year.

Non-GAAP operating loss in the range of 59 million to $57 million.

Dan Ralph and I will take your questions.

Thank you if you would like to ask a question. Please press star one on your telephone keypad and if you're on speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment I can press star one to ask a question a Pos system I went to a lot of everyone an opportunity to signal for questions.

And we will go first to Josh Baer of Morgan Stanley.

Great. Thank you for the question and congrats on your first quarter I was hoping you could talk a little bit about Europe.

Kind of landscape and your moat.

Like how much of a lead do you think you have from a technology standpoint, how would you characterize your differentiation and how important is scale and analyzing large amounts of that interaction data.

As part of your competitive moat.

Thanks for the question Josh This is Dan.

So regarding the moat and the technology, what's important to understand.

How does he is actually bid.

And in order to really.

Provide digital adoption platform you need both thing one.

<unk> data into the system.

They describe briefly before and the ability to action on that data.

What we have and actually provide and what we called <unk>, which is our UI intelligence and for what we know we are the only one that can actually understand human behavior and UI elements.

Such a precision that gave us the ability to create that value to our customers. The second piece is connecting that data to our engagement layer and actually provide excellent ball.

Analytics, and actionable insights and guidance to those customers. So I would say today, we're not seeing anything like that there is a point solution that we're seeing around the debt or the product analytic space or in the training space and so on.

We're not going to get real adopt solution they like working for me.

That's helpful and if I could sneak another and wondering.

When you think about the sales cycle in the education component of that given the nascency of the of the market opportunity.

I'm just wondering like thinking over the last couple of years or even since IPO. The educational component of the sale is getting any easier as you're building out the ecosystem and the and the market develops thank you.

Yeah, that's a great question well, so absolutely we're seeing a huge progress there, especially when we're getting more coverage by Gartner and Forrester and other annually.

Digital adoption platform become a true category.

Still when we're going to customers and the biggest challenge that we have with the status quo and customers usually start with walk me one or two applications.

Then slowly going into digital adoption platform.

What we're seeing in the past I would say a year, especially with the tailwind of Covid is that more and more and more CIO and understand that they need to adopt a data first approach and this is where we have a huge opportunity to actually go and sell the entire platform from the get go and this is why we are.

Being such a strong growth number in our doctor customers and our expansion as well so I would say, we're still not 100% there and the market's evolving but we're seeing very strong indication that is going there and one of the quote that I gave a few minutes ago is that Gartner believes that by <unk>.

25, 70% of organization really using digital adoption platform. So this is what we are basically building on and pushing on it because there was no way to run a successful digital transformation.

So how did you and be successful without digital adoption platform.

Great. Thank you.

Okay.

And we'll go next to Tyler Radke of Citi.

Hi, This is Brian Kim on for Carla and thank you for taking my question.

I wasn't sure about the day version and billings growth.

Growth rates, well, what's driving that divergence and when should we expect to see them converge.

So I can this is Andrew Casey So what I would tell you was a billings isn't the primary metric that we focus on we really focus investors on our remaining performance obligations.

And one of the things that we talked a lot about was really focusing our R. R. Energy's our sales motions on customers with greater than 500 employees is that enterprise large enterprise space and what Youre seeing there is that that's where we're seeing the largest growth rate as a result of that.

Is that those customers are the ones, who really want those longer strategic relationships with us such that they are treating us as a platform supplier to enable their strategic objective. So that's why you see the RVO number growing so rapidly and we expect that that is certainly going to be our focus going forward and where we're making those investments.

I would I would gear investors and analysts more towards <unk>, rather than billings metric because billing metrics can often be influenced by periodic city associated with it and a lot of other things, which is more difficult to translate back into future growth RVO is the best indicator for us.

Stability and understanding of our future revenue growth.

Great. Thank you.

And we will go next to Michael <unk> of Wells Fargo Securities.

Thanks, Good afternoon, congrats on the team on the on the first set of quarterly results.

Looking at the large customer metrics look, especially strong, but maybe the total air improvement here, we're a bit more modest sequentially versus last quarter.

You walked through some of the dynamics of what's driving the difference between the large customer <unk>.

And the combined and if there's a point where you would expect some of the headwinds from smaller customers, assuming that's the case to maybe subside here.

Thanks, Michael Thanks for the question I think what I, what I'd say is remember that we were accelerating investments in our sales and marketing and we're ramping up new sales reps at the beach at.

At the end of last year, as we were coming out of Covid and for US we have a typical sales cycle of nine to 12 months and such that you need those sales reps to slowly, but surely ramp up before they really overall productive, but we are seeing that the motions and the levers. We're pulling are showing up in that greater than 500 employee area and I would tell you typically.

You see in that group of customers somewhere between 20 to 50 that are being added in any given quarter and we're seeing equally the expansions that are happening within those clients recall also that we talked about there was a group of clients. We have that have less than 500 employees and thats been the most challenging area for us as far as customer ads because it includes small.

Medium sized business customers, who have been the hardest impacted from from Covid through Q4, and Q3 dollars 20 of last year. So you see that dynamic going on in our business. It's one that we were pretty upfront that we were making the changes in our coverage model we are investing in.

And sales and marketing coverage to go drive increasing IRR from that customer class. It certainly was a transition we're seeing but I'll I'll point right back to our <unk> for the period and the percentage that greater than 500 employer accounts represented and its been steadily increasing now to 87% of our total IRR, which is an increase from <unk>.

Last year and a dramatic increase over the last few years.

That's extremely helpful detail there's also.

They're useful split here on just the retention stats I think you have the trailing 12 month, and then a quarterly snapshot as well I'm looking at that it looks like while the trailing 12 is still maybe maybe modestly declining Q4 represents the trough on a quarterly basis. So maybe you could just discuss the dynamic there and.

If there are target levels.

Level, you'd expect retention rates to trend towards that's also useful thank you.

Yes.

Thanks for pointing that out because it's really a great metric that reflects the fact that we've had we had some real churn in that in that customer base in Q3, Q4 and that was by the way you know there are a lot of companies who are very much struggling.

During the Covid periods, not just small and medium sized business. There was there was plenty of customers who had to cut back on spending or put their employees first and so that was a that was a low point in our dollar based net retention. So that's why it's so important that we give to the street and to investors in understanding of that trailing four quarters.

It ticked down from prior quarter is really reflective of the past and that's why we took great pains to make sure you understood. The quarterly dynamic that's happened at Q4 drop of about 112 has now jumped up to 121, which is reflecting the fact that we are seeing those those customers greater than 500 employees start to expand with US we are.

Gaining more and more customers in that category.

And as we're generating value for those clients that are expanding with us across multiple multiple departments applications and in some cases enterprise wide. So over time, we certainly think that we can drive our dollar based net retention well above 125% for that customer class that was going to take some time and it's going to take concerted.

Efforts in our coverage.

And the continued focus and success with our DAP customers, but that's our strategy right and so.

It was important for our thanks for pointing it out is very important for investors to understand the trailing four quarter dynamic versus the quarterly dynamics and a quarterly dynamic really reflects the re acceleration we're seeing.

And in a dollar based net retention figures.

Thank you.

Yeah.

And we will hear next from Keith Bachman of bank of Montreal.

