Q3 2021 ON24 Inc Earnings Call
We could impact. These forward looking statements you should review on 2000, <unk> periodic SEC filings, including the risks identified in today's financial press release I'd also like to point out that today's call. We will report both GAAP and non-GAAP results. We use these non-GAAP financial measures to evaluate our ongoing operations and for internal planning and forecasting purposes non-GAAP financial measures are presented in <unk>.
Q2, and not as a substitute for financial measures calculated in accordance with GAAP reconciliations.
Reconciliations of these non-GAAP financial measures. Please refer to today's financial press release, I will now turn the call over to Tara Tara.
Thank you and welcome everyone to on 20, <unk> third quarter 2021 financial results Conference call. Thank you for joining us.
On today's call I would like to discuss three key themes that demonstrated the underlying momentum within our business and the large market opportunity that lies ahead for US first we believe our data rich personalized digital experiences are becoming more differentiated than ever as sales and marketing teams.
Seek to garner valuable first person intent data.
Second we are seeing increasing momentum within verticals, such as life Sciences and manufacturing that are accelerating their digitization efforts, which we believe validates our large market opportunity and increased market awareness.
We are driving a robust product innovation cadence to deliver on our platform vision.
Before I dive more fully into these themes, let me first review our results from the quarter.
For the third quarter, we reported total revenue of $49 4 million, reflecting 16% year over year growth and above the high end of our guidance range.
Subscription and other platform revenue increased 27% year over year.
Net new Anr was $3 1 million.
While an improvement compared to $1 1 million in the prior quarter, we expect to see further progress in the quarters ahead.
Our third quarter, ending IRR was $167 2 million up 20% year over year.
We posted a non-GAAP operating loss of $1 4 million for the quarter.
The third quarter of 2021, Mark our mapping the second COVID-19 influenced quarter.
Overall, the dollar value of churn declined quarter over quarter and churn rate was in line with our expectations as.
As we anticipated in Q2, the percentage of first time renewals and the renewal cohort decreased meaningfully quarter over quarter, Although we continued to face headwinds from those renewals.
We also saw some customers rationalized midterm additions from last year.
Our core customer base of enterprise organizations continued to solidify in the third quarter.
Number of customers contributing a $100000 or more was up 32% year over year.
Our average <unk> per customer also increased both quarter over quarter and year over year.
Within our enterprise segment average IRR per customer now stands approximately 60% higher than it was at the end of 2019 in.
In addition customers are continuing to make larger commitments with us.
Platform with sequential growth in both the percentage of payout multi.
Multiyear contracts and number of customers that have purchased two or more products.
More recently, we have been aligning our enterprise go to market strategy to focus on selling integrated platform deals. We believe our platform is well positioned to become a core element of customers sales and marketing strategy as the data we enabled them to collect is providing valuable insights across the business.
And increasingly important to the entire revenue growth engine.
As a result these deals are highly strategic and can involve multiple stakeholders across an organization, which may result in longer sales cycles.
Saw that dynamic play out with some deals in the third quarter.
Longer term. We believe this is a positive as we become a strategic and critical investments in customer sales and market infrastructure, creating opportunity over time for larger deal sizes and improved retention.
Now let me briefly highlight some of our notable six figure new wins within the third quarter.
In the U S.
A leading robotic process automation software company purchased 124, really breakout and engagement hub to help accelerate their sales pipeline with digital experiences drive greater engagement with their customer facing content and automate manual task using our tight integrations with their martech.
Infrastructure.
Another key win was with one of the largest global aerospace manufacturers that is accelerating its investments in digital engagement moving from using a collaboration tool to elite drive demand Gen and product awareness of specialized products and services.
On the international front.
A multinational industrial company headquarter in the Nordics that is accelerating digitization efforts as their technical buyers' journey has increasingly shifted online this customer will be standardizing on the ontological platform to drive lead Gen and educate partners on their complex climate control solutions.
<unk>.
European based medical company specializing in eyecare products is implementing on 24 elite worldwide to drive part leadership product awareness and continuing education for healthcare professionals.
Our land and expand sales model continues to be a key pillar behind our growth and demonstrate how we become a strategic partner for our customers and the industry has fundamentally changed the way they engage in order to drive measurable business growth.
In many cases, we start small and then over time expand to additional use cases departments and geographies within an organization.
I'll share just a few examples of the many customer expansion within the quarter.
First our U S based diversified manufacturing company.
Onboard with <unk>, just over a year ago and has already delivered housing the business experiences globally for partner and channel enablement on our vast product portfolio in the quarter. This customer made a six figure expansion purchasing both engagement and target to provide scalable personalized content.
Journeys for the thousands of channel partners and <unk>.
Just over a year's time this customer has expanded by approximately seven times since their initial purchase.
That's one of the world's largest pharmaceutical companies, who already uses on 'twenty four to educate and build product awareness with health care professionals running over a thousand digital experiences for a year.
