Q3 2021 Upland Software Inc Earnings Call
Thank you for standing by him welcome to the Upland software third quarter 2021 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session instructions will be given at that time the conference call will be recorded and simultaneously webcast at.
Investor Upland software Dot com and a replay will be available there for 12 months by now everyone should have access to the third quarter 2021 earnings release, which was distribute it today at four P. M. Eastern time, if you have not received the release, it's available on uplands website and now like to turn the Coke call.
Over to Jack Macdonald, Chairman and C O a upland software. Please go ahead Sir.
Q and welcome to our two 320 21 earnings call and joined today by Rod Fab ruin our president.
And Mike he'll ever CFO, well today's call I will start with some opening comments on our Q3 results then rod will provide some color around sales and customers and product development and following that Mike will provide some insight on the Q3 numbers and our guidance we were.
Then open the call up for Q&A, but before we get started Mike will read the safe Harbor statement.
Like Jack during today's call. We will include statements that are considered forward looking within the meetings of securities laws. These statements are subject to risks assumptions and uncertainties that could cause our actual results to differ materially a detailed discussion of these risks and uncertainties are contained at our annual report in one Form 10-K as periodically updated and.
Quarterly reports on Form 10-Q filed with the SEC. The forward looking statements made today are based on our views and assumptions and on information currently available to upper management as of today, we do not intend or undertake any duty to release publicly any updates or revisions to any forward looking statements on this call up and we'll refer to <unk>.
<unk> financial measures that when used in combination with GAAP results provide upland management with additional analytical tools to understand its operations upland has provided reckon.
<unk> of non-GAAP measures to the most comparable GAAP measures in our press release announcing our third quarter 2021 results, which is available on the Investor Relations section of our website. Please note that were unable to reconcile any forward looking non-GAAP financial measures to their directly comparable GAAP financial measures.
Because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort with that I'll turn the call back over to Jack.
Thanks, Mike.
So in terms of headlines, which was a mixed quarter, we had strong adjusted EBITDA Anna our free cash flow is on track, but we had to lower than expected messaging volumes, which resulted in our revenue being within our guidance range, but below the <unk>.
Mid point.
We are lowering our queue for guidance are cute for revenue guidance by $3.9 million to reflect our reduced outlook on messaging volumes.
And also to reflect the fact that we didn't see the uptick in new logo bookings and that dollar retention rate that we had expected in the third quarter.
The COVID-19 impacts on the business of the last 18 months are now fully reflected in our queue for outlook for 75 million quarterly revenue run rate and we will grow from that run rate as we move into and through 2020th.
Too because we see signs of real improvement in net dollar retention rate as we move through next year.
Finally, our M&A outlook remains unchanged and we are targeting $40 million to $50 million of acquired revenues between now and the end of 2022.
So let me dig in now a little bit on the third quarter.
Revenue in the third quarter came in 1.3 million below the midpoint of our guidance range and the biggest factor driving this change was lower than expected variable text and email messaging volumes from our progressive advocacy.
<unk> customers. These.
These accounts have not churned, but they reduce their messaging volumes in the third quarter.
That means there message volumes and the associated revenue could bounce back up at any time, but to be conservative we're going to assume that they do not and adjust our outlook.
Organic growth and recurring revenues in the third quarter X political was flat and for the full year of 2021, we expect it to be 2%.
Adjusted EBITDA came in at 25 million above the midpoint of our guidance range.
<unk> operating cash flow was $5.3 million and the third quarter free cash flow was $4.9 million in the third quarter, giving us roughly 28 million and free cash flow year to date. So we are on path and on track to hit our 30 to 40 million.
Free cash flow full year of 21.
As we've talked about and that is after acquisition expenses.
While we had some good expansion bookings in Q3, we didn't see the uptick in new logo bookings that we expected rods gonna talk about this in more detail in terms of what we're seeing.
But I'll note that the queue for early bookings indicators are better than Q3.
Notwithstanding that we're gonna adjust our bookings outlook to reflect the slower pace of expected improvement and to add additional conservatism until we see sustained improvement in new logo bookings.
On renewables and expansions, you'll recall that using our upload one playbook, we drove our net dollar attention right up from 90% in 2015% to 97% in 2019.
In 2028, a first year of the pandemic, our net dollar retention rate declined to 94%.
Today, our net dollar attention right is solid in the low to mid nineties, but frankly, it's not where we want it to be.
The good news is that our focus throughout this year on securing multi year customer renewals and expansions means that a higher percentage of our revenue is now contracted through 20 twenty-two all the way through next year, so that should structural.
<unk> support improved and stronger net dollar retention rates next year.
Again as I noted earlier the impacts of the last 18 months are now fully reflected in this queue for outlook for 75 million quarterly revenue run right and we're gonna grow from that run right because as I say, we see real structural signs of improvement in net dollar.
Retention rate as we move through 2022 and of course on top of that between now and the end of next year, we're targeting to add another 40 to 50 million and acquired revenues look we saw two plus years ago, the opportunity to build out a real go to <unk>.
Market and product organization.
Rod joined US 18 months ago, and even in the face of the complexities Lockdown was able to hire our new go to market team by the end of 2020 and to complete key additions to the product team by the middle of this year of 2021.
