Good afternoon and welcome to ON24's Third Quarter 2021 Earnings Conference Call. Please note that the live and interactive webcast of today's call may be accessed via the Investor Relations section of the company's website at www.investors.on24.com. [Operator Instructions] Please note that this call is being recorded.

At this time I would like to turn the call over to Nate Pollack, Vice President of Investor Relations. Please go ahead. .

Thank you. Hello and good afternoon, everyone. Welcome to ON24's Third Quarter 2021 Earnings Conference Call. On the call with me today are Sharat Sharan, Co-Founder and CEO of ON24; and Steve Vattuone Chief Financial Officer of ON24.

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 expected financial and operating results, the size of its market opportunity, the success of new products and capabilities, the impact of COVID-19 and vaccines in the way people do business, business trends, global economic trends, the expected timing and benefit, if any such trends and other statements regarding our ability to achieve our business strategies grow through other future events or conditions.

These forward-looking statements may contain such words as project, outlook, future, will, anticipate, believes, intends are referred to as guidance. These forward-looking statements reflects beliefs, estimates, and predictions as of today, and ON24 expressively assumes no obligation to update any such forward-looking statements.

These forward-looking statements are only predictions and are subject to substantial risks.

Factors that could cause or contribute to such differences include, but are not limited to, risks associated with our ability to sustain our recent revenue growth rate, our ability to attract new customers and expand sales to existing customers, fluctuation in our performance, our history of net losses and expected increases in our expenses, competition in our markets and any decline in demand for our solutions, our ability to expand our sales and marketing capabilities and otherwise manage our growth, the impact of the COVID-19 pandemic, disruptions or other issues with our technology or third-party services, compliance with data privacy and other risks identified in the company's SEC filings.

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

Sharat?.

Thank you and welcome everyone to ON24's Third Quarter 2021 Financial Results Conference Call. Thank you for joining us. On today's call, I would like to discuss three key themes that demonstrate the underlying momentum within our business and the large market opportunity that lies ahead for us.

First, we believe our data-rich personalized digital experiences are becoming more differentiated than ever as sales and marketing teams seek to garner valuable first-person intent data.

Second, we are seeing increasing momentum within verticals, such as life sciences and manufacturing that are accelerating their digitization efforts, which we believe, validates our large market opportunity and increased market awareness. Third, we are driving a robust product innovation cadence to deliver on our platform vision.

Before I dive more fully into these themes, let me first review our results from the quarter. For the third quarter, we reported total revenue of $49.4 million reflecting 16% year-over-year growth and above the high end of our guidance range. Subscription and other platform revenue increased 27% year-over-year. Net-new ARR was $3.1 million.

While an improvement compared to $1.1 million in the prior quarter, we expect to see further progress in the quarters ahead. Our third quarter ending ARR was $167.2 million, up 20% year-over-year. We posted a non-GAAP operating loss of $1.4 million for the quarter. The third quarter of 2021 marked our lapping the second COVID-influenced quarter.

Overall, the dollar value of churn declined quarter-over-quarter and churn rate was in line with our expectations. As we anticipated in Q2, the percentage of first-time renewals in the renewal cohort decreased meaningfully quarter-over-quarter, although we continued to face headwinds from those renewals.

We also saw some customers rationalize mid-term additions from last year. Our core customer base of enterprise organizations continued to solidify in the third quarter. The number of customers contributing ARR of $100,000 or more was up 32% year-over-year. Our average ARR per customer also increased both quarter-over-quarter and year-over-year.

Within our Enterprise segment, average ARR per customer now stands approximately 60% higher than it was at the end of 2019.

In addition, customers are continuing to make larger commitments with us and -- on our platform with sequential growth in both the percentage of ARR in multi-year contracts and number of customers that have purchased two or more products.

More recently, we have been aligning our enterprise go-to-market strategy to focus on selling integrated platform deals.

We believe our platform is well-positioned to become a core element of customers’ sales and marketing strategy, as the data we enable them to collect is providing valuable insights across their business and increasingly important to their entire revenue growth engine.

As a result, these deals are highly strategic and can involve multiple stakeholders across an organization, which may result in longer sales cycles. We saw that dynamic play out with some deals in the third quarter.

Longer term, we believe this is a positive, as we become a strategic and critical investment in customers’ sales and martech infrastructure, creating opportunity over time for larger deal sizes and improved retention. Now, let me briefly highlight some of our notable six figure new wins within the third quarter.