I will now expand their use of engaged but havent target to showcase personalized content and a central hub that can be seamlessly localized to individual markets.
Lastly, our global industrial company that has been at the forefront of digital transformation purchase engagement hub for demand Gen partner enablement as well as no sharing its existing customer base we displaced.
Another vendor and one based on a real time analytics ease of use and customization capabilities. This customer is not <unk>.
Figures of annual spend with <unk> 24.
Now turning to the first team.
Global data privacy regulations, and major Internet platforms are increasingly restricting the collection and use of customer data.
As a result marketers are looking for first party consented data.
They are turning to interactive and personalized digital experiences to capture this data and reached prospects build trust and cultivate closer relationships.
When looking across sources of first party data. We believe on 24 is uniquely positioned to provide the most insightful and actionable first party data.
The comprehensive behavioral and intent data that we collect within and on 24 digital experience allows marketers to prioritize more impactful leads by understanding buying intense signals mapped to an actual individual's behavior, rather than a generalized persona or a job title.
The secret sauce of the <unk> platform is a proven ability to engage audiences with amazing multi dimensional digital experiences LIBOR on demand, while simultaneously capturing first person engagement data and intent signals.
Data is gathered from the questions asked Paul to answer meetings booked documents downloaded and more.
And gave them the single <unk> experience generally less than average 15 minutes and typically as to audience is up more than 200 attendees.
Use of artificial intelligence and machine learning engine to determine an individual's digital body language by collecting up to 50 data points for each user into a prospect engagement profiles and classifying that information into two main categories. One engagement data with his use of <unk>.
But we're profiling and scoring and two signals, which depending on the use case are either buying signals our call to action signals.
The first party engagement data creates a flywheel effect with our AI driven recommendation engine is surface personalized and curated content recommendations in a netflix like experience.
Buyers can control their own journey.
<unk> getting at their own pace, but also being nurtured before their engagement. We also make those rich insights actionable to drive business results data integrated and orchestrate near.
Near real time across the customer's martech and sales back which could be a potential game changer for sales teams.
Pick more data driven actions with customers.
In this age of digital engagement one of the biggest challenges that organizations face is confidence in delivering successful digital experiences.
Texas means much more than just screaming presentations, enabling a great customer experience attendees can engage as if they were in a room together and organizations can derive business insights from those experiences.
Without a compelling experience to start attendees won't stick around and VW buyers now have the same expectation as what we experienced in the consumer lives at.
An entre LIBOR.
Digital experiences it is our only focus and our platform is purpose built for sales and marketing teams to deliver tangible ROI for their organization.
Our vision is to make every digital experience as engaging in the last two deep insights to move buyers customers and partners to the next experience from day, one we bring enterprise scale reliability privacy and compliance and empower our customers with tools Playbooks benchmarks and globe.
<unk> support resources to harness the full power of our platform to be successful.
Shifting gears to the second tier.
In the past year and a half busily engaged one has emerged at the both the forefront of marketing and customer experience.
Industries, such as manufacturing and life Sciences have accelerated their digital engagement efforts and seen tremendous success with use cases, ranging from educating health care professionals.
<unk> of complex machinery for lead Gen.
Even a physical event become possible again. These organizations are realizing that digital is not only the new reality, but a better approach to scaling engagement generating higher quality leads and driving more pipeline and revenue and physical event ever did and at a fraction of the cost.
In a recent survey from the global business travel Association more than 40% of travel managers, who responded noted that the company has reevaluated the ROI of business travel and 59% cited the increased use of virtual meetings.
As you heard earlier from some of the new logos landed in Q3, we are seeing accelerating momentum with manufacturing and life Sciences organizations, which now represents our fastest growing verticals. We believe the adoption of our platform and emerging partner enablement and training use cases within this vertical demonstrate our loss.
Stan and how we are still in.
This market opportunity.
Let me share two customer examples.
Owens Corning and international building materials leader is an example of one of our many manufacturing customers.
Contractors dependent Owens Corning for learning education, and training to stay ahead of changing technology and best practices.
Pre COVID-19, the historically relied on bringing contractors together across the country from in person events.
Partnering with Entre for Owens Corning has been amazing success, using elite engagement hub and the intelligence to implement a scalable digital approach to reach and engage global contractors. So they can self educate at their own pace and get the resources they need anytime anywhere.
Manufacturing leaders of Owens Corning are shifting to digital approaches that are strengthening partner enablement and education across the vast network of stakeholders.
One of our life science customers Abbvie is a global biopharmaceutical company that creates 57 million people annually with its product across more than 60 medical conditions.
The pharmaceutical industry had a long standing tradition of in person conferences to facilitate peer to peer research and educate healthcare professionals on their products.
With Covid Abbvie transform from in person conferences and has delivered more than a thousand events will be on 24 platform and engaged more than 100000 attendees across 60 countries.
