Q3 2022 Cvent Holding Corp Earnings Call
And discuss our guidance for the fourth quarter and full year of 2022. In addition, our earnings press release SEC filings and a replay of today's call can be found on our Investor Relations website at investors Docs event Dot Com. Today's call will include forward looking statements, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095, including but.
<unk> not limited to statements regarding our financial outlook, including our guidance for the fourth quarter and full year 2022, our market opportunity market position product strategy and growth opportunities.
<unk> statements involve known and unknown risks estimates and uncertainties that may cause our actual results performance or achievements to be materially different from those expressed or implied by the forward looking statements forward looking statements represent our management's beliefs and assumptions only as of the date made and the company assumes no obligation to update these statements whether as a result of new information future events or <unk>.
Otherwise information on factors that could affect the outcome of the matters covered by these forward looking statements is included in our periodic filings with the SEC, including in the sections titled cautionary note regarding forward looking statements and risk factors in our quarterly report on Form 10-Q for the quarter ended September 32022 filed with the SEC today.
And in our most recently filed annual report on Form 10-K, along with other filings the company makes with the SEC from time to time additional information is available and the cautionary language included in our earnings press release issued earlier today. In addition, during today's call. We will discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.
Reconciliation to the most directly comparable GAAP measure of the non-GAAP financial measures discussed on this call, including adjusted EBITDA and adjusted free cash flow are included in our earnings release issued today, along with definitions for those terms the releases filed with the SEC and available on our Investor Relations website, and now I'd like to turn the call over to Reggie.
Thanks April and thanks, everyone for joining today's call I'm excited to share. Our Q3 2022 results our revenue for the quarter was $161 3 million, which was $2 3 million above the high end of our guidance, representing 20% revenue growth year over year.
Additionally, our cost containment measures enabled us to exceed the high end of our adjusted EBITDA guidance by $5 1 million and adjusted EBITDA margin guidance by 290 basis points.
These results demonstrate our commitment to delivering balanced top line growth.
And margin expansion, even in an uncertain macro environment.
We're excited about our solid Q3 performance and our prospects for the remainder of 2022 as a result, we are raising both our revenue and EBITDA guidance for the full year.
Now, while we're not immune from macroeconomic pressures, we are confident that our established market leadership and recession resilient platform positions us to outperform competitors and successfully navigate this unique macro environment.
Those who are new to our story here's a brief overview.
<unk> is a SaaS platform that is comprised of our event and hospitality cloud solutions.
Organizations use our bank card products to plan market and organize engaging events of all sizes across the total of that program, which includes all events in organizations post or tense.
And our hospitality cloud offers a marketplace that enables meeting organizers to find and book event space.
At hotel and unique venues in addition hotels and venues user software.
To promote manage and automate their meetings and events businesses.
Fundamentally our platform helps customers grow their topline revenue drive engagement and deliver leads.
While reducing opex and facilitating greater compliance before I dive more deeply into our Q3 2022 performance by cloud I'd like to discuss some market trends that we're seeing.
First the return of in person events, which are the bedrock of the event industry.
Nothing beats face to face human connection and interaction, which is why we continue to see in person events return so quickly.
In fact, just a couple of weeks ago I attended IMAX America, one of the largest trade shows in the U S for the global meetings and incentive travel industry. The event attracted 12000 in person attendees just shy of their 2019 attendance.
The return to in person is also reflected in our sourcing data from the <unk> supplier network.
As a global marketplace, where players can source and by meeting space at more than 290000 hotels destinations and special event venues are.
Our data shows that our RFP volume has increased since the beginning of the year and through Q3 sourcing volume in North America averaged about 95% of 2019 levels, which were 18 billion for the full year.
Second marketers are continuing to invest heavily in events, which are often the biggest area of programmatic spend.
However, in an uncertain market environment, they will look to maximize reach and ROI.
And for that they need event technology or platform digitizes events, enabling Cmos to capture more data and attendee insights to accelerate and optimize their sales and marketing efforts, making events more valuable as a marketing tactics than ever before.
<unk> the triple threat, which is the powerful combination of all three of the formats in person virtual and hybrid is coming to life.
For example in Q3 of 2022 events hosted in our cement attendee hub, where about 46% in person, 30% virtual and 23% hybrid to put that in context pre pandemic more than 95% of our revenue was for in person only.
So we are truly experiencing a meaningful change in the way people meet and we believe this is a trend that's here to stay.
With our platform approach we've embraced this new dynamic which is why we believe <unk> is uniquely positioned to support this view with that environment.
The final topic I'd like to discuss is how Steven is positioning itself during the time of.
Economic uncertainty and why we believe <unk> is well positioned to weather an economic downturn.
In a recessionary environment. We believe events has an increasingly critical component of the customer journey will remain prominent in our platform can help organization run events more efficiently on budget and increase their our OE, which is the return on event.
All with fewer resources.
The total cost of an event can vary up to 90% depending on what format. They choose.
