ON24 - Earnings Call - Q4 2020

Transcript

Speaker 0

Good afternoon and welcome.

Speaker 1

Please note that the live webcast of today's call may be accessed through the Investor Relations section of the company's website at investors.on24.com. Please note that this call is being recorded. At this time, I'd like to turn the conference over to Miley Bergman with The Blue Shirt Group. Please go ahead.

Speaker 2

Thank you. Hello and good afternoon, everyone. Welcome to ON24's fourth quarter twenty twenty earnings conference call. On the call with me today are Sherat Chiron, the Founder and CEO of ON24 and Chief Financial Officer, Steve Votuone. I would like to remind everyone that some information provided during this call may include forward looking statements, including, without limitation, statements about ON24's future events, expected financial and operating results, business trends, global economic trends and expected timing of the benefits, if any, of such trends.

These forward looking statements may contain such words as project, outlook, future expectations, will, anticipates, believes, intends or referred as to guidance. These forward looking statements reflect beliefs, estimates and predictions as of today, and ON24 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 attract new customers and expand sales to existing customers, fluctuation in our performance, competition in our markets and any decline in demand for such solutions. Our ability to expand our sales and marketing capabilities and otherwise manage our growth the impact of the COVID-nineteen pandemic and other risks identified in the company's SEC filings.

For a detailed description of risks and uncertainties, which could impact these forward looking statements, you should review ON24's periodic SEC filings, including the risks identified in today's financial press release. 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.

With that, I will now turn the call over to Sharad. Sharad?

Speaker 3

Thank you, Miley, and welcome, everyone, to ON24's fourth quarter and full year twenty twenty financial results conference call, our first as a publicly traded company. Thank you for joining us. I also want to thank all of our employees, customers, partners, and investors for being a part of our great fourth quarter twenty twenty and successful IPO in February. This has been a tremendous journey, and we are excited for the future. Since this is our first call together and we have many listeners who are just getting to know ON24, I'll first share a quick summary of our financial results for q four and twenty twenty, and then spend a little more time than usual on our platform, key differentiators and vision for the future.

We had a very strong fourth quarter, which capped the year of tremendous growth for On24. In Q4, we delivered ARR growth of 100 year over year, ending our fiscal year 2020 with $153,400,000 in ARR. Our fourth quarter revenue for our Digital Experience Platform business grew 137% year over year to a total of 53,100,000 At the same time, we demonstrated significant leverage, which drove non GAAP operating income of $11,000,000 and $10,000,000 in free cash flow in the fourth quarter. For the full fiscal year of 2020, for our digital experience platform business, we achieved revenue growth of 92%, closing our year with $154,800,000 in revenue. Now I'd like to take a step back and share our story.

For people who don't know us, let me tell you how we got here. Seven years ago, I had an epiphany. Social media and digital experience platforms like Facebook, YouTube, and Instagram were transforming b two c marketing. These platforms deliver highly engaging experiences, which is why consumers enjoy spending so much time on them. As a result, these companies know so much about us that they're able to deliver highly personalized and effective advertising.

I'm sure all of you can relate to the experience of scrolling through our your favorite social media feed and seeing ads for precisely the products in which you are most interested. And seeing this emergence between highly engaging digital experiences and the ways in which platform companies could use data to understand consumer buying intent, I realized there was nothing like this in the b two p world. And that's when we decided to go all in to build additional experience platform that creates deep engagement, first person data, and AI driven personalization for b two b companies. Fast forward to today, ON24 delivers a digital experience platform that enables thousands of businesses to convert millions of prospects into customers. These digital experiences that include interactive webinar experiences, virtual conferences, and always on multimedia content experiences allow companies to deeply engage with their prospects at scale.

The On24 platform takes that audience engagement, converts that into first person data, personalizes that through our AI driven platform, and makes the data actionable by integrating that within our customers' sales and marketing ecosystem. Today, we count some of the world's largest and most recognized businesses in the world as our customers, including two of the five largest global technology companies, four of five largest U. S. Banks, three of five largest global healthcare companies, three of the five largest global manufacturing and industrial companies. We have a very large TAM that we currently estimate to be over $42,000,000,000 worldwide annually and expect this opportunity to grow as digital is increasingly the norm.

We've been enabling digital transformation and digital engagement for our customers for several years, and now the market has come to us. Due in part to the global pandemic, companies have gone through ten years of digital transformation in ten months. They have been able to see the reach, the engagement, and the richness of the data to get through our platform. And now it's clear to them and to us that there is no going back to business as usual. There are other tectonic shifts also upending traditional sales and marketing strategies.

Gartner predicts that by 2025, almost 80% of b two b sales interactions between suppliers and buyers will occur in digital channels. In addition, the b two b buyer is self educated, just like our b two c labs. When you shop for a car, you do all your research and choose a model, even colors and other options, well before you ever speak to a salesperson. This same transformation is happening in the b two b world, and companies are waiting to adapt their go to market strategies to meet their prospective customers where they are. The archaic and automated technologies b to b companies used in the past to engage these buyers, spamming them with endless emails and ads that lack personalization simply don't work and offer a poor return on their sales and marketing investment.

