Q3 2021 Dragoneer Growth Opportunities Corp II Earnings Call

Greetings welcome to see that third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded I would now like to turn the conference over to Amy Ski Investor Relations. Thank you you may begin.

Good afternoon, and thank you for joining us today to review <unk> third quarter 2021 financial results, which we announced in our press release issued after the close of the market today, joining the call today are Christian Jensen partner and co head of private investment to drive an ear, Rajiv Agarwal, Stevens founder and CEO and Billy Newman.

He then CFO before we begin I would like to remind you that statements. We make during this call that are not statements of historical fact constitute forward looking statements. The forward looking statements. We make today about the company's results and plans are subject to risks and uncertainties that may cause the actual results and the implementation of the company's plans to vary materially from these days.

These risks are discussed in part under the risk factors heading in the registration statement on form S. Four.

File by dragging here growth opportunities Corp, too with the SEC on October 19th 2021, which was declared effective on October 29th 2021.

<unk> disclaims any intention or obligation other than imposed by law to update or revise any forward looking statements whether as a result of new information future events or otherwise further these comments and the accumulated files are copyrighted today by sea that any recording retransmission reproduction or other use of the same for profit or otherwise.

Without prior consent from Sudan is prohibited and a violation of United States copyright and other laws.

<unk>, while we have approved the publishing of a transcript to this call by a third party, we take no responsibility for the accuracy of this transcript. Please note. The discussion on today's call include certain non-GAAP financial measures related to the company's performance and we will know which metrics are non-GAAP financial measures. The company believes these non-GAAP financial measures.

Useful information to management and investors regarding certain financial and business trends relating to the company's financial condition and results of operation.

A reconciliation of historical GAAP to non-GAAP measures is available in our third quarter press release with that I'll now turn the call over to Christian.

Hi, I'm Christian Jensen partner and co head of private investments are dragging your investment group I'm pleased to be here today with Steven is laying out strong third quarter 2021 earnings results.

These results are consistent with our thesis that <unk> sustainable differentiation differentiated position within the event tech ecosystem and a highly recurring revenue model will drive strong predictable and consistent topline growth.

And even if they invest in numerous strategic growth initiatives. They continue to deliver healthy EBITDA margins.

The return to double digit revenue growth this quarter amidst pressure from the delta variant exceeded our expectations and the guidance given to investors. This.

This is a testament to the quality of management the entrepreneurial spirit of the company the team's strong execution capability and their commitment to deliver shareholder value.

Look forward to our partnership with <unk> as they reenter the public market and transformed the meetings and events industry. Just a quick update on the transaction. The merger is still expected to close in the fourth quarter of 2021 with that I'll turn it over to Reggie Thanks, Christian and Hello, everyone. This is our first earnings call since we were last public and.

2016, I wanted to take just a few minutes to discuss our business our market and our opportunity for continued growth and value creation.

By way of background I found it to be about 1999, it's a classic started storage solving a problem that I was personally experiencing I was organized in 20 to 30 events per year for a nonprofit that I started while working full time as a corporate lawyer, my tools, where outlook excel and yellow stickiness and so I did what any good entrepreneur does I found a pinpoint.

Which is organizing events and that created the Aspen, which would see that so what do you see that where SaaS platform that helps our customers plan market and organize their meetings and events.

Fundamentally our software helps our customers grow their top line revenue and drive engagement, while reducing opex and ensuring greater compliance.

We currently have roughly 21000 customers and we're forecasting over half a billion dollars in revenue for 2021, and we project topline revenue growth close to 23% for the foreseeable future.

Our platform is used to build the wet event websites power of that marketing and manage online registration.

Prior to the pandemic our platform was primarily used for in person events.

But when Covid hit we pivoted fast and focus the power of our nearly 1100 person techs team developed an all new virtual event solution that we call the virtual attendees hub.

And it's important to understand that we built this new virtual solution on the same code base is our flagship event management solution and.

