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spk00: and welcome 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 upon 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 conference over to Nate Pollock, Vice President of Investor Relations. Please go ahead.
spk02: Thank you. Hello, and good afternoon, everyone. Welcome to ON24's fourth quarter and full year 2021 earnings conference call. On the call with me today are Sherrod Sherron, co-founder and CEO of ON24, and Steve Adoni, Chief Financial Officer of ON24. Before we begin, I would like to remind everyone that some information provided during this call will include forward-looking statements regarding future events and financial performance, including guidance for the first quarter and full fiscal year of 2022. These forward-looking statements are subject to known and unknown risks and uncertainties. ON24 cautions that these statements are not guaranteed at future performance. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call. Please refer to the company's periodic SEC filings and today's financial press release for factors that could cause our actual results to differ materially from any forward-looking statements. We'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 the reconciliations of these non-GAAP financial measures, please refer to today's financial press release. I will now turn the call over to Sharad. Sharad?
spk04: Thank you and welcome everyone to ON24's fourth quarter and full year 2021 financial results conference call. Thank you for joining us. On today's call, I'll share some 2021 highlights, review our Q4 results, address some near-term factors relevant to our outlook, and outline our priorities for fiscal 2022. Looking back, 2021 was the most pivotal year in the company's history. I'm proud to share some of the numerous milestones we achieved in terms of business accomplishments and financial results. Across our platform, our customers delivered hundreds of thousands of immersive digital experiences to tens of millions of attendees, which helped them drive measurable business results. We saw attendee engagement with tools such as polling, content, surveys, and other buying signals increase more than 30% year over year. Total revenue increased by 30% year-over-year to $203.6 million. Subscription and other platform revenue increased by 43% year-over-year to $175.9 million. And we generated positive free cash flow for the year. Our investments in new geographies such as Japan and Germany are paying off with international revenue growth of 43% year-over-year. We are a market leader serving over 2,100 global customers, including 366 with ARR over $100,000, representing 21% year-over-year growth in that cohort. Our wallet share continues to grow, with average ARR per customer 47% higher than the end of 2019. As a sign of our increased strategic positioning, we now have 19 customers with ARR over $1 million, representing 36% year-over-year growth in that cohort. Customers are also increasingly making longer-term commitments to our platform with multi-year contracts comprising 35% of our ending ARR compared to 29% at the end of 2020. We made early inroads with our partner channel with new bookings contribution, increasing from low single digits in Q1 to high single digits by Q4. Lastly, we doubled down on R&D investment and the pace of innovation in 2021, launching two new experience additions to our platform, Breakouts and GoLive, and introducing the next generation of our flagship product, Webcast Elite. Our platform approach is resonating with customers, evident by the fact more than 35% of our customers have two or more products compared to 30% in 2020 and 17% in 2019. We are keeping up the drumbeat on product innovation and will continue to bring new products to the market. Let me briefly highlight some of our exciting wins within the fourth quarter. One of the largest healthcare membership organizations with over 100,000 members runs hundreds of sponsored webinar experiences per year as a key revenue stream. Previously, they had been using a legacy vendor that lacked data insights and analytic capabilities. Realizing that they could deliver more value to their sponsors, they turned to ON24 for our deep engagement data and AI-driven analytics. including a prospect engagement profile, which will be integrated into their Salesforce marketing cloud. This was a highly strategic six-figure platform deal, which included Belief, Engagement Hub, and Breakout Rooms, and has provided substantial ROI to the customer. In Germany, we landed a six-figure win with a leading building and construction software company that had been using a legacy vendor to drive demand generation with approximately 500 global webinar experiences per year. We displaced this legacy vendor based on our real-time integrations across the customer's MarTech stack, user experience, and world-class services and support. One of the world's largest oil field services companies has been using ON24 for both demand gen and thought leadership as their end users and buyers are increasingly moving to digital. In the fourth quarter, they expanded with us to cover four of their divisions and more than crippling their annual span. The power of our data, real-time integrations, and enterprise-scale reliability, privacy, and compliance were the deciding factors for this customer expansion. Lastly, we signed the largest single deal in our history, a three-year global enterprise-wide subscription agreement