We are still in the early stages of executing this mission.
But I remain as excited about the opportunity today as I was two years ago.
As we move through this and look out over the next five years, we continue to be excited about our business and the opportunity for growth and value creation, we have a powerful cloud software library approve an operating platform a strong base of over 1700.
Enterprise customers and an equity compound or financial model.
Over the next five year period. This is a business that can reasonably target total revenue growth.
About 15% per year from the current run rate organic plus acquisitions, and importantly, do it on a self funded sustainable basis and generate positive free cash flow as we go.
And with that I'm going to turn the call over to Rod.
Thank you Jack good afternoon, everyone.
As a reminder, this year 2021 is our first full year and the new go to market model.
The team is adjusted well to this model as Jack shared expansion sales were good cross sell continues to improve but new logo sales haven't ramped expectations, let's talk a bit about the new logo side of the business.
The new logo sales challenge in Q3 was primarily due to its softness in new pipeline created.
During the second half of last year.
That said for Q3, we close 109, new customers with 27 of those being major customers. If you will recall during the second half of last year, we were making a lot of changes we were consolidating our digital presence changing our marketing pipeline motion, we hired ourselves development team and we were in the process of shifting from our historical black.
A lot of in person event marketing to digital marketing, while same of simultaneous tediously, obviously the world was in lockdown.
As we move into 21, we completed that shifts you 100 per cent digital Legion.
The new sales development team started in January and the result of this year is we have a 25% quarterly improvement in new pipeline generation as compared to the second half of last year.
We did anticipate in the second half of two pipeline impacting the second half of 21 sales, but frankly, we thought lift up energy coming out of the pandemic would enable us to overcome this through quicker pipeline conversion levels, but that did not happen in Q3.
Our outlook and switching gears to revenue retention our outlook shows net dollar retention improving throughout 22 is Jack mentioned as it should begin marching back up into the mid to high nineties. Our team has had success through 21, securing a bunch of large multiyear renewals and expansions as an example.
We secured multiple six figure longterm renewals an expansion with major global financial services firms within the financial services industry. There is a growing interest in our knowledge management product library helped drive facilitate more effective compliance with knowledge sharing due to the ever increasing and evolving global regulations. Another example is in.
Altafaj product line, where we are having success renewing six seven figure customers on long term contracts. This year also is a great example of.
The difference in committed revenue from 21 to 22 for example, Altafaj has nearly two thirds of its customers renewing this year and 21, which compares to about one third of its customer base renewing next year and 22.
We will see the benefits of these successes in 22 as a higher percentage of our total IRR is contracted through next year as compared to this year on longterm contracts, which has a structural effect on net retention and we'd positively impact that I Wanna credit or fee for this progress from the from our support team to our customer success R&D and.
Sales teams.
And marketing, we continue to test and improve our Legion programs and focus our individual product marketing plans to just be more efficient and driving new leads.
We have also adjusted how we onboard acquisitions to better preserve top a funnel history and momentum.
And our new <unk>, which we've mentioned a couple of times has produced 50% of our year to date, new pipeline with good conversion metrics. So excited about the progress of that team.
Switching to the product fronts.
Along with our normal new release cadence, we introduced a brand new product from upland.
This product Altafaj sales reference manager is a new product built natively on salesforce and integrated into our Altafaj sales sweet.
It's a next generation complement to our auto innovation product.
These two products both solve the challenge of managing customer references, but appeal to different use cases.
Our older products Aro supports a centralized hub-and-spoke sales reference model, while the new Altafaj sales reference manager is a modern decentralized peer to peer model built natively on salesforce.
This new product is a great example of upland innovating in our wheelhouse, where we have deep category domain knowledge and it unlocks and adjacent revenue opportunity.
In addition to that products are ingenious product became one of the first service called voice for partner telephony integrators available on the Salesforce appexchange, helping customers maintain their existing telecom investment in infrastructure investment, while taking advantage of the new service clubs voice environments within Salesforce.
With that I will turn the call over to Mike Alright. Thank you Rod all covered the financial highlights for the third quarter and our outlook for the fourth quarter and full year 2021 first.
First of all the income statement total revenue for the third quarter was $76 $1 million representing growth of 3%.
Recurring revenue from subscription and support grew 2% year over year to $72.3 million.
Professional services revenue was $3.1 million for the quarter of 12% year over year increase.
Overall gross margin with 67% during the third quarter and our product gross margin remained strong at 69% or 73% when adding back depreciation and amortization, which we referred to as cash gross margin.
Operating expenses, excluding acquisition related expenses depreciation amortization in stock Com, where 31 million for the third quarter or 41% of total revenue all generally is expected.
Also acquisition related expenses, where approximately $3.7 million in the third quarter, which were about as expected. After some puts and takes without additional acquisitions. This year. We currently estimate acquisition related expenses to be around $4 million for the fourth quarter.
For each acquisition total acquisition related expenses are generally 50% to 60% of acquired annual revenue run rate and varies from acquisition to acquisition, depending on uncontrollable factors such as size and location.
Generally for each acquisition, 45% to 50% of these transaction and transformation expenses are incurred within the first three months and then taper down rapidly until the transformation is complete by each acquisitions first anniversary.