Now, let's shift to the topic of our robust product innovation cadence and platform vision.
Less than five years ago, <unk> is essentially a one product company with a flagship product elite.
We listened to our customers key pain points innovated on their behalf and now bring to market a multi product system of engagement the combined digital experiences engagement data and personalization.
The percentage contribution from non elite <unk> has nearly doubled since the end of 2019 from low teens to nearly a quarter and.
And more than 30% of our customers have purchased two or more products.
Looking ahead, we are in.
Accelerating the pace of innovation across our platform.
Buying the category official engagements.
Two weeks ago, we hosted our product roadmap.
Where we shared our latest innovations, including the next generation of elite.
An exciting launch of our latest addition, the platform go line and other platform enhancements.
We feel great customer feedback.
And believe our platform value proposition, even more clearer to them that we reviewed some of the key highlights.
We were one of the first to market in the webinar at virtual event space more than a decade ago and bring our unique heritage and perspective.
Our flagship live webinar experience product.
<unk> was launched about eight years ago, we started our platform journey.
Since then lead has gone through a continuous evolution redefining the marketing webinar category, providing new differentiated ways to connect with audiences and becoming a powerful engine for driving revenue for many of the world's largest organizations.
I'm thrilled for us to launch the next generation of the lead which will be rolling out over the next few releases.
It will have a new user experience.
Engagement features that mirror, the social interactions we have in our personal lives and re architected that our experience that resembles the power of our professional video production studio.
Go live our newest experienced addition to the platform is a self service virtual event solution to deliver live streaming video events faster and easier.
It brings our participation first approach prevents an optimized for two way conversation to come to the forefront of the experience. So that content is being created delivered consumed and discussed all at the same time.
We'll go lives organizations can build a complete end to end external or internal events, ranging from roadshows customer conferences virtual pop ups downhaul than company meeting using pre built templates and an easy to use and engaging interface.
It is slated to GE at the end of Q4, and we expect it will open up our Tam over time, particularly in the mid market segment as it addresses the pressing need for sales and marketing teams to quickly stand up video centric events to drive engagement with prospects custom.
<unk> and internal audiences.
We believe go live complements both our webinar solution, which take the more content first approach and virtual content product geared towards large scale highly produced events.
<unk> great virtual events.
Also want to engage with brands outside of a pre determined point in time.
As such we are bringing to market a new approach with engagement have life using content and event marketing.
It cannot be integral into engagement hub. So audiences can now go to one smart multimedia content hub and engage with all content, where they're happening live or on demand.
We envision engagement hub as a <unk> version of Netflix highly personalized single destination for audiences to engagement with all content from any device that can be accessed any trend from a single link.
Our platform value to create all digital experiences with <unk> 2004 is the data that it generates and flywheel that it creates.
<unk> ongoing for experiences purpose built to capture every audience interaction and behavior in our prospect engagement profile.
Additional insight that increased buying interest and intent and surface those signals for action.
Our AI personalization engine uses attendees history and specific business interests from engagement experiences across our platform to deliver a greater personalized experience, which we believe drives better prospect engagement and conversion.
Now with the addition of Golar to our platform, we will have six different experience products, creating a powerful network effect and making a prospect engagement profiles and personalization capabilities even stronger.
We are building for the future of <unk> and have a robust product roadmap on the horizon.
Spend by enterprise scale privacy compliance.
Compliance and reliability.
Innovation is centered on driving maximum engagement with and every experience, enabling diverse digital experiences from large annual conferences to regional networking events multimedia content hubs and targeted web pages and synthesizing all of that engagement across every experience into <unk>.
Right.
Marketing and sales teams can use to drive results.
With that.
I'll hand, it over to our CFO, Steve <unk> to walk you through our Q3 results in more detail.
Steve.
Thank you, Sean and good afternoon, everyone.
I am going to start with a discussion of our results with revenue.
Revenue for the third quarter was $49 4 million, an increase of 16% year over year.
Description and other platform revenue was $43 6 million, an increase of 27% year over year.
As a reminder, this includes overages, but have been trending around 3% of our revenue can fluctuate depending on customer usage of our platform and seasonality.
Professional services revenue was $5 8 million, a decrease of 30% year over year, representing 12% of total revenue.
This decrease was in line with our expectations that we provided last quarter.
As a reminder, professional services revenue in Q3 2020 represented 19% of total revenue due to higher than typical demand for implementation and deployment services, we experienced during the Covid pandemic.
We continue to see more of our clients selecting for self service, which speaks to our platform's ease of use.
Moving onto Anr.
<unk> represents the annualized value of all subscription contracts at the end of the period and excludes professional services and Overages.
Net new <unk> was $3 1 million an improvement from $1 1 million in Q2.
Total IRR at the end of Q3, 2021 was $167 2 million, an increase of 20% year over year.