with an existing customer in the pharmaceutical industry. Given the scope, the customer had a global RFP, and we won based on the scale of our platform, deep integrations across their entire marketing stack, and best-in-class compliance and support. Let me review high-level results from the fourth quarter. For the fourth quarter, we reported total revenue of $52 million at the high end of our guidance range. Subscription and other platform revenue in the quarter was $45 million, representing an increase of 9% year over year against a very challenging comparable of 115% growth in the year-ago period. Professional services revenue was $7 million, a decrease of 41% year-over-year and in line with our expectations that we provided last quarter. Net new ARR was $4.2 million, resulting in ending ARR of $171.4 million. And we posted a non-GAAP operating loss of $1.8 million for the quarter ahead of our guidance. While we had solid Q4 financial results, we have also experienced some recent challenges which are impacting our Q1 and full year outlook. As we previously discussed, we believe Q1 2022 marks the last COVID-influenced renewal quarter, and this cohort comprises a significant portion of large deal renewals, which included expansions throughout COVID that are renewing for the first time. During January, as it became clear the world was moving from pandemic to endemic, we have seen a handful of customers with large expansions since the beginning of 2020 reassess their post-pandemic digital budgets. While we had forecasted some rationalization to take place, our visibility into these specific customers' post-pandemic needs was limited. For context, it is important to note that these select customers had expanded by as much as three times during COVID, and their annual spend still stands an average meaningfully higher than Q1 2020. Let me share an example. One of our customers is a leading international exhibition organizer, which runs thousands of physical and digital events for leading B2B brands. When the physical conference world was shut down, this customer turned to ON24 to run thousands of digital experiences with amazing success and increase their spend by three times since Q1 2020. As we move to a post-pandemic world, The customer has begun to shift some events back to in-person, but will continue to use ON24 for its digital strategy, committing to a multi-year, seven-figure annual investment with spend still two times higher than pre-COVID. Our Q1 outlook reflects the impact of the higher-than-anticipated rationalization and the full-year incorporates our early view on post-pandemic digital budgets. Looking ahead, We believe that Q1 will mark the trough for 2022. By far, our largest challenge in 2021 was the first-time renewal cohort, which was four times the dollar value of first-time renewals in 2019 and had a churn rate that was approximately double that of first-time renewals in 2019. We see an improving customer profile for first-time renewals with a lower representative share in future cohorts and also believe that many customers have now adjusted their prior expansions accordingly to align with their post-pandemic needs. As a signpost, gross retention for pre-2020 cohorts has been stable. which gives us confidence that overall retention will begin to trend upwards in 2022 as we move past the last of these COVID-influenced cohorts. Steve will provide more details on our outlook later on this call. Moving forward, we are also proactively making improvements in areas of our business to re-accelerate growth and continue towards our path of reaching 500 million of ARR and beyond. To help achieve this, we have set four key priorities for fiscal 2022. One, enhancing our customer success and retention capabilities. Two, scaling our go-to-market for better operational leverage. Three, improving our multi-product sales motion in the enterprise segment. And four, delivering upon our robust product innovation roadmap. Turning to our first priority, enhancing our customer success and retention capabilities. Since the end of 2019, the On24 customer base has grown by more than 50%, and our ARR renewal base has more than doubled. Over the years, we've built a solid foundation of a customer success function. But as we become a more strategic partner to customers, it is crucial that we have a best-in-class customer success motion. After taking a closer look, we have identified enhancements that can be made to the function and which are now underway in order to create a better integrated customer journey. We believe the first 90-day experience for a new ON24 customer is critical. Recently, we have revamped our onboarding program to ensure that the handoff between sales and the CSM is more seamless and we are better enabling the customer so we deliver faster time-to-value. As our product team continually makes new enhancements to our platform, guiding our customers to adopt the full breadth of the platform, including our leading integrations, must be a top priority across the organization. We are expanding the team to improve coverage ratios as well as bringing in new senior talent with experience at scale to drive best practices and operational rigor. Combined, we believe that these changes will improve our overall retention rate in the quarters ahead. Moving to our second priority, scaling our go-to-market for better operational leverage. In fiscal 2021, we saw steady growth in business sourced from our partner channel, increasing from low