And so we have a truly unified platform that can be used for nearly any type of event and any delivery mode, whether it's in person virtual or hybrid.

We continue to win new logos as well as expand existing customer counts as more companies are embracing to see that platform to meet the needs for their bet program.

And over the next several years, we expect this trend to continue as more companies employ an even wider variety of virtual and in person and hybrid events to maximize engagement with their terms.

We believe the strength of our unified platform is a significant competitive advantage over many of our competitors that are offering point solutions or are trying to meet the complex needs of customers by Cobbling together acquire technology solutions, which resulted data silos and inconsistent user experiences.

Another competitive advantage and another pillar of them see that success is our hospitality cob business.

This helps our customers find that perfect hotel venue for their event and it gives hoteliers the tools they need to capture and maximize their meetings and events business.

It's basically the bookings dotcom for that.

Now the collective power of Stephens event cloud and hospitality cloud allows us to monetize both sides of the ecosystem and create true network effects.

Now, let me share with you our thoughts on the current state of meetings and events within our customers were still clearly in the pandemic. Unfortunately, the impact of the Delta variance over the past few months has also had a negative impact on our industry as this slowed down the return of in person events. However, the silver lining is that we're able to accelerate our growth during this time.

This makes me even more excited about what the future holds because that's the pandemic subside in person events are going to return.

Events will become more mainstream and virtual events will continue to grow we believe will be disproportionate beneficiary of this shift because our platform is built to handle nearly any type of event no matter, how our customers and their attendees wants to me.

The limited impact of the Delta variant really showed our businesses true resiliency.

Q3, 'twenty one is the first quarter, we grown since we felt the impact of the pandemic and its a great foundation for our future growth.

Now what's driving this future growth.

There are four reasons number one the strength of our virtual product number two people moving towards one platform number three.

Rust and relationships that we have with our customers both the event planners and hoteliers and for the power of our brand.

So it's been a proof point for our model and strategy that the business has still been able to perform in spite of the dead Delta Barry.

We expect as we returned to a more business as usual environment in 2022 that will continue to see an increasing mix of event delivery mode and as I said, we believe this plays into C bench strength.

I hope that this overview was helpful and with that context, I'm Gonna Dow discuss our strong performance in the third quarter.

In short we continue to see positive trends across the key growth drivers of our business. We continue to win new logos and existing customers continue to expand their usage and finally product innovation continues to fuel our growth.

I'm going to talk about each of these three drivers in the context of the quarter.

First on new logos, we continue to see momentum.

And initial contract values are increasing.

Every day, when we speak to our new logo prospects, we see in here, but there's still stuck using manual processes to string together point solutions and internal systems.

And they're still struggling with Siloed data that's difficult to assess what these organizations want to simply do just have one system of record for all of their events.

This is the type of pain point that the <unk> platform is designed to solve.

A great example of this is the state Transportation agency that we recently closed.

They were initially looking for a solution for a single virtual event.

I have been working with our team to understand the benefits of implementing Steven across their total event program. They signed a three year deal with us with a total contract value for T. C D.

Of $900000 and we'll be using us for their virtual in person and hybrid of that.

And just a side note I don't think many people would have thought that one state transportation agency would sign a nearly seven figure contract with us.

It really shows just how big a diverse our spaces.

Another similar stories, a division within a public traded pharma company. They signed a two year deal with a total contract value, Oregon, a T C. B a $1 million starting the robustness of our platform and this thing is this end to end user experience for all of their attendance facing interactions.

These are just a couple of examples but to fully appreciate the opportunity in front of US it's important to understand two key aspects of our new logo wins.

First that our platform is truly industry agnostic and provides value to all types of organizations.

Second our platform is both powerful and flexible and this gives customers the confidence to sign multi year deals with us.

We still have the unknown of the pandemic.

Now here are some additional examples to show you the diversity of new logos that we won in the quarter.

A global marketing Association, signing three year contract for a T C b of nearly 900000.

