Cvent Holding Corp.

Greetings. Welcome to SEVA Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note the conference is being recorded. I would now like to turn the conference over to Amy Ski, Investor Relations. Thank you. You may begin.

Good afternoon, and thank you for joining us today to review Cvent's third quarter 2021 financial results, which we announced in a press release issued after the close of the market today. Joining the call today are Christian Jensen, partner and co-head of private investments at Dragoneer, Reggie Agarwal, Cvent's founder and CEO, and Billy Newman, Cvent's CFO. Before we begin, I would like to remind you that statements we make during this call that are not statements of historical fact constitute forward-looking statements. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that may cause the actual results and the implementation of the company's plans to vary materially from these statements. These risks are discussed in part under the risk factors heading in the registration statement on Form S-4, filed by Dragoneer Growth Opportunities Corp 2 with the SEC on October 19, 2021, which was declared effective on October 29, 2021. Cvent disclaims any intention or obligation other than imposed by law to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Further, these comments and the accumulated files are copyrighted today by Cvent. Any recording, retransmission, reproduction, or other use of the same for profit or otherwise without prior consent from Cvent is prohibited and a violation of the United States copyright and other laws. Additionally, while we have approved the publishing of a transcript to this call by a third party, we take no responsibility for the accuracy of this transcript. Please note the discussion on today's call includes certain non-GAAP financial measures related to the company's performance, and we will note which metrics are non-GAAP financial measures. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the company's financial condition and results of operation. A reconciliation of historical gap to non-gap measures is available in our third quarter press release. With that, I'll now turn the call over to Christian.

Hi, I'm Christian Jensen, partner and co-head of private investments at Dragoneer Investment Group. I'm pleased to be here today with CVEN as they announce strong third quarter 2021 earnings results. These results are consistent with our thesis that CVEN's sustainable differentiation differentiated position within the event tech ecosystem, and highly recurring revenue model will drive strong, predictable, and consistent top line growth. And even as they invest in numerous strategic growth initiatives, they continue to deliver healthy EBITDA margins. The return to double digit revenue growth this quarter amidst pressure from the Delta variant exceeded our expectations and the guidance given to investors. This is a testament to the quality of management the entrepreneurial spirit of the company, the team's strong executional capability, and their commitment to deliver shareholder value. We look forward to our partnership with Cvent as they reenter the public market and transform the meetings and events industry. Just a quick update on the transaction. The merger is still expected to close in the fourth quarter of 2021. With that, I'll turn it over to Reggie.

Thanks, Christian. And hello, everyone. Since this is our first earnings call since we were last public in 2016, I'm going to take just a few minutes to discuss our business, our market, and our opportunity for continued growth and value creation. By way of background, I founded Cvent in 1999. It's a classic startup story of solving a problem that I was personally experiencing. I was organizing 20 to 30 events per year for a nonprofit that I'd started while working full-time as a corporate lawyer. My tools were Outlook, Excel, and Yellow Sticky Notes. And so I did what any good entrepreneur does. I found a pain point, which is organizing events, and I created the aspirin, which was CVET. So what is CVET? We're a SaaS platform that helps our customers plan, market, and organize their meetings and events. Fundamentally, our software helps our customers grow their top-line revenue and drive engagement while reducing OPEX and ensuring greater compliance. We currently have roughly 21,000 customers and we're forecasting over half a billion dollars in revenue for 2021. And we project top-line revenue growth close to 23% for the foreseeable future. Our platform is used to build event websites, power event marketing, and manage online registration. Prior to the pandemic, our platform was primarily used for in-person events. But when COVID hit, we pivoted fast and focused the power of our nearly 1,100-person tech team to develop an all-new virtual event solution that we call the Virtual Attendee Hub. And it's important to understand that we built this new virtual solution on the same code base as our flagship event management solution. And so we have a truly unified platform that can be used for nearly any type of event and any delivery mode, whether it's in-person, virtual, or hybrid. We continue to win new logos, as well as expand existing customer accounts as more companies are embracing this event platform to meet the needs for their event program. And over the next several years, we expect this trend to continue as more companies employ an even wider variety of virtual, in-person, and hybrid events to maximize engagement with their attendees. We believe the strength of our unified