single-digits percentage of new bookings in Q1 to high single-digits by Q4. To continue our momentum and scale ON24 to the next level, we believe that it is critical to strengthen our ecosystem of partners across interactive agencies, large strategic marketing cloud platform players, ISVs, and system integrators, with each having an important role in our long-term success. Last week we announced the launch of the on 24 partner network, creating an ecosystem of leading solutions and technology partners and formalizing how we integrate co market and co sell together. This ecosystem will broaden our reach, extend our product and service offerings and drive leverage in our go to market model in the months ahead. we'll be enabling our partners on the ON24 platform, building more integrations, and driving pipeline. Our goal is to grow partner bookings over time to a 20% or higher contribution. This is not something that happens overnight, but the early progress we have made formalizing partnerships with over 40 partners gives us confidence in the long-term partner leverage opportunity. Now to our third priority, improving our sales motion in the enterprise segment. Today we count approximately 20% of the Fortune 1000 as customers and still have massive white space to further penetrate the enterprise. As I mentioned last quarter, we are focused on a multi-product sales motion for enterprise acquisition, which is leading to larger, more complex deals. These deals require a more focused consultative selling approach to elevated levels of the organization compared to a single product sales motion to practitioners that worked in our earlier years. As such, we are making improvements to more effectively enable our enterprise sales team with the right resources for this type of sales motion. That not only makes them more successful, but also makes the enterprise customers excited to engage with us in consultative ways. Turning to our fourth priority, product innovation. In 2022, we are focused on continuing to execute against a robust product innovation roadmap across each of the three pillars of our platform. Webinar marketing, virtual events, and personalized content experiences. Our vision is anchored by delivering a system of engagement for marketing and sales teams to create digital experiences that engage audiences, turn engagement data into insights, and use those insights to drive results. Within our virtual events pillar, Go Live is the newest solution and released at the end of December. It's a self-service, multi-session video and networking event experience that maximizes social networking and audience participation. Organizations can build complete end-to-end external or internal events such as roadshows, user groups, virtual pop-ups, customer and partner summits, town halls or company meetings using pre-built templates and an easy-to-use and engaging interface. First-party engagement data continues to be the foundation of each of our products of our platform, and ON24 Go Live registrant event activity and attendee engagement is captured along with other ON24 experiences into a single dashboard and prospect engagement profile. We have received positive market feedback and expect this product to ramp in the coming quarters as we build awareness in the market and throughout our customer base. According to a recent McKinsey report, two-thirds of corporate customers intentionally now reach for digital or remote over in-person engagement when given a choice, and they're doing so at every stage of the purchasing journey. As a result, sales and marketing teams are dealing with a new set of buyer expectations to garner attention in a crowded field. To adapt to this new world, we believe creating personalized digital experiences at scale is table stakes to break ahead from the pack, but must go beyond contact name and logo. We believe it should be driven by first-party data insights. Throughout the year, we will be releasing enhancements to our AI-driven personalization capabilities, whether our customers are targeting known or unknown individuals. Our platform will be able to tailor personalization experiences by, among other things, account to the specific organization, contact to a specific role, call to actions and content, and buyer intent and segmentation. This is all backed by first-party data and insights collected from every ON24 digital experience. These personalization enhancements will empower our customers with a deeper understanding of buyer preferences and deliver real-time personalized experiences directly within our platform. To sum up, I continue to be optimistic as ever about our future. We have experienced tremendous growth in a short period of time with our ARR increasing by 123% over the past two years. While we are now moving into a post-pandemic world, a powerful transformation continues to be underway in the B2B world. Across industries, sales and marketing for B2B organizations is rapidly moving towards digital channels, and there is an increasing need for a digital engagement platform that leverages data and insights to drive revenue growth. We are focused on improving areas of our business and remain confident of both our long-term growth opportunity and ability to re-accelerate growth in the coming quarters. ON24 is a growth business against the backdrop of powerful secular trends and a large TAM. With that, I'll hand it over to our CFO, Steve Batuani, to walk you through our Q4 results in more detail and provide our outlook.