And our platform's flexibility ensures organizations will be able to continue to host their events in whatever format. They like.
Due to how well positioned we are for bearing economic conditions. We believe <unk> will continue to attract a disproportionate share of event tech spend going forward. So even though our business is not recession proof. We believe we are recession resilient.
Now I'll dive more deeply into the performance of our two clouds.
First I'll discuss the event cloud and how some of the market trends are working in our favor let's start with return to in person in person events are receiving has been a leader for more than 23 years. The interest in our onsite solutions is a great proof point for the return of in person events. Let me give you an example.
To prepare for more in person events in 2000, 2023, a top cloud computing company and one of the fastest growing SaaS companies in history grew their total contract value in Q3 from 5000 to nearly $1 million. This organization bought more of our in person solutions, because they look to digitize their in person events to maximize ROI.
Something we're seeing repeatedly across many of our customers.
The second trend I'll discuss is the triple threat coming to life today, the need to deliver a total of that program with a mix of all three event formats.
Is it given for most organizations because of the blend of event formats offers more ways to connect and interact with your customers and your prospects.
Steve and offers an all in one platform to support the triple threat, which appeals to organizations that are looking to execute these more complex event programs.
This new events landscape is also helping further elevate events and organizations go to market strategy.
And our prospect and client conversations, we're seeing more and more engagement from the marketing division for marketing operations up to the CMO level in.
In addition, we landed new logos and deal expansions in the following industries business services financial services manufacturing.
Manufacturing technology, nonprofits, and third parties, who leverage us on behalf of their clients events.
For example in Q3, we closed a $300000 <unk> deal with a global nonprofit that helps build more inclusive workplaces for women.
Their initial event went so well that they have doubled their ACB.
With us since July and now work with <unk> to support their entire total of that program.
Our ability to meet the needs of specific verticals is helping to drive incremental growth.
The third and final driver of our bank cloud growth as our platform offerings, which becomes even more compelling and uncertain economic environments.
Our integrated platform supports all of that formats, which means organizations have the flexibility to run event programs with a mix of formats and event types, which optimizes their budgets that elasticity is extremely powerful and CMO is want to host events. While CFO is want to control spend let me give an example of our platform which supports an organization's total event program is helping us land <unk>.
<unk> and expand deal sizes, a multibillion dollar international software company less event for a competitor a couple of years ago, but they reengage with us and sign up to $400000 PCB deal because our platform was more flexible and better equipped to support all their event types of needs.
This example illustrates that despite a potential recession organizations continue to spend in areas that will help drive revenue during a downturn and events whether in person virtual or hybrid or on top of that list.
And event technology, like <unk> and enables them to deliver those events with greater efficiency to maximize ROI with increasing head count.
Let's pivot now to the hospitality cloud.
In Q3, there were three key things that will help drive our growth first is once again the return to in person events, which are the lifeblood. The hospitality cloud. This momentum is driving demand for our technology as hoteliers and venues look to better attract.
Look and manage this in person business for example, our convention and visitors Bureau expanded their <unk> contract by 235000 in Q3 to help them prepare for the influx of group visitors to their destinations.
On Monday, the client confirmed yet another increase in spend for Q4 as group interest in their city continues to grow.
Second as hotels face staffing shortages teams know they need to work smarter and more efficiently.
<unk> technology can build these gaps and help hoteliers automate and reduce manual processes from sourcing and prioritizing leads to managing room blocks and Diagramming meeting space to getting smarter as they seek to win more group business.
For example, one of the largest hotel management companies in the U S increase their spend by $360000 in Q3 to leverage our full suite of business intelligence solutions to drive efficiency across our platform.
And our excuse me across our portfolio and increased market share at the property level.
And hotels don't just want to drive efficiency on the hotel side. They also want to streamline collaboration with their target audience. The event planner, which helped drive strong interest in both our Diagramming and group room blocks software.
Third as hotels finalize their 2023 budgets there is still a growing expectation of the ownership level for properties to exceed their 2022 performance in 2023.
This is no easy task given the very strong 2020, too many hotel pad with the surge in leisure and business travel.
In order to meet these expectations hoteliers recognize that they need to focus even more on attracting meetings and events businesses to their properties to drive revenue and fill shoulder seasons or need periods in.
In addition events and group business is often the largest segment other topline revenue for the larger hotels. It's also frequently the most profitable segment, but most importantly, because it's a contractual commitment unlike leisure and business transient that can be canceled up to 24 hours before the booking it provides both long term visibility.
And operational stability.
All of this is driving increased interest in <unk> technology, especially our marketing and sales solutions.
And planners quickly adapt to the return of in person meetings.
Breaking down Q3 revenue by cloud event cloud revenue was $112 9 million, an increase of 22, 1% year over year and hospitality cloud revenue was $48 4 million, an increase of 16, 5% year over year.
After adjusting for the year over year timing difference of <unk> connect event cloud revenue grew by 23, 7% and hospitality cloud revenue grew by 21% while revenue associated.