This is creating endless spam, clickbait, and junk. Marketing at scale has become synonymous with automation and spam, so much so that countries are stepping into it to stop with regulations like GDPR. At ON twenty four, we believe it's time for a new era in b to b sales and marketing that is led by engagement. The era of automation is over. The era of engagement is here.

Our customers come to us to solve two problems, engagement and data. If you look across different kinds of sales and marketing tactics, some are engaging, some provide data. We don't believe there's a solution that that can match our ability to do both. Physical events are engaging, but they're expensive and provide almost no data about prospects. Email marketing scales but creates endless span.

A click, a view, a download that is not engagement. That is where ON24 comes in. We believe our cloud based platform stands alone when it comes to driving engagement and delivering data. That's because we've designed a system of engagement that delivers experiences purpose built for marketing and sales. In 2020, our platform powered over 200,000 live digital experiences, totaling more than two and a half billion minutes of engagement per year.

Over 4,000,000 professionals engaged on the ON twenty four network monthly, a 170% increase year over year. A single ON twenty four live experience averages fifty minutes to audiences that average more than 200 attendees, delivering over 20 data points of engagement for each attendee. In today's world of short attention spans, if you can create a platform that engages prospective customers for fifty minutes on average, you are doing something like that. And that's just a single experience. Most of our customers deliver hundreds or even thousands of experiences per year.

Because the more experiences you do and the more people you engage, the more data you capture. That creates a multiplier effect for every single one of our customer. That also creates a multiplier effect across our entire network of experiences. Now let's talk more specifically about our platform and products. There are three components, the ON 24 Experiences, ON 24 Intelligence, and ON 24 Connect.

First are the ON 24 Experiences. They are a suite of four products. On24 Elite, our flagship live interactive webinar experience product. On24 Virtual Conference, immersive, scalable, digital events product. On24 engagement hub, a curated, always on multimedia content experience product, and On24 target, a personalized, hyper relevant, rich media content experience.

Every ON twenty four experience product is backed by our analytics layer, ON twenty four intelligence. As customers engage with these experiences, they generate first person data, which we run through the on twenty four analytics platform. This is the secret sauce. We develop a three sixty degree view of every individual from the questions they ask to the polls they answer to the content they download. All clues that turn customer engagement into rich insights.

And those insights fuel our AI engine. We capture prospects' lifetime activity, the history of business interests to automatically recommend relevant content and personalize the next experience. This propels buyers forward, taking them from one relevant experience to the next, reducing friction and accelerating conversion and revenue. Finally, through On24 Connect, we make the data available in the sales and marketing ecosystem of our customers. We have built near real time deep integrations with all the leading CRM, marketing automation and business intelligence tools.

As an aside, some of you are using our platform right now, listening to our earnings webcast through our alliance with Q4 Systems. It is important to note that Investor Relations and these type of calls are a small fraction of our revenues and many of them do not demonstrate the true power of our platform. Now looking forward, we believe the future is all about hybrid engagement. While physical events will come back in some form, they will be used to complement and augment a digital first strategy. Why will that be the case?

Listen to what our customers have learned over the last year. One of the largest cloud networking and infrastructure companies is generating five times more pipeline compared to in person devs. Another Fortune 100 global software company is increasing their average deal size by 10% in comparison to results from in person events. And a large professional services firm has increased its number of engaged prospects by seven times at just one third of the cost. Let me share some information about our growth vectors.

First, we're adding sales capacity to drive new customer acquisition and customer expansion. Second, we are entering new international markets including Japan and Dock. And finally, we're investing in our r and d organization and continue to develop new products to add to our overall platform offering. Now let me share with you a few customer wins from q four. One of our enterprise customers, a top global European pharmaceutical company, selected the On 24 digital experience platform as its worldwide solution to engage health care professionals through ongoing webinar series that share their scientific research.

We are being used by their organizations across the world from Europe to North America to South America to The Middle East. A big differentiator for us in landing the customer was our purpose built platform, global support, and integration with the life science of CRM. This contract is over a $100,000 in ARR to start, and there is tremendous growth potential as we continue to expand across geographies and product lines. Another customer win in Q4 comes from Japan, A top multinational venture capitalist and investment firm is is using our platform to achieve global reach for multilingual digital events and webinars. Our ability to support 50 plus languages and provide 24 by seven support across multiple geographies is a big differentiator for us and winning factor with large multinational enterprises.

One of our customers, a top Fortune 500 insurance and financial services company, uses Launch24 to power the go to market for every line of business across the globe from consumer insurance to commercial risk. In the fourth quarter, we expanded from using our webinar solution to our full product portfolio and leverage our platform for multiple sales and marketing use cases. This customer chose to make us their global standard because of our enterprise grade holistic platform that provides the security, scale, and data driven engagement their entire organization needs. As a result, the customer has increased their spend with us by 300% since originally landing their business in 2016 at a high 6 figure ARR level. To wrap up, we are excited about the customer momentum we are seeing for both new customer acquisition and existing customer expansion and upsell.