platform is a significant competitive advantage over many of our competitors that are offering point solutions or are trying to meet the complex needs of customers by cobbling together acquired technology solutions, which result in data silos and inconsistent user experiences. Another competitive advantage and another pillar of Cvent's success is our hospitality cloud business. This helps our customers find the perfect hotel venue for their event, and it gives hoteliers the tools they need to capture and maximize their meetings and events business. It's basically the bookings.com for events. Now, the collective power of Cvent's event cloud and hospitality cloud allows us to monetize both sides of the ecosystem and create true network effects. Now let me share with you our thoughts on the current state of meetings and events within our customers. We're still clearly in the pandemic. Unfortunately, the impact of the Delta variant over the past few months has also had a negative impact on our industry as it slowed down the return of in-person events. However, the silver lining is that we're able to accelerate our growth during this time. This makes me even more excited about what the future holds because as the pandemic subsides, in-person events are going to return, hybrid events will become more mainstream, and virtual events will continue to grow. We believe we'll be disproportionate beneficiaries of this shift because our platform is built to handle nearly any type of event, no matter how our customers and their attendees want to meet. The limited impact of the Delta variant really showed our businesses true resiliency. Q3 2021 is the first quarter we've grown since we felt the impact of the pandemic, and it's a great foundation for our future growth. Now, what's driving this future growth? There are four reasons. Number one, the strength of our virtual product. Number two, people moving towards one platform. Number three, the trust and relationships that we have with our customers, both the event planners and hoteliers. And four, the power of our brand. So it's been a proof point for our model and strategy that the business has still been able to perform in spite of the Delta variant. We expect as we return to a more business as usual environment in 2022, that we'll continue to see an increasing mix of event delivery modes. And as I said, we believe this plays into Cvent's strength. I hope that this overview was helpful. And with that context, I'm going to now discuss our strong performance in the third quarter. In short, We continue to see positive trends across the key growth drivers of our business. We continue to win new logos. Existing customers continue to expand their usage. And finally, product innovation continues to fuel our growth. I'm going to talk about each of these three drivers in the context of the quarter. First, on new logos. We continue to see momentum and initial contract values are increasing. Every day when we speak to our new logo prospects, we've seen here that they're still stuck using manual processes to string together point solutions and internal systems. And they're still struggling with siloed data that's difficult to access. What these organizations want to simply do is have one system of record for all their events. This is the type of pain point that the Cvent platform is designed to solve. A great example of this is a state transportation agency that we recently closed. They were initially looking for a solution, for a single virtual event. But after working with our team to understand the benefits of implementing C-VENT across their total event program, they signed a three-year deal with us with a total contract value, or TCV, of $900,000, and will be using us for their virtual, in-person, and hybrid events. Now, just a side note. I don't think many people would have thought that one state transportation agency would sign a nearly seven-figure contract with us. This really shows just how big and diverse our space is. Another similar story is a division within a public-traded pharma company. They signed a two-year deal with a total contract value, or again, a TCV of $1 million. Citing the robustness of our platform and the seamlessness end-to-end user experience for all of their attendee-facing interactions. These are just a couple examples, but to fully appreciate the opportunity in front of us, it's important to understand two key aspects. of our Ulogo win. First, that our platform is truly industry agnostic and provides value to all types of organizations. And second, our platform is both powerful and flexible, and this gives customers the confidence to sign multi-year deals with us while we still have the unknowns of the pandemic. Now, here are some additional examples to show you the diversity of Ulogos that we won in the quarter. A global marketing association signed a three-year contract for a TCV of nearly $900,000. A public IT services management company signed a three-year contract for a total TCV of $546,000. An American racing company signed a two-year contract for a total TCV of $190,000. And one of the top three largest travel management companies in Japan signed for an annual contract value or an ACV of $260,000. These are just some of the examples of our larger deals in the quarter. And, of course, we also have hundreds of smaller deals that we closed in Q3 that provide great expansion opportunities for us in the future. So now let's move to the second growth driver, and that's expansion within existing customers. We continue to see meaningful increases in spend