Associated with our virtual solution is still one of our top event cloud revenue components and grew during the quarter. The primary driver of event cloud revenue growth resulted from the continued return of in person meetings.
The same was true for the hospitality cloud, where the continued return of in person meetings is increasing hotels demand for advertising and software solutions.
We also saw sequential expansion of our net dollar retention rate in Q3, which increased from 114% in Q2, 2022% to 116% due to increased spend by our existing clients in both clouds.
Although we're very happy with the 116% net dollar retention rate in the quarter the larger than anticipated improvement in this metric is influenced by a quick pivot back to in person meetings and comparing results to a prior year period when in person meetings for less prevalent.
In the near term, we believe our net dollar retention rate will return to pre pandemic levels.
Longer term, we still believe our net dollar retention rate will be approximately 115% exceeding pre pandemic levels. As a result of the increased need for technology across the total of that program.
In discussing the remainder of the income statement unless otherwise noted all references to expenses and operating results are on a non-GAAP basis.
Can find information on the most directly comparable GAAP metrics and reconciliation to those metrics in our Q3 2022 earnings release available on the Investor Relations page of our website at investors Dot <unk> Dot com.
non-GAAP gross profit in Q3 was $117 4 million or.
Our 72, 7% of revenue compared to 74, 7% in the same period of the prior year due to a higher percentage of our total revenue in the quarter coming from onsite solutions and merchant services, which have lower margin profiles.
Compared to the prior sequential quarter of Q2 2022 gross margin expanded by 110 basis points. After excluding the onetime impact of C&I connect on our gross margin in Q2 like.
<unk> adjusted EBITDA margin gross margin typically increases sequentially throughout the year and declines between Q4 and Q1 of the following year, primarily due to the reset of employer payroll costs and 401, K match higher PTO accrual and our annual Merit increase.
Moving down the income statement two non-GAAP operating expenses non-GAAP operating expenses as a percentage of revenue continued to sequentially decline.
Aligning by 310 310 basis points between Q2, 2022, and Q3 2022 after normalizing for the onetime expense impact of <unk> connect in Q2.
The sequential improvement was driven by leverage in all operating expense lines as the pandemic continues to ease and our competitive position strengthened allowing us to operate more efficiently.
Year over year growth in total expense total expense operating expenses moderated as well growing by only 14% in Q3 compared to the same period of the prior year.
Shifting to earnings Q3, adjusted EBITDA was $33 7 million.
Or 29% of revenue, which represents a $5 million over the high end of our guidance and a 290 basis point beat in terms of margin.
The earnings beat as a result of our revenue over performance was.
As a result of our revenue over performance tactically shifting some Q3 projects into the future and higher cost containment.
Relative to Q2, 2022 and normalized for the one times normalized for the onetime event connect costs, we saw 420 basis points of sequential margin expansion. This.
This improvement continues to very healthy margin expansion, we've seen since the beginning of the year.
Turning to our balance sheet, we ended Q3 with cash cash equivalents and short term investments of $110 6 million.
A decrease of $12 $8 million from the end of the second quarter of 2022.
This decrease was primarily the result of further paying down our new revolving credit facility by $30 million in the quarter.
We paid down $70 million in Q2, 2000, 22000, 2022, and we have now paid down 100 million since we closed the facility in late May.
As a reminder, the $500 million credit facility was put in place to expand our borrowing capacity for potential future M&A we.
We do not intend to use this facility to fund normal operations, given our positive adjusted free cash flow position.
And we expect the balance of the facility to fluctuate from quarter to quarter as we used excess cash to minimize interest expense.
Finally, adjusted free cash flow before interest payments on our long term debt and the change in client cash related to merchant services was $2 1 million in Q3 2022 compared to $17 9 million in Q3 of last year.
Adjusted free cash flow in Q3 of last year was eight typically high as a result of payment plans that allow clients to defer payments.
2020, invoices through 2021 due to Covid.
Year to date in 2022, we have generated $64 5 million and adjusted free cash flow.
Deferred revenue at the end of Q3 was $246 2 million an increase of eight 8% compared to Q3 of the prior year due to year over year bookings growth across the business.
Now, let's turn to our guidance for Q4 2022, starting with revenue.
We expect Q4 revenue of $169 3 million to $170 3 million up $17 four at the midpoint compared to Q4 of 2021.
This guidance is in line with our midpoint of the implied guidance. We gave in our Q2 earnings call in August when we provided Q3 and full year 2022 guidance.
Shifting to full year 2022 revenue guidance as a result of our Q3 2020 to be we are increasing our full year guidance range to $628 9 million to $629 $9 million.
Up 21, 3% compared to the prior year at the midpoint and reflecting a $2 8 million increase of the midpoint of the guidance we shared in our last earnings call in August .
Moving to adjusted EBITDA, We expect Q4, adjusted EBITDA of $38 5 million to $39 8 million.