Okay.

Yes, Thank you and echo the congratulations on your first public company quarter.

I had two the first is on your large enterprise agreements could you talk a little bit about what your upsell cadences with those customers. After they sign such a large agreement and what are the drivers is it is it seats as usage, how do you expand that and how does it compare to say.

The balance of your customer relationships.

I think she's down.

Okay.

Thanks, Dave This is done probably talked theory that pops up there and so it's a great question. So when we're looking at the expansion. It goes two ways one is more application.

So companies that are doing growing our digital transformation.

And we basically implementing more and more and more platforms right. It can be an HCM and CRM and ERP and so on and so on and usually you. They will go to walk me and that will start adding walk me to help them with those business processes, what we will see that soon enough.

It will start to add walk me and more and more and more application internal and external as well and the way we price we price per seat per up.

We have an enterprise license agreement when it just per seat. So there is a certain point, where it makes sense to just move into an enterprise license agreement and that's what we're seeing with our large customers do you see how theyre expanding as I mentioned earlier, we are hoping to see the near future.

Sure.

We're able to land enterprise license agreement, because we're pushing really hard on the data first approach and but currently the way. It works is we call. It one to three that are starting with one up to three and then they go full down so that's usually how do they normally before I hope you've done through the questions.

Yeah, great. Thank you and then my follow up would be could you give us an update on the Salesforce progress, where where are you in terms of.

The hiring plans quota carrying reps training just if you can give us a sense about.

How to say the next 12 months might unfold in terms of sales capacity from.

From where you are in the recent quarter or so many thanks.

So thanks Andrew.

I would tell you we're executing on the plans, we kind of set out for ourselves and hiring and by the way. It's not just sales reps. It's also the support infrastructure around reps sales engineers, it's our customer success reps are inside.

Inside sales or <unk>.

For us it's about creating the infrastructure to make the sales team very very productive and so far we've been executing pretty well on our plans for the year now typically what happens in any cycle for an enterprise software company like US is they do a lot of hiring early on in our in the year end and that's because you want the sales reps.

To ramp as quickly as possible to be able to affect your Q4 period I'd say, we did that very well in Q1, and we're continuing to go higher.

Into core areas and our sales team because we see continued interest from those enterprises are doing for US clients. In fact, I think you've probably seen in our release. We're we're we're starting to invest into our U S. Federal market, we hired a leader there and theyre starting to build out a team and it's because we see enormous opportunity.

Over the long term, especially as the government cycle is actually take place over 2022 that you know.

Those are going to be very very lucrative investments for us and we can take advantage of them.

<unk>.

We also have hired leaders in EMEA and in a P. J.

So I am lumen and Sandy Overfelt, they're driving.

Our structure and our focus on enterprise software coverage in each one of those geographies, which was also.

Big areas of growth for us so.

Long winded way of saying we are executing on our plans that we set out for ourselves and as we continue to see opportunities, we will invest aggressively into them in advance of them. In fact, that's what you see in our financials and our guidance is that.

We are not shying away from opportunities to invest in our sales and marketing organization to take advantage of of long term growth opportunities.

Yeah.

Okay.

This is Dan.

On top of the organic growth that we have and we are increasing our salesforce.

We are increasing our airport.

The partners the size and the global aside of course, so we more than doubled our alliances and partnership teams in the last six months. So that's where we believe going to be another strong revenue growth driver for us.

In the future.

And so we really take our next question from.

Glenn with Barclays.

Hi, Thanks for taking my question and congrats on the quarter I guess that touch on that last one.

I'm looking at.

Ore sourced from direct sales versus partners. It looks like it's mostly direct sales today, but how much can you seed partners contributing over time.

Hi, Robyn.

All right.

Yeah.

So right now.

Is the contribution of our channel partners is still marginal we are working very hard and here what is more important is the direction over speed.

We want to make sure that we're not just inking contracts, we wanted to make sure that the.

The partners are the right partners and Theyre, putting the adjusted.

Just the investment required to be successful with our platform.

So.

Actually there is a lot of very good things in the hopper. So I suggest for everybody to stay tuned but as though.

Now, it's still a marginal contribution.

Okay, Thanks and.

You had mentioned that.

Some of your smaller customers still very much being affected by Covid, but.

A lot of these customers don't want to try your platform.

Yeah.

Incentivising somebody smaller customers in any way to come on that platform right now and trying to remove some of the friction from the buying process.

Sure This is Ben.

We serve any company inside so welcome you actually have that.

Or I would say brackets grown SMB to commercial to enterprise to named accounts and our product fits the mall.

And yes, we have the I would say very beneficial pricing given to small companies that wants to try our product. So that's absolutely something that we always are we're focusing on.

Yes, maybe just add onto that.

That's what it is.

To add onto that I think what Dan was referring to earlier about how customers typically start with us and our pricing structure and it's a price per user per app.

Often times when a when a smaller customer starts with a specific use case they'll be relatively lower cost because they're really focusing on that specific use case and so maybe even a subset of users for a single application. So if you think about how customers are getting value through the use of the walk me platform.

Increases in users and increases in application of process coverage is really how the pricing escalators. So it's there's no barrier to entry and pricing structure for the smaller customers. In fact, I think we've done a pretty good job of structuring it such that as value accrues to customers over time through usage, that's how walk me captures more value too.

Okay, Great that's helpful.

Okay.

And we will go to our next question from Pat Walraven from JMP Securities.

Oh, great. Thank you and let me add my congratulations so if if I just Google digital adoption.

You know the ones that come up or walk me, what fixed and Penndot, Dan I would love to hear just sort of the quick version for how you.

Tell customers that you differentiate from from those competitors.

Sure Great question.

So even though we are talking about the the first one that you mentioned.

They are mainly focused on product analytic and we're not seeing them in the digital adoption transformation space at all and as regards to <unk>, we're seeing them currently as a small competitor and they don't come near to our ability to execute for our.

They need sized company to large companies both on data and analytics, the deep analytics, AI and machine learning and at the end of the day, what we're trying to sold.

To our customers is.

To get them real ROI from the digital transformation effort and in order to do so there is a lot of moving parts that need to be in the platform and currently we're the only one that actually have it.

We are seeing that you know the entire I would say ecosystem grows. So that's good to us and we will come out of a competition, but overall and.

We think were three or four years ahead.

Yes.

Pat define right.

You also look at work and we define we define.

DAP customers and we clearly give a number for DAP customers in our DAP customers are companies that really changed the way they do their business regarding technology. So they're not looking per system. They look at the business.

The problems that they're trying to solve which might be four or five different systems. So when you look adapt solution a true digital adoption solution that changes the way companies do their business, we're probably the only game in town.

Got it.

Awesome and then Andrew if I could ask you a quick one I mean, so RP O. You know exploration is awesome right.

<unk> 36, 48 I think.

How much of that is duration and should you guys be giving a CRP one metric would that'd be helpful.

We do have we do actually disclose the current RVO metric as well Pat.

And that's growing 36% year over year, Yeah, we break it out for you look I think there's a big portion of that that is us focusing on driving those longer term strategic relationships with clients that sets us up for the broader discussions of not not worrying so much about trying to prove value on a single.

