Q2 2022 Matterport Inc Earnings Call
Good afternoon, everyone and welcome to the matter of Port incorporated fiscal 2022 second quarter results Conference call.
All participants will be in a listen only mode should you need assistance, we say no a conference specialist by pressing the star key followed by zero.
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At this time I'd like to turn the floor over to Sean Kim.
Sir Please go ahead.
Thank you before he begins I'd like to remind you that today's call contains forward looking statements would've meaning of the federal securities laws, including but not limited to statements regarding <unk> future financial results and management's expectations and plans for the business. These forward looking statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from those discussed.
On today's call.
Information regarding the risks and uncertainties that could cause actual results differ from forward looking statements can be found in our filings with the SEC.
Any forward looking statements made on this call speak only as a matter of Prestea has no obligation to update or revise two otherwise as a result of new developments or otherwise except as required by law. In addition, todays call may include discussion of non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures reconciliations of these stories.
These non-GAAP financial measures to the most directly comparable GAAP measure can be found in today's earnings deck, which is available on the company's website hosting todays call are RJ Pittman, Chairman and Chief Executive Officer of matter ports, and Jay <unk>, Chief Financial Officer, now I'd like to turn it over to RJ to the game.
Thanks, Sue and good afternoon, everyone and thank you for joining us today.
I'm pleased to share our second quarter financial results with you we had another strong quarter delivering on our product strategy market expansion and key results.
Total revenue for the quarter was $28 $5 million and we delivered $18 million in subscription revenue up 7% sequentially from Q1 above our guidance.
We reported strong operating metrics with our subscriber base growing 10% sequentially to over 616000 subscribers and spaces under management also increased sequentially, 10% to over 8 million spaces. These.
These results reflect the strong underlying demand from our enterprise customers and the tireless efforts of our employees, who have delivered on big commitments to our customers.
While the global economic outlook remains uncertain for everyone. We have been effectively managing and leading through it as reflected in our progress and our results and guidance.
We continue to optimize for growth with as much efficiency as possible.
Our core SaaS business continues to grow and our strong financial position enables us to fully execute our business plan and adapt to the challenging macro environment.
Continuing supply constraints has been the primary factor limiting our full revenue potential in the near term and our ability to meet demand for our pro two camera.
We have a record order backlog and we expect that to fill the backlog during Q3.
Innovation remains key to our success in both the near term and the long term our investment in the capabilities of digital twins has never been more important to our customers and to driving global adoption and it remains one of our most distinguished competitive advantages.
Digital twins are incredibly valuable to professionals small businesses and large enterprises alike.
They create value and breakthrough operating efficiencies for any type of building our space.
Delivering immediate ROI for our customers in any macro environment and.
In fact, they are deflationary because of the relatively low cost to create them and the yield the benefits that reduce operating costs.
For large enterprises, the matter Port digital twin becomes a collaborative work through platform with the ability to bring their here and there.
Labeling widely distributed teams to work virtually and are dimensionally accurate photo realistic space together from anytime soon.
In 2022, there is no better platform for marketing property than the one that starts with a matter port digital twin.
And with our recent acquisition of DHT Studios, we are dramatically enhancing the matter for value proposition with new capabilities that help our customers book lease and sell properties faster and for the best possible price.
I'd like to discuss our advancements in more detail to highlight our forward progress and unique ability to drive pertinent technology changes across this 327 trillion dollar asset class that we call the built world.
Then I'll hand, it over to J D faith to discuss our financial results for the quarter in more detail.
We believe our digital twins can drive higher revenue and lower cost for every business.
Once a digital twin is created our platform delivers many value added services and property insights that provide immediate cost savings and operating efficiencies for the space.
Data driven decisions remote facilities management virtual inspections and collaboration in a virtual property save customers significant time and money.
It just reduces the strain on the labor force and reduces the overhead associated with routine onsite property visits.
As the power of digital twins starts to be recognized third party consultants like cap Gemini are publishing their findings that digital twins can indeed reduce time to market and improve operational efficiency and sustainability efforts.
While we are in the peak of the summer travel season, I'd like to share two customer examples in the travel and hospitality space with the concept and air France KLM.
This category continues to develop as a strong market for growth as the world recovers from the pandemic and people return to travel.
Starting with the Casa North America's leading vacation rental management platform has increased its booking conversion rate on a constant dotcom by nearly 12% with matter ports immersive digital twins.
An extraordinary lift metric by hospitality industry standards.
As such it comes as no surprise that nearly 90% of the cost is more than 30000 property listings today include matter ports immersive digital twins.
Visitors to the cautious website can virtually walk in entire property was stunning realism and dimensional accuracy.
According to the cost of property listings that feature a matter port digital twin keep guests engaged three times longer.
Giving them the added confidence to book, a new destination site unseen.
The Casa has digitized over 64 million square feet of real estate with matter ports since 2015.
They can share and explore matter port spaces with friends and family with the confidence they're booking the right vacation home for their needs.
For less than the cost of a professional photo shoot matter port delivers a three D digital twin still photography floor plans and teaser videos to better merchandize rentals across social media and online channels.
