ON24, Inc.

Good afternoon and welcome to On24's third quarter 2021 earnings conference call. Please note that the live and interactive webcast of today's call may be accessed via the investor relations section of the company's website at www.investors.on24.com. Applying completion of the prepared remarks, we will open the call for questions which may be submitted via the webcast portal or the dial-in line. Please note that this call is being recorded. At this time, I would like to turn the call over to Nate Pollack, Vice President of Investor Relations. Please go ahead.

Thank you. Hello, and good afternoon, everyone. Welcome to On24's third quarter 2021 earnings conference call. On the call with me today are Sherrod Sherron, co-founder and CEO of On24, and Steve Adeloni, Chief Financial Officer of On24. I'd like to remind everyone that some information provided during this call may include forward-looking statements, including, without limitation, statements about I-24's expected financial and operating results, the size of its market opportunity, the success of new products and capabilities, the impact of COVID-19 and vaccines on the way people do business, business trends, global economic trends, the expected timing and benefit of any of such trends, and other statements regarding our ability to achieve our business strategies grow through other future events or conditions. These forward-looking statements may contain such words as project, outlook, future, expect, will, anticipate, believe, intend, or refer to as guidance. These forward-looking statements will reflect beliefs, estimates, and predictions as of today. And I-24 expressly assumes no obligation to update any such forward-looking statements. These forward-looking statements are only predictions and are subject to substantial risks. Factors that could cause or contribute to such differences include, but are not limited to, risks associated with our ability to sustain our recent revenue growth rate, our ability to attract new customers and expand sales to existing customers, fluctuation in our performance, our history of net loss and expected increases in our expenses, competition in our markets, main decline in demand for our solution, our ability to expand our sales and marketing capabilities and otherwise manage our growth, the impact of COVID-19 pandemic, disruptions or other issues with our technology and third-party services, compliance with data privacy, and other risks identified in the company's SEC filings. For a detailed description of risks and uncertainties which could impact these four liquid statements, you should review ON24's periodic SEC filings, including the risks identified in today's financial press release. I'd also like to point out that on today's call, we will report both GAAP and non-GAAP results. We use these non-GAAP financial measures to evaluate our ongoing operations and for internal planning and forecasting purposes. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. to see their conciliations of these non-GAAP financial measures, please refer to today's financial press release. I will now turn the call over to Chirag. Chirag?

