Q4 2021 ON24 Inc Earnings Call
[music].
Good afternoon and welcome. Please note that the life and interactive webcast of today's call maybe accessed via the Investor Relations section of the company's site at Www.
So investors to own 24 that called <unk>.
On completion of the prepared remarks, we will open the call for questions.
May be submitted via the webcast portal all the Italian line.
Please note that this call is being recorded.
At this time I would like to turn the conference over to Nate Block Vice President of Investor Relations. Please go ahead.
Thank you Hello, and good afternoon, everyone welcome to our 24, its fourth quarter and full year 2021 earnings conference call on the call with me today are sure Archrock co founder and CEO of bonds 24, Steve <unk> Chief Financial Officer of bonds 24, before we begin I would like to remind every.
One that some information provided during this call will include forward looking statements regarding future events and financial performance, including guidance for the first quarter and full fiscal year of 2022. These forward looking statements are subject to known and unknown risks and uncertainties are 24 cautions that these statements are not guarantees of future performance.
All forward looking statements made today reflect our current expectations only and we undertake no obligation to update any statements to reflect events that occur after this call.
Please refer to the company's periodic SEC filings and today's financial press release for factors that could cause our actual results to differ materially from any forward looking statements. We would also like to point out that on 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 addition to and not as a substitute for financial measures calculated in accordance with GAAP to see the reconciliations of these non-GAAP financial measures. Please refer to today's financial press release, I will now turn the call over to Gerard Gerard.
Thank you and welcome everyone to on 20 fours fourth quarter and full year, what do you. When do you want financial results conference call. Thank you for joining us.
On today's call I'll share some 'twenty, what do you what highlights.
Our Q4 results.
Address some near term factors relevant to our outlook and outline our priorities for fiscal 'twenty to 'twenty two.
Looking back.
One was the most pivotal year in the company's history.
I'm proud to share some of the numerous milestones we achieved in terms of business accomplishments and financial results.
Across our platform our customers delivered hundreds of thousands of immersive digital experiences to tens of millions of for 10 days, which helped them drive measurable business results.
We saw a attendee engagement with tools, such as bowling content surveys and other buying signals increased more than 30% year over year.
Total revenue increased by 30% year over year to $203 $6 million subscription and other platform revenue increased by 43% year over year to $175 $9 million and we generated positive free cash flow for the year.
Our investments in new geographies, such as Japan, and Germany are paying off with international revenue growth of 43% year over year.
We are a market leader serving over 'twenty 100, global customers, including 366 with <unk>, there are over $100000, representing 21% year over year growth in that cohort.
Our wallet share continues to grow with average <unk> per customer, 47% higher than the end of 2019.
As a sign of our increased strategic positioning we now have 19 customers with <unk> over $1 million, representing 36% year over year growth in that cohort.
Customers are also increasingly making longer term commitments to our platform with multiyear contracts comprising 35% of our ending <unk> compared to 29% at the end of 2020.
You bet early inroads with our partner channel with new bookings contribution increasing from low single digits in Q1 to high single digits by Q4.
Lastly, we doubled down on R&D investment and the pace of innovation in 2020 one launched.
Launching two new experienced additions to our platform breakouts and go lives at introducing the next generation of our flagship product webcast elite.
Our platform approach is resonating with customers evidenced by the fact more than 35% of our customers have two or more products compared to 30% in 2020 and 17% in 2019.
We are keeping up the drumbeat on product innovation, and we will continue to bring new products to the market.
Let me briefly highlight some of our exciting wins within the fourth quarter.
One of the largest health care membership organizations with over 100000 members runs hundreds of sponsored webinar experiences for a year as a key revenue stream.
They had been using a legacy vendor that lack data insights and analytic capabilities.
Realizing that they could deliver more value for their sponsors they've gone to 124 for our deep engagement data and AI.
Driven analytics, including our prospect engagement profile, which will be integrated into their salesforce marketing cloud.
This was a highly strategic six figure platform deal, which included elite engagement hub and breakout rooms, and has provided substantial ROI to the customer.
In Germany, we landed a six figure win with a leading building and construction software company that had been using a legacy vendor could drive demand generation with approximately 500 global webinar experiences for a year. We displaced this legacy vendor based on a real time integrations across the customer's Martech stack.
<unk> user experience and World class services and support.
One of the world's largest oil field services companies has been using 124 for both the manager and thought leadership and their end users and buyers are increasingly moving to digital.
In the fourth quarter, they expanded with us to cover all of their divisions and more than tripling their animals spec.