The business benefits that our customers are achieving with our platform in generating sales and pipeline are impressive and undeniable. As we move forward into a hybrid world, we believe that we are ideally positioned with a data rich digital first system of engagement that enables business growth for our customers. Finally, I invite all of you to join us on April 28 for ON24's virtual conference, the ON24 experience, where you can learn more about our platform vision, hear from our customers, and explore our product portfolio. With that, I'll hand it over to our CFO, Steve Vachewani, to walk you through our Q4 results in more detail. Thank you.

Speaker 0

Thank you, Sharad, and good afternoon, everyone. Before I get into our results for the fourth quarter, I would like to spend a minute discussing our financial model and key metrics that we look at to measure our business. The majority of our revenues are generated from subscriptions that we sell to our digital experience platform, which is delivered through cloud based software. We also recognize overage fees as part of this platform revenue, which are billed in conjunction with our customers' usage of our platform. Revenue on our subscriptions and related overage fees is recognized ratably over customer's contract term.

Our contracts are generally one to three years in length, and the majority are billed annually in advance. As is typical with SaaS businesses, many of our contracts have built in auto renewals and annual price increases. We also generate revenue from professional services, which primarily consist of implementation and support services. The bulk of these services are sold as part of our subscription bundle and are often recurring in nature. This revenue is recognized at the time services are performed.

Our professional services revenue is seasonal in nature, which I'll elaborate a bit more on in a moment. Overall, we focus on digital experience platform revenue, which includes subscription, professional services and other revenue associated with our software platform. Digital experience platform revenue excludes our legacy revenue, which consists of revenue from fully managed events and associated services. We stopped selling this offering to new customers in 2018, so it's a very small and shrinking portion of our revenue today. And finally, we focus on annual recurring revenue, or ARR, as a key indicator of our business momentum and future revenue potential.

We believe our ARR growth reflects our ability to both land new customers and expand our footprint within existing customers as they add additional users, capacity and products, and our platform becomes more strategic across their businesses. We also believe the growth in our ARR reflects our ability to win larger customers who are signing multiyear agreements with us. As of December 31, 29% of ARR was from customers with multiyear agreements. Now turning to our results. As Sharath mentioned, we are very pleased with our fourth quarter results, which capped a year of very strong growth for ON24.

Total revenue for the fourth quarter was $53,300,000 an increase of 123% compared to 2019. Total Digital Experience Platform revenue was $53,100,000 an increase of 137 year over year. Subscription and other platform revenue for the 2020 was $41,200,000 an increase of 115% compared to the 2019. As a reminder, this includes overages, which are generally around 3% to 4% of revenue, but can be higher depending on customer usage of our platform. Professional services revenue in the fourth quarter was $12,000,000 an increase of 155% year over year, representing 23% of total revenue.

The fourth quarter is typically seasonally very strong for services revenue as our customers are utilizing our professional services more frequently with more usage of our platform. We saw this materialize in the fourth quarter, particularly with the number of new customers we have using the platform, and we expect Q1 will be seasonably lighter for professional services revenue. 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. Total ARR as of December 31 was $153,400,000 an increase of 100% year over year.

The growth of our ARR is underpinned by four primary drivers. First is our expansion opportunity within our existing customer base as they increase usage of our platform with additional users and capacity. Second is increasing number of customers we see purchasing more than one of our products. As of the end of the fourth quarter, 30% of our customers purchased two or more products compared to 17% at the 2019. Third is the increasing share of customers who are entering into multiyear agreements with us, which I discussed a moment ago.

And fourth, new customer acquisition is a key driver of ARR growth.

Speaker 3

To that end, we finished

Speaker 0

the fourth quarter with approximately 2,000 customers, representing growth of 42% year over year. In addition, we added 158 customers with ARR greater than $100,000 representing growth of 110% year over year, which demonstrates our ongoing traction with larger enterprise customers. These factors give us confidence in our ability to upsell our suite of experiences to existing customers and demonstrates a significant runway we have within our existing customer base. Moving on to net retention. Our NRR as of Q4 twenty twenty was 149% compared to 108% as of Q4 twenty nineteen.

We saw an exceptionally high net retention rate to close out twenty twenty due to the rapid adoption and expansion of our platform amid the pandemic. While we are pleased with the strong net retention and expansion, we expect to see some normalization in NLR as we lap these COVID quarters over the course of 2021. Before turning to expense items and profitability, I would like to point out that I will be discussing non GAAP results going forward. Our GAAP financial results, along with a reconciliation between GAAP and non GAAP results, can be found in our earnings release. Gross margin in Q4 was 81%, up approximately 10 percentage points year over year.

In Q4 and throughout 2020, we experienced very rapid revenue growth and our pace of hiring headcount and customer success and services was much slower. As a result, we demonstrated very high gross margins in 2020 and specifically in Q4. As we scale our business to support our growth in the quarters ahead, we expect this to reduce gross margins in the near term. Turning now to operating expenses. Sales and marketing expense in Q4 was $19,500,000 compared to $11,900,000 in Q4 last year.