In Q3, we lapped and other Covid endpoints quarter in first time renewals from customers, who purchased in the year ago period represented slightly more than half of the total new cohort.
Meaningful decline compared to Q2.
We faced headwinds with respect to those first time renewals, particularly with organizations that were not our ideal customer profile and had onetime needs were.
We also thought from rationalization with mid term additions from the year ago period.
Overall, the dollar value of churn decline compared to Q2 and the churn rate was in line with our forecast.
Our core customer base of enterprise organizations strengthened in the third quarter.
We added 14, net new $100000, plus our customers and in Q3 hundred 59 customers contributing a $100000 or more an increase of 32% from the prior year.
These $100000 plus our customers comprised 67% of our ending IRR, which is the highest to date.
We view the number of $100000 plus <unk> customers is a key indicator of customer quality.
Fast of our land and expand strategy and validation that we are increasingly becoming a strategic partner and customers Tech stacks.
Both the percentage of <unk> multiyear contracts at number of customers that have purchased two or more products increased sequentially and reached the highest level to date.
Total customer count declined slightly quarter over quarter to 2054 with SMB churn, representing the largest contributors to the decrease.
Given the learnings from the past couple of quarters, we are laser focused on acquiring enterprise and mid market customers that meet our ideal customer profile and with whom we can develop a lasting strategic relationship.
Before turning to expense items and profitability I would like to point out that I will be discussing non-GAAP results going forward.
Non-GAAP results exclude stock based compensation as well as certain other items, our GAAP financial results along with a reconciliation between GAAP and non-GAAP results can be found within our earnings release.
Gross profit in the quarter was 38 million, representing a gross margin of 77% and a decrease of 300 basis points year over year.
We continue to invest in our cloud infrastructure capabilities and growing our customer success team to enable.
Sustained growth.
Turning to operating expenses.
Sales and marketing expense in Q3 was $24 2 million compared to $15 6 million in Q3 last year.
This represents 49% on total revenue compared to 37% in the same period last year.
As you heard from Charade, we're in the early days of a large market opportunity. We will continue to invest in marketing to drive awareness and continue to add sales capacity across regions and segments.
R&D expense in Q3 was $7 9 million compared to $4 6 million in Q3 last year.
This represents 16% of total revenue compared to 11% in the same period last year.
We are driving a robust product innovation cadence and we will continue to invest in R&D to build for the future.
G&A expense was $7 3 million for the quarter compared to $6 4 million in Q3 last year. This represents 15% of total revenue compared to 15% in the same period last year.
Our G&A expenses have increased due to the costs associated with being a publicly traded company over time, we expect G&A expense to scale and decrease as a percentage of our revenue.
Operating loss for Q3 was $1 4 million for <unk>.
3% operating margin compared to operating income of $7 5 million and an operating margin of 18% during the same period last year.
Net loss in Q3 was $1 6 million or <unk> <unk> per share based on approximately 40.
And diluted shares outstanding.
This compares to net income of $7 2 million or <unk> 42 per diluted share in Q3 last year using approximately $17 million diluted shares outstanding.
Turning to the balance sheet and cash flow.
We ended the quarter with $399 7 million in cash cash equivalents and marketable securities.
Cash used in operations in the third quarter was <unk> 9 million compared to cash flow from operations of 11 5 million in Q3 last year.
Free cash flow was negative one.
In Q3 compared to positive $11 1 million in Q3 last year.
Free cash flow margin was negative 3% in the third quarter compared to positive 26% in Q3 last year.
Now turning to guidance I.
I would like to first point out that we face a challenging comp for the upcoming fourth quarter and.
In the year ago period revenue, excluding legacy increased 137% year over year and professional services represented an outsized 22% of the total revenue mix.
We expect to see improvement in net new <unk> compared to Q3, but we still have another COVID-19 influenced quarter.
For Q4, the percentage of first time renewals crops to approximately 30% of the total renewal cohort Ashok mentioned, we have become increasingly focused on selling an integrated platform with enterprise accounts.
These are strategic deals, which can be more complex lead to longer sales cycles.
It's still early to draw trends, we are being prudent and factoring this dynamic into our Q4 forecast and guidance.
As such we expect total revenue in the range of 51 to 52 million, we anticipate professional services revenue to contribute approximately 13% to 14% of total revenue in the fourth quarter of 2021.
We expect a non-GAAP operating loss in the range of $4 7 million to $3 7 million and a non-GAAP net loss per share.
10.
To <unk> <unk> per share based on $48 2 million basic and diluted shares outstanding.
And for the full year 2021, we are updating our guidance range for revenue to $202 6 million to $203 6 million, which represents year over year growth approximately 29% to 30%.
We expect professional services will represent approximately 13% to 14% of total revenue, excluding our legacy business for the full year 2021, compared to 22% in fiscal 2020 and 18% in 2019.
We expect a non-GAAP operating loss in the range of <unk>.