A single use case, but rather proving value across multiple and having those how those broader roadmap discussions with cio's. So it was definitely a focus for us to go to go drive that I think it has multi purpose benefits.

It will help drive better sales productivity it will help drive better focus on our expansions with our enterprise large enterprise UK customers.

So all of those then show up as you know in a longer term de risk and in revenue.

Because theyre committed contracts.

Alright, and then forgive me for not having it in my fingertips, but what was what was the ERP of last quarter.

<unk> last quarter.

Right in front of me.

Alrighty.

Yeah.

Yes.

Sorry, it was.

[laughter].

It was last quarter.

Well I certainly March 'twenty was 237 million in total and that broke down between current of $1.40 to 195 of the 237 and for this quarter, It's 216 and it breaks down between $1.51, and short term and $100 million long term.

Okay, great. Thanks very much.

Europe.

Okay.

And we'll go next to Michael <unk> of Keybanc.

Hey, guys congrats on the first quarter at 10.

And then I totally agree.

The full our pure numbers is important for China that long term commitment and it isn't just a single use case, but what are you doing Dan to help make sure that people do expand on that platform as we go to market as customer success are you bundling what are you doing actively to to help to help drive additional.

Use cases, not just a project based approach.

Thanks, Mike Great question. So I would think first enforcement is innovation and leading bio product. So we're adding a lot of capabilities every quarter, we have a major release that actually answered more and more and more and I would say difficulties that we're seeing with enterprises.

So with that every release and every product.

With the mind to actually talk to the entire organization not just helping them with one legal and.

Another thing is market that location and what we called walk me beyond and we adjusted our elevate.

Elevate the events, which is the biggest not professional event in the world.

And we're helping people understand what the digital transformation what is digital adoption manager and so on today, we have over 3000 people in link theme that has walked me in welcoming related.

In their job skill, so we're creating a huge ecosystem around it. So it's not just the technology. It's the ecosystem that comes with it and other things that we launched.

And pre pre made solution. So they will have better value. So let's say they have a big ATM rollout. They can immediately get the knowledge of other customers in pre pre made solution. So they can actually see the value faster when they see the value faster usually typically.

What happened with those customers is that they're like Oh, we have welcome you on our a M Y or we don't have it on our CRM why are we don't have it on our financial system and so on so this is how we're helping them get more value when we're actually making our customers' hero.

Otter Department are joining very fastly and they wanted to use welcome you as well and another big thing that we're doing are helping them shape a center of excellence around walk me. So they can actually think about walkman TG clean when they're actually aligning their goals and digital transformation with the Cape.

Ability to walk me. So we're doing all of it together the innovation day education of course customer success and our services team are helping them.

But again the ecosystem and the Knowhow that we're bringing to the table I would tell you that in the past six months Im talking with so many CIO is around the world that have the exact same experiences and today theyre coming to us and they ask Dana.

How other companies are doing what are the benchmark how should we approach hybrid workforce. So they are not just coming to us for our technology now theyre coming to us for the benchmark and their Knowhow and then we're showing them how to leverage our technology to get their goals. So all of that together is what we're doing.

They're together.

That's great. Thanks, and then and then Andrew what about obviously it was great to see the large customer net retention pick up sequentially obviously.

Another indicator for what we.

We're just talking about with Dan, but what about the gross retention slash.

That churn how is that sequentially.

So I would say you see you see a similar pattern on on the total and the total customers below you, including the less than 500 employee accounts you see that similar quarterly balance from Q4, and increasing and so overall I think that what youre going to what youre going to get when you break it down.

Sequentially, a three point increase quarter over quarter in total and I would say, it's reflective of the fact, we had a we had a good renewal quarter.

Low amount of a decreasing amount of overall term, which is good because we're starting to see more stabilization in the overall customer base.

But like I said, the most important thing for US is to continue to focus and drive that growth in the greater than 500 employee base I expect that that as a percentage of our tool that will continue to increase over 90%.

And that's where we're focusing our attention.

Does it just to clarify your total net Rick your net retention rate with total customers not just not just customers over 500 also went up three points sequentially.

Yes.

And but my I guess my question was which as Greg. Thanks for giving that my question is did the gross churn gross retention in other words.

Your churn.

Stay stable or improved sequentially.

Yes, so so that's not a.

That's not a metric, which we're going to we're going to focus on we're going to focus on the dollar based net retention and we're giving you both the trailing four in a quarterly so look at it.

By its very nature, you can deduce that it improved because of some of the other anecdotes I gave you, but the but that's the point is that as we continue to focus on driving value for our clients were shown as Dan shows, we're showcasing value across multiple multiple departments and applications that there the gross retention rate improves.

As well.

Great not traveling model I just wanted to know what's kind of the retraction. Thanks Yep.

Yep Yep.

And we'll go to our next question from Scott Berg of Needham <unk> Company.

Hi, Dan Raffi and Andrew Congrats on the good quarter and thanks for taking my question I'll go with one and now she.

She looked like Oregon.

Yes.

I wanted to see if you can give a sales update or I guess, how should we think of sales between kind of the two main profit product areas walk me for customers in walking for employees that sales mix differ than maybe what you see in the last couple of quarters, just trying to understand if you're seeing something incremental in one area or the other.

Yeah.

So Scott Thanks for the question Scott and this is one of those areas, where I would say we've had a pretty consistent pattern on on demand.

Some quarters, it fluctuates a little bit, but it's typically that we see customer walking for employees is as <unk>.

70% or more and then walk me for customers is around that 3%.

Area now, it's hard to nail down a lot of times as you know or maybe just remind people is that many of our customers actually have both and when you go through a contracting process, where it's a it's a DAP customer you have a broad.

Usage parameter around it it's hard to try and assess relative value to the components within the larger agreement so.

It's one of those areas, where I think it's more reflective of how we used to go to market and how we used to really.

Talk about our solution with Cio's, it's not that it's not it's not that the product set is not relevant as just as so many of our customers either start in one place.

And then migrate to the other or they quickly moved to an understanding that walk me is really their complete solution for driving digital adoption for both our employees and their customers.

Great. Thanks for taking my question.

And finally, a disc and really explain the difference between a point solution.

Change of doing how you do business. So let's say the business problem that you're trying to solve is reducing customer care. You would use walk me first on your external facing app to deflect calls and second on your customer care team to shorten their handling time.

So it's really looking at the business problem and not a specific system.

Our fuse CIS.

Systems that a customer.

Sure <unk>.

<unk> is using and not looking on one website, but also looking at the apps and the different ways that a customer can reach out and reflecting the close there and that the strategic nature of that versus the point solution, where you put guidance on top of one application or two applications or on our website or on an.

App.

Now what we will give you the insights on top of everything to really see how you are improving your business kpis.

Makes sense.

So at this time with no other questions.

In the queue I will turn the call back over to Dan Baker for closing comments.

Thank you. Thank you everyone for being with US on the call today really look forward, keeping you posted and our progress in the quarter ahead.

And again, thank you for joining us.

And so that does conclude this call. Thank you for your participation you may now disconnect.

Yeah.

[music].

Good day and welcome to the Barclays Second quarter earnings call. Today's conference is being recorded at this time I would like to turn the conference over to MS. Consortia Investor Relations. Please go ahead ma'am.