Our third quarter of 2021, adjusted EBITDA was 25 million or 33% of total revenue consistent with 25 million or 34% of total revenue for the third quarter of 2020.
As expected adjusted EBITDA margin for this quarter was lower than the year ago quarter due to our increased go to market investments compared to last year.
We still expect adjusted EBITDA margin for 2021, as a whole to be around 32% and we expect to exit 2021 with Q4 at about 32% as implied by the mid points of our guidance.
Now when the cash flow.
For the third quarter of 2021, GAAP operating cash flow was 5.3 million in free cash flow was $4.9 million, even with three 7 million of acquisition related expenses in the quarter and some negative temporary timing differences in our working capital account temporarily pulling down operating in free cash flow by some $6 million or so and a quarter.
With approximately 28 million of free cash flow year to date through Q3, we continued to anticipate full year 2021, free cash flow well over $30 million and possibly closer to $40 million, depending upon the size and timing of future acquisition related expenses.
So we are generating substantial gap operating in free cash flow, even after acquisition related expenses.
On the balance sheet. This ongoing free cash flow generation. In addition to our existing liquidity of approximately $240 million comprised of approximately $180 million of cash on our balance sheet as of September 30th 21, and are $60 million Undrawn revolver. This ongoing cash.
No generation existing available liquidity and expanding our credit facility, while maintaining net debt leverage up to a maximum of around four times should allow for self sustained growth without dependency on the equity capital markets I should note that our net debt leverage is currently at around 3.6 based on the mid point of our 2002.
One adjusted EBITDA Guide.
As of September 30th 2021, we had outstanding net debt of approximately $350 million after factoring in cash in a balance sheet I will note that the principal payments on our term that are 1% per year or about $5.4 million per year with the remaining balance maturing in August of 2026 the.
Interest rate on our outstanding term that is locked at five 4%, making our annual cash interest payments approximately 30 million at our current debt level. Additionally, I will point out that our term that has no financial covenants on current borrowings.
With regard to income taxes upland currently has approximately $356 million a total tax and it will carry forwards and of these we estimate that approximately 216 million will be available for utilization prior to exploration I will note that we still expect around $5 million per year of cash taxes.
For guidance.
For the quarter ending December 31, 2021 up unexpected reported total revenue to be between 73.2, and 77.2 million, including subscription and support revenue between 72 and $73.8 million for a decline in recurring revenue of 4% at the midpoint over the quarter ended December 31 2020.
Fourth quarter of 2021, adjusted EBITDA is expected to be between 23 $425.4 million for an adjusted EBITDA margin of 32%. The midpoint. This adjusted EBITDA guided the mid pointed is a decline of 8% from the quarter ended December 31, 2020, and by way of comparison Q4 2020 had <unk>.
Six $6 million of political messaging revenue, which will not repeat in Q4 2021.
For the full year, ending December 31, 2021 up and expects reported total revenue to be between 299.5, and $303 5 million, including subscription and support revenue between 285.5 and $289.1 million for growth and recurring revenue of 4% at the midpoint over the year.
Over 2020.
For year and for year 2021, adjusted EBITDA, we expect.
Between 95 and $97 million for an adjusted EBITDA margin of 32% at the midpoint. This adjusted EBITDA guided the midpoint is a reduction of 4% over the year ended December 31, 2020 by way of comparison, we had 2020 had $18.2 million a political message messaging revenue.
We will not repeat in 2021 and with that I'll pass the call back to Jack.
Thank you Mike we are now ready to open the call up for questions.
Thank you if you would like to ask a question. Please press star followed by one on your touch him telephone keypad. If for any reason to move that question. Please press star followed by T. Again to ask a question press Star one as a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking your question.
<unk>, we will pass you briefly told all questions engineering.
The first question is with Bobbin theory with William Blair. Please proceed.
Hey, <unk> can you hear me okay.
Yes.
Great great. So.
Obviously, you have a mixed quota here <unk>, let's let's walk through a couple of things just just.
Understand how things played out I <unk> I guess, maybe let's start off at a high level help us think through uhm visibility I think Rob said pipeline was built in two three Q4 of last year, which is 12 months ago.
And we're talking about 15% type of growth help us think through visibility and confidence in the pipeline given that pipeline didn't convert in the past just just help us. Thanks, you like what's different now versus a year ago.
You know rods been there since early last 2020, and so just to help us thinks with those pieces together <unk> might've changed from six months into robbing their verses 18 months and rubbing there and the understanding that you you have more confidence in <unk> ability or more control over that pipeline.
Yeah. So let me let me start on that and then rod can pick it up.
The the point that Rod was making is that we.
We had some.
Ramp up and pipeline creation in the second half of last year right, we were putting a.
New processes in place to generate that pipeline and we're doing so amidst the lockdown. So on top of everything else, we had to move from a hybrid sort of in person and digital lead Jan effort to a totally.
Digital Legion effort, so given our sales cycles.
We knew that that softness was going to impact potentially booking.
Bookings generated in the second half of this year. However.
Our assumption was that the kind of energy if you will lift off energy coming out of the pandemic would enable us to.
Execute with a higher percentage of conversion right that the pipeline conversion will be a little bit higher and we're not talking about huge numbers here, but that uptick that we expected in Q3 didn't happen in Q3 and now we see some positive signs in queue for but in order to be.