spk05: Thank you, Sherrod, and good afternoon, everyone. I'm going to start with our fourth quarter and full year 2021 results, and we'll then discuss our outlook for the first quarter and full year 2022. Total revenue for the fourth quarter came in at the high end of our guidance range at $52 million, representing a decrease of 2% year-over-year against a comp of 123% growth in the year-ago period. Subscription and other platform revenue was $45 million, an increase of 9% year-over-year, against a comp of 115% growth in the year-ago period. As a reminder, other platform revenue includes customer overages, which had historically trended in the range of 3% to 4% of total revenue, depending on customer usage of our platform and seasonality. We are seeing more of our customers choosing to add additional capacity into their contracts at the time of renewal. As such, overages were approximately 2% of total revenue in Q4, and we expect that trend to continue. Professional services revenue was $7 million, a decrease of 41% year-over-year and representing approximately 14% of total revenue compared to 23% in the year-ago period. This decrease was in line with our expectations that we provided last quarter. For the full year, total revenue was $203.6 million, an increase of 30% year over year. Subscription and other platform revenue was $175.9 million, an increase of 43% year over year. Professional services revenue was $27.7 million, a decrease of 19% year over year. Moving 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 in Q4 was $4.2 million, resulting in ending ARR of $171.4 million. This represents an increase of 12% year-over-year against a comp of 100% ARR growth that we delivered in 2020. We continue to see customers make longer-term commitments to our platform with multi-year contracts comprising 35% of our ending ARR compared to 30% at the end of 2020. Our dollar-based net retention rate, or NRR, ended the year at 97%. As a reminder, NRR is a lagging indicator and reflects the impact of elevated churn that we experienced over the past three quarters with first-time renewals, particularly with organizations that were not our ideal customer profile and had one-time needs, as well as some customers that rationalized their expansions. In fiscal 2022, we expect that we will see improvement in our NRR as the year progresses. Despite the elevated churn, Our average ARR for customer at the end of 2021 stands at 81,000 compared to 77,000 in 2020 and 55,000 in 2019. Turning to customer metrics, we had a strong quarter for new logo acquisition. Total customer count increased by 68 quarter over quarter to 2,122. We ended the year with 366 customers contributing ARR of $100,000 or more, representing an increase of 21% from the prior year. These $100,000-plus ARR customers comprised 67% of our ending ARR. As a sign of our strategic positioning and strong expansion, We now have 19 customers contributing ARR of $1 million or more, representing an increase of 36% year over year. Before turning to expense items and profitability, I would like to point out that I will be discussing non-GAAP results going forward. Our non-GAAP results exclude stock-based compensation as well as certain other items. Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results, can be found within our earnings release. Growth to profit for the quarter was $40.1 million, representing a gross margin of 77% and a decrease of 400 basis points year over year. We continue to invest in our cloud infrastructure capabilities to enable sustained growth and growing our customer success teams. turning to operating expenses. Sales and marketing expense in Q4 was $24.9 million compared to $19.5 million in Q4 last year. This represents 48% of total revenue compared to 37% in the same period last year. We have been investing in go-to-market enablement and marketing to drive market awareness. R&D expense in Q4 was 8.1 million compared to 5.8 million in Q4 last year. This represents 16% of total revenue compared to 11% in the same period last year. We have been ramping our investment in R&D as we accelerate our pace of product innovation and bring new products to market. G&A expense in Q4 was 8.9 million compared to 6.9 million in Q4 last year. This represents 17% of total revenue compared to 13% in the same period last year. Our G&A expenses have increased due to the costs associated with being a publicly traded company. Over time, we expect G&A expense to scale and decrease as a percentage of our revenue. Operating loss for Q4 was $1.8 million, or a negative 3% operating margin, compared to operating income of $11.1 million and an operating margin of 21% during the same period last year. For the full year, operating income was $2.1 million, or a 1% operating margin. Net loss in Q4 was $1.7 million, or $0.03 per share, based on approximately 47.8 million basic and diluted shares outstanding. This compares to net income of $11 million, or $0.57 per diluted share in Q4 last year, using approximately 19.1 million diluted shares outstanding. For the full year, net income was $1.4 million, or $0.03 per diluted share, using approximately 51.5 million diluted shares outstanding. Turning to the balance sheet and cash flow, cash used in operations in Q4 was $4.5 million compared to cash flow from operations of $10.7 million in Q4 last year. Free cash flow was negative 5.6 million in Q4 compared to positive 10.3 million in Q4 last year. Free cash flow margin was negative 11% in Q4 compared to positive 19% in Q4 last year. For the full year, we generated free cash flow of 1.6 million and ended the year with 382.6 million in cash, cash equivalents, and marketable securities. In December 2021, the Board of Directors authorized a $50 million share repurchase program. During the fourth quarter, we repurchased 428,218 shares at a weighted average price of $16.88 per share, utilizing $7.2 million of the $50 million authorized under the program. We believe our current market valuation does not reflect our long-term growth potential, and we will continue to be opportunistic with our share or purchase program. With