Great. Thank you Hello, everybody welcome to walk me in second quarter 2021 earnings Conference call on the call with me today are Dan <unk>, CEO and co founder of Lockney, Rafi theory, President and co founder of Hockney, and Andrew Casey The company's Chief Financial Officer certain statements. We make today may constitute forward looking statements and information.

And within the meaning of section 27, a of the Securities Exchange Act of 1933 section 21 E of the Securities Exchange Act banking 34 in the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events. These forward looking statements are subject to risks.

Uncertainties and assumptions some of which are beyond our control. In addition, these forward looking statements reflect our current views with respect to future events and are not a guarantee of future performance actual outcomes may differ materially from the information contained in forward looking statements as a result of a number of factors, including those set.

Fourth in the section titled Risk factors in our prospectus filed with Securities and Exchange Commission on June 16th 2021, and other documents filed or furnished with the SEC.

<unk> and events and circumstances reflected in the forward looking statements will be achieved or will occur except as required by applicable law. We undertake no obligation to update or revise publicly any forward looking statements, whether as a result of new information future events or otherwise.

After the date of which these statements are made or to reflect the occurrence of unanticipated events see our press release dated August 11, 2021 for additional information.

There are some certain metrics discussed today are non-GAAP metrics. The presentation of the financial information is not intended to be considered in isolation or as a substitute or superior to the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures.

And our future prospects and allow for greater transparency with respect to key metrics used by management and then.

Financial and operational decision, making for more information on the non-GAAP financial measures. Please see the reconciliation tables provided in our press release dated August 11th 2021 with that I'll hand, the call over to Dan.

I speak for the rest of the team when I say, we're looking forward to this next stage of growth as a public company.

The very strong quarter and we're very pleased with the result were to our sales organization has continued to execute very well driving strong momentum in revenue and customer metrics, Andrew will cover the financial <unk> in a few minutes on the high level total revenue grew 28% year over year to $46.8 million with subscription revenue.

31% year over year to $42.2 million, an acceleration over our growth in Q1.

At the end of the quarter totaled 191 million up 31% year over year and non-GAAP operating loss was $11.7 million and margin was negative 25%.

Sam This is our first earnings call I would like to provide some background on walk me and opportunity ahead of US much has been said and technology industry, Andy and enterprises across the globe about digital transformation. It can be a complex topic with far reaching implications bucket basic leveling the common element every digital transformation.

He is buying in customizing software to create compelling user interfaces and experiences that improved business processes, sometimes it seems that the website or mobile application.

<unk> forward does it sound there is a compounding problem that is hindering the digital transformation efforts or even the largest enterprises.

Probably heard the phrase there is enough for the organizations from proving that to be true as they buy and develop new cloud based application at the record breaking great.

Each with the aim to improving any one off an uncountable number of business processes, along with the related experiences of employees and customers.

So what's the problem there are actually two first when I took the CIO. The biggest challenge. They have is figuring out how they are multi million dollar it budgets are driving improvement across their businesses.

He told me that there are like visibility and insight into digital assets and business processes, which make it very hard for them to extract value from vacation, including Adobe They may not control or even knowable.

Through long after log in op after up to find the data that you need to even understand what is happening break down quickly each time someone into organization and then you up it's just become that much harder to have visibility to the whole. This is why it's important to recognize the compounding nature of the problem.

Ken I will try and SEC.

Is there a risk of creating pull user experiences for both employees and customers as I noted earlier one of the basic elements of digital transformation is to create compelling user experiences. These turned out to be extremely difficult. When there are no UI standards for application and software with a single use case it doesn't by its nature.

<unk> considered the user experience across all of the application required to complete business processes.

Does management, even though if the experience is working for the users are intended.

Walk me recognize that the key to successful digital transformation is not about the software you buy or the experiences you accept it's about user adoption to.

To achieve user adoption organization need two critical things.

One deep visibility and insight into their tech stack, who is and who isn't using each application where are using getting stuck and abandoning processes, where assistant and users errors are happening where integrations are breaking the permutation across all of your application in the enterprise are endless.

Pounding problem.

Second is an efficient and agile way to action.

And GPS like experience using no code construct and automation that could be employee and customers at the center, where every change directly improve their experience and in turn drive the adoption.

Being data sure is the most important thing when designing a digital transformation strategy without the visibility to the data and the ability to declare and measure the kpis. There was no way to improve application deliver the experienced employees and customers expect and fully realize the value of digital transformation.

What can we do this all adoption platform or the <unk>.

Analyze and understand any application with the simple no code implementation.

And Cdos are provided with immediate insight to find the gaps between the user experience with technology and an organization's business as well with actionable insight organizations can create and deliver elegant experience that enable users to access the full functionality and value of your application, ensuring the adoption and ultimately.

Fulfilling the promise of digital transformation. This is like what can you become not only a category leader by the category creator.

In Q2, we have continued to make huge investments in innovation and I'm excited to share with you the following insights with.

We completed the acquisition and integration of the enterprise search deals with four digital adoption now users of workstation, our unified employee solution can search why they need at the moment that you needed and get personalized AI driven result for example, imagine the productivity increase and so when they no longer need to remember, which.

Application haystack searching to find the latest version of the presentation order form or contract.

I'm also proud to share that we've completed another milestone in the development of our machine learning capabilities, we called <unk>.

<unk>, what can you analyze how humans interact with software and proactively recommend ways to improve the user experience with actions that they can be they can immediately right from the walk me platform. For example organization using Salesforce Lightning can turn on walk me you are intelligent and expose in full detail data driven insights for all.

For him that professional can now see which feels a redundant understood where users waste a lot of sky or make form fill era and charged the optimal path to form completion.

Imagine how powerful it is for <unk> to deliver a radically better user experience across application and aligned to business processes without any configuration changes where human interaction from your team everything he's done automatically powered by AI and machine learning to extracting data.

Better user experience equals better digital adoption and more value from each of them turned formation.

The best way to understand walk me through our customer success stories and hearing about how they use data first approach to close the gap between user interactions with technology and <unk>. We had a very strong Q2 in terms of both new logos and expansion with enterprise customers.

At the end of Q2, we service more than 2000 customers globally, giving our enterprise focused approach, we continue to see outsized growth in that market.

To that end, we added 50, new enterprise wide DAP customers during that quarter, which had growth of 110% year over year.

I'd like to share how our bank in southeast Asia extended with welcoming to support these hybrid workforce strategy. The bank permanently lunch. It's hybrid work program 14 months ago with the goal to increase support from 745000 employees across eight markets today, nearly 37000 employees and a flexible working arrangements.

The hybrid work program is powered by four application service now and E learning platform talent marketplace and success factor welcoming connected business processes across these four application co managers have the data and visibility they need and the employees have the right user experiences.

Each can now optimize the use of all four application to push the banks future of work initiative forward inefficient in a small way.

With walk me bank employees, intuitively adopt new platform, improving productivity and task completion rate engagement trends or high 99, 9% of employees are interacting with walk me to completely the processes. When service now in 93, 9% of the banks you're learning platform.