Our of our data real time integration and enterprise scale reliability privacy and compliance with the deciding factors for this customer expansion.
Lastly.
We signed the largest single deal in our history.
<unk> global enterprise wide subscription agreement with an existing customer in the pharmaceutical and industrial.
Given the scope the customer had a global RFP and we won based on the scale of our platform deep integrations across their entire marketing stack and best in class compliance and support.
Let me review high level results from the fourth quarter.
For the fourth quarter, we reported total revenue of $52 million at the high end of our guidance range.
Subscription and other platform revenue in the quarter was $45 million, representing an increase of 9% year over year against a very challenging comparable of 115% growth in the year ago period.
Professional services revenue was $7 million, a decrease of 41% year over year and in line with our expectations that we provided last quarter.
Net new <unk> was $4 $2 million, resulting in ending <unk> of 170 $114 million.
And we posted non-GAAP operating loss of one $8 million for the quarter ahead of our guidance.
While we had solid Q4 financial results. We have also experienced some recent challenges which are impacting our Q1 and full year outlook.
As we previously discussed we believe Q1 2022.
March the last Covid influenced renewal quarter and this cohort comprises a significant portion of large deal renewals, which included expansions throughout COVID-19 that are running for the first time.
During January as it became clear the world was moving from pandemic do endemic.
We have seen a handful of customers with large expansions since the beginning of 2020 reassess the post pandemic digital budgets.
While we had forecasted some rationalization to take place.
Our visibility into these specific customers post pandemic needs was limited.
For context. It is important to note that these select customers had expanded by as much as three times during COVID-19 and their annual spend still stands and average meaningfully higher than Q1 2020.
We share an example.
One of our customers as a leading international exhibition organizer, which runs thousands of physical and digital events, leading <unk> brands.
When the physical conference Lloyd was shutdown this customer turned to <unk> 24 to run thousands of digital experiences with amazing success and inquiries. This spend by three times since Q1 2020.
As we move to a post pandemic world.
Our customer has begun to shift some events back in person, but we will continue to use <unk> for its digital strategy committing to a multi year seven figure annual investment with spend still two times higher than pre COVID-19 .
Our Q1 outlook.
Flex the impact of the higher than anticipated rationalization and the full year incorporates our early view on post pandemic digital budgets looking.
Looking ahead.
We believe that Q1 will mark the trough for 2020 to buy.
By far our largest challenges in 2021 was the first time renewal cohort, which is four times. The dollar value of course stem renewals in 2019 and had a churn rate that was approximately double that of course renewables in 2019.
We see an improving customer profile, but forced on renewables with a lower representative share and future cohorts and also believe that many customers have now adjusted the prior expansions accordingly to align with their post pandemic needs.
As a signpost gross retention for <unk> 'twenty 'twenty cohorts has been stable.
Which gives us confidence that overall retention will begin to trend upwards in 2022, as we move past the last of these COVID-19 influence cohorts.
Steve will provide more details on our outlook later on this call.
Moving forward well.
We're also proactively making improvements in areas of our business to Reaccelerate growth and continued towards a path of reaching $500 million of <unk> and beyond.
Help achieve this we have set four key priorities for fiscal 2022.
One enhancing our customer success and retention capabilities.
Two scaling our go to market for better operational leverage.
Three improving our multi product sales motion and the enterprise segment.
And for delivering upon a robust product innovation roadmap.
Turning to our first priority.
Enhancing our customer success and retention capabilities.
Since the end of 2019, the entre for customer base has grown by more than 50% and our air our renewal base has more than doubled.
Over the years and we have built a solid foundation of our customer success function.
But as we become a more strategic partner to customers. It is crucial that we have a best in class customer success motion.
After taking a closer look we have identified enhancements that can be made to the function and which are now underway in order to create a better integrated customer journey.
We believe the first 90 day experience for our new all 24 customer is critical.
Recently, we have revamped our onboarding program to ensure that the handoff between sales and the CSM is more seamless and we are better enabling the customer so we deliver faster time to value.
As a product and continually mix new enhancements to our platform guiding our customers to adopt the full breadth of the platform, including a leading integrations must be a top priority across the organization.
We are expanding the team to improve coverage ratios as well as bringing in new senior talent with experience at scale to drive best practices and operational rigor.
Combined we believe that these changes will improve our overall retention rate in the quarters ahead.
Moving to our second priority.
Scaling our go to market for better operational leverage.
In fiscal 2020 , one we saw steady growth in business saw a small partner channel increasing from low single digits percentage of new bookings in Q1 to high single digits by Q4.