Representing 23, representing a $23 one adjusted EBITDA margin at the midpoint.
Q4, adjusted EBITDA margin is forecasted to sequentially expand compared to Q3 2022 by 220 basis points at the midpoint continuing the operating leverage expansion. We've seen this year as the business continues to operate more efficiently with the pandemic easing and our competitive market position.
Strengthening.
Compared to the implied Q4 2022 guidance provided in our last call in August our adjusted EBITDA expectation is lower and that is the result of the Q3 2022 projects, we tactically shifted into the future and some of the higher Q3 2022 cost containment not recurring in Q4.
Turning to full year adjusted EBITDA guidance as a result of the higher than expected cost containment. We saw in Q3 2022, we are increasing our full year adjusted EBITDA guidance range to $108 4 million to $109 7 million.
This reflects a $1 $9 million increase over the midpoint of the guidance we shared in our last earnings call in August and a 20 basis point increase in our adjusted EBITDA margin guidance at the mid point.
$1 $9 million raised is less than the $5 1 million Q3, 2020 to be due to a portion of the Q3 coming from the Q3 projects that were shifted from Q3 to the future and higher cost containment in Q3 that will not recur in Q4 <unk>.
In closing, we're pleased with our Q3 2000 2022, 9% revenue growth.
420 basis points of adjusted EBITDA margin sequential expansion, both on a normalized basis.
We believe these results exhibit our strong competitive position and the industry trends that work in our favor.
Every quarter that goes by we believe we are getting closer to a more normalized state.
As Rajeev mentioned, while we're not immune from the current macroeconomic environment. Our platform approach enables <unk> to power the events landscape.
Godless of an organization's budget or how they choose to meet and longer term. We feel we are well positioned to take our disproportionate share of the $30 billion Tam.
Now I'll turn it over to the operator for Q&A.
Okay.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your account.
Thank you Pat we'll pause for just a moment to compile the Q&A roster.
Your first question is from Josh <unk> with Morgan Stanley .
Please go ahead great.
Thanks for the question and congrats on another beat and raise I.
I was hoping that you could talk a little bit about the partnership with American Express and some of the benefits that it brings to you.
Hey, Josh Thanks for the question. So so American express through two parts there's the.
Their.
Business travel and meetings and events side. This is more regarding there.
Sure.
Corporate credit card, so basically it's a payment solution. So let me just give you some context, so what happens with American expresses.
They give it what we call a P cards. So for every single event.
What you have is your meeting a virtual credit cards, giving so every expense for that meeting to be consolidated and track. So it's really giving planners a better idea of what their spending across everything so, let's say, you're flying somewhere and it's a person taking people out to dinner. After the event. All of that is you can put on the <unk>, it's a way to control spend so it.
<unk>.
Our customers.
To be able to ticket that visit.
Better visibility per event.
And it's really helping them stay on budget and accurately calculate youre, beating ROI and it's really what it does is it gives another breath. Another example of the breadth and depth of our ecosystem with our ability to partner with other market leaders to help drive kind of that ROE, which is return on event and so it will also helpful in compliance because a lot of our pharma and financial custom.
And just in general it helps them have more compliance in particular with individual events as well as the total of that program. So that's really what it's doing.
Okay, Great and then I know billings isn't a focus for you and we can look to full year revenue guidance moving higher or is it pretty good indicator of the state of the business.
But just wondering if there's any puts and takes on billings invoicing in the quarter.
We're looking at.
Decline in the growth rate in billings too.
Single digit anything to note there.
Yes, I'll take that Josh.
Using deferred revenue on a quarterly basis, not a great proxy for billings growth and Thats because this quarter for example, we saw.
Higher than expected performance because of Upsells in the quarter, which often get closed in the quarter and then get recognized in the quarter.
Additionally, with the quick return back to on site we've got.
Deals that will close in the quarter and then the event will happen within the quarter as well so.
A little difficult to use deferred revenue as a proxy for that.
So that being said I think we're happy with the billings growth that we saw.
It was relatively in line with what we were expecting.
And I think what that's showing is that.
The recession resiliency that our platform provides is helping us from a macroeconomic perspective currently.
Okay. Thank you Bob.
Your next question comes from Tyler Radke with.
City.
Please go ahead.
Thank you for taking the question can.
Can you just help us understand kind of the moving pieces between the Q3 versus Q4.
<unk> guidance, obviously the numbers came in Q3 ahead of where you guided.
How much of that.
But the Q4 <unk>.
<unk> guidance is a little bit before below where you guided last quarter. So how much of it was timing impacts and then.
Are you kind of making any macro.
Assumptions for Q4, just given what Youre reading in the news just help us understand if there was any timing impacts or if any anything from just our guidance philosophy has changed thank you.
Yes, I'll take that one.
<unk> looked at that as I said the over performance that we saw in Q3 was primarily due to the higher upsells that we saw in the quarter. So.
Although it's possible this could recur in Q4.