Let's look at another extension being here is an example of a large multinational company that first became a customer in 2016 like organization around the globe. The company embraced the remote workforce model as a result of coffee and today is one of the most successful hybrid workforce success story.

Not to be derailed by the new normal while moving forward with their planned initiative. They started off with the walk me pilot primarily for its customer experience transformation, there golar worth to onboard 7000 customer service manager or new processes, and Salesforce dot com to better support the new software products as they move away from Europe.

We are focused strategy.

With the data and visibility the game with welcoming the company provided new user experience that they reduced the average handle time for critical business process within salesforce by more than 50%, while improving profit completion rig.

Success of the pilot that'd be attention of the sales organization ultimately decided to onboard welcoming two facility their global sales transformation.

These are two perfect. Examples of companies that look to walk me to drive their hybrid work strategies are gaining better visibility to their data and using insights to create better user experiences. They connected data and action on the walk me platform to deliver outstanding business outcomes.

Customers are at the center of everything we do now, let's widened alone and look at our category and its ecosystem.

Why do we have directly seen the positive impact the number of life across our customer base major industry analyst at Gartner and Forrester has increasingly been featuring walk me as enabler of digital transformation and they recognize the category of digital adoption platform, which we have helped to define and shape in 2019 Gartner.

<unk> will use digital adoption solution. They believe that the number is only somewhere between 5% to 20% today. Most recently Gartner feature walk me and digital adoption solution and to hype cycle, where did you tell the document solution has advanced the Stacy and the maturity Phase. In addition, Forrester has done extensive research on the Eklund a.

Impact of walk me for enterprises.

Forrester found that walk me drove an hour ROI.

368% based on cost saving across employee facing applications and customer facing services.

These translate to a payback period of less than three months and over $20 million in savings to the company over a three year period for the composite company studies in their report.

Strong ecosystem are important.

The most valuable companies in the world have them walk me as maybe important strides in this area. Our ecosystem walk me beyond is about expanding beyond walk newscorp platform by bringing together two key element talent and technology to drive new opportunity. This ecosystem is build around our digital adoption Institute.

Which empowers our customers partners and users to become skilled working professionals.

Self study courses and certification program and ecosystem of welcoming users and collaborator is growing rapidly over 2000 individuals actively engaging the institutes to grow their skill sets in Q2 and over 15000 have joined that to develop the skills over the future since its launch last fall.

Experienced dot professionals are championing welcoming in their professional industry network, which increases mindshare and awareness and we define with industry best practices around digital adoption to realize more value from digital transformation more than 3500 professional features digital adoption platform and walking fields underlying.

<unk> profile and there are more than 30 companies with open Joe Berquist vision for this skill set.

The ecosystem also provides another layer of resources to increasing the strategic value of walked me for a customer including access to community service marketplace market research integration up and solution. This is the power of our ecosystem, which enable our customers to maximize the value of our platform.

While we have made great progress to become a category leader in the chiefs came to date, we strongly believe we're stealing the very early stage of our journey, we look forward to discussing our progress with you in the quarters ahead.

With that I will turn the call over 200 to walk through our financial results.

Our IPO represents all of the contracted revenue not yet recognized including both deferred revenue and noncancelable contracts amounts that will be invoiced and recognized as revenue in future periods.

Moving on to the second quarter results as Dan discussed we had a very.

<unk> strong second quarter with great customer momentum.

The strength that Youre seeing is reflective of strong value proposition of our platform.

Arizona application of our solutions.

Strong operational focus and sales execution.

In the second quarter total revenue was $46.8 million, an increase of 28% year over year.

Subscription revenue grew 31% year over year to $42.2 million.

Remaining performance obligation or RPE O ended the quarter at $265 million, representing growth of 48% year over year and current RVO, which is contracted subscription revenue expected to be recognized over the next 12 months grew 36% year over year to $151 million.

They are at the end of Q2 was 191 million representing growth of 31% year over year, an acceleration from Q1.

The strong top line metrics are reflective of the growing importance of digital adoption within the world's largest organizations.

As Dan mentioned, we are seeing continued strong momentum with larger enterprises, which we measure as organizations with more than 500 employees.

Looking at <unk> are from customers with more than 500 employees. This grew 38% year over year in Q2 to $165.2 million, representing 87% of our total <unk> up from 86% in Q1, 21, and 82% in Q2 of 2020.

In addition, we look at enterprise wide digital adoption platform customers or DAP customers and the additions as a sign of a growing strategic nature of our platform across our customer base we.

We added 15, new DAP customers in the second quarter, which represents a growth of 110% year over year.

They are from these GAAP customers grew 129% year over year and represented 34% of our total <unk> up from 19% in Q2 last year.

Taking a look at dollar based net retention the natural land and expand motion of our platform translates into a strong net retention rate. We look at dollar based net retention with our enterprise customers, who are normally stickier through the disruption that COVID-19 costs with smaller businesses last year, our enterprise dollar based net retention, which includes customers with more than 500 employ.

<unk>.

If we look at the quarterly view of dollar based net retention. It was 121% in Q2 up from 118% in the first quarter.

Before turning to gross margin expenses and profitability I would like to note that I will be discussing non-GAAP results going forward.

Gross margin was 76, 8% up 120 basis points year over year.

Gross profit was $35.9 million up 30% year over year we.

We expect our overall gross margins will increase over time as we continue to optimize our hosting operations and improve our services engagement model leveraging partners where feasible.

Turning now to operating expenses, we remain focused on investing for growth to capture share in the large market opportunity that Dan described.

Sales and marketing expenses for Q2 was $28.1 million compared to $19.3 million in Q2 last year.

This represents 60% of total revenue compared to 53% in the second quarter last year the year over year increase in sales and marketing expenses as a direct result of the hiring freeze we put in place at the onset of the global pandemic last year, followed by an acceleration in hiring as the business activity return to more normalized levels in subsequent quarter.

We're also investing aggressively in our go to market teams to address the increasing opportunities we see in U S federal market partner expansion and broader coverage across all geographies.

R&D expenses in Q2 was $10.7 million compared to $6.7 million in Q2 last year. This represents 22% of total revenue versus 18% in the same period last year.

We've been making investments in our platform and plan to continue to invest in R&D as we build out our product and invest in our ecosystem in the quarters ahead.

G&A expense was $8.8 million for the second quarter compared to $4.5 million in the second quarter last year G&A.

G&A was 19% of revenue versus 12% of revenue last year.

We are investing in the infrastructure of our business to continue to drive long term scale in our business.

Going forward the primary areas of investment for us will be R&D sales and marketing as we look to capitalize our large market opportunity.

Operating loss in the quarter was $11.7 million compared to a loss of $2.9 million last year.

Operating margin of negative 25% was down 17 point compared to the same period last year.

We held back on spending and investing meaningful last year during the pandemic as we chose to preserve cash.

As discussed we've Reaccelerate, our investment plans as we look to capitalize on our opportunity longer term, we expect to see ongoing improvements in operating leverage as we scale and are structuring our investments in sales and marketing and R&D Accordingly.

Net loss per share in Q2 was 16 cents using 75 million weighted average shares outstanding.

Free cash flow was negative $7.4 million in Q2 compared to a negative <unk> 1 million in ancient through last year.