This represents 37% of total revenue, an improvement compared to 50% in the fourth quarter last year. We intend to invest in sales and marketing as we expand our sales force to support increased demand for digital experiences post COVID. R and D expense in Q4 was $5,800,000 compared to $4,000,000 in Q4 of last year. This represents 11% of total revenue versus 17% in the same period last year. Given that our R and D efforts drive our competitive advantage, we plan on increasing our current R and D spend relative to revenue versus what we invested in Q4.

G and A expense was $6,900,000 for the quarter compared to $3,500,000 in the fourth quarter last year. G and A was 13% of revenue versus 15% of revenue last year. Operating income in the quarter was $11,100,000 compared to a loss of $2,300,000 last year. Operating margin was 21%, an improvement of more than 30 points compared to negative 10% in the same period last year. Net income per share in Q4 was $0.57 per share using 19,100,000.0 diluted shares outstanding.

This compares to a net loss in Q4 of last year of $0.31 per share using 8,900,000.0 basic and diluted shares outstanding. Free cash flow was $10,300,000 in Q4 compared to negative $4,400,000 last year. Free cash flow margin was 19%, a 30 plus percent point improvement compared to negative 18% in Q4 last year. Turning to the balance sheet. We ended the year with $61,200,000 in cash, cash equivalents and short term investments.

This balance does not include the $348,000,000 in net proceeds from our IPO, which occurred in the first quarter. In terms of headcount, we ended the year with five forty seven full time employees, which reflects growth of 49% compared to the three sixty eight full time employees we had at the 2019. This demonstrates the continued investments we're making in headcount as we scale the business. Finally, turning now to guidance. As Shiraz discussed, we feel extremely well positioned to continue benefiting from the trends driving the need for our data rich digital engagement platform.

We are confident in our ability to drive sustainable growth in the quarters ahead. At the same time, we are coming off a year of explosive expansion for our business, and I would like to offer some context on our guidance before getting into the numbers. While we were already seeing strong momentum across our business at the beginning of 2020, COVID became an accelerant for us as more businesses turned on '24 to engage with potential customers when physical meetings came to a halt. We began adding new clients at a rapid pace and expanding our footprint with existing customers, driving exceptional growth in ARR and revenue. Looking ahead of this year, we will begin lapping these quarters of exceptional growth at a more normalized rate.

While we continue to see fantastic engagement from our customers in the early stages of 2021, our guidance reflects our expectation that we will see some normalization in growth. In addition, as I discussed earlier, we see meaningful seasonality in our professional services revenue. Services revenue has historically been in the mid teens as a percentage of total revenue versus 23% in Q4. We expect to see a sequential decrease in our professional services revenue in the first quarter. Looking at the first quarter specifically, we are providing guidance in a much tighter range than we will be going forward given the timing of this call relative to the end of the quarter.

With that background, for the 2021, we expect revenue in the range of $48,500,000 to $49,000,000 which represents year over year growth of approximately 96% to 98% non GAAP operating income in the range of $500,000 to $1,000,000 or a margin of 1% to 2% and non GAAP EPS of $0 to $01 using 43,000,000 diluted shares outstanding. And for the full year 2021, we expect revenue in the range of $205,500,000 to $208,500,000 which represents year over year growth of approximately 31% to 33% non GAAP operating loss in the range of $2,000,000 to $5,000,000 or a margin of negative 1% to 2% and non GAAP loss per share of $07 per share to $0.14 per share using 44,400,000.0 basic and diluted shares outstanding. In summary, we are very pleased with our results in the fourth quarter and look forward to building on this momentum in our first year as a public company. With that, Shrotte and I will open the call up for questions. Operator?

Speaker 1

Thank you. And we'll take our first question from Sterling Auty with JPMorgan. I'm

Speaker 0

curious, how would you characterize your new customer adoption during the quarter? And what are your strategies to drive further new customer adoption, especially as you get post pandemic?

Speaker 3

Sterling. This is Shaul. You know, our focus, Sterling, 90% of our business is in enterprise and commercial business, and we've got very focused teams on enterprise and commercial, Sterling. So within the quarter, we we significantly enhanced the number of people on those teams, and we saw tremendous momentum on new logos for both new and and commercial, not only from North America, but also from EMEA. I'll give you one example.

One of the companies that we brought on was in the enterprise business is a $3,000,000,000 consumer electronics company based out of out of Chicago. And, you know, they bought three of our products, Elite, Engagement Hub, and Target. Their focus was really pipeline for 2021, but also to kind of expand their the use of their products in their key accounts. So, again, strong momentum both on the on the news side of the business, strong on the enterprise and commercial side. And we generated close to 600 customers last year, Sterling, and these become really key expansion potential for us as we go into 2021.

Speaker 0

All right, great. Thank you very much.

Speaker 1

Thank you. We'll now take our next question from Chris Nolan with Goldman Sachs.