Thank you, and welcome, everyone, to ON24's third quarter 2021 financial results conference call. Thank you for joining us. On today's call, I would like to discuss three key themes that demonstrate the underlying momentum within our business and the large market opportunity that lies ahead for us. First, we believe our data-rich personalized digital experiences are becoming more differentiated than ever as sales and marketing teams seek to garner valuable first-person intent data. Second, we are seeing increasing momentum within verticals such as life sciences and manufacturing that are accelerating their digitization efforts, which we believe validates our large market opportunity and increased market awareness. Third, we are driving a robust product innovation cadence to deliver on our platform vision. Before I dive more fully into these themes, let me first review our results from the quarter. For the third quarter, we reported total revenue of $49.4 million, reflecting 16% year-over-year growth and above the high end of our guidance range. Subscription and other platform revenue increased 27% year over year. Net new ARR was 3.1 million. While an improvement compared to 1.1 million in the prior quarter, we expect to see further progress in the quarters ahead. Our third quarter ending ARR was 167.2 million, up 20% year over year. We posted a non-GAAP operating loss of $1.4 million for the quarter. The third quarter of 2021 marked our mapping the second COVID-influenced quarter. Overall, the dollar value of churn declined quarter over quarter, and churn rate was in line with our expectations. As we anticipated in Q2, The percentage of first-time renewals in the renewal cohort decreased meaningfully quarter over quarter, although we continue to face headwinds from those renewals. We also saw some customers rationalize midterm additions from last year. Our core customer base of enterprise organizations continue to solidify in the third quarter. The number of customers contributing ARR of $100,000 or more was up 32% year over year. Our average ARR per customer also increased both quarter over quarter and year over year. Within our enterprise segment, average ARR per customer now stands approximately 60% higher than it was at the end of 2019. In addition, Customers are continuing to make larger commitments with us and our platform, with sequential growth in both the percentage of AR, multi-year contracts, and number of customers that have purchased two or more products. More recently, we have been aligning our enterprise go-to-market strategy to focus on selling integrated platform deals. We believe our platform is well positioned to become a core element of customers' sales and marketing strategy as the data we enable them to collect is providing valuable insights across their business and increasingly important to their entire revenue growth engine. As a result, these deals are highly strategic and can involve multiple stakeholders across an organization, which may result in longer sales cycles. We saw that dynamic layout with some deals in the third quarter. Longer term, we believe this is a positive as we become a strategic and critical investment in customer sales and market infrastructure, creating opportunity over time for larger deal sizes and improved retention. Now, let me briefly highlight some of our notable six-figure new webs within the third quarter. In the U.S., A leading robotic process automation software company purchased ON24 Elite Breakouts and Engagement Hub to help accelerate their sales pipeline with digital experiences, drive greater engagement with their customer-facing content, and automate manual tasks using our tight integrations with their MarTech infrastructure. Another key win? was with one of the largest global aerospace manufacturers that is accelerating its investment in digital engagement, moving from using a collaboration tool to a lead to drive demand gen and product awareness of its specialized products and services. On the international front, a multinational industrial company headquartered in the Nordics that is accelerating its digitization efforts as their technical buyer's journey has increasingly shifted online. This customer will be standardizing on the On24 platform to drive lead gen and educate partners on their complex climate control solutions. A European-based medical company specializing in eye care products is implementing On24 Elite worldwide to drive thought leadership, product awareness, and continuing education for healthcare professionals. Our land and expand sales model continues to be a key pillar behind our growth and demonstrates how we've become a strategic partner for our customers as industries fundamentally change the way they engage in order to drive measurable business growth. In many cases, we start small and then over time expand to additional use cases, departments, and geographies within an organization. I'll share just a few examples of the many customer expansions within the core. First, a U.S.-based diversified manufacturing company on board with ON24 Elite just over a year ago and has already delivered thousands of business experiences globally for partner and channel enablement on its vast product portfolio. In the core, this customer made a six-figure expansion, purchasing both Engagement Hub and Target, to provide scalable, personalized content journeys for their thousands of channel partners. In just over a year's time, this customer has expanded by approximately seven times since their initial purchase. Next, one of the world's largest pharmaceutical companies who already uses ON24 to educate and build product awareness with healthcare professionals running over a thousand digital experiences per year. will now expand the use of engagement hub and target to showcase personalized content in a central hub that can be seamlessly localized to individual markets. Lastly, a global industrial company that has been at the forefront of digital transformation, sources engagement hub for demand gen, partner enablement, as well as nurturing its existing customer base. We displaced another vendor, and one based on our real-time analytics, ease of use, and customization capabilities. This customer is not figures of annual spend with ON24. Now, turning to the first theme. Global data privacy regulations and major internet platforms are increasingly restricting the collection and use of customer data. As a result, marketers are looking for first-party, consented data. They are turning to interactive and personalized digital experiences to capture this data and reach prospects, build trust, and cultivate closer relationships. When looking across sources of first-party data, we believe ON24 is uniquely positioned to provide the most insightful and actionable first-party data. The comprehensive behavioral and intent data that we collect within an ON24 digital experience allows marketers to prioritize, more impactful leads by understanding buying intent signals mapped to an actual individual's behavior rather than a generalized persona or a job title. The secret sauce of the ON24 platform is a proven ability to engage audiences with amazing multidimensional digital experiences, live or on demand, while simultaneously capturing first-person engagement data and intent signals. Data is gathered from the questions asked, polls answered, meetings booked, documents downloaded, and more. Engaging with a single ON24 experience generally lasts an average 50 minutes and typically is to audiences of more than 200 attendees. We use the artificial intelligence and machine learning engines. to determine an individual's digital body language by collecting up to 50 data points for each user into a prospect engagement profile and classifying that information into two main categories. One, engagement data, which is used for behavioral profiling and scoring. And two, signals, which depending on the use case are either buying signals or call to action signals. The first party engagement data creates a flywheel effect With our AI-driven recommendation engine, we surface personalized and curated content recommendations in a Netflix-like experience. Buyers can control their own journey, self-educating at their own pace, but also being nurtured for further engagement. We also make those rich insights actionable to drive business results. Data integrated and orchestrated near real time across the customer's MarTech and sales stack, which could be a potential game changer for sales teams to take more data-driven