And the first digital twin of any property capture with our software and your smartphone is completely free.
Next KLM Royal Dutch Airlines part of the Air France, KLM Group has created matter Port digital twins for each type of aircraft in the fleet.
KLM is using matter port to remotely train the ground and flight crew and to provide an immersive virtual experience for customers.
KLM began using matter port in 2017, capturing the first digital twin of a Boeing 787, dreamliner to trained ground crews on cleaning the aircrafts.
When crews reduce cleaning time by 30%.
KLM recognize the potential of matter Port digital twins to streamline training for other departments and utilize matter port to further capture digital twins of its entire fleet.
At a tail end manages a library of 100 and for digital twins that had been viewed nearly 1 million times, including multiple versions for each of the 14th types of Boeing Airbus and Embraer aircrafts that makeup at sleep.
Flight attendants utilized matter ports digital twins to learn where important safety and hospitality items are located while and annotate a digital twin for ground crews illustrates where service trolleys our stope.
Meanwhile, pilots can easily referred to in aircrafts digital twin during a pre flight safety check if an issue is detected.
Equipped with matter Port digital twins, KLM employees do not need to travel to Amsterdam Airport ski pole for training and instead use immersive digital twins.
Virtual trainees no longer interrupt the maintenance work of an aircraft with in person visits it helps to get the aircraft's return to service faster and with less downtime.
In addition, Klm's digital twins have helped streamline its fleet management for.
For example, when upgrading the Wi Fi routers used on a specific aircrafts.
<unk> used a highly accurate data within the digital twin to confirm measurements and optimize the placement of new routers.
Non training its internal teams KLM uses digital twins to showcase its aircraft cabins to travelers.
Passengers can virtually experience of cabin compare sections and view their ideal seat before purchasing.
Moving on to the enterprise business.
We are delivering powerful new enterprise features as we continue to invest R&D resources to become a mission critical software partner for the largest companies around the world.
Our cloud software platform offers a combination of security compliance and access control features that fortune 500 customers require.
Additionally, we are launching more scalable services to complement the platform advancements this quarter, including longer service and support hours expanded language support professional services and the ability to offer a robust S. L as enterprises that require.
Collecting securing and properly managing customer data is core to matter ports business. Our platform is built on a robust and secure infrastructure that includes end to end encryption of data.
Advanced administrative controls and network security.
Talk to type two compliance is just one example of the enterprise features large customers are looking for we undergo independent third party annual audits against Socked, two type compliance, allowing customers to work in a highly secure and compliant environment.
Beyond enterprise security customers are looking for features and functionality that help to integrate matter poured into the way they work, including their day to day operations and their management of employees.
But enterprise user management and permissions customers can readily deploy scalable secure access control down to the individual employer work group for each digital twin or a large group of them.
In June of 2022, we released a new feature we call private model of bad.
This is a great new way for enterprises to privately share digital twins with a large group of employees on the corporate network without requiring additional user licenses to access this space.
Private model Embeds enables seamless read only access to digital twins with no login required.
This helps companies reduce friction and speed adoption of their matter for digital twins across the organization, while extending matter port into their existing corporate workflows.
Our enterprise customers are becoming more confident in the power of our digital twins and are scaling with matter port and bringing new spaces online every day.
We saw rapid revenue growth from our largest customers and a strong net dollar expansion rate.
We currently have the largest pipeline of enterprise opportunities, we have seen since launching the enterprise platform in 2020 one.
The enterprise go to market organization, we have been building over the last year is starting to yield tangible results.
We've increased our penetration to 23% of the Fortune 1000, now deploying matter port has the customer value proposition becomes clear and demand continues to build.
I'm encouraged by the results of our team's hard work and commitment to scaling our digital twin platform for our customers and look forward to helping them accomplish their own digital transformations with tangible results.
Finally, I would like to discuss the strategic acquisition of DHT Studios closed in early July .
V H D extends our industry leadership with a more comprehensive approach to marketing properties online.
Gather with V. H T. We will move our offering closer to the customer to service more property listings with a more robust digital marketing solution than we've ever offered before.
Dht's market leadership in digital property marketing spans more than 20 years and represents tremendous strategic value for matter ports digital twin platform for the real estate market and offers great potential to impact our commercial real estate and travel and hospitality markets as well where digital marketing.
Is vital to growth.
The other DHT and matter port are creating the most comprehensive digital marketing technology platform targeted at large scale residential real estate brokerages in enterprises.
With our digital twin at this center <unk>.
Starting in the U S. This quarter, we intend to expand the offering internationally in the future with a fully integrated real estate media marketing solution, including photos videos floor plans drone imagery matter port digital twins and more.
DHT is established and maintained dozens of longstanding enterprise customers, including seven of the top 10 brokers in the United States like add properties Barrett and Warner Caldwell banker Compass.
Parker and crude and Douglas element.
We look forward to working with all of them and growing our business together.
BH Ts World class customer service has cultivated lasting relationships with their clients with the majority of the largest customers on board for nearly two decades each.