Speaker 0

Okay. Thanks so much for taking the question. I just wanted to ask about existing customers. And as you go through renewals, can you talk a bit about what you're seeing from these existing customers with an eye towards 2021 and beyond, assuming there's some state of normalcy as it relates to the pandemic. How are your customers talking about any changes in their plans to host webinars versus conferences?

What does that strategy look like? And ultimately, what does that mean for you all as they think about renewing the relationship? Thank you.

Speaker 3

Thank you, Chris. And because Chris, like, just for everyone, Steve and I are in different locations, so I'll probably take some of the questions and and and move them to to to Steve also. So, Chris, why don't I take the first part of the question about how our engagement with customers and all is is feeling? And then I'll give I'll give it to Steve who can talk about the normalcy and what the second part of the question that you asked. So overall, we are we are very pleased with our continued momentum.

We are seeing fantastic engagement from our customers. You know, based on what our customers are telling us, they see a future of India future which is about hybrid engagement. This is a permanent change. There is no going back. Companies that are as I said, companies have gone through ten years of transformation in ten months.

Once you've once they've seen the reach, the engagement, the rich data that they that they that they get out of this platform, it's it's hard to go back. I'll give you an example of one of the CMOs of one of the largest software and cloud companies, a Fortune 100 company. And he said to me, he said, Sharath, we're generating more pipeline, more conversion of deals, and the deal sizes are also 10% higher. And I'm spending one third of the money that I spend in physical events. How how do I go back?

So so overall, you know, we are continuing to see trends of customers filing monthly multiyear deals with us. At the end of q four, it was 29% multiyear. Expansion and upsell are doing well. And we're also seeing pretty strong growth coming out of international markets. With that, Steve, do you want to add any color to anything Yes.

Speaker 0

What we're yes, NRR was very strong in Q4, 149%, and we expect our NRR in Q1 to be strong as well, and that's factored in the guidance that we provided. We will see some volatility this year as we lap the third quarters. But at this point, we're really not seeing much of a reduction, and we're seeing very strong customer engagement continuing. Perfect. Thanks so much.

Speaker 1

Thank you. And we'll move on to our next question from Rob Oliver with Baird. Please go ahead.

Speaker 0

Great. Thank you. Good evening, guys. Thank you very much for taking my question. Sharat, I had one for you and then a very quick follow-up for you, Steve.

Sharat, just you mentioned and I thought that was helpful color because you mentioned how you guys see the world as hybrid. And then in response to Chris Merwood's question there, you said that that's because your customers are talking to you about that. I was curious, mean, one of the case studies that we love with Schneider Electric where they talked about 30% conversion to quality leads from virtual attendees of hybrid events before the pandemic. So I'm just curious, as you guys have gotten into more negotiations with current customers and expansion, how those ROI use cases are resonating and just how those customers are thinking about monetization of hybrid?

Speaker 3

Rob, thank you for the question. I mean, if I was to

Speaker 0

go just wanna make

Speaker 3

sure you mentioned Schneider Electric, their numbers before the pandemic. Right?

Speaker 0

Yeah. That that really caught our attention because I I if I recall, they said that they saw, you know they they they were they were hosting these live events where they had virtual events on top of them, and they were getting these customer conversions on the virtual events to quality leads at a very, very high rate, which seemed quite encouraging to us because obviously that was pre pandemic.

Speaker 3

Yes. Rob, thank you for the question. So let me take that. As you know, Rob, I mean, we were doing very well pre pandemic. In q one last year, we grew 31%.

We had 73% gross margins, and we were operating profitable. And, you know, our our the premise of the foundation of our our business was we've been working with companies for years and working with them on their digital engagement strategy and their digital transformation. So as this pandemic is hitting, I mean, I break the customers into two different parts. The those there are those who have been who have been using the platform before and have been able to see the results. And and then there are the new ones who are probably more doing the physical events.

I think the ones who are doing that in the past, they are doing a lot more because they they know the reach, the engagement, and the data, but the new ones have now been exposed to it. And when when once you get exposed to the fact that you get, like, the example I gave, the cloud and networking company, once you get five times more reach and you get 10 times more you know, 10% more deal size and you close more deals, there is no going back. So so that's why the people who are doing it are gonna do more stuff as we move forward. But, also, we have the whole whole cohort of new customers, people who have really seen the value of the digital platform and are going to use it more. I want to also highlight one other thing.

There's a major trend here that that I talked about in in my remarks. And the trend is, according to Gartner, by 2025, 80% of sales and marketing is going to be done over digital channels, and that was happening pre pandemic. Now that's that's only gonna get accelerated. So it's not that this was not happening before. I think you'll see significant acceleration as the world moves towards more of a hybrid engagement.

Speaker 0

That that's really helpful. Thanks.

Speaker 3

And then, Steve, just a

Speaker 0

quick one for you. You made a comment about the I guess, the cadence or trajectory of the normalization in NRR, and I missed it throughout 2021. Could you talk about how that might like look throughout the year? Thank you guys very much. Yes.