To continue our momentum and scale on 24 to the next level. We believe that it is critical to strengthen our ecosystem of partners across interactive agencies.
Large strategic marketing cloud platform players Isps and system integrators with each having an important role in our long term success last week, we announced the launch of the Antoni partner network, creating an ecosystem of leading solutions and technology partners and formalizing.
How do we integrate co market and co sell together.
This ecosystem will broaden our reach and extend our product and service offerings and drive leverage in our go to market model.
In the months ahead will be enabling our partners on the on 24 platform building more integrations and driving pipeline. Our goal is to grow partner bookings over time to a 20% or higher contribution.
This is not something that happens overnight.
Early progress we have made formalizing partnerships with over 40 partners gives us confidence in the long term partner leverage opportunity.
Noteworthy third priority, improving our sales motion and the enterprise segment.
Today, we count approximately 20% of the fortune 1000, as customers and still have massive wide space to further penetrate the enterprise.
As I mentioned last quarter, we are focused on our multi product sales motion for enterprise acquisition, which is leading to larger more complex deals.
These deals require a more focused.
Data selling approach to elevated levels of the organization compared to a single product sales motion to practitioners that worked in the earlier years.
As such we are making improvements to more effectively enable our enterprise sales team with the right resources for this type of sales motion.
That doesn't really makes them more successful, but also makes the enterprise customers excited to engage with us and consultative ways.
Turning to our fourth priority product innovation.
In 2022, we are focused on continuing to execute against our robust product innovation roadmap across each of the three pillars of our platform.
Webinar marketing.
Virtual events and personalized content experiences.
Our vision is anchored by delivering a system of engagement for marketing and sales teams to create digital experiences that engage audiences.
Turning gears when data into insights and use those insights to drive results.
Within our virtual events pillar go live as the newest solution and released at the end of December .
Self service multi session video and networking event experience that maximizes social networking and audience participation.
Organizations can build complete end to end external or internal events, such as road shows user groups virtual pop ups.
<unk> and partner summits.
<unk> holds our company meetings, using pre built templates and an easy to use and engaging interface.
First party engagement data continues to be the foundation of each of our products of our platform and on 24 go lives registrant, even activity and attendee engagement is captured along with other entrepreneur experiences into a single dashboard and prospect engagement profile we.
We have received positive market feedback and expect this product ramp in the coming quarters as we build awareness in the market and throughout our customer base.
According to a recent Mckinsey report two thirds of corporate customers intentionally now reach for digital or remote over in person engagement when given a choice and they are doing so at every stage of the purchasing journey.
As a result.
Sales and marketing teams are dealing with a new set of buyer expectations to garner attention in a crowded field.
To adapt to this new world, we believe creating personalized digital experiences at scale is table stakes to break away from the pack, but must go beyond contact name and logo.
We believe should be driven by first party data insights.
Throughout the year, we will be releasing enhancements to our AI driven personalization capabilities, whether our customers are targeting known or unknown individuals' our platform, we'll be able to tailor personalization experiences by among other things account to the specific organization contact to a specific <unk>.
We'll call to action and content and buyer intent and segmentation.
This is all that that first party data and insights collected from every on 24 digital experience.
These personalization enhancements will empower our customers with a deeper understanding of buyer preferences and deliver real time personalized experiences directly within our platform.
To sum up.
I continue to be optimistic as ever about our future.
We have experienced tremendous growth in a short period of time without increasing by 143% over the past two years.
While we are now moving into a post pandemic world a powerful transformation continues to be underway in the <unk> world.
Across industries sales in market for BW organizations is rapidly moving towards digital channels and there is an increasing need for our digital engagement platform that leverages data and insights to drive revenue growth.
We are focused on improving areas of our business and remain confident of both our long term growth opportunity and the ability to reaccelerate growth in the coming quarters.
On 24 is a growth business against the backdrop of.
Powerful secular trends and a large tam.
With that I'll hand, it over to our CFO , Steve <unk> to walk you through our Q4 results in more detail and provide our outlook.
Yeah.
Thank you, Sean and good afternoon, everyone.
I'm going to start with our fourth quarter and full year 2021 results and will then discuss our outlook for the first quarter and full year 2022.
Total revenue for the fourth quarter came in at the high end of our guidance range at 52 million, representing a decrease of 2% year over year.
Against a comp of 123% growth in the year ago period.
Subscription and other platform revenue was 45 million, an increase of 9% year over year against a comp of 115% growth in the year ago period.
As a reminder, other platform revenue includes customer Overages, which had historically trended in the range of 3% to 4% of total revenue depending on customer usage of our platform and seasonality.