from existing customers of all types. Similar to what I said earlier, our customers are continuing to realize the benefits of our platform across their total event programs. which includes virtual, in-person, and hybrid events. And because we have one fully integrated platform, we have a true competitive advantage. Results in the third quarter reinforce this view, and we're seeing customers add back some of the modules that help in-person events, like our on-site module, that increase their overall spend as they realize the value of hybrid events. Across both clouds, we estimate that the white space opportunity within just our existing customer base is 2.7 billion dollars so i want to go deep on a couple examples from the quarter because i think it's important to understand the enormous expansion opportunity that we have in the current customer base so we have a mid-sized global financial advisory company that's been our customer for a number of years and they've been using us for their in-person event with the pandemic they initially tried our virtual solution for a single event the event was very successful so they signed a new contract for four larger virtual events. The ACB of this account increased from 17,000 pre-pandemic to their current ACB of 545,000. And we believe there's still plenty of room for growth. And eventually, as they're more comfortable with what their event programs look like, we think we can sign a larger multi-year deal with them. Another example is a multinational technology company with over 10,000 employees that's been a customer of Cvent since 2016. They traditionally only leverage our platform for their flagship conference. But in 2021, they expanded their Cvent relationship to manage nearly all internal and external events. This resulted in this account has grown from 100,000 in 2019 to over 750,000 in contract value this year, with over 350,000 coming as expansion in the third quarter. And not only did they increase their spend, but they signed a four-year contract signaling their confidence in our platform to meet their long-term needs. Look, this is only two examples, and there's many more. A Fortune 500 Financial Services Institute, a public multinational software company, a state education association, a national healthcare association, a state employee retirement agency, and a French consumer company. We're excited to bring this type of value to our customers and are confident that these opportunities provide a long runway of expansion for us within our existing customers. Now, while I've talked a lot about the event cloud, I now want to touch on the hospitality cloud because it is a core part of our platform. It's no secret that the pandemic decimated the hospitality industry, but we're starting to see it come back to life. Our platform helps hotels win and manage group and meetings business. And this is key in their overall recovery. During the quarter, we observed many hotels that are still in the early stages of recovery. But we also saw a number of hotels revert back to their pre-COVID spend with us, which is really encouraging and a good indicator of what's to come. A great example of the bounce-back momentum we're seeing in the hospitality cloud is a large Texas hotel that's been a Cvent customer since 2009, basically since we started the Cvent Supplier Network. Their ACV in 2019 was about $120,000. So they were a good-sized client. Unfortunately, COVID significantly impacted their business, and in 2020, they had to cut their spend with us by over 75% to $28,000. And in Q3, we re-signed them for a $150,000 ACV agreement. So in 2021, they increased their spend by more than 20% over their pre-pandemic spend. Another example is a luxury residence and wellness resort in South Florida that is never advertised with Cvent. They wanted to increase exposure of their property to Cvent planners, streamline their operations, and increase close rates using the Cvent diagramming and interactive floor plan. So they became a first-time customer and signed a $38,000 ACV contract. And that includes both advertising and software solutions. We're thrilled that our hotel partners are seeing the return of the meetings and events business, and we believe we're going to continue to see positive stories like this. Now, let's turn to our third growth driver, product innovation. The strength of our platform remains Cvent's lifeblood and a powerful growth driver for our business. Since we began the public listing process, we've been talking a lot about our new virtual solution. We've continued to develop it and extend its value proposition. At our user conference in August, we announced the launch of Cvent Studio, a majorly forward and live stream production. Cvent Studio enables marketers and planners to produce broadcast quality video content through web-based solutions while bringing together remote speakers and presenters with their audience. All three of these drivers I just discussed resulted in a solid quarterly growth year over year, driving 134.1 million total quarterly revenue up 13.1% versus the prior year and 3.6% above our guidance. In addition, we not only outperformed on revenue growth, we also operated the business more efficiently than originally expected, producing adjusted EBITDA of $23.4 million, representing a margin of 17.5%. This reflects industry tailwinds and strong interest in our platforms. We were also able to do this while making significant investments to drive growth. Now, I'll turn it over to Billy Newman, our CFO, to discuss our future results in more detail.