<unk> 9 million to non-GAAP operating income of <unk> 1 million and a non-GAAP net loss per share of <unk> <unk> per share to <unk> <unk> per share using 43 points and basic and diluted shares outstanding.
Looking out to fiscal 2022, I would like to make a few initial observations.
Q1 will mark the last Covid influence in the quarter.
In the first half of fiscal 2022, we expect revenue growth to be muted given the large year over year comparisons and outsized growth we experienced last year.
However, in the second half of the year with a tough comparison largely in the rearview mirror, we expect revenue growth to inflect over.
Overall, we expect a return to historical seasonality patterns with Q2, and Q4, representing our seasonally strong quarters.
Lastly, our current view is that the mix of professional services revenue.
<unk> as a percentage of total revenue for fiscal 2022.
We plan to offer detailed guidance on our outlook for fiscal 2022 on our Q4 earnings call.
With that tried I'll open the call up for questions operator.
Thank you.
Would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question.
We will take our first question from Rob Oliver of Baird.
This is <unk> on for Rob.
So one quick question for Sarah and then one for Steve.
You mentioned the focus on selling integrated platform and customer wins.
The non <unk> nearly doubling from 2019 are here in the call.
Some longer sales cycle on the new products that you are now.
In particular, the go life, our Midmarket and we didn't get a sense of the specific use cases or the complex during.
During the event.
And in terms of the spectra targeting mid market Danny.
He will comment on the up sell cross sell opportunity there as well as relative positioning and pricing recently.
Recently, the legacy offering.
The conference geared towards the large scale events and then one for Steve later.
Yeah.
Shrine together.
The question is how does.
Go lives.
Within our product portfolio and how that how does that fit in with the virtual conference product that we currently have.
So right.
It looks like yes shrank as we looked at our experienced flat experienced lateral we've got we had a webinar platform. We've got the engagement up quite a bit of additional Netflix is.
We had we launched breakouts and we have 124 target. These about personalized landing pages and then we also had our virtual conference product. The virtual conference product traditionally has been more that's the only part of our product offering thats more managed services will allow for more complex.
Virtual conferences global let's virtual conferences again, it had a little more servicing and at.
What we saw was that we were missing a product product in the last 12 months or so we saw the emergence of a category a product which was extremely self service simple video centric virtual events that really has very strong audience participation and networking and interactivity so that was.
We thought that was something that we did not have as part of our platform and our approach to our customers and you talked about upsell and cross sell our approach to our customers is that we are a one stop shop for these engagement products. So we have beef setup, we are bringing that entered the market. Initially it allows us to open.
From the time, even more in the mid market, which is where we will start.
As we expand that this will provide a significant opportunity to bundle the products together to upsell and cross sell for larger enterprise deals across the world too so.
The length of the virtual conference product will continue to be managed complex.
Virtual conferences.
Across delivered across the world, while Golar will be simpler.
Self service video virtual events very audience centric very easy to easily so that's how we see that and the important thing is that all the data from all these experience products now.
For our customers with a one stop go into the data framework and then our integrated their sales and marketing ecosystem.
To drive business results.
Got it got it thanks, a lot that's really going to say my.
One question for Steve. So you mentioned the headwinds will be <unk> sort of decline.
In line in Q3 and should be more meaningful in Q4.
Can provide any update or color on that front and also help us think through the NRO normalization grants going forward looking out into 'twenty two.
Yes, I think there are two questions. There let me take the first one.
First on the <unk> growth in Q4, so we do expect to see some improve.
Improvement in progress and net new.
Equally while we are still lapping another COVID-19 influenced quarter now for Q4, the percentage of first time renewals drops to approximately 30% of the.
Total renewal cohort will be.
Second largest cohort.
We will cope whatever we are assuming a first time renewal rate for Q4 similar to what we saw in Q2.
In Q3, so we're being prudent with our outlook.
Now looking ahead, we believe Q1 of 2020 to Walmart for last quarter.
Quarter and the headwinds from first time renewals.
As we exit Q1 of 2022.
Now on your question on <unk>.
<unk> will be provided.
NR.
On our Q4 earnings call and that's generally not something we provide quarterly.
Quarterly, but that being said Q3 MLR was consistent with what we stated on the Q2 earnings call landing in the low one hundreds now there are a lot of moving parts to that we're being conservative in our forecast and outlook there.
We do expect that hover around.
Slightly dipped below 100 before trending back up in 2022.
Alright. Thanks.
Thank you we'll take our next question from Steve induce of Keybanc capital markets.
Alright, great. Thanks for thanks for taking the question here.
Just trying to get a better sense for if the kind of fourth Q guide and how to think about that into.
The first part of next year, just looks like it down there versus what we do.
Previously I think in <unk>.
And just want to get a better sense for kind of what what's driving that and how much the the longer sales cycle, but I think you called out are impacting some of that some of the pieces here.