Public services manage the company signed a three year contract for total T. C. D. A 546000 and American Racing company signed a two year contract for total PCB of $190000 and one of the top three largest travel management companies in Japan sign.

Sign for an annual contract value or an ACB up 260000.

These are just some of the examples of our larger deals in the quarter and of course, we also have hundreds of smaller deals that we closed in Q3 that provide great expansion opportunities for us in the future.

So now let's move to the second growth driver and that's expansion within existing customers. We continue to see meaningful increases in spend from existing customers of all types.

Similar to what I said earlier, our customers are continuing to realize the benefits of our platform across their total of that program, which includes virtual in person and hybrid of that.

And because we have one fully integrated platform, we have a true competitive advantage.

In the third quarter reinforced this view and we're seeing customers add back some of the modules that help in person events like our onsite module that increased their overall spend as they realize the value of hybrid events.

Across both clubs and we estimate that the white space opportunity within just our existing customer base is $2 $7 billion.

So I wanted to go deep on a couple of examples from the quarter because I think it's important to understand the enormous expansion opportunity that we have in the current customer base.

So we have a midsized global financial Advisory company, that's been our customer for a number of years and they've been using us for their in person events with the pandemic. They initially tried our virtual solution for a single event.

The event was very successful so they sign a new contract for four large old virtual event.

The ACB of this account increased from 17000 pre pandemic to their current ACB of 545000, and we believe theres still plenty of room for growth.

And eventually as they're more comfortable with what the event programs look like we think we can sign a larger multi year deal with them.

Another example is a multinational technology company with over 10000 employees, that's been a customer event since 2016.

Traditionally only leveraged our platform for their flagship conference.

But in 2021, they expanded their relationship to manage nearly all internal and external event.

This resulted in this account has grown from 100000 in 2019 to over 750000 and contract value this year.

With over 350000 coming as expansion in the third quarter.

And not only did they increase their spend but they signed a four year contract signaling their confidence in our platform to meet their long term needs.

Look this is the only two examples.

And there are many more.

Fortune 500 financial services Institute at public multinational software company.

Education Association, a national Health Care Association, a state employee retirement agency and a French consumer company.

Excited to bring this type of value to our customers and are confident that these opportunities provide a long runway of expansion for us within our existing customers.

Now, while I talked a lot about the event cloud I now want to touch on the hospitality cloud because it is a core part of our platform.

It's no secret that the pandemic decimated the hospitality industry.

But we're starting to see it come back to life.

Our platform helps hotels win and manage group and meeting business and this is key in their overall recovery.

During the quarter, we observed many hotels that are still in the early stages of recovery, but we also saw a number of hotels, we go back to their pre COVID-19 spend with us.

Which is really encouraging and a good indicator of what's to come.

A great example of the bounce back momentum, we're seeing in the hospitality cloud as the largest Texas hotel that's been a C band customer since 2009 basically since we started this event supplier network.

They're ACD and.

In 2019 was about $120000. So they were good sized client.

Unfortunately, COVID-19 significantly impacted their business and in 2020, they had to cut their spend with us by over 75% and $28000.

And in Q3 re re sign them for $150000 a C. D agreement so in 2020, one they increase their spend by more than 20% over their pre pandemic spent.

Other example is a luxury residence of wellness resort in South, Florida that had never advertised you'll see that they wanted to increase exposure of the property to see but planners streamline their operations and increase close rates using this event diagramming and interactive floor plan.

So they became a first time customer and signed a $38000 ACB contract.

And that includes both advertising and software solutions.

We're thrilled that our hotel partners are seeing the return of the meetings and events business and we believe we're going to continue to see positive stories like that now, let's turn to our third growth driver product innovation the.

The strength of our platform remains C bench, lifeblood and a powerful growth driver for our business.

Since we began the public listing process, we've been talking a lot about our new virtual solution. We continue.

To develop it and extend that value proposition.