We're excited to expand our reach with these leading real estate brands to deliver the power of the digital twin and our unique property data insights to every listing online.
Consistent with our business model, 80% of V. H Ts revenue at the enterprise level is recurrent.
This substantially reduces churn more commonly found at the agent enlisting level and streamlines the integration of our respective offerings.
Residential real estate will continue to be a substantial part of our business. It represents a 170 trillion dollars in asset value.
More than half of the total real estate value globally.
We believe we can continue to grow in real estate no matter what happens with the economy.
While we've seen rapid adoption of digital twins over the last few years adoption still remains nascent.
We are closely attuned to the quickly changing real estate landscape and matter port has proven to be an indispensable tool in competitive markets and in constrained markets when demand softens inventory rises and property is stay on the market longer.
In both cases property agents and brokers, who need a catalyst to maximize their transactions and keep the market moving forward.
We will continue to create opportunities like these to compound our growth and achieve our mission.
These examples highlight the company's hard work and focused execution over the past quarter.
We are driving operational excellence and our strategic growth investments are paying off.
I'm excited for what's coming next for matter Port we have a lot in store for our customers.
I will now turn it over to J D fade to discuss our financial performance for the second quarter of 2022.
Thank you RJ I'm delighted to report that Q2 was another solid quarter for matter port delivering record subscription revenue of $18 4 million up 20% from the year ago quarter.
In addition, our annual recurring revenue grew to a record $73 $6 million.
We had another outstanding quarter of customer acquisition with total subscribers, increasing 52% year over year to a record 616000.
At the end of the second quarter, we had 554000 free subscribers and 62000 paid subscribers.
Subscription revenue grew to 65% of total revenue in the second quarter.
<unk>, 252% in a year ago period.
Subscriptions are core to our growth strategy and we leveraged the other revenue lines.
Services and license do you continue to build subscribers and subscription revenue overtime.
Our subscribers continue to increase their spend with us as well our net dollar expansion rate was 107% in Q2.
Which was steady with the prior quarter.
We continued to see strong expansion with our enterprise customers in the second quarter.
On a combined basis. This strength was offset by lower expansion in our small and medium business customers, who appear to be growing more slowly in response to the volatility in the macro environment.
License revenue was $26000 in the quarter up slightly from Q1.
In last quarters Conference call I described that we had won another seven figure contract and noted that we expected to recognize $400000 of that contract for each of the second through fourth quarters of this year.
In fact, our professional services organization exceeded our expectations.
And we recognized nearly two quarters of revenue relating to that contract in the second quarter.
Further given the ultimate nature of the deliverables provided to the customer. This contract is and will be recognized in the services revenue line rather than in license revenue.
Services revenue for the second quarter was a record $5 million, a 74% increase year over year.
While services benefited from the contract I just discussed we also had strong growth in our other services offerings, including scanned beam.
Floor plans and capture services.
Enterprise customers are increasingly turning to capture services to get onto our platform quickly and at scale leveraging the existing installed base of service providers, who already own Madhepura pro two and other compatible cameras.
Yeah.
Our product revenue was $5 million in the quarter compared to $9 $2 million in the year ago period.
In the second quarter, the business was constrained by the supply chain challenges that we have discussed in previous quarters.
The impact in the supply chain was greater than we had anticipated when we provided our second quarter guidance in may.
We ended the second quarter with a record backlog of open camera orders demonstrating continued strong demand for our high definition commercial grade protein cameras.
But for supply constraints on components, we believe we would have handily exceeded our second quarter total revenue guidance.
For example had we shipped through the product order backlog in the second quarter.
Product revenue would have been close to $8 million.
For the go forward periods, we're working to mitigate the impact of supply constraints for the pro two camera with not only our procurement efforts, but also our new matter port access product.
Which enables anyone to use the phone in their pocket with its affordable motor Mount to create accurate digital twins.
And finally, we are working with more and more customers.
They utilize our capture services offerings as another ready option for creating matter Port digital twins.
Total revenue was $28 5 million for the quarter.
While this was sequentially flat with the first quarter following through on the example, just mentioned if we had been able to ship approach of cameras to satisfy the backlog in our order book total revenue could have exceeded $31 million.
And which would have been above our guidance range for the period.
Moving onto gross margin our total non-GAAP gross margin for the second quarter was 48%.
Our subscription gross margin was 72% as compared to 75% in the first quarter.
The sequential decrease was due to several vendor changes in the quarter as there were redundant costs, while we are transitioning vendors.
We believe that our new vendor relationships will strengthen our platform, making it easier to buy matter port offerings in more languages and in more currencies.
We are also expanding our professional services by offering more hours of availability in more languages.
Product gross margin was negative 37% as compared to 2% in Q1.
Product gross margin continues to be impacted by the higher costs to secure the supply of components as well as added freight costs.
To expedite materials to production locations.
Additionally, in the second quarter, our unusually low production levels meant that a portion of overhead costs remain unabsorbed, increasing product cost of goods sold.
Nearly the entire change in total gross margin sequentially was due to this impact from product gross margin.