<unk>.
We're going to take down our outlook a little bit.
Until we see a sustained improvement.
In new bookings so that was one piece of it the other piece of it behind was on the messaging side of the business, where we saw.
Lower volumes.
In variable email and text messaging.
In queue.
Q3 and.
You know those we saw it among a specific cohort of customers those customers having churned in fact, we've had renewals among that cohort of customers and those revenues could bounce back at any point, but in order to be conservative, we're taking down our forecast on those variable revenues.
For the fourth quarter.
Gotcha, Gotcha, Gotcha, and I mean on the on the political message. Besides the mushrooms have you seen that even twilio grocery decelerated I think that is understandable I think be you know the question really is if you saw that happening earlier, you know should you should we.
We have seen that either.
Either and guidance or.
Should the uptick in conversions you know if she would have been more.
It is what it is I guess Jack to be perfectly Frank, but let's let's play a different scenario back which is.
Organic growth and accelerating organic growth and bringing in a sales team is.
Is something that you and I talked about.
Many years ago, and you chose the smart and wise move which is we're not gonna spend 20 per cent revenue themselves in marketing 30 per cent and we're gonna do this very focused 3% to 5% organic growth drive EBITDA and grow a business and you execute against that strategy really well.
Do you feel that the change that you've made.
Is played out or does it not played out is it. It's obviously not play that would be the V expectations, but but do you think that maybe the old strategy was a better strategy help us think through strategic cause you think about managing this business.
You and and and and and and team of execute amazingly well, but the organic growth was never a big driver and you folks and I've been the last let's just say whatever 18 24 months. How do you think about that strategy do you still feel confident that strategy do you still feel like that's still the right approach and do you think maybe we should just maybe take the <unk> the the foot off the pedal a little bit.
And maybe refocus on our old strategy help us. Thanks for how you balance that out how you would <unk> talking about that.
Well look I I've seen this movie before with my last company Perficient right.
You were very familiar with that.
You know that was a stock that was add 37 cents and.
Early two thousands and is it a $120 a share today and the first 10 years of that business, we used acquisitions and strong financial management to grow that business from essentially.
Essentially nothing to $250 million in revenue in the last decade. The team has taken that business and turned it into one of the global leaders and solutions consulting.
And I see a similar kind of transition here at upland and so saw that opportunity a couple of years ago to bring in the.
The kind of leadership that could build out our sales and go to market and product organizations and position upland for that next decade of growth and so I'm as excited about that mission an opportunity as I've ever been.
To your point to keep things in perspective, we've taken spending on sales and marketing from 15% of revenue to 18% of revenue. So it's not like we've gone to a 40% of revenue spanned on sales and marketing.
I believe that at that level of spend we've got a more repeatable more scalable.
Value building.
Engine.
And as I've been saying I think that can support a total growth rate.
Target of 15% a year.
The organic part of that is gonna be somewhere between two and 5% and some years it'll be higher and some years it'll be lower in fact in some years you could go above 5% right it depends on.
Individual.
[noise] timing factors, there, but in general it's a target 15% growth rate with low to mid single digit organic with EBITDA margins here in the low thirties that we see moving up toward a target range of 40%.
Through time at scale call that roughly twice the size. We are today and of course significantly we can do that under our own steam we have no dependents on the equity capital markets, we can finance $40 million to $50 million a year of M&A.
Internally generated cash flow and our debt facilities.
And our cash on hand, so we're committed to building long term value. The decisions, we made about bringing in rod in the team I think we're the right ones.
And as happened with proficient I think the same thing is going to happen here, we're going to create value through time, So no big pivot off of this we are staying the course against the plan we put in place two years ago.
I think it's really helpful were really helpful. Thank you one <unk> one last one for me maybe for you <unk> are you seeing any changes competitively in the field are are are always getting more aggressive on pricing or you know offerings or freemium or.
Is there any difference you've seen them <unk>, let's say 12, 18 24 months.
Especially through Covid can be competitive environment love to get a sense because even you pick someone still five there's plenty of competitors in each one some of your points Lucius I'd love to see if you're hearing anything different or changes in that environment that made made me back or not but but would love to get some sense of that.
Yeah, So I'll I'll take that yeah. So that's a great question I think that I mean, obviously she is you know we have a pretty diverse set of products.
And each of those products has maybe a small set of competitors.
So I don't think we've had any one I'll call material or meaningful competitive change.
As I look across the products.
On a positive side, we mentioned earlier some of the connections with Salesforce, which is one of our biggest partners.
And with HB, which we didn't talk about on this call really gotten a lot closer to a couple of big platform players with a side of our products. We think pays dividends in 22 and 23 as we look forward.
So I don't think there's been.
Material changes competitively minor things here and there, but nothing that would have a sort of a forward looking material impact.
On the business I will say just the.
Just just to add to the confidence level I think that the way Jack and Mike and I look at this business. We have made a lot of changes over the last 18 months in the way, we organise way restructure the way we go to market.
Having the games in place and their focus and having a more of a named account motion the way, we're doing marketing, which some of which was in the set necessitated by the fact that we can't we couldn't do marketing the old way anyway right. So we had to go to this full digital model.