Sure I'll go ahead and take that first of all let me talk a little bit about the annual guide and then I'll jump into Q4, so on hand or Geismar two.
Heightening the range on that from what we gave previously and we are actually increasing the.
Midpoint of that a little bit and we did bring up the low end of the guide and we're doing that based on increased visibility now that we're further along in the year and seeing how.
Things are playing out and I will also mentioned that we are increasing the bottom line in the annual guide a little bit as well.
Terms of the Q4 revenue specifically there are some puts and takes there as we mentioned we did make progress in Q3 with $3 1 million in net adds and churn was in line with our expectations as Sean mentioned, we did see some longer sales cycles for the larger more complex deals in Q3.
Now totaled too early to draw a trend, but we are being prudent and factoring that dynamic into our Q4 forecast.
Guidance and our long term we view this as a positive because we are becoming more strategic to our customers and this ultimately provides an opportunity for larger deals.
And improved retention.
I will just reiterate again that for Q4 the percentage of first time renewals that's dropped to approximately 30% of our new one cohort, which is down meaningfully from.
Great quarter.
Let me add to that.
Let me add to what Steve just said and provide a little more kind of a high level color.
As we look at it.
Steve will be of a very large market opportunity and still a very small share of that.
And the momentum we are seeing in verticals, such as manufacturing and life Sciences gives us the confidence that we are barely scratching. The surface. We've got 14 of the top 20 pharmaceutical companies are our customers.
We're also strengthening our customer quality are.
ALR for enterprise customers, we've talked about in the prepared remarks at the end of Q3 is approximately 60% higher than it was pre COVID-19.
So strong improvement there and we're also.
Here, we're also adding this exciting platform innovations that we're bringing to the market.
We believe we will drive the next phase of durable growth. So in the near term we are facing headwinds from these first time renewals and these large comps, but we expect that these will abate by the second by the second half of next year.
Okay.
Helpful context, there I guess just on the go to market. It seems like there is a bigger point of focus on on some of those verticals you called out there, but I guess, how are you kind of augmenting.
What you have been what you've been doing historically to kind of better go after some of these new opportunities Youre seeing.
Yes.
Our go to market.
Almost getting bifurcated Steve.
And two.
Two directions, one is our enterprise business, which is which is our focus.
Execution is.
In North America, and in global markets, and I'll talk about international separately.
So there is a lot more kind of account based.
Marketing focus there that kind of an execution. So that's the enterprise business. Then we also have the mid market and commercial business, which is which is a little more little more mass market and that is where go live also comes in.
So that is the way we attack that particular market and we believe that go live will open up our time.
More in that particular market also now the third part of our execution also from an expansion point again, new business point of view is is our international focus.
One of the things that <unk> mentioned international is closer to 25% of our revenue, but if you look at from a bookings point of view, it's north of 30% So our investments.
EMEA.
And Jay Pak are working and we are one of the markets that we are going to invest more resources is in the Japan market. So.
Why this is important because on in the enterprise execution. Once we land an account can we grow that account on a global basis, because all of these global customers have privacy security compliance and data requirements that we can support these customers on a global basis. So that's the way. We are we are seeing on our go to market.
Okay great.
I appreciate you taking the questions here.
Our next question from Brent <unk> of Piper Sandler.
Hey, guys. This is actually Hannah <unk> on for Brent today, Thanks for taking my questions.
First one I guess this is the first quarter that we saw down sequentially and it sounds like F&B churn was that a component of that and I guess, how should we think about the total customers and sequential adds going forward.
Yes, let me go ahead and take that question so in terms of.
Given our learnings from the last couple of quarters, we're really most focused on customer quality and our enterprise and mid market customers that really meet our ideal.
Customer profile I can tell you that SMB was the largest contributor to the customer count decrease.
In Q3, and I just want to point out about a 100, K plus <unk> customers did increase 2% year over year and increased sequentially as well.
100, K plus airline customers they represent 60% 67% of our total.
There are now which is trending up from what it was in the prior quarter.
Now looking ahead, we do expect that we would return that to net logo growth in Q4.
Okay. Thanks, and then second question here hybrid mode and on 24 hour webcast elite.
Like it could be a really good driver retention and growth going forward I guess, how have initial feedback pain for that and what are your expectations for that product.
Sure.
Based on what our customers are telling us the.
The future is about hybrid engagement via the early reactions on the hybrid capability in our product line has been the feedback has been has been very very strong.
Again.
Sure.
Customers based again on what they tell us physical events really provide no data so even if they do things at our physical controlling the message that our physical because they are more expensive and they provide no data.
People wanted but I wanted to go back to them. They will continue to hold these events those hybrid because they can get the data get the personalization all within one system of engagement. So so we believe based on what our customers are telling us that that is the future.
We are excited about.
We are excited about that.
And that will continue to further.
Our implementation and.
And retention with our customers.
Great. Thank you.
Thank you we'll take our next question from Scott Berg of Needham <unk> Company.