We do expect that product gross margin will improve in the third quarter, which I'll discuss more shortly.
Reviewing non-GAAP operating expenses in Q2 research and development expenses were $13 $2 million up $1 million sequentially from Q1.
This spending level was as planned and is primarily attributable to technology development investments to continue to enhance our product platform and feature set in.
In particular for our growing enterprise customer base.
SG&A expenses for Q2 were $35 $6 million up $6 $1 million sequentially from Q1.
The increase was primarily due to investments in sales and marketing, which were also part of our growth plan.
As discussed last quarter, we have slowed the growth of operating expenses as we believe we are appropriately staffed at this time.
And are focusing on driving returns on our investments and increasing efficiency throughout the organization.
non-GAAP net loss was $35 3 million and diluted non-GAAP loss per share was <unk> 12 cents for the quarter better than our guidance range of 13 to 15 cent loss, reflecting operating efficiencies achieved in the organization.
Yeah.
Weighted average share count was roughly 283 million shares.
Moving onto our balance sheet, which remains strong we ended the quarter with $562 million in cash and investments and we do not have any debt.
We believe that we are more than fully funded to achieve the business plan. We have in place and we remain committed to conscientiously managing our financial resources.
Today, we are introducing financial guidance for the third quarter and updating full year 2022 financial guidance.
These expectations include the anticipated contribution from our acquisition of G. H T Studios, which closed on July seven.
We expect full year 2022 total revenue to be in the range of 132 million to $138 million.
We expect full year 2022 subscription revenue to be in the range of 73 million to $74 million.
For the third quarter, we expect total revenue to be in the range of 35 million to $37 million.
We expect subscription revenue to be in the range of $18 5 million to $18 $8 million.
While we are increasing total revenue guidance for the full year.
We're adjusting our subscription revenue guidance there in the second half of 2022 for two reasons.
First the cumulative impact of lower pro two camera shipments due to the supply limitations. We have described over the last several quarters comes with an associated lower total number of paid subscribers and spaces under management than expected.
Typically each protein shipped generates a new higher usage and thus higher recurring revenue subscriber.
These customers tend to use their capture devices and higher volume compared to other subscribers.
Without having received their protein cameras, we are not yet realizing the corresponding subscription revenue arising from those customers.
So we do expect to shift through the backlog in the third quarter to begin to turn this factor around.
Second we are beginning to experience a trend of larger enterprise contracts that have multiple year terms.
While we are pleased to see the contract size, increasing they often include a rollout period of capturing their properties along with the scale up period in the subscription revenue.
This means that compared to our original expectations entering the year.
The subscription revenue associated with these contracts begins at a level that is a bit lower than we originally expected.
But also that the total contract value and ultimately monthly recurring revenue from these subscribers is expected to be higher and extend for a longer period of time than we had originally expected.
Sales cycles are holding steady and ultimately we are pleased with this traction and the multi year commitments.
That enterprise customers are starting to make with matter port.
Also.
We believe there are signs that we are starting to see relief in the supply chain.
We have made progress in our supply chain already this quarter.
Which includes having secured components for a significant increase in pro two camera production.
With these higher volumes, we also expect that product gross margin will begin to recover.
While there are signs of improvement and material supply. This does not yet mean that the supply chain is fully recovered to normal operations or costs.
And the supply chain impact remains a fluid situation quarter by quarter.
I plan to provide an update on this topic during our next quarterly conference call as well.
Reflecting the expected improvement approaches shipments, we expect that Q3 product revenue on the one hand, and Q3 services revenue on the other to be roughly similar in amount.
We expect that license revenue will be immaterial in the third quarter as the large contract I described earlier is now recognized in the services revenue line on the income statement.
In addition, we expect the next contribution to revenue from that contract to be in the fourth quarter.
We expect third quarter non-GAAP loss per share to be in the range of 13 to 15 cents.
For the full year of 2022, we expect a 46 to 50 cent non-GAAP loss per share.
Which represents an improvement from our previous guidance of a 47% to 52 cent loss.
Combined with the expected growth in revenue, we are undertaking initiatives to contain costs and have started programs that we believe will result in $20 million to $25 million in annualized savings.
We expect to begin to see these cost savings flowing through our income statement in the fourth quarter.
This means that operating expenses are expected to sequentially decline from the third to the fourth quarter of this year.
Further we will continue to monitor the productivity of all of our investments to allocate our capital prudently.
While we continue to focus on topline growth, we have a robust high margin subscription business that has allowed us to operate profitably in the past.
And this gives us confidence in the long term strength of this business today.
Now I would like to turn the call back over to RJ.
Thank you J D. Our strong Q2 results demonstrate that our strategy is working.
We are navigating the dynamics of the global market with agility and continue to deliver for our customers.
There has never been a more important time for businesses to invest in technology first solutions to create growth profitability and competitive advantages in the market.
Matter of Florida is at the forefront of one of the most important transitions to technology and real estate.
And our platform is digitizing buildings in almost every country in the world.
With more than 23% of the fortune 1000, using matter ports manage their enterprise facilities real estate portfolios factories offices and retail locations, we have great confidence in the long term plan or.