that, let's turn to guidance. At a high level, we look at fiscal 2022 as a tale of two halves with a challenging start and improving sequentially each quarter. Our largest challenge that we experienced in 2021 was the first-time renewal cohort, which was four times the dollar value of first-time renewals in 2019, and we experienced a churn rate that was approximately double that of the 2019 cohort. The share of first-time renewals in 2022 is expected to normalize back towards 2019 levels against the backdrop of an improving customer profile. we believe Q1 2022 will mark the last COVID-influenced renewal quarter. The Q1 renewal cohort comprises a significant portion of large-deal renewals, and we have experienced higher-than-anticipated customer rationalization, particularly with a handful of customers who previously signed large expansions during COVID that were up for renewal for the first time. Our gross retention... for pre-2020 cohorts has been stable, which gives us confidence that overall retention will begin to tread upwards in 2022 as we move past the last of these COVID-influenced cohorts. For professional services, we are continuing to see more of our customers electing to be self-service, which speaks to our platform's ease of use and overall user experience. As a result, we expect that the mix of professional services revenue will be in the low teens as a percentage of total revenue in fiscal 2022 compared to 14% in 2021 and 22% in 2020, which will drive a low teens year-over-year decline for professional services revenue in 2022. As I mentioned earlier, overages, which are included in other platform revenue, have been trending lower to approximately 2% of total revenue as more customers choose to add additional capacity into their contract at the time of their renewal. We estimate the combination of lower expected professional services and overages revenue will act as an approximately three-point headwind to our full-year revenue growth rate with a larger impact in the first half. As Sharad highlighted, it has become clearer that the world is moving from pandemic to endemic, and we have incorporated our early view of post-pandemic digital budgets into our outlook. Lastly, we're enhancing our customer success capabilities, launching our partner ecosystem, bringing new products to market, and making improvements to our multi-product enterprise sales motion. We're optimistic that we will see a positive impact from these initiatives, but we believe it will take a couple of quarters to realize the benefits. Now moving to Q1 guidance. Our bookings in Q1 2021 were more heavily weighted towards the early part of the quarter compared to our normal back-end loaded quarters, which is driving atypical linearity for the Q1 2022 renewal cohort. In January, we experienced higher than anticipated customer rationalization, particularly with a handful of customers that had large expansions in prior periods. The challenges we faced with rationalization, coupled with the nonlinearity of renewals, will have an impact on the timing of recognized revenue, resulting in lower sequential subscription revenue. Professional services revenue is seasonally lower in Q1 compared to Q4, and we expect that it will represent approximately 10% to 11% of total revenue. Overages represented approximately 4% of total revenue in Q1 2021, and we now see overages trending to approximately 2% of total revenue in Q1 2022. As such, we expect total revenue in the range of $47 million to $48 million. We expect a non-GAAP operating loss, in the range of $8 million to $7 million and a non-GAAP net loss per share of $0.17 to $0.15 per share based on 47.7 million basic and diluted shares outstanding. And for the full year 2022, we expect revenue in the range of $200 million to $204 million. We believe 2022 will be a tale of two halves, with Q1 marking the trough and subsequent improvement in net new ARR throughout the year as the profile of renewal cohorts improves and customer rationalization of expansions from 2020 and 2021 also subside. Exiting Q4 2022, we expect an ARR growth rate in the low teens, which will accelerate into fiscal 2023. In the second half of the year, with the compares largely behind us, we expect subscription and other platform revenue growth to re-accelerate to the mid-single digits. Professional services revenue is expected to be approximately in the low teens as a percentage of total revenue for the full year 2022 compared to 14% in fiscal 2021 and 22% in 2020, resulting in a low teens year-over-year decline. Given the moving parts within revenue, we believe ARR is the most appropriate metric to evaluate the underlying momentum of the business. We expect a non-GAAP operating loss in the range of $30 million to $27 million, and a non-GAAP net loss per share of $0.64 to $0.58 per share, using $49 million basic and diluted shares outstanding. As I mentioned, we faced headwinds in 2021, primarily from the elevated churn within first-time renewal cohorts and rationalization from large expansions during COVID. We're confident that these headwinds will soon abate and believe that our long-term market opportunity has not changed. As a result, we believe that we have a unique opportunity to invest in accelerating our long-term revenue growth rate and advancing our leadership position. In 2022, we plan to make targeted investments in our go-to-market function, public cloud infrastructure, and product development initiatives. Overall, we do expect to see bottom-line improvement throughout the year as the top line reaccelerates and we drive leverage from the investments made over the last year. As we look ahead, We are laser-focused on further accelerating ARR growth in an efficient manner, improving net dollar retention, and driving operational improvements across the business. We expect an improving bottom line in 2023, and we believe that we have a clear path over the next several years to achieve our target model of 20% or higher non-GAAP operating margins while driving top-line growth. With that, Trot and I will open the call up for questions. Operator?