actions with customers. In this age of digital engagement, one of the biggest challenges that organizations face is confidence in delivering successful digital experiences. Success means much more than just streaming presentations. It's enabling a great customer experience so attendees can engage as if they were in a room together. And organizations can drive business insights from those experiences. Without a compelling experience to start, attendees won't stick around, and B2B buyers now have the same expectation as what they experience in the consumer lives. At ON24, we breathe digital experiences. It is our only focus, and our platform is purpose-built for sales and marketing teams to deliver tangible ROI for their organizations. Our vision is to make every digital experience as engaging as the last, with deep insights to move buyers, customers, and partners to the next experience. From day one, we bring enterprise-scale reliability, privacy, and compliance, and empower our customers with tools, playbooks, benchmarks, and global support resources to harness the full power of our platform to be successful. Shifting gears to the second theme, In the past year and a half, digital engagement has emerged at both the forefront of marketing and customer experience. Industries such as manufacturing and life sciences have accelerated their digital engagement efforts and seen tremendous success with use cases ranging from educating healthcare professionals, demos of complex machinery for lead jets, Even as physical events become possible again, these organizations are realizing that digital is not only the new reality, but a better approach to scaling engagement, generating higher quality leads, and driving more pipeline and revenue than physical events ever did, and at a fraction of the cost. In a recent survey from the Global Business Travel Association, more than 40% of travel managers who responded noted that their company has re-evaluated the ROI of business travel and 59% cited the increased use of virtual meetings. As you heard earlier from some of the new logos landed in Q3, we are seeing accelerating momentum with manufacturing and life sciences organizations, which now represent our fastest-growing verticals. We believe the adoption of a platform and emerging partner enablement and training use cases within these verticals demonstrate our large stand and how we are still in this market opportunity. Let me share two customer examples. Owens Corning, an international building materials leader, is an example of one of our many manufacturing customers. Contractors depend on Owens Corning for learning, education, and training to stay ahead of changing technology and best practices. Pre-COVID, they historically relied on bringing contractors together across the country for in-person events. Partnering with ON24, Owens Corning has seen amazing success using Elite, Engagement Hub, and Intelligence to implement a scalable digital approach to reach, and engage global contractors so they can self-educate at their own pace and get the resources they need anytime, anywhere. Manufacturing leaders such as Owens Corning are shifting to digital approaches that are strengthening partner enablement and education across the vast network of stakeholders. One of our lifetime customers, AbbVie, is a global biopharmaceutical company that treats 57 million people annually with its product across more than 60 medical conditions. The pharmaceutical industry had a longstanding tradition of in-person conferences to facilitate peer-to-peer research and educate healthcare professionals on their products. With COVID, AbbVie transformed from in-person conferences and has delivered more than 1,000 events with the ON24 platform and engaged more than 100,000 attendees across 60 countries. Now, let's shift to the topic of a robust product innovation cadence and platform vision. Less than five years ago, ON24 was essentially a one-product company with a flagship product elite. We listened to our customers' key pain points, innovated on their behalf, and now bring to market a multi-product system of engagement that combines business experiences, engagement, data, and personalization. The percentage contribution from non-elite ARR has nearly doubled since the end of 2019, from low teens to nearly a quarter. And more than 30% of our customers have purchased two or more products. Looking ahead, we are accelerating the pace of innovation across our platform to find the category of digital engagement. Two weeks ago, we hosted our product growth event where we shared our latest innovations, including the next generation of Elite, an exciting launch of our latest addition, the platform Go Live and other platform enhancers. We received great customer feedback and believe our platform value proposition is even more clearer to them. Let me review some of the key highlights. We were one of the first to market in the webinar and virtual event space more than a decade ago and bring a unique heritage and perspective. Our flagship live webinar experience product, On24 Elite, was launched about eight years ago, which started our platform journey. Since then, Elite has gone through a continuous evolution, redefining the marketing webinar category, providing new, differentiated ways to connect with audiences and becoming a powerful engine for driving revenue for many of the world's largest organizations. I'm thrilled for us to launch the next generation of Elite, which we'll be rolling out over the next few releases. It will have a new user experience, engagement features that mirror the social interactions we have in our personal lives, and a re-architected presenter experience that resembles the power of a professional video production studio. GoLive, our newest experience addition to the platform, is a self-service virtual event solution to deliver live streaming video events faster and easier. It brings a participation-first approach to events, and optimize for two-way conversation to come to the forefront of the experience. So that content is being created, delivered, consumed, and discussed all at the same time. With Go Live, organizations can build a complete end-to-end external or internal event ranging from roadshows, customer conferences, virtual pop-ups, town halls, and company meetings using pre-built templates and an easy-to-use and engaging interface. It is slated to GA at the end of Q4, and we expect it will open up our TAM over time, particularly in the mid-market segment, as it addresses the pressing need for sales and marketing teams to quickly stand up video-centric events to drive engagement with prospects, customers, and internal audiences. We believe Go Live complements both our webinar solution, which takes a more content-first approach, and virtual conference products geared towards large-scale, highly-produced events. Today's B2B buyer expects great virtual events, but they also want to engage with brands outside of a predetermined point in time. As such, we are bringing to market a new approach with Engagement Hub Live using content and event marketing. Elite can now be integrated into Engagement Hub, so audiences can now go to one smart multimedia content hub and engage with all content, whether happening live or on demand. We envision Engagement Hub as a B2B version of Netflix, a highly personalized single destination for audiences to engage with, with all content from any device that can be accessed anytime from a single link. A platform value to create all digital experiences with ON24 is the data that it generates and flywheel that it creates. Each ON24 experience is purpose-built to capture every audience interaction and behavior in our prospect engagement profile. Find additional insights that increases buying interest and intent and surface those signals for action. Our AI personalization engine uses attendees' history and specific business interests from engagement with experiences across our platform to deliver a greater personalized experience, which we believe drives better prospect engagement and conversion. Now, with the addition of Go Live to our platform, we will have six different experience blocks, creating a powerful network effect and making our prospect engagement profile and personalization capabilities even stronger. We are building for the future of ON24 and have a robust product roadmap on the horizon underpinned by enterprise scale privacy, compliance, and reliability. Our innovation is centered on driving maximum engagement within every