In spite of what you're reading today and the questions. You are asking today I think the confidence level in the design of this organization and the people we put in place and the motions. We put in place is very high so I think that suggests earlier point.
Staying the course on this mission this is absolutely the right structure.
Go run this business on as we forward look.
I mean, we've we've built a platform here that has scaled now to $300 million of revenue.
That's got a strong library of products, that's a real.
An incredibly strong enterprise customer base. So this is a real company generating value and I loved the changes we've made and I think I know, they're gonna pay off through time as we go again within a set of sober realistic expectations I've never said this is going to become a <unk>.
20% organic grower, we're talking about 15% total growth, we're talking about locking in.
Low to mid single digits and as we've said, there's some optionality that it could be higher but in terms of the core rate around which you underwrite an investment in this business. It's at 15% total target with low to mid single digit organic.
Yeah, No no I think that's fair.
And you know I'll say this for from having trouble with your longtime I appreciate the candor.
<unk> that's in the honesty, you've you've never said, 20% are gonna grow up and and and I. Appreciate that you know I.
I think let's let the play offs longterm. Thanks for taking my questions and again I said for the camera and the practice. Thanks, gentlemen, I appreciate it.
Thanks.
The next question is from <unk> deal with jet Threes. Please proceed.
Okay.
Great.
[noise] Hello.
Mr. Thiel Your line is open.
Okay, operator, why don't we move to the next question or it will circle back around.
Certainly the next question is from.
Scott Berk with need them. Please proceed.
Hi, everyone. Thanks for taking my question here check I guess I have to start with I don't know if you <unk> take H, but yeah.
Yeah, we've seen demand recover in most of the broader software space, especially enterprise applications will be last year. It all everyone's not firing uncles full cylinders mentioned are pretty healthy in the environment I guess can help us understand I get the message part utilization, let's move that aside but on the new customer acquisition.
What's what's not kind of picking up in your business as it clearly just kind of the air pocket around you know kind of change in sales philosophy last year driving some of this or is there maybe a change around some of the demand are interested in the type of applications in the upload portfolio today.
Yeah I think this is rather I'll start there I think it's as you described it the year pocket is an interesting way to think about it.
Certainly the.
The pipeline creation nine to 12 months ago is having an impact.
And I think the other.
The other part of this business or are we.
We've been cross training new sales guys for the last few quarters. Many of them sold one product when we got this process started and now they're they're selling multiple products and so they're going through a learning curve.
And that is progressing well.
I would say that it's more the air pocket and then.
Comment I will add is that our global account team now has.
Generally been in their accounts for three quarters, some for four quarters and the relationships and the depth and kind of what we're starting to see with those with our top accounts.
As we talk about Q4, and seeing and seeing a little bit better early indicators for Q4 on the sales side a lot of that is being driven by that team having time in their accounts to go build that pipeline up.
In those accounts so that's.
That motion has taken time to pay off because it takes a while to to build a net new enterprise.
Hi, fine from scratch and those accounts, so I would say to come with a combination of those things, but I don't think there's something here that's.
Competitive or or.
Sort of systemic I think it's more of the Bible, we're going through from the back half of last year from a pipeline perspective.
[noise] got it helpful Rug, and then from a follow up perspective, Mike you. It looks like you wrote off about $10 million in good well in the quarter can you help us understand what that might be related to.
[noise], Yes, Scott there was no write offs, we did have some adjustments and purchase accounting, which is always the case as we finalize the numbers.
So.
The adjustments were just related to.
Adjustments on this year's acquisitions.
Ah got it helpful. That's all the questions I ask thanks for taking them.
Thanks Scott.
The next question is from Terry Tilman with Truest. Please proceed.
Hey, Good afternoon, guys. This is counter faster all on for Terry Thanks for for taking my questions.
Just start so with the issues that were mentioned around new logo and expansion sales is that gonna give more of a slowdown on the speed to which will make acquisitions in order to to kind of fix the the sales execution.
No we are.
Remaining on the same pace, we've been on which is $40 million to $50 million a year of acquired revenue and that's the the pace at which we can execute against that plan and do it on a self funded sustainable basis, where where we are funding the acquisition purchase price out of internally generated cash flow.
<unk> in cash on hand, and our debt facilities, while keeping leverage.
Moderate it.
Three to four times net so no change in the pace of M&A.
Just to clarify one thing I think your question you said.
And can you put new bookcase, new logo bookings and expansion together and that question I do want to point out that expansion bookings.
Met expectations and have consistently been strong, which I think is that.
At the end of the day this businesses is healthy if our basis healthy.
As we put together growth go to market motions and the way our existing customer base is continuing to buy new products from us or to buy more of the same product from us is encouraging so to just to just to reflect that back our our our expansion bookings were strong.
I think one other point Jack here that I would add there is just the work that the team did this year as we got those global account managers in place.
Locking in as well as our customer success teams locking in more multi year renewals.
So that the amount of revenue that we have up for renewal in 2022 is substantially lower than it was in 2021 and that that is just going to structurally support higher net dollar retention rates.
Moving back as Rod said earlier in the mid nineties or better.
And that's a key health indicator of the business right. So I think that's a very favorable.