spk00: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speaker phone, 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 now take our first question from Arjun Bhatia with William Blair. The line is open. Please go ahead.
spk06: Perfect. Thank you. Thanks for taking my questions. I want to start off with maybe just asking how you're thinking about profitability in 2022 and how you think about the ROI of the investments that you're planning to make next year, especially as the world moves from pandemic to endemic. And as you pointed out, you know, the demand environment is being impacted a little bit as customers rationalize their their spend going into 2022? And I'd be I would love to hear more on the go to market investments that you're making, but but if you can answer broadly as well, that would be great.
spk05: Hi, this is Steve. I'll go ahead and take the profitability question. So first, let me start by saying we grew our ARR by 123% over the last two years, and we've been profitable both years. Now, our market opportunity has not changed. Every company is now digital. Now we are facing some near-term factors. We're lapping the last of the COVID impacted quarters here, and we did see some larger rationalizations in Q1, but we believe Q1 will be the trough for that. We're seeing new customer acquisition strength. We have 68 net new logos in Q4, and we're pleased with the pipeline. We believe ARR is the best metric to evaluate the momentum of the business, and revenue is a bit of a lagging indicator. Now, we've always run this company prudently, but we are making targeted investments to drive growth. But the major issue really has been churn, and we believe that will be behind us shortly, and we'll start to see the growth inflect in the second half. Now, we'll obviously watch the investments we're making in 2022, and if we don't see them paying off, we'll make adjustments as needed.
spk04: Yeah, let me add, Arjun, to what Steve just said. Churn has been our biggest issue. You know, if we look at 2021, I mean, we did quite well on growth ARR, but we couldn't outrun the churn. And if you look at the numbers we talked about, The first time renewal cohort where we saw the maximum churn, that size was four times what it was in Q1 in 2019. And the churn of the first time renewal cohort was twice what it was in 2019. So we could outrun that churn. Now, the good news is that as we get to Q2, we would have already renewed that, you know, we've renewed the peak of the Q2 cohort already last year. And the largest cohort, which is the existing renewal cohort, which is generally about two-thirds of total, has been stable. The retention level has been stable in that through COVID. Now, regarding investments, you asked about go-to-market investments. I mean, we are focused on targeted investments where we are seeing higher sales productivity and what we need to fix the enhancements in the customer success function. Now we've made an, we've made investments there, but we are continuing to learn from our customers in terms of coverage ratios, in terms of talent, in terms of, uh, leadership, what we need to do, uh, the onboarding program that we are doing. We are elevating the quality of that. Uh, we've launched two new products in, in, uh, 2021 breakouts performed really well. And at the end of last year, we launched Go Live and we are seeing good momentum on those products. And we will be adding more products in Q2 as we move forward. We've improved our leverage from our partner channel. We've talked about this before. In early 2021, the contribution was low single digits. By the end of 21, we brought it to high single digits. My target there in the future is to get that number to about 20%. And then, of course, the focus on our enterprise sales execution with multiple products, making sure it is consultative, that we can sell multiple products. So, again, we are going to make the investments prudently, but we are a growth business, and so our focus is that. And our focus there is with these investments and what we are doing, we should end the year at a growth of low-teens ARR, which we should further accelerate into 2023 to high-teens. That's our focus.
spk06: Perfect. That's very helpful, Collin. Thank you.
spk00: Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. We'll now move on to our next question from Brent Braslin with Piper Sandler. Your line is open. Please go ahead.
spk08: Hi, guys. This is Hannah Rudolph on for Brent today. Thank you for taking my question. I guess first one is just, could you talk more broadly about how you're thinking about your durable growth rate in the post-pandemic world and what is giving you confidence in that?
spk04: Yeah, let me take that. You know, our market opportunity has never been larger. You know, we still see a large stamp of over $40 billion I mean, we know that sales and marketing is moving increasingly to digital channels, so nothing has changed there. The way we look at it is Q1 is the trough of our business. Churn has been our biggest issue. And as we lap the COVID quarters, there are two things that are happening. One is our cohorts materially get better. Once we get past the Q1 cohort, the cohorts get better. So Just from a mathematical point of view, you know, it is easier for us to get past some of those churn issues, okay? Again, I just want to highlight the existing renewal cohort has been quite stable. Now, in terms of growth rate, with the investments that we are making and the things that we are doing, we feel quite comfortable that we should end the year at a low-teens rate ARR growth rate, which we can further accelerate in 2023 to high teams. That's what we feel quite good about talking about based on the investment that we are making currently.