Free cash flow margin was negative 15, 9% down from negative 3% in Q2 last year and.

In the near term, we expect to see fluctuations in cash flow longer term, we expect that increasing operating level drove results and positive free cash flow margins will fluctuate on a quarterly basis in the near term.

And improvement will not be linear.

Turning to the balance sheet we.

We ended the quarter with $371.7 million in cash cash equivalents and short term deposits.

Turning now to guidance for the third quarter of 2021, we expect revenue in the range of $48.5 million to $50 million.

Representing growth of 25% to 29% year over year.

Non-GAAP operating loss in the range of $17 million to $15.5 million.

For the full year 2021, we expect revenue in the range of $189.5 million to $191.5 million representing growth of 28%, 29% year over year.

Non-GAAP operating loss in the range of 59 million to $57 million.

Dan Ralph and I will take your questions.

Thank you if you would like to ask a question. Please press star one on your telephone keypad and if you're on speaker phone. Please make sure that your mute function is turned off to allow you a signal to reach our equipment again press star one to ask a question I'll pause just a moment to allow everyone an opportunity to signal for questions.

And we will go first to Josh Baer of Morgan Stanley.

Great. Thank you for the question and congrats on your first quarter I was hoping you could talk a little bit about Europe.

Landscape and your moat.

Thanks for the question Joshi from them.

So regarding the moat and the technology, what's important to understand.

How does it actually did.

And in order to really provide digital adoption platform you need both thing one.

Deep data into the system.

As I described briefly before and the ability to action on that data.

So what we have and actually provide and what we call <unk>, which is our UI intelligence and for what we know we are the only one that can actually understand human behavior and UI elements.

Such a precision that give us the ability to create that value to our customer the SEC.

Second this is connecting data to our engagement layer and actually provide actionable analytics and actionable insights and guidance to those customers. So I would say today, we're not seeing anything like that there is a point solution that we're seeing Europe.

<unk> debt or the product analytics space or in the training space and so on but we're not seeing them get real adopt solution like welcome today.

Okay, that's helpful and if I could sneak another.

I'm wondering.

When you think about the sales cycle in the education component of that given the nascency of the of the market opportunity.

Just wondering like thinking over the last couple of years or even since IPO. If the educational component of the sale is getting any easier as you're building out the ecosystem and the and the market develops thank you.

Yeah that does.

That's a great question, well, so absolutely we're seeing a huge progress there.

Clearly when we're getting more coverage by Gartner and Forrester and other annually.

Digital adoption platform, becoming a true category.

Still when we're going to customers and the biggest challenge that we have these the status quo and customers usually start with walking me one or two applications.

Then slowly going into digital adoption platform.

What we're seeing in the past I would say a year.

Especially with the tailwind of Covid is that more and more and more CIO and understand that they need to adopt data first approach and this is where we have a huge opportunity to actually go and sell the entire platform from the get go and this is why we're seeing such a strong growth number in our dock.

Customers and our expansion as well so I would say, we're still not 100% there and the market's evolving but we're seeing very strong indication that its going to there and one of the quote that I gave a few minutes ago is that Gartner believes that by 2025, 70% of organization.

<unk> will use digital adoption platform. So this is why we are basically building on and pushing on it because there was no way to run a successful digital transformation.

Strategy and be successful without digital adoption platform.

Great. Thank you.

Okay.

And we'll go next to Tyler Radke of Citi.

Hi, Todd This is Brian came on for Pilar.

Question Oh.

Sure.

And billings growth rates, well, what's driving that diversions and when should we expect to see them converge.

So I can this is Andrew Casey So what I would tell you is a billings isn't the primary metric that we focus on we really focus investors on our remaining performance obligations and one of the things that we talked a lot about was really focusing our R. R. Energy's our sales motions on customers with greater than 500 employees does that.

Enterprise large enterprise space and what Youre seeing there is that that's where we're seeing the largest growth rate as a result of that is that those customers are the ones, who really want those longer strategic relationships with us such that they are treating us as a platform supplier to enable their strategic objective. So that's why you see the RVO number grow.

So rapidly and and we expected that that is certainly going to be our focus going forward and where we're making those investments, but I would I would gear investors and analysts more towards <unk>, rather than billings metric because billing metrics can often be influenced by periodically associated with it and a lot of other things.

It is more difficult to translate back into future growth RP O is the best indicator for us.

Stability and understanding of our future revenue growth.

Great. Thank you.

Okay.

And we will go next to Michael <unk> of Wells Fargo Securities.

Sure.

Thanks, Good afternoon, congrats on the team on the on the first set of quarterly results.

Looking at the large customer metrics look, especially strong, but maybe the total ABR improvements here were a bit more modest sequentially versus last quarter can you walk through some of the dynamics of what's driving the difference between the large customer and the combined and if there's a point where you would expect some of the headwinds from smaller customers assuming that's the case maybe.

Subside here.

Thanks, Michael Thanks for the question I think what I, what I'd say is remember that we were accelerating investments in our sales and marketing and we're ramping up new sales reps.

Tell you typically you see in that group of customers somewhere between 20 to 50 that are being added in any given quarter and we're seeing equally the expansions that are happening within those clients.

Call also that we talked about there was a group of clients. We have that have less than 500 employees and thats been the most challenging area for us as far as customer ads because it includes small and medium sized business customers, who have been the hardest impacted from from Covid through Q4, and Q3 dollars 20 of last year. So you see that dynamic going on in our <unk>.

Business. It's one that we were pretty upfront that we were making the changes in our coverage model we are investing.

And sales and marketing coverage to drove drive increasing IRR from that customer class. It certainly wasn't a transition we're seeing but I'll I'll point right back to our <unk> for the period and the percentage that greater than 500 employee accounts represented and its been steadily increasing now to 87% of our total AOR, which is an increase from <unk>.

Last year and a dramatic increase over the last few years.

That's extremely helpful detail Theres also.

Useful split here on just the retention stats I think you have the trailing 12 months and then a quarterly snapshot as well I'm looking at that it looks like while the trailing 12 is still maybe maybe modestly declining Q4 represents the trough on on a quarterly basis. So maybe you could just discuss the dynamic there.

And maybe if there are target levels or a level you'd.

You would expect retention rates to trend towards that's also useful thank you.

Yeah. So thanks for pointing that out because it's really a great metric that reflects the fact that we've had we had some real churn in that in that customer base in Q3, Q4 and that was by the way there are a lot of companies who are very much struggling.

During the Covid periods, not just small and medium size business. There was there was plenty of customers who had to cut back on spending or put their employees first and so that was a that was a low point in our dollar based net retention. So that's why it's so important that we give to street and to investors in understanding of that trailing four quarters.

It ticked down from prior quarters really reflective of the past and that's why we took great pains to make sure you understood. The quarterly dynamic that's happened that Q4 drop of about 112 has now jumped up to 121, which is reflecting the fact that we are seeing those those customers greater than 500 employees start to expand with US we are.

Gaining more and more customers in that category and as we're generating value for those clients that are expanding with us across multiple multiple departments applications and in some cases enterprise wide. So over time, we certainly think that we can drive our dollar based net retention well above $1.25 per cent for that.

Class that was going to take some time and it's going to take concerted efforts and our coverage.