We are seeing more of our customers choosing to add additional capacity into their contract at the time of renewal.
Such.
Overages were approximately 2% of total revenue in Q4.
And we expect that trend to continue.
Professional services revenue was $7 million, a decrease of 41% year over year, and representing approximately 14% of total revenue compared to 23% in the year ago period.
Decrease was in line with our expectations that we provided last quarter.
For the full year total revenue was $203 6 million, an increase of 30% year over year.
Subscription and other platform revenue was $175 9 million, an increase of 43% year over year.
Professional services revenue was $27 7 million, a decrease of 19% year over year.
Moving onto IRR.
Ah represents the annualized value of all subscription contracts at the end of the period and excludes professional services and Overages.
Net new <unk> in Q4 was $4 2 million, resulting in ending <unk> of 171 4 million.
This represents an increase of 12% year over year against a comp of 100% AOR growth that we delivered in 2020.
We continue to see customers make longer term commitments to our platform with multiyear contracts comprising 35% of our ending <unk> compared to 30% at the end of 2020.
Our dollar based net retention rate or at R. R.
Ended the year at 97%.
As a reminder, <unk> is a lagging indicator and reflects the impact of elevated churn that we experienced over the past three quarters with first time renewals, particularly with organizations that were not our ideal customer profile and had onetime needs as well as some customers that rationalize their expansions.
In fiscal 2022, we expect that we will see improvement in our MLR as the year progresses.
Despite the elevated churn our average <unk> per customer at the end of 2021 stands at 81000 compared to 77000 in 2020 and 55000 in 2019.
Turning to customer metrics.
We had a strong quarter for new logo acquisition.
Total customer count increased by 68 quarter over quarter for 2000 and 122.
We ended the year with 366 customers.
<unk> <unk> of $100000 or more representing an increase of 21% from the prior year.
He is $100000 plus our customers comprise 67% of our ending <unk>.
As a sign of our strategic positioning and strong expansion.
We now have 19 customers contributing a $1 million or more representing an increase of 36% year over year.
Before turning to expense items and profitability I would like to point out that I will be discussing non-GAAP results going forward.
Our 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 for the quarter was $40 1 million, representing a gross margin of 77%.
Kris a 400 basis points year over year, we continue to invest in our cloud infrastructure capabilities.
Enable sustained growth.
And rolling out customer success teams.
Turning to operating expenses.
Sales and marketing expense in Q4 was $24 9 million compared to $19 5 million in Q4 last year.
This represents 48% of total revenue compared to 37% in the same period last year.
We have been investing in go to market enablement and marketing to drive market awareness.
R&D expense in Q4 was $8 1 million compared to $5 8 million in Q4 last year.
This represents 16% of total revenue compared to 11% the same period last year.
We have been ramping our investment in R&D as we accelerate our pace of product innovation and bring new products to market.
G&A expense in Q4 was $8 9 million compared to $6 9 million in Q4 last year. This represents 17% of total revenue compared to 13% 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 Q4 was $1 8 million or a negative 3% operating margin compared to operating income of $11 1 million and an operating margin of 21% during the same period last year.
For the full year operating income was $2 1 billion or a 1% operating margin.
Net loss in Q4 was $1 7 million or <unk> <unk> per share based on approximately $47 8 million basic and diluted shares outstanding.
This compares to net income of 11 million or <unk> 57 per diluted share in Q4 last year using approximately $19 1 million diluted shares outstanding.
For the full year net income was $1 4 million or <unk> <unk> per diluted share using approximately $51 5 million diluted shares outstanding.
Turning to the balance sheet and cash flow cash.
Cash used in operations in Q4 was $4 5 million compared to cash flow from operations of $10 7 million in Q4 last year.
Free cash flow was negative $5 6 million in Q4 compared to positive $10 3 million in Q4 last year.
Free cash flow margin was negative 11% in Q4 compared to positive 19% in Q4 last year for the full year, we generated free cash flow of $1 6 million and ended the year with $382 6 million in cash cash equivalents and.
Marketable securities.
In December 2021, the board of directors authorized a $50 million share repurchase program during.
During the fourth quarter, we repurchased 428218 shares at a weighted average price of $16 88 per share utilizing $7 2 million of the $50 million authorized under the program. We believe our current market valuation does not reflect our long term growth potential.
And we will continue to be opportunistic with our share repurchase program.
With that let's turn to guidance.
At a high level, we look at fiscal 2022 is a tale of two halves with a challenging start in improving sequentially each quarter.