spk08: Great, that's helpful. And then could you remind me of where you are in terms of your full productivity for your Salesforce?
spk04: Yeah, so we've closely tracked sales productivity. And in 2021, The sales productivity was slightly higher than 2019, in spite of the large number of hires that we made. So, you know, ARR in 2021 was mainly impacted by the churn in the first-time renewal cohort. Now, we want to improve the productivity that we had, you know, in 2021. Again, it was better than 2019. We are laser-focused in terms of improving our churn. We are laser-focused in terms of increasing our productivity. But I kind of feel good about the capacity that we have and the productivity where we are. And we are planning to not make large investments but very selective and targeted additions in areas where we see strong productivity, like markets like Japan, like our install base and expansion business. So that's where we intend to continue to invest.
spk08: Great. Thank you.
spk00: We'll move on to our next question from . Your line is open. Please go ahead.
spk03: Hey, this is Shranik Kothari, standing in for Rob. So apart from the COVID-affected downed annuals and the SMB churn among the non-ideal customers that you have been talking about and you've been dealing with, it also appears that the net new 100K ARR customer ads kind of slowed quite a bit sequentially. So can you elaborate on the underlying factors, like, How much of it is just kind of demand pull-ins and rationalization affecting, like, gross ads versus churn, specifically amongst the larger customers? Or is there anything else that's going on which we're missing? And just a follow-up after that.
spk04: Yeah, Shranik, you know, we added four net, you know, net ads to the $1 million plus ARR customer cohort. Now we have 19 total. We added that in Q4. We had a strong quarter of 68 net new logos, the best after Q1 at about the same levels in 2021. We saw some initial purses that were just under the 100K mark, and we expect to expand those over time just to provide a little more color. Our average new enterprise ASP in Q4 was the highest on a year-to-date basis. That was the highest that we have all year. So we feel quite good about where we are. That should provide you perspective.
spk03: Got it. And just a quick follow-up. I know you mentioned about this briefly, but what are the behaviors you're observing from your most important enterprise customers in terms of multi-product adoption, new product adoption trends, GoLive, which is now GA, and so on?
spk04: Yeah, so let me answer that in multiple parts. So first of all, Our multi-product adoption is 35% in Q4, and it's double compared to where it was in 2019, end of 2019. So we are saying our customers adopt multiple products across the board, and we are going to continue. That is an important motion now, especially with breakouts earlier and go live currently. Specifically about go live, let me make a couple comments. We've received, we just launched it at the end of last year, so it's been about a month and a half or so. Excellent customer feedback. We are building awareness and pipeline, and we expect it will ramp through the year and contribution accelerate at the end of the year. Now, I want to make one other comment because that is important. And in my prepared remarks, I talked about, gave the example of a large customer and how our large customers are behaving. This is the example of one of the largest physical and digital events organizing firms and who increased their spend with ON24 during COVID by 3X. And they just renewed their contract with ON24 in January. It's one of the rationalizations that we've talked about, but they have signed a multi-year agreement, annual ARR spend of seven figures, which is two times their pre-COVID spend. So, yeah, they went to 3X and came down to 2X. But still, it's a pretty significant increase in the wallet share. So that's what we are seeing in many of our large customers. And the good news there, Shrenik, is by the time Q2 happens, you know, all those customers have already gone through one cycle of a complete cycle of rationalization. And so we feel good about that. So hopefully that gives you a color how we see our customers evolve their spend going forward.
spk05: And just to add on to what Scott was saying, the percentage of our ARR and multi-year agreements at the end of the year was 35%, and that's the highest it's ever been.
spk03: Got it. Got it. That's really helpful. Thanks, Shara. Thanks, Steve.
spk00: Thank you. We will move on to our next question from Sterling Otey with J.P. Morgan. Your line is open. Please go ahead.
spk07: Hi, this is Drew on First Sterling. You mentioned that ARR growth should be in the low teens as you exit 2022. Should we expect more of that to come from average ARR per customer or from customer growth?
spk05: You know, I think you'll see it coming from both. You know, we're seeing, you know, our average AR per customer has ticked up year over year, Drew. It went from, you know, 77,000 per customer at the end of 2020 to 81,000 per customer at the end of this past year. We're pretty good at, you know, expanding within our customers, so I expect both will contribute to that number.