Thanks, Reggie. Before I take you through the strong third quarter results we had, as Reggie did at the start of the call, I'd like to take a few moments to review Cvent's business from a financial perspective for those who may not be as familiar with us. Over 90% of Cvent's revenue is recurring, with almost 80% coming from software subscriptions. which is recognized radibly over the contract term. These two characteristics, along with our multi-year deal culture, slightly less than 60% of the customer contracts we sign each year are multi-year contracts, make the business highly predictable and provide excellent financial visibility. As a result, entering a quarter, we have clear visibility to 90% of that quarter's revenue since it has already been contractually committed. With that background in mind, I'll start by walking you through our third quarter financial performance. and then discussed our guidance for the fourth quarter and full year. Total revenue in the third quarter was $134.1 million, an increase of 13.1% year-over-year. This quarter marks a strong return to year-over-year growth after four COVID-impacted quarters, and we beat our revenue guidance by $4.7 million, or 3.6%. When we were previously public, we beat all 11 quarters by an average of closer to 2%. The beat this quarter is higher than what we would normally expect, primarily due to higher-than-expected bookings in the quarter and revenue from our customer conference held in August. Within total revenue, event cloud revenue was $92.5 million, an increase of 27.2% compared to a year ago, due to strong momentum from our new virtual product, Virtual Attendee Hub, our core event management product, and on-site solutions as in-person events slowly begin to return. Hospitality cloud revenue declined 9.2% year-over-year to $41.6 million due to lingering pressure from COVID on the hospitality industry. We are seeing signs of recovery in the hospitality cloud as the rate of decline improves significantly relative to the second quarter of 2021 when it declined by 23.2%. In discussing the remainder of the income statement, unless otherwise noted, all references to our expenses and operating results are on a non-GAAP basis. you can find information on the most directly comparable GAAP metrics in our third quarter earnings press release. Now, as I go through each expense line, note that the increases throughout reflect two things. First, abnormally low expenses in 2020 as we cut expenses to respond to COVID's impact on the business. And second, strong investment behind the massive growth opportunity we see in 2021 and beyond. Non-GAAP gross profit in the third quarter was $100.2 million, or 74.7% of revenue, compared to 80.4% in the same period of the prior year. The decline in non-GAAP gross margins is primarily due to investments for growth, on-site events starting to return, and temporarily inflated professional services related to our virtual product. With regard to virtual professional services, as event planners become more accustomed to our product and with executing virtual events in general, professional services costs as a percentage of revenue should decline. The drop in non-GAAP gross margin is also related to higher posting costs, employee expenses, credit card interchange fees related to our merchant services business, and client conference costs as a percentage of revenue compared to the same quarter of last year. The increases in hosting costs and employee costs are indicative of the investments we're making in the business, while the increase in credit card interchange fees is a result of increased merchant services revenue. Finally, the increase in client conference costs is a result of this year's event being held in person and virtually, what we call a hybrid event, versus just virtually last year. Moving down the income statement, non-GAAP sales and marketing expenses were $34.2 million, or 25.5% of revenue, compared to 22.7% in the same period of the prior year. The increase in non-GAAP sales and marketing expense as a percentage of revenue is primarily due to higher marketing expenses to support the increased sales opportunity created by virtual and hybrid events. Non-GAAP research and development expenses were $23.0 million, or 17.2% of revenue, compared to 16.2% in the same period of the prior year. The increase in non-GAAP research and development expense as percentage of revenue is primarily due to higher employee expenses due to