experience, enabling diverse digital experiences from large annual conferences to regional networking events to multimedia content hubs and targeted web pages. and synthesizing all of that engagement across every experience into insights that marketing and sales teams can use to drive results. With that, I'll hand it over to our CFO, Steve Bacciotti, to walk you through our Q3 results in more detail. Steve? Thank you, Sherrod, and good afternoon, everyone. I'm going to start the discussion of our results with revenue. Total revenue for the third quarter was $49.4 million, an increase of 16% year-over-year. Subscription and other platform revenue was $43.6 million, an increase of 27% year-over-year. As a reminder, this includes overages that have been trending around 3% of our revenue but can fluctuate depending on customer usage of our platform and seasonality. Professional services revenue was 5.8 million, a decrease of 30% year over year, representing 12% of total revenue. This decrease was in line with our expectations that we provided last quarter. As a reminder, professional services revenue in Q3 2020 represented 19% of total revenue due to higher than typical demand for implementation and deployment services we experienced during the COVID pandemic. We continue to see more of our clients electing to be self-service, which speaks to our platform's ease of use. Moving on to ARR. ARR represents the annualized value of all subscription contracts at the end of the period and excludes professional services and overages. Net new ARR was 3.1 million, an improvement from 1.1 million in Q2. Total ARR at the end of Q3 2021 was 167.2 million, an increase of 20% year-over-year. In Q3, we lapped another COVID-influenced quarter, and first-time renewals from customers who purchased in the year-ago period represented slightly more than half of the total renewal cohort, a meaningful decline compared to Q2. We faced headwinds with respect to those first-time renewals, particularly with organizations that were not our ideal customer profile and had one-time needs. We also saw some rationalization with midterm additions from the year-ago period. Overall, the dollar value of churn declined compared to Q2, and the churn rate was in line with our forecast. Our core customer base of enterprise organizations strengthened in the third quarter. We added 14 net new $100,000-plus ARR customers, and in Q3, 159 customers contributing ARR of $100,000 or more, an increase of 32% from the prior year. These $100,000-plus ARR customers comprise 67% of our ending ARR, which is the highest to date. We view the number of $100,000-plus ARR customers as a key indicator of customer quality success of our land and expand strategy and validation that we are increasingly becoming a strategic partner in customers' tech stacks. Both the percentage of ARR and multi-year contracts and number of customers that have purchased two or more products increased sequentially and reached the highest levels to date. Total customer count declined slightly quarter over quarter to 2,054, with SMB churn representing the largest contributor to the decrease. Given the learnings from the past couple of quarters, we are laser-focused on acquiring enterprise and mid-market customers that meet our ideal customer profile and with whom we can develop a lasting strategic relationship. Before turning to expense items and profitability, I would like to point out that I will be discussing non-GAAP results going forward. Our non-GAAP results exclude stock-based compensation as well as certain other items. Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results, can be found within our earnings release. Gross profit in the quarter is $38 million, representing a gross margin of 77% and a decrease of 300 basis points year over year. We continue to invest in our cloud infrastructure capabilities and growing our customer success rate. to enable sustained growth. Turning to operating expenses. Sales and marketing expense in Q3 was $24.2 million compared to $15.6 million in Q3 last year. This represents 49% of total revenue compared to 37% in the same period last year. As you heard from Sharath, we're in the early days of a large market opportunity, and we will continue to invest in marketing to drive awareness and continue to add sales capacity across regions and segments. R&D expense in Q3 was $7.9 million compared to $4.6 million in Q3 last year. This represents 16% of total revenue compared to 11% in the same period last year. We are driving a robust product innovation cadence and will continue to invest in R&D to build for the future. G&A expense was $7.3 million for the quarter compared to $6.4 million in Q3 last year. This represents 15% of total revenue compared to 15% in the same period last year. Our G&A expenses have increased due to the costs associated with being a publicly traded company. Over time, we expect G&A expense to scale and decrease as a percentage of our revenue. Operating loss for Q3 was $1.4 million, or a negative 3% operating margin, compared to operating income of $7.5 million and an operating margin of 18% during the same period last year. Net loss in Q3 was $1.6 million, or $0.03 per share, based on approximately $0.47 and deleted shares outstanding. This compares to net income of $7.2 million, or $0.42 per deleted share in Q3 last year, using approximately 17 million deleted shares outstanding. Turning to the balance sheet and cash flow, we ended the quarter with $399.7 million in cash, cash equivalents, and marketable securities. Cash used in operations in the third quarter was 0.9 million compared to cash flow from operations of 11.5 million in Q3 last year. Free cash flow was negative 1.6 million in Q3 compared to positive 11.1 million in Q3 last year. Free cash flow margin was negative 3% in the third quarter compared to positive 26% in Q3 last year. Now, turning to guidance. I would like to first point out that we face a challenging comp for the upcoming fourth quarter. In the year-ago period, revenue, including legacy, increased 137% year-over-year, and professional services represented an outsized 22% of the total revenue mix. We expect to see improvement in net new ARR compared to Q3, but we still lack another COVID-influenced quarter. For Q4, the percentage of first-time renewals drops to approximately 30% of the total renewal cohort. As Sherrod mentioned, we have become increasingly focused on selling an integrated platform with enterprise accounts. These are strategic deals which can be more complex and lead to longer sales cycles. While it's still early to draw a trend, we are being prudent in factoring this dynamic into our Q4 forecast and guidance. As such, we expect total revenue in the range of 51 to 52 million. We anticipate professional services revenue to contribute approximately 13 to 14% of total revenue in the fourth quarter of 2021. We expect a non-GAAP operating loss in the range of 4.7 million to 3.7 million and a non-GAAP net loss per share of 10 cents to $0.08 per share, based on 48.2 million basic and diluted shares outstanding. And for the full year 2021, we are updating our guidance range for revenue to $202.6 million to $203.6 million, which represents year-over-year growth approximately 29% to 30%. We expect professional services will represent approximately 13% to 14% of total revenue, excluding our legacy business, for the full year 2021, compared to 22% in fiscal 2020 and 18% in 2019. We expect a non-GAAP operating loss in the range of $0.9 million to non-GAAP operating income of $0.1 million and a non-GAAP net loss per share of $0.04 per share to $0.02 per share, using 43.6 million basic and diluted shares outstanding. Looking out to fiscal 2022, I would like to make a few initial observations. Q1 will mark the last COVID-influenced renewal quarter. In the first half of fiscal 2022, we expect revenue growth to be muted given the large year-over-year comparisons and outsized growth we experienced last year. However, in the second half of the year, with the tough compares largely in the rearview mirror, we expect revenue growth to inflect. Overall, we expect a return to historical seasonality patterns, with Q2 and Q4 representing our seasonally strong quarters. Lastly, our current view is that the mixed professional services revenue oteens is a percentage of total revenue for fiscal 2022. We plan to offer detailed guidance on our outlook for fiscal 2022 on our Q4 earnings call. With that, Shraddha and I will open the call up for questions. Operator?