At our user conference in August we announced the launch of C band studio a major leap forward in live stream production.

Even studio enables marketers and planners to produce broadcast quality video content through web based solution, while bringing together remote speakers and presenters with their Audi.

All three of these drivers I just discussed resulted in a solid quarterly growth year over year.

<unk>, a $134 1 million total quarterly revenue.

Up 13, 1% versus the prior year and three 6% above our guidance.

In addition, we not only outperformed on revenue growth. We also operate the business more efficiently than originally expected produced an adjusted EBITDA of $23 4 million, representing a margin of 17, 5%.

This reflects industry tailwind.

Interest in our platform.

We were also able to do this while making significant investments to drive growth now I will turn it over to Billy Newman, our CFO to discuss our future results in more detail.

Thanks Reggie.

Before I take you through the strong third quarter results. We had is replicate at the start of the call I'd like to take a few moments to review Stephens business from a financial perspective, but those who may not be as familiar with us.

Over 90% of <unk> revenues for current with almost 80% coming from software subscription, which is recognized ratably over the contract term.

These two characteristics along with our multi year deal culture slightly less than 60% of the customer contracts, we signed each year, a multi year contract makes the business highly predictable and provide excellent financial facility.

As a result, entering a quarter, we have clear visibility to 90% of that quarter's revenue since it has already been contractually committed.

That background in mind I'll start by walking you through our third quarter financial performance and then discuss our guidance for the fourth quarter and full year.

Total revenue in the third quarter was $174 1 million, an increase of 13, 1% year over year.

This quarter marks a strong return to year over year growth after four COVID-19 impacted quarters, and we beat our revenue guidance by $4 7 million or three 6%.

When we were previously public we'd be all 11 quarters by an average of closer to 2%.

The beat this quarter is higher than what we would normally expect primarily due to higher than expected bookings in the quarter and revenue from our customer conference held in August.

Within total revenue event cloud revenue was $92 5 million, an increase of 27, 2% compared to a year ago due to strong momentum from our new virtual products virtual attendee hub, our core event management product and onsite solutions as in person events. So we begin to return.

Hospitality cloud revenue declined nine 2% year over year to $41 6 million due to lingering pressure from COVID-19 on the hospitality industry.

We are seeing signs of recovery in the hot toddy cloud as the rate of decline improved significantly relative to the second quarter of 2021, when it declined by 23, 2%.

In discussing the remainder of the income statement unless otherwise noted all references to our expenses and operating results are on a non-GAAP basis, you can find information on the most directly comparable GAAP metrics in our third quarter earnings press release.

Now as I go through each expense line note that the increases throughout reflect two things first abnormally low expenses in 2020, as we cut expenses to respond to Covid <unk> impact on the business and second strong investment behind the massive growth opportunity, we see in 2021 and beyond.

Non-GAAP gross profit in the third quarter was $100 2 million or 74, 7% of revenue compared to 84% in the same period the prior year.

The decline in non-GAAP gross margin is primarily due to investments for growth onsite events, starting to return and temporarily inflated professional services related to our virtual products.

With regard to virtual professional services as event planners become more accustomed to our product in with executing virtual events in general professional services costs as a percentage of revenue shifted caught.

The drop in non-GAAP gross margin is also related to higher hosting costs employee expenses credit card interchange fees related to our merchant services business and client conference costs as a percentage of revenue compared to the same quarter of last year.

The increases in hosting costs and employee costs are indicative of the investments, we're making in the business while the increase in credit card interchange fees as a result of increased merchant services revenue.

Finally, the increase in client conference costs as a result of this year's events being held in person and virtually what we call a hybrid event versus just virtually last year moving down the income statement non-GAAP sales and marketing expenses were $34 2 million or 25, 5% of revenue compared to 22, 7%.

The same period of the prior year the increase in non-GAAP sales and marketing expense as a percentage of revenue is primarily due to higher marketing expenses to support the increased sales opportunity created by virtual and hybrid of that.