Hey, guys. This is John <unk> on for Scott I. Appreciate you taking my question.
Just curious if you can provide an update on your progress that you are targeting with your partner network and with sales and marketing agencies, you're seeing any additional kind of record shared.
I have been happening.
Colin.
Or have longer sales cycles are longer term. Thanks.
Yes.
This continues to be a major strategic priority.
We are focused on to kind of increase the leverage in our model.
It's still about mid single digits.
My target is to get this number to about double digits by next year and there are three areas. We've even expanded the areas of focus are now.
Strong team focused on that one it will be the key technology partners, the marketing automation and CRM system. We got these larger companies.
But we.
Adobe's other veeva is another that we are partner.
Partnering with not only in integration, but looking at global market.
So thats one the second one is with HBO.
So added all these system integrators <unk>.
National and regional system integrators will actually grow these are people, who may have maybe an adobe practice.
Our <unk> practice or some of those some of those people who do integration work for our customers.
We signed two of the regional system integrators and then.
In the last 30 to 60 days. So we're excited about that and we're continuing to make a major push on the sales and marketing agencies. So we are attacking this in three different segments in our my goal.
It's not it's not a target but my goal is by the end of next year, we get that number to about.
I think double digits. So that's really the focus but one of the top five.
Or at least for me.
As to builders.
Great. Okay, and then next obviously you've been investing a lot higher.
Across both enterprise and mid market just curious how you are seeing current hiring patterns trending.
If you're seeing any potential negative impact from the tighter labor environment or trends are made remarks. Thank you.
So.
On the sales side, we started ramping sales hiring in the second half of last year.
And then just 40 perspective some of those early stage reps are just beginning to get ramped up and starting to show some impact.
Our capacity right now stands about 50% higher compared to what it was in.
Q3 'twenty so.
Some of that was really catch up because we were really behind last year.
But.
Now that we are here, we are continuing to add capacity, but we are being more selective about it and with our additions and more focused really on driving enhanced sales productivity. So that's really what our focus is a lot more driving.
We will continue to hire another the way that we were hiring before but again a lot more focus on enhancing productivity.
Great. Thank you guys.
Thank you we'll take our next question from <unk> Suri of William Blair.
Hey, guys. Thanks for taking my question.
Does a nice job on the quarter, I guess, especially on that undertake customer count I think I think refocused on that and understand that so much of the revenue now and sort of growing sequentially again, I think I think that's helpful.
I guess I want to ask a high level question.
Given some competitive but as customers become more deliberate in their approach to digital engagement.
We can understand this is really important I guess are you seeing more multi product lands.
I suspect you are but im not just some color on sort of our customers asking initially for multi product lands and so what does that do the sales cycles that lend themselves cycled slightly or.
Deliberation speeding up sales cycles help me think through how that actually plays out in the field.
Yes.
I think <unk> you asked two kind of two questions. You asked the question about multi product lines and they talk about sales cycle. So let me give color on that okay.
So generally we've been.
Theres no question, but the customers are being very deliberate right.
But generally our sales cycles have been short there have been about three to six months.
Longer on the enterprise and now with our in the enterprise based on the learnings that.
That we had in the last couple of quarters and others. Our focus is on selling our platform with multiple products plus the other thing that we're also seeing the privacy and security around data.
Is becoming more important.
So.
Yes.
We saw in Q3 is.
Some.
For some deals some longer sales cycles, but people keep bumping in mind Q3 tends to be a seasonally softer quarter. So even though we are factoring it in but its too early to draw a trend but in the long term. This is a positive for us because it is the opportunity for large deals and higher redemption I'll give you an example.
And I discussed this in the prepared remarks.
Yeah.
In Q3, we closed a $300000 deal with one of the EMEA based multinational industrial companies.
And they bought in the first buy they bought for four experienced products elite engagement hub.
Breakout the integrated our products well.
Within their sales and marketing ecosystem. So it took a little longer.
But but.
It is going to play out really well for us on expansion.
And also in terms of retention of those customers and that's why if you look at the multi product.
In Q3, the number of customers, who signed multi product deals if you look at our IRR.
Yeah.
If you look at the number of customers now that we have with multi product engagements is the highest we've ever.
Quarter to quarter increases in year over year increase the number of customers who are signing the IRR in multiyear agreements. There is also the highest ever.
<unk>.
From a quarter to quarter basis, and from a year to year basis. So so we're excited about that you also talk about the 67% IRR on the 100 gig.
I'm excited that we've had some rationalization in the midterm add ons and others, we talked about but if you compare our enterprise customers at the end of at the beginning of Goldman at the end of Q4 2019 to where we sit at the end of Q3.
It's a 60% increase and what are your enterprise customer spend with us. So so all those trends are really kind of solidifying our base, making our customer.
It works very very strong as we as we move forward.
That's super helpful. Sean I appreciate that so let me just ask one last one here just about.