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you were using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll take our first question from Rob Oliver of Bayard.

This is Srinivasan for Rob. So one quick question for Shara and then one for Steve. Shara, you mentioned the focus on selling integrated platform and customer wins. the non-elite era nearly doubling from 2019 earlier in the call, like some longer sales cycle. So on the new products, right, that you announced, in particular the Co-Life or mid-market, we did get a sense of the specific use cases with the templates during the event, and in terms of the fit targeting mid-market. Can you comment on the upsell, cross-sell opportunity there, as well as relative positioning and pricing there? vis-a-vis the legacy offering, which is the conference geared towards the large-scale events, and then one for Steve later.

Srinagar, the question is, how does GoLive fit within our product portfolio, and how does that fit within the virtual conference product that we currently have? That's right. As we look at it, Yeah. Shranik, as we looked at our experience platform, we had the webinar platform. We've got the engagement, of course, which are the digital Netflixes. We launched breakouts. And we have on 24 target, these are our personalized landing pages. And then we also had our virtual conference product. The virtual conference product traditionally has been more, that's the only part of our product offering that's more managed services for more complex virtual conferences, global virtual conferences. Again, it had a little more services in it. What we saw was that we were missing a product in the last 12 months or so. We saw the emergence of a category of product which was extremely self-service, simple, video-centric virtual event that really has very strong audience participation and networking and interactivity. So we thought that was something that we did not have as part of our platform. And our approach to our customers, and you talked about upsell and cross-sell, our approach to our customers is that we are a one-stop shop for these engagement products. So we have beefed that up. We are bringing that into the market. Initially, it allows us to open the TAM even more in the mid-market, which is where we will start. And as we expand that, this will provide a significant opportunity to bundle the products together to upsell and cross-sell for larger enterprise deals across the world, too. So, you know, the virtual conference product will continue to be managed, complex virtual conferences across, you know, delivered across the world, while GoLive will be simpler, self-service, video, virtual events, very audience-centric, very easy to do. So that's how we see that. And the important thing is that all the data from all these experienced products now for our customers, the one-stop, go into the data framework and then are integrated in their sales and marketing ecosystem to drive business results.

Got it, got it. Thanks a lot, Nat. That's really helpful. And one question for Steve. So you mentioned the headwinds would be ARR at to decline, and should be more meaningful in Q4. So if you can provide any update or color on that front and also help us think through the NRR normalization going forward looking out into 2022.

Yeah, I think there are two questions there. Let me take the first one. uh, first on the AR growth and in Q4. So we do expect to see some improvement of progress in net new AR compared to Q3. Well, we are still laughing another COVID influenced quarter. Now for Q4, the percentage of first time renewals drops to approximately 30% of the total renewal cohort will being our second largest cohort, uh, you know, real cohort ever. We are assuming a first-time renewal rate for Q4 similar to what we saw in Q2 and Q3, so we're being prudent with our outlook. And now looking ahead, we believe Q1 of 2022 will mark the last COVID-19 quarter, and the headwinds from first-time renewals will abate as we exit Q1 of 2022. Now, your question on NRR, we will be providing NRR on our Q4 earnings call. That's generally not something we provide quarterly. But that being said, Q3 NLR was consistent with what we stated on the Q2 earnings call landing in the low 100s. Now, there are a lot of moving parts to that. We're being conservative in our forecast and outlook there. And we do expect it to hover around or slightly dip below 100 before trending back up in 2022.

Thank you.

Thank you. We'll take our next question from Steve Enders of KeyBank Capital Markets.

Hi, Greg. Thanks for taking the question here. I just want to get a better sense for the kind of 4Q guide and how to think about that into the first part of next year. It just looks like it dipped down maybe a bit versus what we were previously thinking in 4Q. I just want to get a better sense for kind of what's driving that and how much the longer deal cycles that I think you called out are impacting some of the pieces here.