In the US, a leading robotic process automation software company purchased ON24 Elite, Breakouts, and Engagement Hub to help accelerate their sales pipeline with digital experiences, drive greater engagement with their customer-facing content, and automate manual tasks using our tight integrations with their martech infrastructure.

Another key win was with one of the largest global aerospace manufacturers that is accelerating its investment in digital engagement, moving from using a collaboration tool to Elite to drive demand-gen and product awareness of its specialized products and services.

On the international front, a multi-national industrial company headquartered in the Nordics that is accelerating its digitization efforts as their technical buyer’s journey has increasingly shifted online. This customer will be standardizing on the ON24 platform to drive lead-gen and educate partners on their complex climate control solutions.

A European-based medical company specializing in eyecare products is implementing ON24 Elite worldwide to drive thought leadership, product awareness, and continuing education for healthcare professionals.

Our land-and-expand sales model continues to be a key pillar behind our growth and demonstrates how we’ve become a strategic partner for our customers as industries fundamentally change the way they engage in order to drive measurable business growth.

In many cases, we start small and then over time expand to additional use cases, departments, and geographies within an organization. I’ll share just a few examples of the many customer expansions within the quarter.

First, a US-based diversified manufacturing company onboarded with ON24 Elite just over a year ago and has already delivered thousands of digital experiences globally for partner and channel enablement on its vast product portfolio.

In the quarter, this customer made a six-figure expansion, purchasing both Engagement Hub and Target, to provide scalable, personalized content journeys for their thousands of channel partners. In just over a year’s time, this customer has expanded by approximately seven times since their initial purchase.

Next, one of the world’s largest pharmaceutical companies who already uses ON24 to educate and build product awareness with healthcare professionals running over a thousand digital experiences per year will now expand their use of Engagement Hub and Target to showcase personalized content in a central hub that can be seamlessly localized to individual markets.

Lastly, a global industrial company that has been at the forefront of digital transformation purchased Engagement Hub for the merger, partner enablement as well as nurturing its existing customer base. We displaced another vendor and one based on our real-time analytics, ease-of-use and customization capabilities.

This customer is now over -- figures of annual spend with ON24. Now, turning to the first theme. Global data privacy regulations and major Internet platforms are increasingly restricting the collection and use of customer data. As a result, marketers are looking for first-party consented data.

They're turning to interactive and personalized digital experiences to capture this data and reach prospects, build trust and cultivate closer relationships. When looking across sources of first-party data, we believe ON24 is uniquely positioned to provide the most insightful and actionable first-party data.

The comprehensive behavior and intent data that we collect within an ON24 digital experience allows marketers to prioritize more impactful leads by understanding buying intent signals mapped to an actual individual's behavior rather than a generalized persona or a job title.

The secret sauce of the ON24 platform is a proven ability to engage audiences with amazing multidimensional digital experiences, live or on-demand while simultaneously capturing first-person engagement data and intent signals. Data is gathered from the questions asked, polls answered, meetings booked, documents downloaded and more.

Engagement with a single ON24 experience generally lasts an average 15 minutes and typically is to audiences with more than 200 attendees.

We use our artificial intelligence and machine learning engine to determine an individual's digital body language by collecting up to 50 data points for each user into a prospect engagement profile and classifying that information into two main categories; one, engagement data, which is used for behavioral profiling and scoring; and two, signals, which depending on the use case are either buying signals or call-to-action signals.

The first-party engagement data creates a flywheel effect. With our AI-driven recommendation engine, we surface personalized and curated content recommendations in a Netflix-like experience. Buyers can control their own journey, self-educating at their own pace while also being nurtured for further engagement.

We also make those rich insights actionable to drive business results. Data -- integrated and orchestrated near real-time across a customer's martech and sales stack, which could be a potential game-changer for sales teams to take more data-driven actions with customers.

In this age of digital engagement, one of the biggest challenges that organizations face is confidence in delivering successful digital experiences. The practice means much more than just streaming presentations.

It's enabling a great customer experience if attendees can engage as if they were in a room together and organizations can drive business insights from those experiences. Without a compelling experience to start, attendees won't stick around and B2B buyers now have the same expectation as what they experience in their consumer lives.

At ON24 -- brief digital experiences. It is our only focus and our platform is purpose-built for sales and marketing teams to deliver tangible ROI for their organization. Our vision is to make every digital experience as engaging as the last with deep insights to move buyers, customers and partners to the next experience.