Want to make sure we've got a number out there that we feel confident in which we do for our Q4 numbers and so we haven't assumed that occurs in Q4.
And so.
Really no change in the expectations that we saw at the beginning of when we spoke to you last August in terms of the implied guidance Thats why its.
At the midpoint, it's relatively in line.
So it's really an offer that is really just the tightening of the guidance.
We're sitting here in November so we have very good visibility into the quarter.
As we sit here today, we have and this is very typical for any given quarter, 90% of our revenue is contractually locked in so it gives us really good visibility. In addition to just are multiyear deals and the recurring nature of our revenue.
And so really the goal.
Had some tightening of the spread around the midpoint.
Even that we've got that great visibility as we sit here.
Great and just one.
A follow up.
Roger maybe ability to it.
I'm curious as you talk to customers.
And.
You talked to them about their plans next year, how are they just thinking about the overall budget.
Budgets is it still up next year, they are still kind of hoping to increase that.
The size of these events even for the folks that did kind of do the first in person events. This year end.
Maybe just kind of share how youre thinking about the planning process as you look towards next year, given the puts and takes of the macro environment.
Combined with what still seems like a pretty.
Good return to Tim person.
Yeah. So thanks.
Thanks for the question. So look first as Billy said, we had a great Q3, we're confident in our Q4 guide.
But what we're hearing from the field is that some customers are being a little cautious with spend we're seeing a little bit of elongated sales cycle.
I think they still tend to move forward, but it is causing a little bit of a lengthening of the sales cycle theyre getting a little bit more people involved.
We're still trying to figure out from their budgets right, what they're doing and the blend that in person and virtual or hybrid and then theyre trying to trying to everyone's trying to figure out what everyone else is doing kind of thing, but look so we're not immune to the macro level environment, but I think we're prepared and part of it is is that we're still.
People still want to meet in person you still have this late and kind of push that people are still.
Wanted to meet in person because it's been so long.
CMO as Youre seeing thats credibly important theyre getting more involved with events because they see getting people in person how that really helps their top line and I think that we're still seeing all that momentum I think with the macro level environments people are all trying to figure it out and trying to see what happens so that is a little bit along in your sales cycle, but I think the fundamentals are still the same that we have.
Had.
In the prior time and I think this person is going to continue to kind of push it a little bit more than it would normally go because of that that pent up demand.
But look at the macro level.
As long as our sales cycle, a little bit as we're starting to see.
Yeah.
And just to clarify.
Long dated sales cycles would that mean, you kind of expect growth, maybe a little bit below where historical patterns have been or how would you just think about this longer.
Longer sales cycles translating into.
<unk>.
So a couple of things like I said, we feel good about our Q4 guidance, we're not kind of we're not giving guidance to 2023 at this point, we'll do that in our.
Q4 call that we'll do but look the macro environment.
It is it is slightly elongated sales cycles. It is hard to predict what how it will how it will continue on.
<unk>.
That's probably the best I can say right now but.
But I think the fundamentals are still there.
And and.
We're still trying to understand that ourselves, but just just today just literally two hours ago was meeting with the VP of marketing of a fortune 100 company, they're VP Mark within our office and we were.
Some time, just now just talking about.
About what they're going through and so forth and we were talking about they're saying what are other customer seeing but I think in the end people are firmly committed to events and they're trying to figure out. If there is budget cuts, let's say for certain company. They could always do less in person more virtual because it tends to be less expensive.
And so then that mix is a lot of what people are trying to figure out the good news with virtual that wasn't around before the other recessions as they can replace cost tremendously by going virtual or event technology is very similar we get.
Pretty pretty similar economics, we get more if its a hybrid little bit less of it in person, even a little bit less than that if it's if it's virtual but we're still a critical part of them switching from in person to virtual if theyre trying to save budgets. So I think people are all starting to work through that.
Thank you.
Your next question comes from Tim James Vivek with Credit Suisse.
Please go ahead.
Hi, <unk>, thanks for taking the questions.
So couple of questions here first off could you.
Maybe help us better understand what you're currently seeing in the environment.
In person events and business travelers still returning how has your competitive landscape changed and also maybe help us better understand how you're seeing the overall opportunity today, even versus perhaps six months ago.
Yes, so it's a.
Good question, so let's take first the in person, there's a bunch of questions. There so in person.
Just give me one second so I'm just trying to.
You can see what the in person I'm, sorry, yes, like three different questions. So I'm just trying to.
And repeat the in person one I apologize.
The question just had to do with what are you seeing in terms of the trends of the return in person relative to even six months ago.
And then two follow ups were around the changes in the competitive landscape and then structurally in the overall opportunity that you see from a revenue perspective.
Okay. So I'll start with the in person. So look there's been a big shift in the last six months as you know.
It's really been pretty.
Incredible how fast in person came back.
It was almost like a whiplash almost similar to win virtual King.
Out of nowhere, so we're seeing that trend it used to be a trend is no longer trend to us. Its just now the fundamental what it is people are comfortable meeting in person Theres still were not up to the in person numbers that we were previously.