Sure, I'll go ahead and take that. First of all, let me talk a little bit about the annual guide, and then I'll jump into Q4. So on the annual guide, we are tightening the range on that from what we did previously, and we are actually increasing the midpoint of that a little bit. And we did bring up the low end of the guide. And we're doing that based on increased visibility now that we're further along in the year and we're seeing how things are playing out. And I will also mention that we are increasing the bottom line and the guide a little bit as well. Now, in terms of the Q4 revenue specifically, there are some puts and takes there. As we mentioned, we did make progress in Q3 with $3.1 million and met ARR ads, and churn was in line with our expectations. Now, as Shrop mentioned, we did see some longer sales cycles for the larger, more complex deals in Q3. Now, it's a little too early to draw a trend, but we are being prudent in facting that dynamic into our Q4 forecast and guidance. Now, long-term, we view this as a positive because we are becoming more strategic to our customers, and this ultimately provides an opportunity for larger deals and improved retention. And I will just reiterate again that for Q4, the percentage of first-time renewals does drop to approximately 30% of our renewal cohort, which is down meaningfully from the current quarter. Let me add to what Steve just said and provide a little more kind of a high-level color. As we look at it, Steve, we have a very large market opportunity and still a very small share of that. And the momentum we are seeing in verticals such as manufacturing and life sciences gives us the confidence that we are barely scratching the surface. We've got 14 of the top 20 pharmaceutical companies are our customers. We are also strengthening our customer quality. Our ARR for enterprise customers, we talked about in prepared remarks, at the end of Q3 is approximately 60% higher than it was pre-COVID. So strong improvement there. And we're also adding these exciting platform innovations that we are bringing to the market. we believe will drive the next phase of durable growth. So in the near term, we are facing headwinds from these first-time renewals and these large comps, but we expect that these will abate by the second half of next year.

Okay, that's helpful context there. I guess just on the go-to-market, it seems like there is a bigger point of focus on on some of those verticals you called out there. But I guess, how are you kind of augmenting what you've been doing historically to kind of better go after some of these new opportunities you're seeing?

Yeah, so I think our go-to market is almost getting bifurcated, Steve, in two directions. One is our enterprise business. which is our focus, where our execution is in North America and in global markets. And I'll talk about international separately. So there's a lot more kind of account-based marketing focus there, that kind of an execution. So that's the enterprise business. Then we also have the mid-market and commercial business, which is a little more mass market. And that is where GoLive also comes in. So that is the way we attack that particular market. And we believe that GoLive will open up our TAM much more in that particular market also. Now, the third part of our execution also from an expansion point of view and new business point of view is our international focus. one of the things that just to mention international is close to 25 percent of our revenue but if you look at from a bookings point of view it's north of 30 percent so our investments in in emea in and jpeg are working and we are one of the markets that we are going to invest more resources is in the japan market so and why this is important because on in the enterprise execution once we land an account then we grow that account on a global basis because All these global customers have privacy, security, compliance, and data requirements that we can support these customers on a global basis. So that's the way we are seeing our go-to-market.

Okay, great. That's helpful. Appreciate you taking the questions here.

Thank you. Our next question from Brent Briceland of Piper Sandler.

Hi, guys. This is actually Hannah Rudolph on for Brent today. Thanks for taking my questions. Just first one, I guess this is the first quarter that we saw new ads down sequentially. It sounds like SMB churn was a big component of that. But I guess how should we think about both total customers and sequential ads going forward?

Yeah, let me go ahead and take that question. So in terms of week three, given our warnings from the last couple of quarters, we are really most focused on customer quality and adding enterprise and mid-market customers that really meet our ideal customer profile. I can tell you that SMB was the largest contributor to the customer count decrease in Q3. And I do want to point out that our 100K plus ARR customers did increase 2% year over year and increased sequentially as well. These 100K plus ARR customers, they represent 67% of our total ARR now, which is trending up from what it was in the prior quarter. Now, looking ahead, we do expect that we would return to NetLogo growth in Q4.

Great. Thanks. And then second question here. Hybrid mode in ON24 webcast elite sounds like it could be a really good driver of retention and growth going forward, I guess, how is initial feedback been for that? And what are your expectations for that product? Or that feature?

You know, Hannah, based on what our customers are telling us, the future is about hybrid engagement, the early reactions on the hybrid capability in our product line has been the feedback has been has been very, very strong. You know, again, our, our customers based again on what they tell us. physical events really provide no data. So even if they do things that are physical, they probably do less events that are physical because they're more expensive and they provide no data. But people won't want to go back to them. They will continue to hold these events as hybrid because they can get the data, get the personalization, all within one system of engagement. So we believe, based on what our customers are telling us, that that is the future. We are excited about that. And that will continue to further our implementation and retention with our customers. Great. Thank you.

Thank you. We'll take our next question from Scott Berg of Needham & Company. Hey, guys, this is John for the Anchor Scott. Appreciate you taking my questions. Just curious if you can provide an update on your progress with your partner network and with sales and marketing agencies. Are you seeing any additional kind of leverage here into this being kind of an avenue to help maybe pull in those longer sales cycles over the longer term? Thanks.

Yeah, you know, this continues to be a major strategic priority. that we are focused on to kind of increase the leverage in our model. I mean, it's still about mid-single digits. My target is to get this number to about double digits by next year. And there are three areas. We've even expanded the areas of focus. strong team focus on that one is the the key technology partners the marketing automation and and crm uh systems these are these larger companies uh that we are the adobes or the vivas and others that we are partnering with not only on integration but looking at go to market so so that's one the second one is which we have we've also added are the system integrators with national and regional system integrators. Actually, these are people who may have maybe an Adobe practice or Eloqua practice or some of those people who do integration work for customers. We signed two of the regional system integrators in the last 30 to 60 days, so we are excited about that. And we are continuing to make a major push on the sales and marketing agencies. So we are attacking this in three different segments. You know, my goal, it's not a target, but my goal is by end of next year we get that number to about double digits. So that's really the focus. But one of the top five priorities for me. is to build this.