From day one, we bring enterprise scaled reliability, privacy and compliance and empower our customers with tools, playbooks, benchmarks and global support resources to harness the full power of our platform to be successful. Shifting gears to the second theme.

In the past 1.5 years, digital engagement has emerged at the forefront of marketing and customer experience. Industries such as manufacturing and life sciences have accelerated their digital engagement efforts and seen tremendous success with use cases ranging from educating health care professionals to demos of complex machinery for lead gen.

Even as physical events become possible again, these organizations are realizing that digital is not only the new reality, but a better approach to scaling engagement, generating higher-quality leads and driving more pipeline and revenue than physical events ever did and at a fraction of the cost.

In a recent survey from the Global Business Travel Association, more than 40% of travel managers who responded noted that their company has reevaluated the ROI of business travel and 59% cited the increased use of virtual meetings.

As you heard earlier from some of the new logos landed in Q3, we are seeing accelerating momentum with manufacturing and life sciences organizations, which now represent our fastest-growing verticals.

We believe the adoption of our platform and emerging partner enablement and training use cases within these verticals demonstrate our large TAM and how we are still - in this market opportunity. Let me share two customer examples. Owens Corning an international building materials leader is an example of one of our many manufacturing customers.

Contractors depend on Owens Corning from learning, education and training to stay ahead of changing technology and best practices. Pre-COVID-19, they historically relied on bringing contractors together across the country for in-person events.

Partnering with ON24 Owens Corning has seen amazing success using Elite Engagement Hub and Intelligence to implement a scalable digital approach to reach and engage global contractors, so they can self-educate at their own pace and get the resources they need anytime anywhere.

Manufacturing leaders such as Owens Corning are shifting to digital approaches that are strengthening partner enablement and education across the vast network of stakeholders. One of our life science customers AbbVie is a global biopharmaceutical company that treats 57 million people annually with its products across more than 16 medical conditions.

The pharmaceutical industry had a long-standing tradition of in-person conferences to facilitate peer-to-peer research and educate health care professionals on their products.

With COVID-19, AbbVie transformed from in-person conferences and has delivered more than 1,000 events with the ON24 platform and engaged more than 100,000 attendees across 60 countries. Now let's shift to the topic of our robust product innovation cadence and platform vision.

Less than five years ago, ON24 was essentially a one-product company with our flagship product Elite. We listened to our customers' key pain points, innovated on their behalf and now bring to market a multiproduct system of engagement that combines digital experiences, engagement data and personalization.

The percentage contribution from non-Elite ARR has nearly doubled since the end of 2019 from low-teens to nearly a quarter and more than 30% of our customers have purchased two or more products..

We were one of the first to market in the webinar and virtual event space more than a decade ago and bring a unique heritage and perspective. Our flagship live webinar experience product, ON24 Elite was launched about eight years ago which started our platform journey.

Since then, Elite has gone through a continuous evolution, redefining the marketing webinar category, providing new differentiated ways to connect with audiences and becoming a powerful engine for driving revenue for many of the world's largest organizations.

I'm thrilled for us to launch the next generation of Elite which we will be rolling out over the next few releases. It will have a new user experience, engagement features that mirror the social interactions we have in our personal lives and a rearchitected presenter experience that resembles the power of a professional video production studio.

Go Live our newest experience addition to the platform is a self-service virtual event solution to deliver live-streaming video events faster and easier.

It brings a participation-first approach to events and optimized for two-way conversation to come to the forefront of the experience, so that content is being created, delivered, consumed, and discussed all at the same time.

With Go Live, organizations can build a complete end-to-end external or internal event ranging from roadshows, customer conferences, virtual pop-ups, town halls, and company meetings using prebuilt templates and an easy-to-use and engaging interface.

It is slated to GA at the end of Q4 and we expect it will open up our TAM over time, particularly in the mid-market segment as it addresses the pressing need for sales and marketing teams to quickly stand up video-centric events to drive engagement with prospects, customers, and internal audiences.

We believe Go Live complements both our webinar solution which takes a more content-first approach and a Virtual Conference product geared towards large-scale highly produced events. Today's B2B buyer expects great virtual events but they also want to engage with brands outside of a predetermined point in time.

As such, we are bringing to market a new approach with Engagement Hub live using content and event marketing. Elite can now be integrated into Engagement Hub, so audiences can now go to one smart multimedia content hub and engage with all content whether happening live or on demand.

We envision Engagement Hub as a B2B version of Netflix, a highly personalized single destination for audiences to engage with, with all content from any device that can be accessed any time from a single link. Our platform value to create all digital experiences with ON24 is the data that it generates and flywheel that it creates.