increased heads and higher average cost per employee and higher contracted services. These increases in heads and contracted services is reflective of the investments we're making for the long term. Non-GAAP general administrative expenses were $19.5 million, or 14.5% of revenue, compared to 11.1% in the same period of the prior year. The increase in non-GAAP general and administrative expense as a percentage of revenue is primarily due to higher bad debt expense and contracted services. The increase in bad debt expense is related to the impact COVID has had on our customer base. The increase in contracted services is due to investments being made to support the growth in the business we're currently seeing, and expect to see moving forward, and public company costs we've begun to incur in the third quarter of 2021. Moving to earnings, adjusted EBITDA was 23.4 million, or 17.5% of revenue, compared to 30.5% in the same period of the prior year. This decline in margin is reflective of the investments we are making for growth, given the significant opportunity generated by the new growth vector created by virtual and hybrid events, and the temporary steps we took in 2020 the increased margin given the decline in revenue. If you look at full year 2019, just before COVID, and when we were also in investment mode, our adjusted EBITDA margin was 19.0%. For the nine months ended September 30th, 2021, our adjusted EBITDA margin was 18.9%. So we're pretty much in line with where we were pre-COVID. Turning to our balance sheet, we ended the third quarter with cash, cash equivalents, and short-term investments of $118.1 million, an increase of $11.0 million from the end of the second quarter of 2021. The increase was driven by the strong client cash collections we saw in the first half of the year, continuing in the third quarter, as our clients start to recover from COVID. Free cash flow before interest payments on our long-term debt was $21.9 million for the third quarter of 2021, up $16.7 million compared to the third quarter of the last year, due to higher client cash collections and the bookings growth we've seen in 2021. Deferred revenue at the end of the third quarter was $226.3 million, an increase of 10.2% compared to the prior year quarter due to the year-over-year bulkies growth we began to see in February of this year. So let's turn to our guidance for the fourth quarter and full year 2021. We are increasing our guidance for the fourth quarter and for the full year due to our strong third quarter revenue results and the robust demand we see for our products in the market. Therefore, We now expect to generate fourth quarter revenue between $139.9 million and $141.1 million, representing increases of 21.1% and 22.2% respectively compared to the fourth quarter of 2020. At the midpoint, this results in a $1.8 million increase from our previous fourth quarter guidance and an increase in year-over-year growth from 20.1% to 21.7%. Our stronger-than-expected third quarter performance, coupled with the increased fourth quarter guidance, increases our full-year revenue guidance to $514.1 million to $515.3 million, representing increases of 3.1% and 3.3% respectively compared to the prior year. At the midpoint, this results in a $7.3 million increase from our previous full-year guidance and an increase in year-over-year growth from 1.7% to 3.2%. Further, we expect fourth quarter adjusted EBITDA to be between 21.8 million and 22.7 million, or 15.6% and 16.1% of revenue, respectively. This would result in full-year adjusted EBITDA between 92.7 million and 93.6 million, or 18.0% and 18.2% of revenue, respectively. At the midpoint, this results in an increase in adjusted EBITDA margin to 18.1%, from the 17.7% full-year guidance previously provided. The increase in full-year adjusted EBITDA expectations is due to the third quarter revenue overperformance and increased fourth quarter revenue expectations. In summary, we had a strong quarter with revenue exceeding expectations and returning to year-over-year growth, fueled by the meetings and events industry starting to recover and the new growth vector created by virtual and hybrid events. As a result of the solid momentum we are seeing in the business, We increased our fourth quarter and full-year revenue and adjust EBITDA expectations from our previously provided guidance.

We look forward to talking to you again next quarter.

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