Non-GAAP research and development expenses were $23 zero million or 17, 2% of revenue compared to 62% from the same period of the prior year.

The increase in non-GAAP research and development expense as a percentage of revenue is primarily due to higher employee expenses due to increased head and higher average cost per employee and higher contracted services. These increases in head and contracted services is reflective of the investments, we're making for the long term.

Non-GAAP general and administrative expenses were $19 5 million or 45% of revenue compared to 11, 1% in the same period of prior year.

The increase in non-GAAP general and administrative expense as a percentage of revenue is primarily due to higher bad debt expense and contracted services the.

The increase in bad debt expense is related to the impact Covid has had on our customer base.

The increase in contracted services is due to investments being made to support the growth in the business. We're currently seeing and expect to see moving forward and public company costs, we have begun to incur in the third quarter of 2021.

Moving to earnings adjusted EBITDA was $23 4 million or 17, 5% of revenue compared to 35% in the same period of the prior year.

This decline in margin is reflective of the investments we are making for grip given the significant opportunity generated by the new growth sector created by virtual and hybrid of that you.

And the temporary steps we took in 2020 the increased margin given the decline in revenue. If you look at full year 2019, just before Covid and when we were also an investment mode. Our adjusted EBITDA margin was 19.0%.

For the nine months ended September 32021, our adjusted EBITDA margin was 18, 9%. So we're pretty much in line with where we were pre COVID-19.

Turning to our balance sheet, we ended the third quarter with cash cash equivalents and short term investments of $118 1 million an increase of $11.0 million from the end of the second quarter of 2021. The increase was driven by the strong client cash collections. We saw in the first half of the year continuing in the third quarter as our clients start to recover from Covid.

Free cash flow before interest payments on our long term debt was $21 9 million for the third quarter of 2021 up $60 7 million compared to the third quarter, but last year due to higher client cash collections and the bookings growth can be seen in 2021.

Deferred revenue at the end of the third quarter was $226 3 million, an increase of 10, 2% compared to the prior year quarter due to the year over year bookings growth, we began to see in February of this year.

Now, let's turn to our guidance for the fourth quarter and full year 2021.

We are increasing our guidance for the fourth quarter and for the full year due to our strong third quarter revenue results and the robust demand we see for our products in the market.

Therefore, we now expect to generate fourth quarter revenue between $139 9 million and $141 1 million representing increases of 21, 1% and 22, 2%, respectively compared to the fourth quarter of 2020.

At the midpoint. This results in a $1 8 million increase from our previous fourth quarter guidance and an increase in year over year growth from 21% to 21, 7%.

Our stronger than expected third quarter performance, coupled with the increased fourth quarter guidance decreases our full year revenue guidance to $514 1 million to $515 3 million representing increases of three one and three 3% respectively.

Paired to the prior year.

At the midpoint. This results in a $7 3 million increase from our previous full year guidance and an increase in year over year growth from one 7% to three 2% further we expect fourth quarter adjusted EBITDA to be between $21 8 million and $22 7 million or 15, 6% and 61% of revs.

Respectively.

This would result in full year, adjusted EBITDA between $92 7 million and $93 6 million or 18.0% and 82% of revenue respectively at.

At the midpoint. This results in an increase in adjusted EBITDA margin to 18, 1% from the 17, 7% full year guidance previously provided.

The increase in full year adjusted EBITDA expectation is due to the third quarter revenue over performance and increased fourth quarter revenue expectation.

In summary, we had a strong quarter with revenue exceeding expectations and returning to year over year growth fueled by the meetings and events industry, starting to recover and the new growth vector created by virtual and hybrid events.

As a result of the solid momentum we are seeing in the business, we increased our fourth quarter and full year revenue and adjusted EBITDA expectation from our previously provided guidance.

And we look forward to talking to you again next quarter.

This concludes today's conference you may disconnect your lines at this time and thank you for your participation.