From an RFP volume for example, we're about 75%. So I think if you look at a typical event youll probably have about 75% of the attendees, let's say that you have there in terms of the registrants.
You are having less registered is coming but its growing every quarter.
The good news for us our registration counts are up because the virtual.
Events were were something that.
With an addition to what we had so we are actually up and registration as a company to see that but and in person events.
It's.
It's starting to continue to move back and in September we saw it to be the highest number that we've seen so.
So that's kind of from an in person view in terms of a competitive view. So look we continue to feel better every quarter about where we are competitively.
And so so I think last earnings call. We talked about there were a lot of layoffs with a lot of our competitors.
But I think we showed the ability to break out of the pack, we scaled obviously 600 million plus in revenue and generating actual profits I think most of our competitors have been able to generate cash profit and they're having a difficult time scaling and theyre not getting this unlimited investments where they were just investing.
A lot of things, where they could keep their prices low and keep investing now they have to for example start because they have to be profitable. They have to focus on maybe raising their prices they have to be more thoughtful about how they spend and thats better for companies like us, we're very trying to take a balanced approach.
Our platform thesis is playing out I think bye bye.
Our strong growth that we've shown which is to have everything under one most of our competitors tend to be point solutions and I have just a couple of last things is I think that are in the office for example, utilizing.
Utilizing that has given us a real competitive advantage. So we can continue to grow and we can continue to invest.
Because of our of our cost structure that we built over the last 23 years and I think that gives us a big opportunity to take part a larger part of that 30 billion Tam. So so I think that the combination of all of this and our thoughtful way of expanding and have been through these recessions has really given us a leg up to our competitors so and the last question.
So sorry. It was the last question was regarding.
Just the opportunity from a revenue perspective.
Okay opportunity from revenue so maybe give me more specifics in terms of just in general what are we thinking about the mix.
When we think about the mix.
<unk>.
Virtual shifting over to hybrid and.
In person just how do you think that opportunity differing across dose.
Types of events.
So let's first start so.
Our mix historically this is before the pandemic was 95% of our revenue was in person so effectively there's hardly any virtual or hybrid now what we're seeing is about roughly $50 $25 25, 50% in person, 25% hybrid 25% virtual so that's so we're seeing a permanent shift.
Chip toward virtual is certainly good.
To be a major.
A major part of the event landscape, which we think is good because it creates complexity creates the need for software, but most importantly in let's say a recessionary environments allows people have flexibility to be able to.
To be able to.
Use whatever format they need to leverage for the right budgets. So that's kind of from a high level, but look buyers are looking for solutions. We think for the total of that program, which is again a mix of these and they want the flexibility to go back and forth and be able to pivot because there before was the pandemic.
<unk>.
Before it was the pandemic that was driving.
People's need to go to virtual now it might be the recession, but look because of the triple threat, we win more often at the outset and so we think from a for compared to our competitors.
Keeping everything under consideration with the macro outlook, we think we will disproportionately be advantaged because of our scale because of our ability to pivot and.
The depth of our product because in person was our strength, but now that its combined in one platform a virtual we can again do that pivot. So we think from an opportunity. We think we're really well positioned and FERC.
If virtual becomes a more important more important part of the segment.
Thank you.
Your next question comes from Scott Berg with Needham.
Please go ahead.
Hi, everyone. Congrats on the quarter and thanks for taking my question. This is Michael on for Scott today.
Just a couple of quick questions here, you mentioned the strong demand you're seeing on the advertising side of the hospitality cloud could you talk a little bit about that and maybe compare it to your expectations coming out of the pandemic.
And just give us a little color there. Thank you.
Yes, so so.
So first in person as the as the is the lifeblood of hospitality and so thats, obviously coming back and so people really want to get their fair share of that what's happened is in 2022, a lot of the demand was driven by consumer leisure and some business transient so actually hotels fared pretty well what the what's really happening for 'twenty three.
So we again feel pretty good about where we are for Q4 as we mentioned so.
We think though that when it comes to 'twenty three what's happening is theres going be less leisure business, so with less leisure business.
Events become more important so for larger hotels they tend to be.
The largest segment of their topline revenue tends to be meeting to groups for the larger hotels. So it's very important it's often the most profitable.
What I think that people like us are locked in when you sign a bank contracts. Unlike your IP travel somewhere to visit someone a grandmother in Miami or we go to a business trip, we can cancel within 24 hours.
With a with a within with the event business you can't cancel because it really gives that stability. So I think that.
We are seeing.
Demand is growing we've seen that with our RFP volume as I talked about on the script now with the macroeconomic how will that kind of play out that will have I'm sure a little bit of impact as people start maybe potentially cutting back, but I think hotels need a bigger portion of their revenue to come from meetings, because leisure is cutting back a little bit business trends.
And coming back and there's a term called group up and Thats, what hotels try to do group up means if a recession comes which is locked that in now get the signed contracts. So if things go down they leased to have these.