And the continued focus and success with our DAP customers, but that's our strategy right. So.

And the dollar based net retention figures.

Thank you.

Okay.

And we will hear next from Keith Bachman of bank of Montreal.

Yes, Thank you and echo the congratulations on your first public company quarter.

I had two the first is on your large enterprise agreements could you talk a little bit about what your upsell cadences with those customers. After they sign such a large agreement and what are the drivers is it is it seats as it usage, how do you expand that and how does it compare to say.

The balance of your customer relationships.

Thanks, Dan.

Okay.

Thanksgiving is done probably talked theory that pops up there and so it's a great question. So when we're looking at the expansion. It goes two ways one is more application.

So companies that are doing growing digital transformation.

And we basically implementing more and more and more platforms right. It can be an ATM of CRM and ERP and so on and so on and usually they will go to walk me and that will start adding walk me to help them with those business processes, what we will see that soon enough.

It will start to add walk me and more and more and more applications internal and external as well and the way we price we price per seat per app.

We have an enterprise license agreement when it just bursty.

There is a certain point, where it would make sense to just move into an enterprise license agreement and that's what we're seeing with our large customers. This is how they're extending.

I mentioned earlier, we are hoping to see the near future and that we're able to land enterprise license agreement because we're pushing really hard on the data first approach and but currently the way. It works is we call it 1% or three that are starting with one up to three and then they go through.

So that's usually how do they normally four I hope you've answered the question.

Yeah, great. Thank you and then my follow up would be could you give us an update on the Salesforce progress, where where are you in terms of.

The hiring plans you know quota carrying reps training just if you can give us a sense about.

How to say the next 12 months might unfold in terms of sales capacity.

From where you are in the recent quarter or so many thanks.

So thanks Andrew.

I would tell you we're executing on the plans, we kind of set out for ourselves in hiring and by the way. It's not just sales reps. It's also the support infrastructure around reps sales engineers, it's our customer success reps.

Our inside sales are <unk>. So it's for us it's about creating the infrastructure to make the sales team very very productive and so far we've been executing pretty well on our plans for the year now typically what happens in any cycle for an enterprise software company like US is they do a lot of hiring early on.

And in the year end and that's because you want the sales reps to ramp as quickly as possible to be able to affect your Q4 period I'd say, we did that very well in Q1, and we're continuing to go higher.

Two core areas and our sales team because we see continued interest from those enterprises are doing for clients. In fact, I think you've probably seen in our release. We're we're we're starting to invest into our U S. Federal market, we hired a leader there and theyre starting to build out a team and it's because we see enormous opportunity.

Over the long term, especially as the government cycle is actually take place over 2020 to that.

Those are going to be very very lucrative investments for us and we can take advantage of them.

Imminent.

We also have hired leaders in EMEA and in AP Jay.

So I am lumen and Sandy Overfelt.

They're driving.

Our structure and our focus on enterprise software coverage in each one of those geographies, which was also a big areas of growth for us. So.

Long winded way of saying, we're executing on our plans that we set out for ourselves and as we continue to see opportunities, we will invest aggressively into them in advance of them. In fact, that's what you see in our financials and our guidance is that.

We are not shying away from opportunities to invest in our sales and marketing organization to take advantage of long term growth opportunities.

Okay.

Add to that.

This is Dan.

On top of the organic growth that we have.

Increasing our salesforce and we are increasing our efforts with the partner.

And the global size of course, so we more than doubled our alliances and partnership teams in the last six months. So that we believe going to be another strong revenue growth driver for us.

In the future.

And so we really take our next question from.

It's ran a boss Glenn with Barclays.

Hi, Thanks for taking my question and congrats on the quarter I guess that touch on that last one.

I'm looking at.

Are sourced from direct sales versus partners. It looks like it's mostly direct sales today, but how much can you seed partners contributing over time.

Hi, Robin so right.

Yeah.

So right now.

Is that contributing.

<unk> all of our channel partners is still marginal we are working very hard and here what is more important is the direction over speed.

We want to make sure that we're not just inking contracts, we wanted to make sure that.

The partners are the right partners and Theyre, putting the adjusted.

Just the investment required to be successful with our platform.

<unk>.

Actually there is a lot of very good things in the hopper. So I suggest for everybody to stay tuned, but as though right now it's still a marginal contribution.

Okay, Thanks and.

I know you had mentioned that.

You know some of your smaller customers still very much being affected by Covid, but.

A lot of these customers may still want to try your platform are you.

<unk>.

Incentivizing some of these smaller customers in any way to come on track.

For him right now and trying to remove some of the friction from the buying process.

Sure This is Ben.

We serve any company inside so welcome you actually have the.

For I would say brackets grown SMB to commercial to enterprise to named accounts.

Our product fits them all.

And yes, we have I would say very beneficial pricing given to small companies that wants to try our product. So that's absolutely something that we always there we're focusing on.

Yes, maybe just add onto that.

When it moves to add onto that I think what Dan was referring to earlier about how customers typically start with us and our pricing structure and it's a price per user per hour.

Oftentimes when a when a smaller customer starts with a specific use case they'll be relatively lower cost because they're really focusing on that specific use case, and so and maybe even a subset of users for a single application. So if you think about how customers are getting value through the use of the walk me platform.

Increases in users and increases in application of process coverage is really how the pricing escalators. So theres no barrier to entry and pricing structure for the smaller customers. In fact, I think we've done a pretty good job of structuring it such that as value accrues to customers over time through usage, that's how walk me captures more value too.

Okay, Great that's helpful.

And we will go to our next question from Pat Walraven from JMP Securities.

Oh, great. Thank you and let me add my congratulations so if I just googled digital adoption.

You know the ones that come up or walk me, what fixed and Penndot.

Dan I would love to hear just sort of the quick version for how you tell.

Tell customers that you differentiate from from those competitors.

Sure Great question, so even though we don't care about the first the one that you mentioned and though they're mainly focused on product analytics.

And we're not seeing them in that digital adoption transformation space at all and as regards to what we're seeing currently is a small competitor and.

Don't come near to our ability to execute for I would say mid sized companies to large companies both on data and deep analytics, AI and machine learning and at the end of the day, what we're trying to sold.

To our customers.

Get them real ROI from the digital transformation effort and.

In order to do so there is a lot of moving parts that need to be in the platform and currently we're the only one that actually have it and we are seeing that you now think the entire I would say ecosystem grows. So that's good to US and then we will come in a hurry competition, but overall.

And we think were three or four years ahead.

Better decline rate.

When you look at work.

We define we define.

DAP customers and we clearly give a number for DAP customers.

Or is that customers are companies that really changed the way they do their business regarding technology. So theyre not looking first system. They look at the business.

The problems that they're trying to solve which might be four or five different systems. So when you look at DAP solution, a true digital adoption solution that changes the way companies do their business, we're probably the only game in town.

Sure.

Awesome and then Andrew if I could ask you a quick one I mean, so RP O.

The exploration is awesome right.

<unk> 36, 48 I think.

How much of that is duration and should you guys be giving a CRP metric would that'd be helpful.

We do have we do actually disclose the current RVO metric as well Pat.

That's growing 36% year over year, we break it out for you look I think there's a big portion of that that is.