Our enterprise business is in focus and our platform is advancing rapidly to meet the needs of our growing corporate customer base and real estate owners around the world.
We believe the global economy will face continued headwinds for the foreseeable future.
We remain focused on navigating the near term challenges to meet customer demand and drive global adoption in pursuit of our mission to make every building in every space more valuable inaccessible.
Increasingly today companies are looking for new ways to drive more efficient growth and get more from their operations and infrastructure investments.
The matter of port value proposition offers a unique opportunity for companies to transform their business operations with a low cost digital subscription plan that is unmatched and fueled by 11 years of R&D focused on providing the best tools for marketing and managing properties of any kind.
We believe that the more our customers invest in the matter port digital twin platform, the more value productivity and return on investment we can deliver for them.
We have the world's largest subscriber base for digital twins, and we have created more digital twins than any other company to date and counting.
Still the market opportunity ahead is a minutes our solution is universal by design and the fidelity extensibility and ease of use give us a tremendous competitive advantage.
We are delivering digital transformation to the largest asset class on the planet real estate in an environment, where everyone is striving to create efficiency.
We remain focused on delivering for our customers with industry, leading innovation customer experiences and service.
With more than 4 billion buildings in the World. We are still in the early stages of this industry Revolution, and we couldn't be more confident and energized for the opportunity that lies ahead.
Operator, we are now ready for questions.
Yeah.
Ladies and gentlemen at this time well begin the question and answer session. Once again to ask a question you May Press Star and then one using a touchtone telephone.
So it's all your questions you May press star two.
If you are using a speaker phone would you ask that you. Please pick up your handset prior to pressing the keys to ensure the best sound quality.
Once again that is star and then one to join the question queue.
Our first question today comes from.
Brent <unk> from Piper Sandler. Please go ahead with your question.
Thank you for taking the question here good afternoon R. J, maybe I'll start with you the real estate.
The market is obviously the largest vertical for your business. So a little surprised to see the subscription growth Reaccelerate I think on a sequential basis. It was the highest sequential growth in a year or so perhaps if you could just maybe explain.
Why this quarter some of the subscription growth trends decoupled from arguably real estate fundamentals that still remain challenged was it other verticals or are you driving higher penetration in the real estate vertical any color there would be helpful. Thanks.
Sure. Thanks for the question and Yeah. It is kind of a few parts.
To the answer the first is indeed, our multi vertical strategy has worked very well for us to balance out any kind of dynamics headwinds that could face a specific vertical like Ari. So that's number one.
We're seeing great strength in our enterprise business and in particular.
Growth within existing accounts, they are continuing to expand at an even faster rate than.
Than expected, which is great to see the second part of it is.
You know we started this discussion back in Q1 about Reenergizing.
And invigorating, our go to market playbook for Ari and frankly for CRE as well for commercial real estate recognizing that you know <unk> is the biggest cohort of properties on the planet and still remains you know hugely untapped from our perspective and so we've been invest.
Sting very pointedly in the go to market to drive awareness understanding and demand.
And one other thing I'll add that fortify the go to market.
Is creating.
Creating an easy entry point to create your first digital twin.
We launched matter port access as J D talked about the motorized mount to complement.
The smartphone in your pocket, enabling anybody.
To just drop your phone in the dark and get a professional result yourself.
That is really broken down the barriers to adoption in our REIT, which was one market. We knew you know would continue to.
Embracing technologies like this down at the at the individual level.
In addition, we're seeing.
Continued adoption of this technology in the enterprise and in particular in largely distributed applications like large retailers that have hundreds or thousands of locations looking.
Looking for a low cost way to capture many many spaces at a time and so the strategy is working and these these investments that we laid down late last year and the beginning of this year are really contributing to that breakout and growth that you're seeing in subscription.
Great well certainly encouraging to see those investments starting to bear some fruit here I guess last question for you J D. Here as we just think about the.
The midpoint of the second half growth outlook, that's forecasted to accelerate sharply over 40% year over year growth how much of that is.
Attributed to just working off the backlog record backlog on on on the camera side Pro two cameras versus the acquisition and any details on what the acquisition contributes to the second half would be helpful. Thanks.
Yeah sure.
So the V S acquisition should contribute about $4 million in the third quarter.
And it's a seasonal business because its U S residential real estate based so it'll be a bit less in the fourth quarter.
And then the balance then of course would be that recovery in the product revenue line item that we talked about the backlog itself. We expect to ship through all of the backlog in Q3, and then Q4 would would be organic or turns based business with.
With respect to product revenue that.
Great helpful color and good here you guys are also willing to optimize the cost structure. Thank you.
Youre welcome.
And our next question comes from Robin Shah from Deutsche Bank. Please go ahead with your question.
Great. Thanks for taking my question.
Just I guess on the macro first I mean outside maybe the impact from the supply chain, which you kind of talked about can you maybe talk about what youre seeing today in the macro environment and where that might be if at all impacting your business and maybe talk about what kind of what's embedded in your guidance in terms of macro assumptions.