Yes. I mean, we're not really giving specifics in our forward looking guidance. But I will say as we develop our 2021 guidance we've provided, we were being, what I would call a conservative improvement in our modeling. And the way to think about it is pre pandemic, our NRR was about 110% with a little more than 115% for our enterprise business, and 70 of our ARR is in

Speaker 3

the enterprise. So those should give you

Speaker 0

some guideposts to think about it as we lap the COVID quarters and get through the year here. And if there's upside to that, there's prudent modeling out, that would be great for us. Great. Thanks again, guys.

Speaker 1

Thank you. We'll now move on to our next question from Brent Bracklin with Piper Sandler. Please go ahead.

Speaker 0

Thank you and good afternoon. I guess one for Sharad, if I could, a follow-up for Steve. Sharad, if you look at the pipeline, if I look back in the last year, really, really strong net new logos, obviously, kind of post COVID. But as you look at the pipeline going into this year, with only 30% of customers having two or more products, it seems like the bulk of the opportunity is going to pipeline through the tied to upsells of the installed base. Can you just walk us through what the visibility is like there?

What's resonating with enterprises around additional products? Is it engagement hub that's the real new opportunity to upsell existing customers? And then if you could just touch on any sort of new customer logos and if the pipeline there is healthy as well. Thanks.

Speaker 3

Yes. That is Brent, right?

Speaker 0

Brent, yes.

Speaker 3

Hey. Hey. Hey. Hey, Brent. How are you?

Good. So so, Brent, you know, we we are seeing continued momentum in our pipeline. Our you know, both on the on the side of total pipeline for the quarter, and we track, of course, as you can imagine, the net new pipeline every week. So we are seeing very strong very strong momentum on that. And one of the things that we did last year is we significantly focused on increasing capacity, sales capacity both for our enterprise and and for our commercial business.

At the same time, we also kind of added more sales capacity to our expansion and upsell business and added a lot more leadership capability there too, as you said. So we we are we are attacking on all fronts. We ended last year with close to 30% of our of our customers having multiple products. As as you know, Elite is about over 70% of our ARR. I think it's followed by engagement hub and virtual conferences and almost around the same and followed by Target.

A lot of our focus this year is to continue to increase, the expansion of of the other products. I mean, just to give provide you perspective, when I talk about 70% plus in Elite, last year, there was a 10% decrease in the in in Elite as a percentage of total because the newer products took off pretty significantly, and we expect the newer products will will continue to to increase their you know, because they are newer, they're gonna grow faster, but Elite is also doing doing very, very well. I I I gave you an example of of regarding multiple products, our our acquisition team is really more and more focused in bringing multiple products. I gave you the example of this consumer electronics company based out of Chicago that bought three products right off the gate. There is another mid market company that bought Elite and Engagement Hub right off the bat, and within a month, for virtual summits, bought virtual conferences.

So we are seeing that kind of momentum. At the same time, we are also basically attacking it through expansion and upsell channel. It. So it

Speaker 0

sounds like those yeah, absolutely helpful there. It sounds like the capacity adds on the sales side are helping both sides of the business, both new logos and expand, which is certainly encouraging. I guess, Steve, the follow-up for you is really around your ability to hire. I mean, you generated $24,000,000 of operating profits this year. You're guiding to kind of a slight operating loss as you make those investments.

And my question here is how difficult has it been in the hiring and onboarding the employees? It sounds like you're having some good success on the sales side, but love to get an update just around your ability to hire and how aggressively are you hiring right now in the current environment? Sure. Yes. As you can see from the headcount numbers, we've been very successful in growing the business and hiring this past year.

And Q1 is shaping up to be another successful quarter for us in terms of hiring and onboarding new employees. And we're really happy with how it's going and where we're at on that, if that's helpful.

Speaker 3

Yes. Absolutely. Just to add to what Steve Brent, what Steve is saying, we got on this thing pretty early about hiring both sales capacity and product as we saw the momentum last year. So so we are doing quite well. And the other thing that we also focus very heavily on was on enablement.

So so far, I know it's a challenge, but so far we are quite pleased with what we are saying.

Speaker 0

Great. Well, that's good to hear and glad that the momentum here continues into Q1. Thanks.

Speaker 1

Thank you. We'll move on to our next question from Scott Berg with Needham.

Speaker 0

Hi, Chad and Steve. Congrats on the first quarter out of the chutes.

Speaker 4

I guess I got two for me.

Speaker 3

You, Scott,

Speaker 0

Back to your prescriptive remarks, you had highlighted two problems that you saw. One is engagement and and obviously the second is data. On the engagement side, how do you look at engagement or measuring engagement with your customers on your platform or their usage on their platform? And I guess what I'm specifically looking at is the engagement levels or usage levels in q four, were they the same or better on a per customer basis as they were, say, in the first couple months after the pandemic? Or did you notice any notable change?

Speaker 3

Let let me let me make sure I understand the question. I I think the question is compared to q four, how do we

Speaker 0

see the engagement this quarter? Correct.