Great. Okay. The next, I see you've been investing a lot on hiring sales across both enterprise and the mid-market. Just curious how you're seeing current hiring patterns trending, if you're seeing any potential negative impact in the tighter labor environment or hiring trends from April bust. Thank you.

So, you know, on the sales side, we started ramping sales hiring in the second half of last year. And just from your perspective, some of those early stage reps are just beginning to get ramped up and they're starting to show some impact. Our capacity right now stands about 50% higher compared to what it was on Q3 20. So some of that was really catch up because we were really behind last year. But Now that we are here, we are continuing to add capacity, but we are being more selective about it and with our additions and more focused really on driving enhanced sales productivity. So that's really what our focus is, a lot more driving. We will continue to hire, not at the rate that we were hiring before, but, again, a lot more focused on the enhancing productivity.

Great. Thank you, guys. Thank you. We'll take our next question from Devon Suri of William Blair.

Hey, guys. Thanks for taking my question. And it was a nice job on the quarter. I guess, especially in that 100K customer count, I think we focus on that and understand that's so much of the revenue now and sort of growing sequentially again. I think that's helpful, I guess. I want to ask a high-level question, and then we'll give them something competitive. But as customers become more deliberate in their approach to digital engagement, right, everyone's beginning to understand this is really important. I guess, are you seeing more multi-product lands? I suspect you are, but I'd love to understand some color and sort of are customers asking initially for multi-product lands? And so what does that do to the sales cycle? Is that lengthened sales cycle slightly or deliberation speeding up sales cycles? Help me think through how that actually plays out in the field. Yeah, so I think Bhavan, you asked kind of two questions. You asked a question about multi-product lands, and they talked about sales cycle. Let me give you a color there, okay? So generally, there's no question that the customers are being very deliberate, right? But generally, our sales cycles have been short. They've been about three to six months, a little longer on the enterprise. And now in the enterprise, based on the learnings that we had in the last couple quarters and others, our focus is on selling our platform with the multiple products. But the other thing that we're also seeing is that privacy and security around data is becoming more important. So something we saw in Q3 is something for some deals, some longer sales cycles. Now, keep one thing in mind. Q3 tends to be a seasonally softer quarter. So even though we are factoring it in, but it's too early to draw a trend. But in the long term, this is a positive for us because it's an opportunity for large deals and higher retention. I'll give you an example. And I discussed this in the prepared remarks. In Q3, we closed a $300,000 deal with one of the EMEA-based multinational industrial companies. And they bought, in the first buy, they bought four experience products, Elite, Engagement Hub, Target, Breakouts. They integrated our products within their sales and marketing ecosystem. So it took a little longer. But, you know, it is going to play up really well for us on expansion and also in terms of retention of this customer. And that's why if you look at the multi-product, in Q3, the number of customers who signed multi-product deals, if you look at ARR, if you look at the number of customers now that we have with multi-product engagements, it's the highest we've ever Quarter-to-quarter increases and year-over-year increases. The number of customers who are signing the ARR in multi-year agreements is also the highest ever from a quarter-to-quarter basis and from a year-to-year basis. So we are excited about that. You also talked about the 67% ARR on the 100K. I'm excited. Yeah, we've had some rationalization in the midterm add-ons and others we have talked about, but if you compare our enterprise customers at the beginning of COVID, at the end of Q4 2019, to where we sit at the end of Q3, it's a 60% increase in what the enterprise customers spend with us. So all those trends are really kind of solidifying our base, making our customer cohorts very, very strong as we move forward. That's super helpful, Charlotte. I appreciate that. Let me just ask one last one here, just about the customer focus shifting towards hybrid events. And I think someone had asked a question about that before, but I guess, how does that change the competitive landscape? Are you going to start competing more with vendors that have kind of the traditional routes and physical events? How should we think about the competitive landscape and how that changes from sort of the webinar-only guys who can only do basic webinars to which you can easily compete against, versus the guys that may have more traditional roots on the physical side. Help us think through that. Thank you. Yeah, so first of all, let me just say one thing. I mean, this is a large market, and there will be some more competition, but there's room for many companies to be successful. Now, on that, let me go back and talk about this. First of all, who we are. mean now we are a sales and marketing engagement platform that uses engagement data air driven personalization and deep integrations to drive revenue growth you know you know webinar is the experiences of where we started our journey but now with the go live coming up we've got we have six experiences all interconnected all that data is being fed through on 24 intelligence through the air engine and being integrated in their sales and marketing ecosystem so So we don't see anybody as a sales and marketing engagement platform doing what we are doing. And also in this business, the more time you're spending with the customer, the more competitive advantage you have because you've got so much more data. Now, we see the market bifurcating, the competitive market bifurcating. On one side, you have the collaboration guys like Zoom, IT buyer, more video collaboration focus. We like, you know... People get their one-on-one of digital engagement there, and then they come to us for sales and marketing, so we like that. Now, the other category of competitors which you alluded to is these virtual events kind of competitors. And you're also seeing some of these physical event companies trying to have a virtual event product, okay? Now, these guys are generally competing in the commercial space, in the SMB space, but we are seeing some of these people have point solutions. Some people who are physical events now doing virtual events are But they are very virtual events kind of focus, where our focus really is the sales and marketing platform, okay, delivered to enterprises on a global basis to drive revenue growth.