spk04: Just to add to what Drew just said, and I just talked about that, Drew, is We added 68 net new customers in Q4, which in spite of the churn, you know, we feel very good about. So, of course, the install base will contribute, but we are also very laser-like focused on net new ads, which is the driver of the business.
spk07: Got it. Thank you.
spk00: Thank you, and I'll take our next question from Scott Berg with Needham. The line is open. Please go ahead.
spk01: Hey, guys. This is Josh on for Scott. So if you look at the customers who are downsizing their subscription, is there any commonality in terms of the industry or how they were affected by the pandemic? And then is this entirely like lower usage renewals, or are they also decreasing the number of modules that they're using as well?
spk04: Yeah, I think during the pandemic, what happened is when the physical world had stopped, people had added a lot more workspaces logins on a on a global basis are up to, you know, across across the organization that you're a lot if you're a large enterprise, you needed you needed more licenses in different markets. So what And so people may have gone, based on the example I gave you about this, the physical and digital events company, people may have expanded their usage much widely. In many cases, they expanded their users to three or four times what they were doing pre-COVID. What we have seen as people are rationalizing their thing in Q1, what we've seen them reduce some modules, remove some workspaces and logins, and to really optimize it to what they really need going forward. But again, when you look at our top renewals, what you will see is the ARR contribution of the top renewals, even after rationalization, is meaningfully higher than where it was pre-COVID. So that's a very important thing. The other question you asked about is that different based on different verticals. No, I think it's been very similar based on, on their different work verticals, because one of the things that we do with these, with these larger customers, our focus really has been on being a sales and marketing engagement platform, which provides the data and insights to drive revenue. So that's a very important part that they already use. Uh, so, and, So that usage across the, you know, continues to be strong, and that's what we've seen.
spk01: Okay, got it. That's helpful. And then the guidance implies that you are still investing pretty aggressively in the business in terms of growing operating expenses over the next year. Can you give us some more color on what are the priorities for investment this year and, you know, How should we think about that split, whether it's across sales and marketing, R&D versus G&A? Thanks.
spk04: Yeah, in terms of... Steve, go ahead. I think let me start that. We are focused on making targeted investments this year. And Steve is going to provide more color. I mean, we talked about enhancing our partner channel. We also talked about areas where we are seeing strong sales productivity. In those areas, we are going to make more investments. We talked about how last year we were really impacted by churn. We couldn't outrun the churn. We are continuing to make investments on our engineering and product functions, as you would expect, because we expect to continue to bring more functionality forward. And on the customer success function, we are continuing to look at leadership and talent to enhance our go-to-market. But in each of these cases, we are very focused on very targeted investments. If you look at our expense structure, we did go up pretty significantly compared from when we started investing in the second half of 2020 to the second half. of 2021. But since then, our investments have generally been a lot more targeted. Steve?
spk05: And to add a little bit of color to what Shirat was saying, in terms of the gross margin, you know, we do expect to see some gross margin compression of probably a few hundred basis points year over year. And 2022. Now, we are making investments in customer success to enhance our capabilities and coverage ratios that I was trying to discuss to improve our customer retention. And also, our newer product offerings, they run in the public cloud, so they do have a slightly lower margin profile. And we're continuing to invest in our network infrastructure. Now, we're not planning a wholesale move of the platform to the cloud. It's really just the newer products that will be cloud native. We are committed to our long-term gross margin target of 78% to 80% as we grow and see leverage over time, but we are making some of these targeted investments there in 2022.
spk01: Got it. Thanks, guys.
spk00: Thank you. It appears there are no further questions at this time. I'd now like to turn the conference back to Sherrod for closing remarks. Thank you.
spk04: In closing, to reiterate, 2021 was the most pivotal year in the company's history, and I couldn't be more excited for what lies ahead. I want to thank all of our dedicated employees and amazing customers for the incredible milestones that we achieved. We are the leading B2B sales and marketing platform for digital engagement, delivering actionable data and insights to drive measurable business growth. While we have some near-term factors impacting our outlook, we have a roadmap for execution and strong confidence in our vision and strategy. We are proactively making improvements in areas of our business, and the entire team is focused on executing against our priorities for 2022. Finally, I invite all of you to join our customer conference, the ON24 Experience, on April 20th, where you can learn more about our platform vision hear firsthand from our customers, and see the exciting product innovation in action. Thanks, everyone, for being on the call today.
spk00: Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.
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