Speaker 3

Okay. That is so so I think we are seeing significant momentum and and continued strong engagement on the platform on in both q four and q one. We q one tend to, you know but but but just just to call it call it, q four is generally our seasonally our strongest quarter as you would expect for many companies that is because and q one is is our weakest our seasonally the slowest quarter. And the reason that is is because, you know, people come back from January. But we see we see people pretty ramped up, and and and it and the engagement on the platform is going very, very strong.

So other than seasonality, it's it's it's business as usual and and maintaining momentum. I I I do want to make I I also wanna make make make one comment here, which is which I think is important. When there's generally a tendency when people think about the, you know, the the post pandemic, there there's a tendency of thinking about the world being all physical events and physical trade shows going back to physical. I just want to highlight that the virtual conferences or the virtual trade show are less than 12% of our ARR. So that's a small portion of our business.

We have a much larger digital experience platform, this experience suite that has been doing very well pre pandemic that we expect is gonna continue to do well.

Speaker 0

Got it. Helpful. And then from a follow-up perspective, Shrek, you talked about adding sales capacity this year. Obviously, you're seeing a big mass increase of demand here. But on a nuance more nuance level outside of just one force, you got a big pipeline and you need to address it.

Are there kind of new opportunities or new channels? You mentioned Japan a little bit. But is there anything else to really call out from maybe a new sales opportunity this year that you're going target that you did not last year?

Speaker 3

I I think let me let me talk about the the four, five carrier areas that we are we are focused on. And we we started focusing on last year. You talked about international markets, so let me start with that. Is our international momentum in EMEA and APAC is is good, but we also we entered Japan and Germany at the end of last year. And this year early this year, we are also entering Southern Europe.

And we are seeing some really good momentum, some early deals. I think we're we're, you know, proof, of course, will be as we as we sustain that, but really strong. Second part of our focus is the new customer acquisition, really focusing on enterprise team, which is more land and expand, and commercial, which is more velocity. So adding capacity there. Expansion and upsell that I talked about.

And then the fourth thing is we're adding you know, we are we are significantly investing in our product and engineering organization and, you know, very much focused on new product features, modules, and others. Just to give you an example, this this this quarter, we we launched enterprise edition for our elite product, which is our flagship product. What this does is it adds accessibility and advanced data insights. So things like live and on demand captioning plus advanced data and insight features. We've we've added that bundle for our enterprise customers on a global basis.

So you those are the three or four areas that you're gonna keep seeing us attack pretty aggressively.

Speaker 0

Great. That's all I have. Thanks for taking my questions.

Speaker 1

Thank you. We'll now move on to our next question from Bhavan Suri with William Blair. Please go ahead.

Speaker 0

Great. Thanks, Charlotte and Steve. Let me

Speaker 3

echo my congrats on a really

Speaker 0

good quarter out of gate here. I already touched on priorities. So you touched on sales and R and D. But one of the things you talked about in the past as we ramped was partners. I'd love to understand how you think about partners today, which which are de minimis, I I feel like, in terms of contribution and to where that plays out in the next three to five years and the importance of the types of partners you might have as you look to scale the business across all the product set set set of suite?

Speaker 3

If well, I'm good good good to chat. I think as as you you as you said, 98% of most of our business right now is is direct, and that's frankly it's an it's a major area of focus for me. It shows you the leverage in in in in our business. I think we are focused on two categories here, Bhavan. The first category is, you know, the sales and marketing here.

We the third party integrations that we have. We build very deep integrations. So with the with the Adobe Marketo, the the Eliquis, and now we're adding the life science and CRM. We're very focused right now in driving more pipeline from that from that channel. So that's one.

I've I've got a VP focused on just driving that. So, again, in its infancy, but but that's an area of focus on pipeline. The other one is we are focused on building an agency channel. As many companies are really looking for this virtual experience virtual engagement platform,

Speaker 0

we

Speaker 3

want to basically get in and then expand that platform. So whether they are smaller agencies or mid level marketing and sales agencies, that's an increased area of focus. Again, very early stages, but at significant level as we move forward.

Speaker 0

Yeah. I'm not sure. Tend to agree. I think the

Speaker 3

availability of the product into these much more complex virtual experiences will will will will be amazing.

Speaker 0

I think the partner approach is gonna do it. I wanna touch on customer count. I know it's been brought up a couple of times. But if I look at it and see if it's for you, you added 56 76,000 this quarter, a 149 last quarter. Average ads last year were, like, 40.

How do we think about that going forward? Do we think we'll trend towards the average ads last year? Now you've gotten more salespeople. You've got more productivity. You've got more focus on that.

But then what's a good number for us

Speaker 3

to think through? Or what's

Speaker 0

the what's the right level of expectation in terms of new customer ads?

Speaker 3

Steve, do wanna take that? No. We

Speaker 0

yeah. I'll go ahead and take that. I mean, we don't we really disclose forward looking guidance on customer count per se. We will report that at the end of Q1. And I will say we're very pleased with how it's going and it's trending in line with our expectations.

Got you. Got you. All right. Thanks gentlemen. Appreciate the time and taking my questions.

Speaker 1

Thank you. We'll now move on to our next question from D. J. Hynes with Canaccord.

Speaker 4

Sharat and Steve. Congrats on the results.