Our largest challenge that we experienced in 2021 was the first time renewal cohort, which was four times. The dollar value of first time renewals in 2019, we experienced a churn rate that was approximately double that of the 2019 cohort.
Sure.
First time renewals in 2022 is expected to normalize back towards 2019 levels against the backdrop of an improving customer profile.
We believe Q1 2022 will mark the last Covid influence renewal quarter.
Q1 renewal cohort comprises a significant portion of large deal renewals and we have experienced higher than anticipated customer rationalization, particularly with a handful of customers who previously sides large expansions during COVID-19 that were up for renewal for the first time.
Our gross retention for pre 2020 cohorts has been stable, which gives us confidence that overall retention will begin to trend upwards in 2022, as we move past the last of these COVID-19 influence cohorts for professional services, we are continuing to see more of our customers electing to be.
Self service, which speaks to our platform's ease of use and overall user experience as a result, we expect that the mix of professional services revenue will be in the low teens as a percentage of total revenue in fiscal 2022 compared to 14% in 2021 and 22% in 2020.
This will drive a low teens year over year decline for professional services revenue in 2022.
As I mentioned earlier Overages, which are included in other platform revenue have been trending lower to approximately 2% of total revenue as more customers choose to add additional capacity into their contract at the time of their renewal.
We estimate the combination of lower expected professional services and Overages revenue will act as an approximately three point headwind to our full year revenue growth rate with the larger impact for the first half.
As Rob highlighted it has become clearer that the world is moving from pandemic to endemic and we have incorporated our early view of post pandemic digital budgets into our outlook.
Lastly, we are enhancing our customer success capabilities watching our partner ecosystem, bringing new products to market and making improvements to our multi product enterprise sales motion.
I'm optimistic that we will see positive impact from these initiatives, but we believe it will take a couple of quarters to realize the benefits.
Now I'll move into Q1 guidance.
Our bookings in Q1 2021 were more heavily weighted towards the early part of the quarter compared to our normal backend loaded quarters, which is driving atypical linearity for the Q1 2022 renewal cohort.
In January we experienced higher than anticipated customer rationalization, particularly with the handful of customers that had large expansions in prior periods.
The challenges we faced with rationalization.
With the non linearity of renewables will have an impact on the timing of recognized revenue, resulting in lower sequential subscription revenue.
Professional services revenue is seasonally lower in Q1 compared to Q4, and we expect that it will represent approximately 10% to 11% of total revenue.
Overages represented approximately 4% of total revenue in Q1, 2021, and we now see overages trending to approximately 2% of total revenue in Q1 2022.
As such we expect total revenue in the range of 47 million to 48 million.
We expect a non-GAAP operating loss in.
In the range of 8 million to $7 million and a non-GAAP net loss per share of <unk> 17 to <unk> 15 per share based on $47 7 million basic and diluted shares outstanding.
And for the full year 2022, we expect revenue in the range of 200 million to $204 million we.
We believe 2022 will be a tale of two halves with Q1, marking the trough and subsequent improvement in net new <unk> throughout the year as the profile of renewal cohorts improves and customer rationalization of expansions from 'twenty to 2020 one.
So subside.
Exiting Q4, 2022, we expect an AOR growth rate in the low teens, which will accelerate into fiscal 2023.
In the second half of the year with the compare is largely behind US we expect subscription and other platform revenue growth to reaccelerate to the mid single digits.
Total services revenue is expected to be approximately in the low teens as a percentage of total revenue for the full year 2022, compared to 14% in fiscal 2021, and 22% in 2020, resulting in a low teens year over year decline.
Given the moving parts within revenue, we believe <unk> is the most appropriate metric to evaluate the underlying momentum of the business.
We expect a non-GAAP operating loss in the range of $30 million to $27 million.
And a non-GAAP net loss per share of.
64 cents to <unk> 58 per share.
49 million basic and diluted shares outstanding.
As I mentioned, we faced headwinds in 2021, primarily from the elevated churn within first time renewal cohorts and rationalization from large expansions during COVID-19 .
We're confident that these headwinds will soon abate and.
We believe that our long term market opportunity has not changed.
As a result, we believe that we have a unique opportunity to invest in accelerating our long term revenue growth rate and advancing our leadership position in.
In 2022, we plan to make targeted investments in our go to market function public cloud infrastructure and product development initiatives.
Overall, we do expect to see bottom line improvement throughout the year as the topline Reaccelerate and we drive leverage from the investments made over the last year.
As we look ahead, we are laser focused on further accelerating our growth in an efficient manner, improving net dollar retention and driving operational improvements across the business, we expect an improving bottom line in 2023.