Favorable trend due to the work that got done throughout this year and driving those multi year renewals.
And to get that done we are gamst it focus.
A reasonable amount of their energy.
On retention and multiyear retention as opposed to some maybe net new ads or expansion ads and so that may have had a little bit of a capacity impact as we went through this year because we did focus on we have a lot of really big deals for renewal.
And these guys did a great job of getting into those into those major accounts and getting multiyear deals in place, which will again help us as we move forward.
And.
In order to sell a customer more you have to make sure what they already have is working well and that they are retained and they have a multiyear commitment and and then and then it's and then it's time to start selling them more so that the global accounting spent I would say a little bit more of their time in 21 that we'd probably anticipated doing that but it is it's going to pay off for us.
Long term.
Okay. That's that's really helpful. Thanks, guys and then just one quick follow up from my.
In terms of cross selling you know you guys mentioned that there has been some some training salespeople better now something multiple products. What are you seeing the biggest opportunities in terms of across all right now. Thank you guys.
Yeah, I think it's.
It's.
Our products are are oriented two different sets of buyers and where where we have the best conversion success is where you have a buyer that owns for example, one of our email products and wants to buy our CDP or one of our mobile vesting products or a mobile app analytics products. So so where we have folk.
<unk> that Crossrail motion is in Jason value added products around that buyer around the common buyer.
That's how we train the sales team.
We're not really talking about year over year, but I will say substantially improved cross-sell year over year 20 to 21 year to date.
Again coming off a relatively small base because it wasn't something we were terribly focused on earlier, but encouraging signs on cross-sell.
Early look at Q4 is good too. So that's going we're just going to continue to get better at that.
And as we as we integrate more of our products, we don't even have great all of our products together, but the product we announced in this release our sales reference manager product that is natively integrated with our Altafaj Sweet, which really gives us five products plus RMG as products six products that are native sale.
Force platform products and.
And then we have multiple others integrated into the Salesforce App exchange. So we're approaching 60 78 products around that platform.
That's another way that we cross-sell right, we target with that partner those accounts and going there in some cases those are multiple buyers, but it's but at the anchor there is the salesforce platform.
Which is where we get a lot of our leverage in again to those motions or they're coming along and over time. It will have a much bigger impact on our on our overall sales but.
Nice year over year growth.
Certainly faster growing in any of the other bookings categories. If you will.
So we expect that to have an impact as we move forward.
Great. Thank you guys.
Thank you. Thank you Mister tell me.
The next question is from Brent Bill with Jefferys. Please proceed.
Thanks, I I want to make sure we can't understand kind of the backdrop of what's happening if you take the overall software environment, it's very robust you're adding sales reps yet the lack of organic growth it's been three quarters of.
Not really hitting where the street numbers are at I'm I'm curious investors are just trying to put this together what what's going on is this just simply a pocket on the go to market is there something from the technology side, that's not not <unk> not resonate well uhm something's not adding up over the last three quarters I think everyone's just trying to better understand.
Really what's happening.
Yeah. Thank you for the question so in terms of hitting our our guidance.
We've done that and again, even in this quarter were within our guidance range, but we're about.
1.3 million below the midpoint of that range. So.
In terms of.
The the predicate that we're somehow not hitting numbers on a regular basis.
I'm not seeing that piece of it.
We did.
Assume.
Some improvement and the level of new logo bookings here and the third quarter.
And that was our expectation.
Based on when we laid some of these investments in.
And just sort of shape of the recovery that we saw and so we didn't hit those new logo bookings numbers in queue for they were trending the right way earlier this year.
But that inflection didn't happen in Q3 now as I say.
The.
The early indicators on queue for look good but once bitten twice shy, we're going to take our outlook down.
Until we see a sustained improvement in those new logo booking so and then the messaging piece I believe we've.
Never had sort of a mis step on that before here in Q3, we did have some lower messaging volumes, which really it was that's what drove the.
The Miss to the mid point that was 100% of what drove the miss to the midpoint and the third quarter, we had a couple million dollars less.
Text and email messaging revenue than anticipated.
And that was that was partially offset by some goodness in some other parts of the business and the the $1.3 million Mr. The midpoint.
But any of the softness in new logo bookings is just a forward phenomenon as it relates to revenue so none of that none of that drove acute the queue.
Three <unk>.
A number and I would say look I think we've taken the outlook down to a conservative level.
As I say, we are seeing some positive signs.
In queue for early indicators on queue for bookings clearly as it relates to net dollar retention rate.
Think we're set for some structural improvement as we move into next year because of all the multiyear renewals, we were able to execute.
And the thesis here is better than intact right I remain excited about where we're going and the M&A opportunity and and so we'll just continue to execute through this.
And <unk>, what's driving that message volume lower I mean more than a digital disruption environment.
It seems like the trend going the other way, but you're not seeing that what what's causing that is that just the the political hangover still or is it.
What what what what day it was a great question and it really came.
Yeah, No I think it's a great question and it really came from one customer cohort principally the principal driver of that was.
Among our customers that are progressive advocacy organizations and we have quite a few of them on that platform now.
We had some big renewals from those customers.
In the third quarter, but there's there's always a small piece of revenue.
That is overage right that is variable usage above the minimum's and in the text and email.