Sure I can start with that thanks, Bob.
You know I'd say.
One of the things very related to our business that I'm seeing in.
As a result of macroeconomic pressure.
In corporate America is companies and executives and decision makers.
Weighing technology investments to drive operating efficiencies, where Ken technology being deployed with the biggest bang for the Buck the strongest rois to help set these companies up for the long term.
And of course, you know.
Synonymous with any large global multinational enterprise is a fair bit of physical infrastructure, right and physical infrastructure has huge overhead and costs associated with it and matter of Florida's uniquely designed to reduce the operating cost and overhead.
More facilities in square footage that you manage.
The more opportunity there is to take cost savings out with our digital twins.
But we're just one element one potential solution for companies across an array of different ways to create operating efficiencies and businesses as you know and so what I'm seeing is.
Companies are evaluating and may be taking.
More time to decide what of those investments, they're going to prioritize and west.
And so that means that it's especially important for matter for our sales and marketing teams to be absolutely on our front lines with those prospective customers through those decision, making processes and in many of these companies are pretty heavy in evaluations and making investments in.
<unk> digital transformation, so many different kinds.
One of them that you know, perhaps easy low hanging fruit is matter port because the low cost subscription proposition against the magnitude of the savings that we deliver is really down to us making sure.
That the markets are aware and they fully understand our value proposition and so I think as we roll through this and we see more stabilization in.
And the macro environment, we're going to see.
A acceleration in decision, making that that's as far as matter Port goes should positively impact start to shorten our sales cycles for some of these larger enterprise deals that we're chasing.
Yeah, just to build on the second part of that Nick a question, if you'd like to ask Bob and Oh in terms of how that flows through the forecast or the guidance that we're providing.
But strength in the enterprise.
We believe that that's going to continue obviously in the second half and we believe that because.
We're looking at the enterprise pipeline opportunities, it's quite strong and growing.
And we're responding with new service offerings, some of which we talked about already in the in the script today targeted at the enterprise.
And that's all designed to capture more of that enterprise level momentum in these larger deals that are multi years I talked about and so that's one of the primary drivers as well of the the expansion and growth that we expect to see in the second half.
Super Helpful. And then just on a follow up on <unk> I appreciate the color on the revenue contribution, but maybe can you just talk about the business model how revenue will be recognized I assume its within services, but any further insights would be appreciated that is gonna be elsewhere, and then I guess along those lines can you maybe just talk about the revenue synergies.
If there is any meaningful dilution on the op income or EPS.
Okay.
Yeah. Good questions in terms of the revenue model and how it's going to get reflected how well it will be reflected in our income statement DHT will be as you suggested a largely recognized in the services line.
Where we're holding it obviously was a bit of work for us to do on the accounting.
Technically to confirm all of that but largely it will be in the services line as you suggested.
In terms of operating expenses, you know that is adding a bit more to our opex. So overall opex work for Q3 should grow by about the same amount that it grew sequentially.
Q1 to Q2 and embedded within that is.
For a fraction of that growth about half of it would be BHG opex, adding in.
And and then in terms of synergies.
We are as you noted and working our planning.
A number of revenue synergies.
And in particular.
There are opportunities to cross sell.
Both companies' products you know in fact DHT already.
Launched with US a promotion to drive matter Port digital twins through.
Their service offerings and.
And that's actually going quite well already three weeks in and we've seen a nice uptick in order volume.
Under that promotion and then were working as well to offer BHG services through our existing customer base not only in residential real estate.
Soon in commercial real estate and travel hospitality and then finally, we intend to extend this globally.
Because we already have customers in nearly 180 countries.
Can see their activity and their use cases and they are the same and you know.
Countries around the world as they are in the United States. So we will eventually extent internationally and that will help drive further revenue synergies out of that acquisition.
Super helpful. Thanks for taking my question.
Our next question comes from John Walsh from Credit Suisse. Please go ahead with your question.
Hi, good afternoon, everyone.
Hi, John Hi, John .
Wanted to ask the first question around supply chain, obviously, a lot of confidence you worked through that or at least the backlog next quarter, but when you talk to your manufacturer is it that they still need components is it that some of these cameras are.
<unk>.
Bogged down in logistics, so they might have already shipped but you just might not have gotten them yet just any more color around that that you can provide.
Sure.
Chief among them is component shortage.
And we assemble our.
Our cameras here in Sunnyvale, California, So we're getting our parts from Asia.
On a fairly continual basis and there was a lot of competition.
Those components, particularly the microprocessors.
And and from companies.
Calling for even bigger supply then the matter pork for all sorts of different devices and so that's put both availability.
Billety pressure on us, but also when we do get availability. The prices are are astronomical right. It's a big supply demand phenomenon and we have been spot buying.
Purchasing ahead.
Is impacted margins as you've seen but again, that's we believe very confidently it's short lived.
Because there is a growing and has been a very steadily strong growing backlog.
Borders.
As J P mentioned, we're now going to be able to start burning down pretty systematically, but we're not completely out of the component.
Shortage woods, yet and nor are we back to fully.