We believe that we have a clear path over the next several years to achieve our target model of 20% or higher non-GAAP operating margins, while driving top line growth.
With that trough and I will open the call up for questions operator.
Okay. If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
We're using a speaker phone. Please make sure your mute function is turned off the lawyer signals to reach other equipment.
<unk> Press Star one to ask a question.
We will now take our first question from Arjun Bhatia with William Blair. Your line is open. Please go ahead.
Perfect. Thank you.
For taking my questions I.
I wanted to start off with maybe just asking how you were thinking about profitability in 2022, and how do we think about.
The ROI of the investments that you're planning to make next year, especially as the world moves from pandemic endemic and as you pointed out.
The demand environment is being impacted a little bit as customers rationalized their their spend going into 2022 and I'd be I'd love to hear more on the go to market investments that you're making but but if you can answer broadly as well.
Hi, This is Steve I'll go ahead and take the profitability question. So.
First let me start by saying we grew our AOR by 123% over the last two years and we've been profitable both years now our market opportunity.
It has not changed every company is now digital now we are facing some near term factors were lapping the last of the Covid impacted quarters here and we did see some larger rationalizations in Q1, but we believe Q1 will be the trough for that we're seeing new customer acquisition strength, we added 68 net new law.
In Q4, and we're pleased with the pipeline.
<unk> is the best metric to evaluate the momentum of the business and revenue is a bit of a lagging indicator.
We've always run this company prudently, but we are making targeted investments to go.
<unk> growth, but the major issue really has been churn and we believe that will be behind us shortly and we'll start to see the growth in flat.
In the second half.
Now we all we'll obviously watch the investments we're making in 2022 with it we don't see them paying off well, we'll make adjustments.
As needed.
Yes.
Let me add a origin to what what Steve just said.
It is shown as being our biggest issue if we look at 2020 , one I mean, we did quite well on growth.
But the we can outrun the chart and if you look at the numbers, we talked about the first time renewal cohort, where we saw the maximum churn.
That size was four times, what it was in Q1.
In 2019, and the chart or the first time renewal cohort was twice what it was in 2019. So so we can outrun that churn now the good news is that as we get to Q2.
We would have we would've already renewed.
Renewed the peak of the future.
Cohort already last year.
And the the largest cohort which is the existing granola cohort, which is generally about two thirds of the portal.
It has been stable the retention level has been stable in that two.
Through Covid now regarding investments you asked about go to market investments I mean, we are focused on.
Targeted investments, where we are seeing higher sales productivity and what we need to fix the enhancements in our customer success function now we've made and we've made investments there, but we're continuing to learn from our customers in terms of coverage ratios and tumbled talent in terms of leadership.
Leadership, what do we need to do the Onboarding program that we are doing we are elevating the quality of that.
We've launched two new products in in 'twenty.
2021 breakouts, but performed really well and at the end of last year. We launched the go lives and we are seeing good momentum on those products and we will be adding more products in Q2 as we move forward.
We have improved our leverage from our partner channel we've talked about this before in early 2021 are the contribution was low single digits by the end of 'twenty, one to be bought or to high single digits. My target. There in the future is to get that number to about 40% and then of course the focus on our enterprise sales.
Execution with multiple products, making sure. It has gone through data that we can sell multiple products.
So again, we are you know.
We're going to make the investments prudently, but we are a growth business and and and so our focus is that and our focus there is.
With these investments and what we are doing we should end the year.
Growth of low teens ear or would we should further accelerate in two point are you going to be quick to high teens, that's our focus.
Perfect. That's very helpful color. Thank you.
Right.
Yeah.
Yeah.
Thank you once again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad will now move on to our next question from Ben Franklin with Piper Sandler. Your line is now open. Please go ahead.
Hi, guys. This is Hannah Rudolf on for Brent today. Thank you for taking my questions. I guess first one is just could you talk more broadly about how youre thinking about your durable growth rate in the post pandemic world and what's giving you confidence in that.
Yeah.
Yeah, Let's let me let me take that.
Yep.
Our market opportunity has never been.
It has never been larger.
Still see a large tam of over $40 billion.
We know that sales and marketing moving increasingly through digital channels. So so nothing has changed there.
We look at it is.
Q1 is the trough.
Off our business churn has been our biggest issue.
And as we lap the Covid quarters. There are two things that are happening one is.
Our cohorts, but generally get better once we get past the Q1 cohort.
Cohorts get better so just from a mathematical point of view.
You know it is.
It is easier for us to get past some of those those those churn issues.