US focusing on driving those longer term strategic relationships with clients that sets us up for the broader discussions not not worrying so much about trying to prove value on a single single use case, but rather proving value across multiple and having those how those broader roadmap discussions with cio's. So.

It was a definitely a focus for us to go to go drive that I think it has multi purpose benefits.

It will help drive better sales productivity it will help drive better focus on our expansions with our enterprise large enterprise UK customers.

So all of those then show up as you know longer term de risk and in revenue.

Because theyre committed contracts.

Okay.

Alright, and then forgive me for not having it at my fingertips, but what was what was ERP last quarter.

CRM, who last quarter.

Oh, we're in front of me.

Alright.

Yeah.

Yes.

Sorry, it was.

[laughter].

It was last quarter.

Was it in March 'twenty was 237 million in total and that broke down between current of $1.40 to 195 of the 237 and for this quarter, it's 216 and that breaks down between $1.51, and short term and 100 million and long term.

Okay, great. Thanks very much.

Youre welcome.

Yeah.

And we'll go next to Michael tourists of Keybanc.

Hey, guys congrats on the first quarter at 10.

And then.

Totally agree.

Full our pure numbers is important for China.

Long term commitment and it isn't just a single use case, what are you doing Dan to help make sure that people do expand on that platform as we go to market as customer success are you bundling. What are you doing actively to to help to help drive additional use cases, not just a project based approach.

Thanks, Mike Great question, So I would say first enforcement.

Nation, and leading bio product. So we're adding a lot of capabilities every quarter, we have a major release that actually answered more and more and more and I would say difficulties that we're seeing with enterprises.

So with that every release and every product and with the mind to actually talk to the entire organization not just helping them with one legal.

Another thing is market that location and what we called Walkman beyond.

Third our elevate.

Elevate the event, which is the biggest nonprofessional event in the world and we're helping people understand what the digital transformation. What these digital adoption manager and so on today, we have over 3000 people in Linkedin that has welcome you welcoming related.

And their job skills, so we're creating a huge ecosystem around it. So it's not suggest that technology. It's the ecosystem that comes with it and the other thing that we launched.

And pre pre made solution. So they will have faster value. So let's say they have a big ATM rollout. They can immediately get the knowledge of other customers in pre pre made solution. So they can actually see the value faster when the food value faster usually typically.

What happened with those customers if they're like Oh, we have welcome you on our a M. Why do we don't have it on our CRM why are we don't have it on our financial system and so on so this is how we're helping them get more value when we're actually making our customers' hero.

Otter Department are joining very fastly and they wanted to use welcome you as well and another big thing that we're doing we are helping them shape a center of excellence around walk me. So they can actually think about welcoming strategically when they're actually aligning their goals and digital transformation with the capable.

<unk> walked me so we're doing all of it together the innovation day education of course customer success and our services team are helping them.

Again, the ecosystem and the Knowhow that we're bringing to the table I would tell you that in the past six months I am talking with so many CIO was around the world that have the exact same experiences and today theyre coming to us and they ask Dana.

How other companies are doing what are the benchmark how should we approach hybrid workforce.

They're not just coming to us for our technology now theyre coming to us for the benchmark and their know how and then we're showing them how to leverage our technology to get their goals. So all of these together is what we're doing in order together.

That's great. Thanks, and then and then Andrew what about the August it was great to see that.

Large customer net retention pick up sequentially obviously.

Another indicator for what we are.

You just talked about with pan, but what about the gross retention slashed.

That churn how is that sequentially.

So I would say you see a similar pattern on on the total and the total customers, including the less than 500 employee accounts you see that similar quarterly balance from Q4, and increasing and so overall I think that what youre going to whats youre going to get when you break it down.

Sequentially, a three point increase quarter over quarter in total and I would say it is.

It's reflected in fact, we had a we had a good renewal quarter.

Had a low amount of a decreasing amount of overall term, which is good because we are starting to see more stabilization in the overall customer base.

But like I said, the most important thing for US is to continue to focus and drive that growth in the greater than 500 employee base I expect that that as a percentage of our total <unk> that will continue to increase over 90%.

And that's where we're focusing our attention.

Does it just to clarify youre.

Our total net Rick your net retention rate with total customers not just not just customers over 500 also went up three points sequentially.

Yes.

And I guess my question with which is great. Thanks for giving that my question is gross churn and gross retention in other words.

Your churn.

Stay stable or improved sequentially.

Yeah. So so that's not a.

That's not a metric, which we're going to we're going to focus on we're going to focus on the dollar based net retention, we're giving you both the trailing 4% quarterly so look.

By its very nature, you can deduce that it improved because of some of the other anecdotes I gave you, but the but that's the point is that as we continue to focus on driving value for our clients. We're show is Dan shows, we're showcasing value across multiple multiple departments and applications that they're the gross retention rate improves.

As well.

Great not traveling model on it just wanted to ask on the retraction. Thanks, Yes.

Yep Yep.

And we will go to our next question from Scott Berg of Needham <unk> Company.

Hi, Dan Raffi, Andrew Congrats on the good quarter and thanks for taking my question I'll go with one another and I think she.

So it looks like we're getting.

<unk>.

I wanted to see if you can give a sales update or I guess, how should we think of sales between kind of the two main profit product areas walk me for customers in walking for employees does that sales mix differ than maybe what you see in the last couple of quarters, just trying to understand if you're seeing something incremental in one area or the other.

Yeah.

So Scott Thanks for the question Scott. This is one of those areas, where I would say we've had a pretty consistent pattern on on demand.

Some quarters, it fluctuates a little bit, but it's typically that we see customer walking for employees is as <unk>.

70% or more and then walk me for customers is around that 3%.

Area now, it's hard to nail down a lot of times as you know or maybe.

I'll just remind people is with many of our customers actually have both and when you go through a contracting process, where it's a it's a DAP customer you have a broad.

Usage parameter around it it's hard to try and assess relative value to the components within the larger agreement so.

It's one of those areas, where I think it's more reflective of how we used to go to market and how we used to really.

Talk about our solution with Cio's, it's not that it's not it's not that the product set is not relevant as just as so many of our customers either start in one place.

And then migrate to the other or they quickly moved to an understanding that walk me is really their complete solution for driving digital adoption for both our employees and their customers.

Great. Thanks for taking my question.

And finally, a disc and really explain the difference between a point solution.

So it's really looking at the business problem and not the specific system.

A few.

Systems that a customer.

Sure <unk>.

<unk> is using and not looking on one website, but also looking at the apps and the different ways that a customer can reach out and.

And reflecting the close there and thats the strategic nature of that versus the point solution, where you put guidance on top of one application or two applications or on our website or on an app now walk we will give you the insights on top of everything to really see how you are improving your business kpis.

Makes sense.

And so at this time with no other questions in the queue I will turn the call back over to Dan <unk> for closing comments.

Thank you and thank you everyone for being with US on the call today really look forward, keeping you posted and our progress in the quarter ahead.

And again, thank you for joining us.

And so that does conclude this call. Thank you for your participation you may now disconnect.

Q2 2021 Walkme Ltd Earnings Call

Request a DemoDemo

WKME

Walkme

Earnings