Speaker 0

So Sharat, Scott asked about

Speaker 4

engagement with the platform, right, which I took to mean kind of how many webinars are being run by our customers. I want to ask if you've seen any change in webinar participation rates over the last three to six months. I think some investors wonder if there's any virtual fatigue setting in and what that might mean for future spend among your customers. So any color or thoughts there would be helpful.

Speaker 3

Yes. Think, Vijay, good to chat with you. I think if you look at last year, Vijay, if you look at what happened in Q2 and Q3 last year, the the virtual the physical world just stopped, and people were in panic mode and other stuff. Right? And so, of course, you saw very high spikes in spikes in demand.

Now as q four happened, as q one happened, it it's hard to sustain that level of intensity. It's just not possible. So, you know, if you had conversion conversion change at that time in those q to q three ballpark, If if 100 people are there, you know, registered, as many as sixty and sixty five people join. I think that's not a sustainable number. On our platform, we we generally see that about people based on registration about 40 to 50%, somewhere around 45% is is a is a really good conversion rate for people.

I think we have been able to see that. It's very clear. By the end of the year, people did have what people call the Zoom fatigue kind of a thing. So some of that is there, but that but we are not seeing any impact on the activity of things that people are doing. The conversion rates, of course, have normalized a little compared to what it was in the peak of COVID.

Speaker 4

Yes. Yes. That makes sense. Helpful. And then maybe a more strategic question.

So today, guys integrate into all the leading marketing automation, platforms out there. Is there any aspiration to build out any of that workflow functionality in house? I mean, how how are you guys thinking about the evolution on that front?

Speaker 3

We've not thought about it that much, DJ. It's that business has become I I wouldn't say, you know, a commodity, but that that's kind of widely available a little. I I think more and more so you will probably see us focus on more engagement platforms strategically that really add to the experience layer. How can we drive more and more engagement, more buying signals, more and then you'll see us also invest in our in On 24 intelligence layer more in the in the data and artificial intelligence. And, also, the more the platform, the more we are gonna integrate.

For example, currently, we are integrating very deeply with the leading life science and CRM. That's gonna be important for us as we as we close a lot more life science deals. So from a marketing automation and CRM, you know, our our strategy there is to really integrate more and more deeply with them. We also focus on things like sales enablement platforms. You know, your companies like Outreach and SalesLoft and others, we are providing our we're looking at integrating our customer profiles right into those platforms also.

So our focus really is wider integration, deeper integration of our engagement data in those platforms as opposed to go going with our own there.

Speaker 4

Yeah. Make makes perfect sense.

Speaker 0

And I was

Speaker 3

I was hoping you

Speaker 4

would answer. Alright. Thanks very much. Thank you, DJ.

Speaker 1

Thank you. We'll now take our final question from Alex Kurtz with KeyBanc Capital Markets.

Speaker 0

Yes. Thanks for taking the question and congrats on the quarter and the outlook. Shar, I just wanted to have you take a minute to talk about your data strategy. It's obviously such a key differentiator in what you do relative to some of the other competitive products in the market. What are the plans for this year's investments in data?

And what should investors expect to see as you ramp up that key piece of functionality on the platform?

Speaker 3

Alex, good to hear from you. So two parts. Well, let me talk about investments we are making and and the and the areas. So first of all, we are significantly focused on on adding more engineering headcount, data scientists on the on point for intelligence. And there are two key parts to it.

It's the analytics, and I keep the integration separate. It's the analytics and the AI driven platform. So there are two or three things that we are doing there. First of all, you know, when we talk about logistics experience platform, there are four platforms, elite engagement app target virtual conferences. One thing that we are trying to do is as we provide the chief the the the profiles of people and others, one, are trying to make sure that that the profiles are across all the different platforms.

Right now, they may be a little more siloed. So we are making sure there is one profile of the Shwad, Shwad across the engagement across all the platforms. That's that's the first part. Secondly, we are adding these buying signals across all of them. If you want to book a meeting directly with the customer, how how can you book that meeting?

So we are that's a that's a major area of focus for us. Third is our AI layer, the machine learning. You know, with the explosion of data on our platform, I wanna make sure that after every live experience or webinar, you go to you have recommended content to take based on your interest to take you to the next webinar, to take you to the part of the engagement app, and making making sure that that becomes ubiquitous in our platform. So those three things, again, integrating the data across the different platforms, the the buying signals, and making sure that there are no dead end that goes from one one recommendation to another to continue to enhance the engagement on the platform. Thank you.

Speaker 1

You. And that does conclude today's question and answer session. I'd like to turn the conference back over to management for any additional or closing remarks.

Speaker 3

Thank you everyone for being on the call today. It has been, as you know, a transformative last twelve months for ON24 and I want to take the opportunity to personally thank all of our employees. Thank you for your hard work and dedication and to all of our customers, we really appreciate the trust you put in us and are going to continue to focus on earning that every day. Thank you very much.

Speaker 1

Thank you. And that does conclude today's conference. We thank you for your participation and you may now disconnect.