Business it had been running at about $4 million a quarter.
Pretty consistently and this quarter it came in at $2 million.
And again the.
The shortfall was all among those that he was really driven principally that by that cohort our customers progressive advocacy groups. So again, we've had renewals from those big customers.
Those volumes could bounce back at any point, but.
But in order to be conservative we've taken the outlook down.
For that text and e-mail variable messaging revenue to 2 million a quarter. So we've taken it from $4 million a quarter to 2 million a quarter.
So it's a it's a small.
Portion of our revenues on a percentage basis, and we think you know.
That that's a conservative outlook.
And and we're doing that so that any surprise in the future is hopefully to the upside on those volumes.
And just to sort of bilking at.
The contracted revenue for that cohort group, what didn't change as a matter of fact, many of them actually renewed during the quarter for their contracted commitment is.
Jack Booted. This is on top of contracted revenue for that cohort group.
And we.
We are staying very close to those customers operationally.
Sometimes they run more campaigns than others and.
In this case.
We didn't see them running less campaigns in Q3 and they did.
So, but again the base of that business. The contracted base of that business is solid. This is this is kind of an on over and above uncontracted.
Overages usage revenue.
Great and then just last question just on the go to market on I think he Q1, you said you had 15 sales development Robson nine nine gans in E. Q1 can you give us an update are you expanding that are you keeping that stable to get those reps productive.
Just <unk> help us better understand that the shape of that.
Yeah. So now we're not expanding we are really holding sales had camp at sales account flat.
As we as we grow into and get this team trained and retool the named in our account oriented. So so we haven't we haven't added.
Capacity from a sales perspective this year.
Great. Thanks for the car.
Thank you Mr <unk>.
The next question is with Jeff salary, that's Craig having please proceed.
Hey, guys Aaron on for Jeff I, just first question curious to get a little bit more color around the messaging volume. So you mentioned, obviously that cohort and you know I think I caught they're running less campaigns and is there a particular driver of that or anything you are seeing is it just bad luck, what's what's <unk>.
One on there.
So again the principal driver.
That we saw it was lower variable messaging volumes, among our progressive advocacy organization customers.
And again just to size this.
Prior to this quarter, we were looking at roughly 4 million.
A quarter in variable messaging revenue from all customers not just progressive advocacy organization customers, but all customers.
And so we've taken that down to 2 million a quarter, which we think is a conservative number.
And I'm sure some of this depends on political environment.
And obviously.
That's a fluid environment.
Even as recently as you know.
This.
Election yesterday, so maybe we will see increased volumes here again as rod indicated we saw meaningful renewals.
In this customer group.
In the third quarter. So it's not like these customers who've gone away, we're staying close to them and working with them in that revenue could bounce back at any point.
But.
We're gonna take the outlook down to be conservative.
But to be clear there wasn't there is no systemic product issues there is no.
The customers didn't go away.
They just they just didn't spend at an over level.
Like they had historically and numerous quarters. So when will they get back into that we'll see but but what we don't want to do is count on that until we see it yet.
Got Ya got Ya that's helpful. And then obviously you've mentioned you've been really clear about not seeing any churn and you know that part of the business on the messaging side, but anything else unusual in any other parts of the business as far as China is concerned.
So if you again.
We took our net dollar retention rates from 90% back in 2015% to 97% in 2019 in 2020, the first year of the pandemic.
Those retention rates fell to 94% and.
This year 2021 has been a troughing process right, where we have sort of found bottom on that net dollar retention rate. We are again, we're in this sort of low to mid nineties range, but frankly 100 basis points lower than where we expected to be at this.
<unk>.
That said.
As Rob mentioned earlier, we've done a lot of work this year on locking in multi year renewals and so that if you look at the amount of revenue that we have up for renewal next year, that's not that's not pre renewed right under a multiyear deal it's substantially less revenue up for renewal.
So that should structurally support an increase in net dollar retention rate as we move through next year, because we've already contracted a higher percentage of that revenue effectively we've already renewed that revenue for next year and so that's the basis for Rod statement that we start marching back.
In the mid to high nineties. So we feel good about that as we go forward.
I think really to get that done we.
We added.
Changed a little bit the way our customer success managers were running the accounts.
Really retrain them on some commercial capabilities that to make them better and stronger from a commercial perspective, we we made sure. The games were focused on their accounts happiness and those type of things and I think that.
That is really starting to pay off and I think that as we as Jack said.
Both both in the way. This is just part of that part of that go to market is everything that touches our customers.
And we put in so many better stronger faster processes.
That that's having an impact as well as as Jack put it and were these customers are committing to longer term deals, which I think is a great vote of confidence.
And their relationship with us in their confidence in the products.
So anecdotally I really like that and then and then.
The byproduct is we have this.
We have less up for renewal next year. So we anticipated that dollar retention rate climbing back up.
Steadily as we move through 2022.
And with the team continuing to be focused.
With the new processes were running and how they are focused on.
The multi year commitments and expansion continues to be okay. Good and strong all those things together I think it just gives us a really solid base of net dollar retention moving forward. So.
We're sort of happy with that.
Gotcha that's helpful. That's it for me.
Thank you. The next question is from D J Heinz with Kenacort. Please Christine.