This this contracted business that people can't cancel at the last minute.
So.
It's kind of a balance between a recession happening, but then also meeting that group business. So we're feeling feeling.
Good we're going into Q4 and like I said I think hotels are really needing to to group up for 'twenty three because there.
Kind of expecting a little bit of economic headwinds for 2003, and Michael two other things I would add.
First off look we there are record labor shortages.
In the hospitality industry right now that.
Really forces hotels to move to more digitization.
To make up for those labor labor shortages and then also when planners are booking for events.
Looking for events through our CSN there.
A lot of time looking for events that are 12 18 months out so even though there might be things that are going on in real time next year as it relates to macroeconomic environment there.
Got to make sure they're getting that business in 'twenty, four and beyond when things might be much different so.
That is another thing that could help to mitigate potential macro macro economic factors, yes, just the short term if you look at it. So we are helping them in the sales and marketing part as Bill you said the productivity part because people permanently left the industry, especially.
So she salespeople and they are getting a little bit overwhelmed theyre not staffed for some of the demand we're getting for events and so I think these productivity tools, which is 45 plus percent of our hospitality cloud revenue.
So both those elements are super important and and.
And so I think efficiency and getting more businesses, what they're all going to want and I think we have technology tools that really helps us.
Great. Thank you.
And then on the customer expansion side of things.
You mentioned that it drove most of the beat this quarter.
But then youre going to move back down to pre pandemic levels, which were I think a little under one time.
And then pushed back up to $1 15.
Could you talk a little bit about that dynamic.
Just kind of.
Specially more on the movement to 115 longer term and then maybe what would you like to see.
From that aspect.
Thank you.
Yes, Michael so.
As you mentioned, we have seen a really good improvement in the net dollar retention rate over the last few quarters you hit.
The trough in Q1 of 'twenty, one we were at 84% and so now we're at 116% in the most recent quarter and just like last quarter.
Really happy with the metric, but a lot of it is because we're just seeing that such a quick swinging the pendulum back in person. It plays to our strength, we're seeing a lot of spend coming back you mentioned the upsells in the quarter Thats another indication of just quick.
Return to spend and so that's what's really driving it in the in the near term are currently we think in the short term.
That spend.
As much as we'd love to see that rate of spend increase continuing.
We do believe it's going to start to level off just naturally irrespective of whether we were going into any sort of special macroeconomic situations and so over time, yes. We believe in the short term it will come back to our historic pre pandemic levels as people.
<unk>.
Swings back to onsite, but then longer term there is going to be that pendulum is going to start to swing back where you have the onsite will be there, but then there'll be more and more virtual and hybrid that will come out of that.
As <unk>.
Companies just realize hey, there is virtual gives me the ability to do more events than I normally would have done I can get more attendees at those events when they do it hybrid obviously.
<unk>.
With virtual <unk>.
Becoming really popular during COVID-19.
Yeah.
CMO as theyre going to want to retain that virtual piece in.
When theyre getting back onsite right. They are swinging back to what they knew but then theyre going to realized wait a second I can do virtual and hybrid together.
And personally gathering so that over time with just the general digitization of the industry and Thats, both on the event cloud side and the <unk> outside.
That's what we believe will start to move the net dollar retention rate from those historic levels to the 115% over the longer term.
Great. Thanks, so much very helpful.
Your next question comes from our June debt.
With William Blair.
Please go ahead.
Awesome.
Thank you guys for taking the question.
Hey, Don when you called out long deal cycles, I think you're obviously not unique and seeing that we're seeing that across the space, but what are the some of the levers that you think you have available or that your customers have available to get deals ultimately across the finish line can.
Can they adjust the number of events Theyre planning the size of events right reduce registering quick are those levers something that customers are considering is that something that your sales team is proactively.
Proactively bringing to customers to say, hey, maybe we can start smaller.
To just get you on the platform and start using the.
Total event program across.
Across all <unk>.
<unk> types, how are you thinking about that.
Yes, what you just said it's all the above.
So look.
Look the big thing is where actual we tried to do is try to tell them. This is the time to be all your programs over the total of that program over to us because we're the triple threat and we can save you money.
Rois there just first from a people people are looking at cutting budgets, which generally also means people and we're looking to get more efficient.
But I think our lever is the triple fracs and that standardization, because it's inefficiently done right now and Theres a lot, but they're not getting and we talk a lot about saving money, but it's also growing the topline there is a lot of things that people do an event that they don't.
Take advantage of getting the top line revenue growth like just very basic things that they don't do to get more attendees. There for example, or to make sure you follow up quickly and we have all kinds of products and tools that help you do both for example, so I think look when we meet with customers of course, we try to get in any way, we can and it could be.
Trying to get into some of their programs and say there'll be less registrants, but I think the biggest cost savings youre going to see if we do hit some bad economic times, because people would switch some of their in person.
To virtual and generally you can say, 80% to 90% I talked a lot about that in the last quarter.