Ah full price transparency and back to the normal model here, yet, but we're definitely seeing a positive.
Their trajectory and supply is coming back online and the price pressure is easing as well so we're going to be.
Continuing to be both hands on the steering wheel as we lead through this.
But we're definitely heading in the right direction now.
Great and then just a question around the sales productivity. So a great color around enterprise good to hear your commentary there just curious I think in the prepared remarks, you talked about measuring that productivity with percentage of the.
Fortune five 1000 companies, but.
Are there any other metrics you can share or kind of maybe to use a sports analogy what inning. We're in here with the sales force productivity those investments you made last year.
Sure I'm happy to start and J D. You can balanced balance out in my commentary as well.
The first part of it is in the.
Early stages of fleeting up and creating the sales capacity to achieve the growth numbers that we laid out in our plans.
Last year and the beginning of this year going forward.
You're going to see that curve be inverted right and that's by design.
Productivity is going to go in fact, you know it will decelerate.
You'll see a negative trend for a while as the workforce is brought into the organization and brought online and in fleet it up.
To be coming.
<unk> revenue and transaction producing work for us and it's not just the sales organization. It's really you know across many functions product and engineering marketing customer operations and support because all of these components.
Are contributing to the overall revenue planned new products.
No new revenue opportunities and the like.
And the effectiveness of our new go to market plans are critical to.
Maximizing the growth of our sales pipeline right. So all of those efforts really transcended on the company and on the P&L at once.
Again by design and so youre seeing youre seeing that pressure in the first two quarters of 2022 for sure.
But as you saw here, we're already seeing very positive Ah.
Outcomes as a result of the productivity the traction that the organization is getting the traction the products are getting and taking hold specifically in the enterprise being much more enterprise ready, we're closing many more enterprise deals and expanding with those customers that we already have right. So that.
That has allowed us to start to report these positive trends and productivity and with our continued commitment to finding more operational efficiencies in the operation as we go to market.
That's only going to continue with the J.
J D, calling for $20 million to $25 million.
In annualized operating savings coming that is a major contributor to productivity.
Great.
Yeah.
Okay go ahead.
Yeah.
No.
And after that.
Yeah. Thanks, I think you've covered a lot of it I was just going to also add to it John that.
The the operating efficiency that we're seeing in the bottom line too.
No. We obviously beat non-GAAP loss per share by a penny on the entire range that we forecast so there's another proof.
Proof point to your question about how we're sort of measuring and seeing the productivity improvements all across the organization are flowing through the results.
Great. Thank you both.
Okay.
And our next question comes from Elizabeth Porter from Morgan Stanley . Please go ahead with your question.
Great. Thank you so much that sounds like F&B is continuing to drag on our net expansion rate at 107%. So my question is around if you're seeing any improvement or deterioration to call out quarter over quarter and in that SMB segment, and how should we think about the ability for the growing enterprise expansion to offset.
I'm just trying to figure out if we're at a bottom here and when we could start to see some improvement again in that expansion rate. Thanks.
Yes, well.
Net net expansion rate of course was 107% as we said earlier and that is flat and consistent with last quarter. So there's the potential here for it to be up to be a bottom.
We obviously need to see a little bit more data to be sure about that but.
But if I look at the internals.
As you noted the enterprise segment continues to be very strong in all of those I think comments today.
Is expanding on that and so I see that continuing in the second half as well with respect to the SMB group of customers. They were fairly steady across the entire quarter during the second quarter, which was a bit different.
Then the first quarter as we as we talked about back in May.
And so there is that steadiness gives us a little bit of confidence that this again could be the sort of the trough of their activity and their they're finding their footing.
But again I think it might be a little too early to call that it's.
I'm going to turn around.
You know immediately in the third in the third quarter.
But and then finally in terms of expansion of the enterprise from here I think as it continues to grow.
As a percent of our total revenue and as we continue to build out the enterprise customer base and offer more services that they're asking for like some of the ones that we talked about today.
Yes, I think there is more room to grow that net dollar expansion rate in enterprise and that'll obviously help that group of customers, but then ultimately will pull up the entire.
The consolidated number overtime.
Yeah, and I would add to that J D.
You know our.
The energy the investments.
And of course, the acquisition of DHT Studios, and really doubling down on our <unk>.
Because it's such a large untapped market opportunity it remains so.
It's going to be a big big market for for many years to come that also is an area that we're directing you know a lot of momentum and go to market activities to that is going to have a positive impact on SMB for sure.
And these are all things that have been very much in the works in the playbook for us this year.
And they really start to.
Kick into higher gear here in the second half of 'twenty, two and we're gonna see ethic provide.
Provided we're continuing to navigate as well as we are through the twister.
Twists and turns of the macro environment I think we're going to see a continued positive trend for both SMB and enterprise.
Great and then just as a quick follow up you mentioned some deal cycles, taking longer and I think that's something that we've heard across many companies reporting over the last couple of weeks and I. Just wanted to clarify are you seeing similar.