The customer focus shifting towards hybrid events and I think some of them to ask a question by that before but I guess, how does that change the competitive landscape are you going to start competing more with vendors that have kind of the traditional routes and physical events. How should we think about the competitive landscape and how that changes from sort of the webinar only guys, who can only do basic webinars, which you can easily compete against.
Most of the guys that may have more traditional routes on the physical side help us think through that thank you.
Yes, So first of all let me let me just say one thing about.
This is a large market.
And then there'll be some more competition.
There is room for many companies can be successful.
Now on that let me, let me go back and talk about this first of all who we are.
We are a sales and marketing engagement platform that users engagement data AI, driven personalization and deep integrations to drive revenue growth.
<unk> is experiencing where we started our journey, but now with the Golar is coming up we've got we'll have six experiences all interconnected all that data is being tied to 140 per intelligence to the AI engine and being integrated in their sales and marketing ecosystem. So.
So we don't see anybody as a as a sales and marketing engagement platform doing what we're doing and also in this business. The more time, you're spending with the customer the more competitive advantage you have because you've got so much more data now we see the market bifurcate the competitive market by bifurcated on one side you have the collaboration died like zoom.
Buyer more video collaboration focus we like.
People get their 101 on digital engagement, there and then they come to us for sales and marketing. So we like that now the other category of competitors, which you alluded to these virtual events kind of competitors and you are also seeing some of these physical event companies trying to have a virtual event product. Okay. Now these guys majority of competing in the commercial space in the SMB space.
But we are seeing some of these people have point solutions. Some people who are physically has now been virtual.
But theyre very virtual events kind of focus where our focus really is the sales and marketing platform.
Okay.
Delivered to enterprise is on a global basis to drive revenue growth.
Got you.
Does that help.
Yeah No I appreciate the color I appreciate you, taking the time to walk us through that.
Thank you taking my questions guys.
Thank you we'll take our next question from drew Glazer with J P. Morgan.
Hey, this is true.
And I had to join late so apologies. If this was already asked but could you speak to the productivity of your new reps and how the sales and marketing hiring tracking.
Yes.
I did talk about that but let me, let me kind of answer that.
Answer that.
So we started a ramp in the second half of last year and some of those reps are now.
<unk> ramped up and beginning to show some impact and our capacity right now compared to Q3 end of Q3, beginning of Q3 stands at about 50% higher now some of this was catch up because we were behind us.
Now that we have these people now that we have these people kind of ramp that we are being more selective about our traditions and much more focus in terms of enhancing productivity. So really a lot more focus on productivity, while we're continuing to add capacity, but in a much more selective manner.
Got it thank you.
Thank you we'll take our next question from Daniel Reagan of Canaccord Genuity.
Excellent.
Thank you for squeezing a sense.
So sure I just wanted to circle back to the experience of that where you had a few good releases like hybrid mode go lives.
I'm wondering about the integration of these solutions into your sales motion.
The initial uptake and demand from customers. Following these releases.
And then maybe how youre thinking of China internally about the contribution to revenue from these products over time.
Yes.
Let me add let me ask that question so.
Feedback and.
<unk>.
We have reached for people who were not there where we showcase the next generation of elite, where we're taking that product. We introduce go lives we showed enhancements.
Engagement hub and what we're doing with the data. We also talked about how we've enhanced the product to be more hybrid compatible. So this was really a customer event Daniel so.
We've heard tremendous feedback from our customers.
We are still early in the cycle in our go live as newer we are still early in the cycle and these things are coming up in subsequent releases. So people is there are two things that are going to happen. One is the core revenue releases and others people will start getting them.
Yes.
As they are rolled out it allows us to.
We're going to focus a lot more on the on the retention kind of a framework now.
And hybrid is something that our customers have been asking us for the longer for some time. So I believe that is going to continue to.
And offer adoption and retention of our of our product the <unk>.
<unk> go lives that we are taking the market I believe that product is going to open up the Tam for us even more in the commercial market. So we're excited about that but this also will allow US you asked the question about revenue. It's still early to talk about it but you should expect us as.
Do these enterprise deals that you will see us add more bundled into what we take to the marketplace. So there will be upsell and expansion. We're also more bundling of our products as we move forward because we have the capability to do that.
Got it that's all.
And then Steve at the time.
The IPO the firm had pointed out roughly 40 day sales cycle, we've talked about this a bit on the call already.
I'm wondering how much has the sales cycle has gone up and as it directly related to a more keen focus on learning enterprise accounts or is it that you are taking longer to land similar sized accounts.
Yes, I mean in terms of the.
Sales cycle.
As we mentioned on the generally three to six months.
I'm not going to give a specific number for our average sales cycle, but they're generally in that range plus or minus depending on a number of factors.
As we mentioned in the prepared remarks, and I've talked a little bit about this earlier, we are seeing some longer sales cycles for some of the more.