<unk> earnings call, which is key.
If you do an event in the example, I gave is lets say you did event that might be in person $7 million to $8 million.
You can take that down to probably seven or 800000. If you went from peering person all the way to virtual but what we see a lot of clients will do will coach with them and strategize with them, saying, Hey, maybe due to hybrid events have less people there.
But bring your best customers and so.
Maybe that event will become somewhere between $7 million and 700000, but youll get your best customers. There. While so you can build that personal relationship, but then the other people be virtual so you can save money. So the thing is we can do it either way and I think look we have some pre module is helping to dip your toe in there is all kinds of tactics and techniques, we have to get them try but no.
One thing because we've been through so many recessions one powerful thing if you have an economic downturn is that people tend to be more open minded about automating things and I don't want people to forget that because we've lived through so many of these downturns.
<unk> things and so that's when sometimes sure they don't have as much money, but they also say hey, I want to automate it because I want to reduce my cost and so that sometimes spurs behavior that would normally happen in a normal cycle because everyone's looking at their cost and use the software makes you more efficient. So there's that trend also so between all of those things we will try to do of course, our best to take <unk>.
<unk> them, but we've been through it and we have lots of institutional ways from a sales tactic and marketing tactic, but I think most importantly is the platform that's really.
That flexibility.
To do your events and the last thing I'll say on that is.
In the past recessions you Couldnt go virtual it's pretty much doing the event or you not or maybe you can reduce it but now if you converted to virtual it just doesn't seem smart for people to cancel events. If there are compelling because of cost because they can do still do some engagement with virtual and then bring it back for next year in person.
Yes.
Okay makes sense very helpful and.
I think you talked you talked about competition earlier.
Some of your competitors, maybe laying off employees and downsizing a bit.
It seems that obviously, maybe thats something thats concentrated in competitors that are virtual only that or that only address one part of this.
<unk> programs.
What makes it.
I'm sure those customers may try to switch to have hybrid capabilities to have in person capabilities in your view, what's what makes.
Makes it difficult what will make it difficult for those companies.
And then pivot to have some in person capabilities. What are what are the barriers that you have and the challenges that you've overcome.
<unk>.
To be able to address all three that may make the moat durable for Ya.
Yeah. So look so the first thing is going in person with a lot of companies have found that their virtual company to go in person is much more difficult not that virtual wasn't difficult to do a building in person. It takes a lot more time look we've done it for 23 years, we have.
Well over 1000 engineers from building it for let's just say not.
Not just for 23 years, but the last in particular, the last decade, when we had more scale.
Built some real moats, we believe and and and so to do that and then have it all on one platform is really where we're our barrier is is is that that scale that they're having in person experience and then we built a virtual we built it with the knowledge knowing how in person works, where it's hard to go from virtual to in <unk>.
So that's kind of I would say the first thing that's difficult to do is just the platform itself and to be all in one place I think the second thing is is that the experience you need and selling in person is tougher for virtual because just the way you interact with our clients. The support they need is just different it's really complex.
And so I would say that it starts with the product. It's also our scale our brand I mean, we're known for in person again, I mentioned, 95% of our revenue is in person and virtual when the pandemic hit it took us by surprise and our brand took a hit but one thing I think by coming back as we have that huge competitive advantage because of that scale and platform. So.
From our competitor view I think you had even in person companies who went virtual.
<unk> also laid off a large amount of our top competitors and the ones that were virtual that went to in person they really struggle.
Really struggled and so look you're going to have lots of competitors out there, but we have time and time again shown that we've always figured out a way to differentiate and because we continued to invest during the pandemic and our in person because we always knew it's always been something we've been talking about is we know what's going to come back to in person because you can't be fundamentals, which is people want to connect in person.
So this is really playing to our advantage and we're stronger competitively now than we were a quarter ago, and certainly three or four five quarters before that so coming out of this out of the pandemic, we feel stronger now if theres. Some economic uncertainty I think very few of the companies have the experience that we do and the business model with for example.
The way our cost structure.
The other way just the things we've done to.
To build and be prepared for this moment and I will just say one last thing on it.
Mentioned that when the pandemic hit it was it was the equivalent of a category five hurricane.
Earthquake and flood hitting us at once and it was just something like 100 200 year storm.
This economic time, this uncertain economic times, as potentially hitting us or likely to what I'll tell you I'll liking it to a bad tropical storm compared to what we just went through so I think we have the resilience. The knowhow and this is something we know well these kind of times compare to when the pandemic hit which caught us a little flat footed.
Because we didn't have virtual but we're prepared and we have something we didn't have before which will be a virtual so we can talk to people and say hey don't cancel your event just go virtual.
Perfect very helpful. Thanks, rich and good job on the execution here.
Thanks Roger.
Ken if you would like to ask a question. Please press star and the number one on your telephone keypad.
There are no further questions at this time.
Today's conference call you may now disconnect.
Yes.
Okay.
[music].
Okay.