Gotcha.

Does that help? Yeah, no, I appreciate the color. I appreciate you taking the time to walk us through that. Thanks for taking my questions, guys.

Thank you. We'll take our next question from Drew Glazer with J.P. Morgan.

Hey, this is Drew. I had to join late, so apologies if this was already asked, but could you speak to the productivity of your new reps and how the sales and marketing, hiring, and tracking?

Yeah, so I did talk about that, but let me kind of answer that. So we started our ramp in the second half of last year, and some of those reps are now pretty ramped up and beginning to show some impact. And our capacity right now compared to Q3 and the beginning of Q3 stands at about 50% higher. Now, some of this was catch up because we were behind. Now that we have these people, now that we have these people kind of ramped up, we are being more selective about our additions and much more focused in terms of enhancing productivity. So really a lot more focused on productivity while we are continuing to add capacity, but in a much more selective manner.

Got it. Thank you.

Thank you. We'll take our next question from Daniel Reagan of Canaccord Genuity. Excellent. Thank you for squeezing us in. So, Sharath, I just wanted to circle back to the experience event where you had a few good releases like Hybrid Mode and Go Live.

I'm wondering about the integration of these solutions into your sales motion, the initial uptake in demand from customers following these releases, and then maybe how you're thinking internally about the contribution to revenue from these products over time. Yeah, so... Daniel, let me ask that question. So great feedback and, you know, for people who were not there, where we showcase the next generation of Elite, where we are taking that product, we introduced Go Live, we showed enhancements in Engagement Hub and what we are doing with the data. We also talked about how we've enhanced the product to be more hybrid compatible. So this was really a customer event, Daniel. So we've heard tremendous feedback from our customers today. We are still early in the cycle. Go Live is newer. We are still early in the cycle, and these things are coming up in subsequent releases. There are two things that are going to happen. One is the core webinar releases, and other people will start getting them as they are rolled out. It allows us to focus a lot more on the retention kind of a framework. Now, the And hybrid is something that our customers have been asking us for some time. So I believe that is going to continue to allow for adoption and retention of our product. The product like GoLive that we are taking to market, I believe that product is going to open up the TAM for us even more in the commercial market, so we are excited about that. But this also will allow us, you asked a question about revenue, it's still early to talk about it, but you should expect us, as we do these enterprise deals, that you will see us add more bundles into what we take to the marketplace. So there will be upsell and expansion, but also more bundling of our products as we move forward, because we have the capability to do that. Got it. That's helpful. And then, Steve, at the time of the IPO, the firm had pointed out a roughly 40-day sales cycle.

We've talked about this a bit on the call already. I'm wondering, how much has the sales cycle gone up? And is it directly related to a more keen focus on landing enterprise accounts? Or is it that you're taking longer to land similar size accounts?

Yeah, I mean, in terms of the sales cycle, as we mentioned, they're generally three to six months. I'm not going to give a specific number for our average sales cycle, but they're generally in that range, plus or minus, depending on a number of factors. As we mentioned in the prepared remarks, and I talked a little bit about this earlier, we are seeing some longer sales cycles for some of the more complex deals in particular. We are doing more of a platform sale now. We are at expanding the number of customers who have multiple products in their portfolio. And as a result, you know, sales cycles were a bit longer. Again, it's a little bit too early to draw a trend, but we are being prudent in our guidance and factoring slightly longer sales cycles as we provide guidance. Let me just add to what Steve just said. I think, as you can imagine, in the COVID times, the sales cycles are a lot shorter. Now, generally, our sales cycles are still three to six months, a little longer on the enterprise compared to the commercial, as you would expect. But more and more, Daniel, our focus has become about selling multiple products in the platform. And also, as we've seen the churn profile in the previous quarters of the COVID course, as we've talked about, and increasingly a lot more focus on selling multiple products. Also, data privacy and those kind of compliance requirements are becoming important for customers. So... We are still, for an enterprise, we still do quite well. And, you know, we saw this a little in Q3, which is a seasonally soft quarter. But I think our cadence about going with multiple products is important because in the long term, we believe that is really going to help us increase our deal sizes and increase the retention. So we believe that is going to be a net positive for us.

Excellent. Makes sense. Thank you, guys. Thank you. At this time, we have no further questions in queue. I would like to turn the call back to Sherrod for any additional or closing remarks.

As you heard today, we made progress in Q3 and expect to see continued improvement in the quarters ahead as first-time renewal headwinds continue to abate. We have a very large market opportunity and are focused on delivering an enterprise-scale sales and marketing platform that is transforming how organizations drive measurable revenue and growth. I'm proud of the innovations that we are delivering to our customers, which will set the stage for our next phase of durable growth and generate long-term shareholder value. Thank you, everyone, for being on the call today.