Again, I just wanted to highlight the existing renewable core has been quite stable now in terms of growth rate.
With the investments that we're making and the things that we're doing we feel quite comfortable that we should end the year.
At a low teens low teens growth rate, which we can further accelerate in 2020 threes to high teens, that's what we feel quite good about talking about based on the investments that we're making currently.
Great. That's helpful. And then could you remind me where you are in terms of your full productivity for your sales force.
Yeah. So we closely track sales productivity and in 2020 one.
The sales productivity was slightly higher than 2019.
Spike of the large number of hires that we made.
Yeah Yeah.
'twenty, one was mainly impacted by the churn in the first time renewal cohort now we want to improve.
Improve.
The productivity that we had.
And again it was better than 2019.
But we are laser focused in terms of improving our children. We are laser focused in terms of increasing our productivity, but I don't feel I feel good about the capacity that we have and we are.
And the productivity, where we are and we are planning to not make large investments, but very selective and targeted additions in areas, where we see strong productivity like markets like Japan like our installed base and expansion business. So that's where we intend to continue to invest.
Great. Thank you.
Okay.
Well move onto the next question from Trinidad Qatar Alright, let Beth your line is now open place kind of height.
Hey, this is Frank Rytary <unk> standing in for Rob.
So apart from the Covid affected dawn renewals and the assembly char among the non ideal gosh somewhere else that you have been talking about.
Dealing with.
It also appears that the net deal hundred K a R. Our customer ads kind of slowed quite a bit sequentially.
Sequentially. So can you kind of elaborate on the underlying factors.
How much of it is just kind of demand pull and then and rationalization affecting like Rossides horses, John specifically amongst these larger customers.
Is there anything else, so what's going on with which we're missing and just a follow up after that.
Yes.
We added four net.
Net adds to the $1 million.
Plus our customer cohort now we have 19 thoughtful.
We added that in in Q4.
We had a strong quarter of 68 net new logos the best.
After Q1 at about the same levels in 2021.
We just we saw some initial purchases that were just under the 100 K Mark and we expect to expand those over time just to provide a little more color our average new enterprise ESP in Q4.
Was the highest.
On a year to date basis that was the highest that'd be out all year. So so we feel quite good about where we are we just.
Should provide you perspective.
Got it got it and then just a quick follow up.
Sure about this briefly but like what are the behaviors you're observing from your like most important enterprise customers like in terms of a.
Multi product adoption in new product adoption trends.
Go live which is not a T a and thoughts.
Yeah.
Yeah. So.
Let me answer that in multiple parts. So first of all.
Our multi product adoption.
Is 35% in Q4.
And it's doubled compared to where it was in 2019 end of 2019. So we are seeing.
Our customers adopt multiple products across the board and we are going to continue that as an important motion now, especially.
With breakouts earlier and go lives currently specifically about go lives, let me make a couple of comments.
We have received we just launched it at the end of last year. So it's been about a month and a half.
So excellent customer feedback, we are building awareness and pipeline and we expect it will ramp through the year.
And contribution accelerate at the end of the year, but I want to make one other comment because of that because that is important and in my prepared remarks, I talked about give the example of a of a large customer and how our large customers are behaving.
This is the example of <unk>.
One of the largest physical and digital events organizing forums and who increased their spend with <unk> 24 during COVID-19 by three X.
And they just renewed their contract with all 24 in January it's one of the rationalizations that we've talked about but they have signed a multiyear agreement and will spend of seven figures.
Which is two times their pre COVID-19 span. So yeah. They went to pretax and came down to two X, but still.
It's a pretty significant increase in the wallet share. So that's what we're seeing in many of our large large customers and the good news there shrink is by the time Q2 happens you know.
All of those customers have already gone through one cycle of a complete cycle of rationalization and so we feel good about that so hopefully that gives you a color how we see our customers evolve their spend going forward.
So that's really healthy.
The percentage of our are on multiyear agreements at the end of the year was 35% and thats the highest its ever been.
Yeah.
Got it that's really helpful. Thanks sure. Thanks, Steve.
Yeah.
Thank you then move onto the next question from Sterling Auty JP Morgan. Your line is open. Please go ahead.
Hi. This is drew on for Sterling, you mentioned that a our growth should be in the low teens as you exit 2022 should we expect more of that to come from the average <unk> per customer or from customer graph.
Yeah.
I think you'll see it coming from from both.
We're seeing our average euro per customer has ticked up year over year drill it went from <unk>.
77000 per customer at the end of 2020 to 81000, a customer at the end of <unk>.