Hey, guys Uhm, So Jacqueline very Clinton strategy I get the new logo commentary I got the message headwinds I I wanted to get a little bit on on that last question around some of the churn dynamics I mean, you you've talked about strong expansion bookings, but.
But lower net revenue retention right I I think that implicitly means there's some heightened gross churned somewhere in the business is that all the messaging business like does the variable overage peace.
That you discuss the impact net revenue of attention.
No no.
No that's.
It does and again I want to say that the net dollar retention rate, which is you know we report annually right and again, 97% in 19, 94% and.
In 2020 and here we are in 2021.
In that same sort of.
Low nineties range, right and sort of 100 basis points below where we'd like to be so we may wind up reporting.
93% plus or minus four this year exact numbers to be determined based on queue for but that's that's sort of where we are so it's about 100 basis points.
Lower than we would like it to be overall, but.
Again trending up structurally because we've locked in a lot of big renewables this year under multiyear deals and thus <unk>.
More of our revenue as we move into last year is contracted through the full year and so structurally we're going to see some improvement in net dollar attention right.
Okay, so not not mouths austin's feeling good that it gets better next year.
I mean <unk>.
<unk>, obviously, saying, yes about 100 basis points off where we want to be not miles off but but look we're not happy with it and we again I didn't we've locked in an upward trend here with the work we've done a multiyear renewals.
Yeah.
Uhm Ross how much of your expansion activity happens at the time of renewal.
A lot.
I don't have the actual number off the top of my head, but certainly more than half.
Okay I.
I I guess that that I mean.
If we're locking customers into longer contracts, we have less room to elect to be next year does that mean, we have to your shots on goal to drive expansion.
Yeah, I think that's it.
I'm not sure how I would draw that map out, but but I think we.
A lot of them are not more than half redundant renewal.
And.
But it depends I mean, we have customers, who we do expand and add a division or a group of users or.
Another country or if the house the brands and other brand as they go.
And so for sure.
So could I don't think that's going to have a major impact on expansion next year, but.
But but yeah sure more than 50% happened and renewal time.
Okay.
And then the last one for me Brent asked about kind of growing the sales organization. How much have you go on the sales organization.
In your 18 months at the firm I know you said no go this year, but just curious kind of in the totality of your your time there.
Yeah. So you can really think of as in three pieces.
We've acquired a couple of companies. So in those cases, we pick up salespeople.
We added the global account managers from scratch, so that's kind of the eight or nine guys in that group.
And we built the lead sales development team, which between <unk> in a couple of leaders. There's I think there's a theater 19 or 20 people in that group total. So so we have we have gone from.
You know.
Sixties eighties, and head count starting almost two years ago.
Okay. Thank you for all the color.
Thank you Mr <unk>.
The last question is from Albert Skylar with Raymond James. Please proceed.
Hi, Thanks for taking the questions as John on for Alex Just a quick one for me for <unk> I know retention has been a big focus here and you have a lot of multiyear renewals here that you've been mentioning off the call that should help as we look towards next year, but curious here more broadly if you can give any more commentary on.
Or any commonality, you're seeing surrounding these renewals I know you mentioned financial services and knowledge management product library, there, but any additional color that would be great. Thanks.
Yeah, Let me just start on that one and then passed to Rod I think what what I've seen in the business and.
In the 18 months since Rob got here is building on the foundation.
We had in place.
To create a real platform.
And strengthening those major customer relationships focusing in on those major and die.
Diamond accounts, and really doing a deeper level of of enterprise selling an engagement and again I think we're we're.
We have to take keep in mind, the fact that that happened during some significant crosscurrents.
And.
And.
And the economy.
But I think we're seeing some positive signs on that in terms of the retention.
Setup that we got as we move in the next year.
And again we.
<unk> Q3 is an inflection point.
But.
We still believe that inflection point is going to happen and.
And again, we see some early positive signs on queue for and I think we're on the right course in terms of where we are taken that.
But would you I'll just add one thing to that which we haven't really talked about yet, which I think is long term really critical here we brought in some.
Company level product leadership back in the second quarter.
And this teams.
Remit.
Is to make sure we're really optimising, what we're spending on all of our products. We have a we have a lot of products and a lot of different markets.
Those markets markets, a more dynamic than others relative to product demands.
And I think one of the things, where we were getting better at every day I think we're good at it I think we had a lot of we had our products funded in the right way I don't want I don't want to give us a sense that we didn't but what I, what I will say is that.
With this more with this more portfolio view of our products because customers ultimately renew products that are successful and adding a bit more of a portfolio view to how we invest in each product from an R&D perspective is just making a smarter and so not every product renews at the exact same rate some have more opportunities than others and so really getting.
R&D investments optimized.
Another long term thing we started in the second quarter of this year, which I think just bears fruit long term.
Adding to our confidence level and the model and what we're doing in our ability to continue to take these products to market for the next decade or two which is what the focuses so that hopefully that helps.
Thank you.
Thank you Mr <unk>.
I'll now pass the conference over to Jack for any closing remarks.
Okay well. Thank you all for your time and we look forward to seeing you on the next earnings call. Thank you.
That concludes the conference call enjoy the rest of your day.
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Uh-huh.
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