Similar trends in the conversion from free to paid obviously the value proposition is different in those two products, but curious if customers are taking longer to test drive the solutions and make paid commitments as well. Thanks.
Yeah.
Free to paid is has actually been holding very strong.
And continues to be our best on ramp for SMB mid market and enterprise customers to get there first.
<unk> of the power of a matter port digital twin and that sort of DIY.
Kind of approach, which takes you from just.
Just a quick scan on the free to work on the free tier to actually be going to full functioning matter port digital twins and.
Five of them in the starter plan, but you know tens of of digital twins in the business and professional tears and it's great to see.
The companies are still embracing the self service mechanism.
With as much momentum and consistency that we've seen in quarters past.
Actually with with all of our.
Increased focus on the enterprise.
That has been just a.
A critical piece.
Self service energy to the business as well so I'm pleased to report that so far.
<unk> been relatively unaffected.
By some of the the type of trends that we're seeing out there in the enterprise and in the mid market sales cycles.
Great. Thank you so much.
Okay.
Okay.
And our next question comes from Yun Kim from Loop capital markets. Please go ahead with your question.
Alright. Thank you Jay it's been almost a year since the launch of the <unk> and Joy capture App can you give us some update on the results. So far you know both quantitatively and obviously more importantly, the qualitative results.
And then I think you just talked about it in your answer but if you can just talk about whether how much the iPhone and enjoy users are becoming a key source.
Of began for your enterprise sales efforts and or are we still kind of early in terms of using those smartphone users or the potential customer acquisition.
Hi.
Sure.
So firstly.
Android is hugely hugely important to the matter for capture ecosystem and the team has been working round the clock to continue to galvanize and harder and truly make it a commercial.
Strike and frankly, even enterprise strike.
Product offering for us because it's not just <unk>.
A new solution for creating a digital twin with the smartphone in your pocket.
It's also the device that controls all of our other cameras and capture devices that we support.
And runs the software if you will.
Manages your digital twin for Ya.
So it's a it's a integral.
Part of our solution going forward than it has been incredibly stable.
For a product that's about a year old, especially when we compare it against the iOS app.
Which has been around as long as the company has been around over 10 years right.
And so that is by comparison, a remarkable achievement that we have that level of stability and adoption continues to be very very strong.
Where we're seeing the adoption is really more in the mid market and enterprise where.
This seems to be you know.
Product of choice that's in.
The workforces pockets and so it's a very easy and low cost of ownership pathway into matter porch difference. There is you won't see as many at least today.
Individual accounts tied to an Android device as you do see a android associated with Midmarket and enterprise type accounts right.
That's that is absolutely part of the objective and we're very pleased with those results.
Where we are seeing traction you know as a freemium tier on its way into a free to paid conversion is with the higher end devices.
Typically the newest phones.
Most powerful phones in the Google and Samsung lineup.
And we've yet to see full.
Distribution into more and more of the lower cost phones, but we think that there's still a real opportunity for us to grow in that segment as well, especially in Europe and Asia.
And I would say start certainly still the very early days.
Of <unk>.
Smartphone capture in those markets.
And JD. So obviously enterprise business is picking up but it looks like there is some dynamics going on there.
In terms of the deal structure.
Structures and whatnot. So if you can just give US quickly you know what is your what is the what is the typical contract length that you see in these deals and then also you mentioned on some of these deals you there was that initial ramp period.
Can you just describe to us how long that ramp typically is and is there any services component associated with any of these enterprise deals. Thanks.
Sure.
Thanks for the question. So yeah, what we're seeing evolve I think to our ultimate benefit is the.
The enterprise contracts a lot of them are moving from one year deals to multiyear deals.
And multi of course getting be two it can be three most often but we've even seen deals as long as five years coming through.
The the opportunity set so that's what we're seeing in terms of deal linked in the enterprise.
Customer set.
In terms of the ramp period.
A lot of these customers are accessing our capture services offering.
You can see that in the results of the growth in the services line revenue.
But that means that we are undertaking with the customer to facilitate the capture of their spaces and so there's typically a schedule that we work on with the customer and we do many of them maybe spaces at once or over time in different cities often around the world and so that process of <unk>.
Hearing their spaces.
Can take anywhere from three months to 12 months it just really depends on the.
The program that the two parties come together outline and the speed with which the customer wants to deploy.
But that's the typical range of the ramp time, and then and then finally is there a services component than yes, because a lot of them are using that capture services offering that we have so yeah I think that covers your various questions here.
So on that.
Captured services ramp there should be a prescription revenue, that's just follow or should the subscription.
Contract she'll ramp at the same time was a catheter surfaces.
Or yeah ramping it.
Yeah, it's a good it's a good point yes.
It ramps up slightly differently services capture services ramped a little faster because that's the first act and then the subscription revenue ramps up after that and they're not always I mean, they're not on the same slope.
But in terms of the sequencing.
It services first and then SaaS second okay.
Okay, Great. That's very helpful. Thank you.
Youre welcome.
And ladies and gentlemen, with that we'll end today's question and answer session as well as today's conference call. We thank you for attending today's presentation. You may now disconnect your lines.