This past year, we're pretty good at expanding within our with our customers. So I expect both will contribute to that number.
Just just to add to what Bill just said and I just talked about that is we.
We added 68 net new customers in.
In Q4, which in spite of the churn you know we feel we feel very good about so of course, the installed base will contribute.
But we're also very laser like focus on net new ads, which is.
The driver of the business.
Got it thank you.
Thank you and I'll take our next question from Scott Berg, Let me turn the line is open. Please go ahead.
Hey, guys. This is Josh on for Scott.
So if you look at the customers who are downsizing their subscription is there any commonality in terms of the industry or how they were affected by the pandemic and then is there is this entirely like lower usage renewals or are they also decreasing the number of modules that they're using as well.
Yeah.
I think during the pandemic what happened is.
And when the physical World had stopped people had added a lot more workspaces logins on a on a global basis.
Uh huh.
Food.
You know across across the organization that if you're a large enterprise you need that you needed more licenses and different markets. So what.
So people may have gone based on the example, I gave you about this.
The physical and digital events company people may have.
Expanded their use it much widely in many cases they they expanded their you just did three or four times, what they were doing pre COVID-19 .
Yep.
What we have seen in as people are rationalizing the.
Their thing in Q1.
What have you seen them reduce some more deals remove some workspaces and logging them to really optimize that to what what they really need going forward, but again when you look at our top renewals what you will see is.
The air a contribution of the top renewals, even after rationalization is meaningfully higher than where it was pre COVID-19 . So so that's a very important thing. The other question you asked about is it different based on different verticals no I think it's been very similar based on on the different verticals.
Because.
One of the things that we do with these with these larger customers.
Our focus really has been on being a sales and marketing engagement platform, which provides data and insights to drive revenue. So that's a very important part that they already use so.
And.
So that so that use it across the.
10 years to be strong.
Yeah.
And that's what we've seen.
Okay got it that's helpful. And then the guidance implies that you are still investing pretty aggressively in the business in terms of growing operating expenses over the next year can you give us some more color on what are the priorities for investment this year.
And you know.
How should we think about that split whether it's across sales and marketing R&D versus G&A.
<unk>.
Yeah.
Hum.
Please go ahead.
I know you've already.
I think let me, let me start that up.
We are focused on making targeted investments this year.
And Steve is going to provide more color I mean, we talked about in enhancing our partner channel. We also talked about areas, where we have we are seeing strong sales productivity in those areas. We are going to make more investments you talked about how last year, we were really impacted by chance we couldn't outrun the children we are.
We're continuing to make investments on our engineering and product functions.
You would expect because we expect to continue to bring more functionality.
And on the customer success function, we are continuing to look at leadership and talent to enhance.
Enhance our go to market, but in each of these cases, we are very focused on very targeted investments. If you look at our expense structure. We did go up pretty significantly compared from 'twenty.
When we started investing in the second half of 2022.
Half of 'twenty or 'twenty, one, but since then our investments have generally been a lot more targeted Steve.
And to add a little bit of color. They watch what would say in terms of the.
Gross margin, we do expect to see some gross margin compression are probably a few hundred basis points year over year and 2022 now we are making investments in customer success to enhance our capabilities and coverage ratios that was tried Scott.
Improve our customer retention.
And also our newer product offerings they run in the public clouds and they do have a slightly lower margin profile and we're continuing to invest in our network infrastructure.
Not planning a wholesale move off the platform in the cloud, it's really just the newer products that will be.
NEDA, we are committed to our long term gross margin target of 78% to 80% as we.
Growing see leverage over time, but we are making some of these targeted investments are there in 2022.
Got it thanks guys.
Thank you. It appears there are no further questions at this time I'd now like to turn the conference back to Asia for closing remarks. Thank you.
In closing to reiterate 2021 was the most pivotal year in the company's history.
And I couldn't be more excited for what lies ahead.
I want to thank all of our dedicated employees and amazing customers for the incredible milestones that we achieved.
We are the leading beauty sales and marketing platform for digital engagement delivering actionable data.
And insights to drive measurable business growth.
While we have some near term factors impacting our outlook.
We have a roadmap for execution and strong confidence in our vision and strategy we have.
Proactively making improvements in areas of our business and the entire team is focused on executing against our priority priorities for 2022.
Finally, I invite all of you to join our customer conference. The 120 for experience on April 20th where you can learn more about our platform vision here first hand from our customers and see the exciting product innovation in action.
Thanks to everyone for being on the call today.
Thank you ladies and gentlemen. This concludes today's call. Thank you for your participation space I you may now disconnect.
Okay.
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