Each ON24 experience is purpose-built to capture every audience interaction and behavior in our prospect engagement profile find additional insights that increases buying interest and intent and surface those signals for action.

Our AI personalization engine uses the attendee's history and specific business interest from engagement with experiences across our platform to deliver a greater personalized experience which we believe drives better prospect engagement and conversion.

Now, with the addition of Go Live to our platform, we will have six different experienced products, creating a powerful network effect and making our prospect engagement profile and personalization capabilities even stronger.

We are building for the future of ON24 and have a robust product road map on the horizon underpinned by enterprise scale, privacy, compliance, and reliability.

Our innovation is centered on driving maximum engagement within every experience enabling diverse digital experiences from large annual conferences to regional networking events to multimedia content hubs and targeted web pages and synthesizing all of that engagement across every experience into insights that marketing and sales teams can use to drive results.

With that, I'll hand it over to our CFO, Steve Vattuone to walk you through our Q3 results in more detail.

Steve?.

Thank you, Sharat and good afternoon everyone. I'm going to start the discussion of our results with revenue. Total revenue for the third quarter was $49.4 million, an increase of 16% year-over-year. Subscription and other platform revenue was $43.6 million, an increase of 27% year-over-year.

As a reminder, this includes overages that have been trending around 3% of our revenue, but can fluctuate depending on customer usage of our platform and seasonality. Professional Services revenue was $5.8 million, a decrease of 30% year-over-year, representing 12% of total revenue.

This decrease was in line with our expectations that we provided last quarter. As a reminder Professional Services revenue in Q3 2020 represented 19% of total revenue due to higher-than-typical demand for implementation and deployment services we experienced during the COVID pandemic.

We continue to see more of our clients electing to be self-service which speaks to our platform's ease-of-use. Moving on to ARR. ARR represents the annualized value of all subscription contracts at the end of the period and excludes Professional Services and overages. Net new ARR was $3.1 million, an improvement from $1.1 million in Q2.

Total ARR at the end of Q3 2021 was $167.2 million, an increase of 20% year-over-year. In Q3, we lapped another COVID-influenced quarter and first-time renewals from customers who purchased in the year ago period, represented slightly more than half of the total renewal cohort, a meaningful decline compared to Q2.

We faced headwinds with respect to those first-time renewals, particularly with organizations that were not our ideal customer profile and had one-time needs. We also saw some rationalization with mid-term additions from the year ago period. Overall, the dollar value of churn declined compared to Q2 and the churn rate was in-line with our forecast.

Our core customer base of enterprise organizations strengthened in the third quarter. We added 14 net new $100,000-plus ARR customers, ending Q3 -- 59 customers contributing ARR of $100,000 or more, an increase of 32% from the prior year. These $100,000-plus ARR customers comprise 67% of our ending ARR, which is the highest to-date.

We view the number of $100,000-plus ARR customers as a key indicator of customer quality, success of our Land and Expand strategy, and validation that we are increasingly becoming a strategic partner in customers’ tech stacks.

Both the percentage of ARR in multi-year contracts and number of customers that have purchased two or more products increased sequentially and reached the highest level to-date. Total customer count declined slightly quarter-over-quarter to 2,054 with SMB churn representing the largest contributor for the decrease.

Given the learnings from the past couple of quarters, we are laser-focused on acquiring enterprise and mid-market customers that meet our ideal customer profile and with whom we can develop a lasting strategic relationship.

Before turning to expense items and profitability, I would like to point out that I will be discussing non-GAAP results going forward. Our non-GAAP results exclude stock-based compensation as well as certain other items. Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results, can be found within our earnings release.

Gross profit in the quarter was $38.0 million, representing a gross margin of 77%, and a decrease of 300 basis points year-over year. We continue to invest in our cloud infrastructure capabilities and growing our customer success teams to enable sustained growth. Turning to operating expenses.

Sales and marketing expense in Q3 was $24.2 million compared to $15.6 million in Q3 last year. This represents 49% of total revenue, compared to 37% in the same period last year.

As you heard from Sharat, we are in the early days of a large market opportunity and we will continue to invest in marketing to drive awareness and continue to add sales capacity across regions and segments. R&D expense in Q3 was $7.9 million compared to $4.6 million in Q3 last year.

This represents 16% of total revenue, compared to 11% in the same period last year. We are driving a robust product innovation cadence and will continue to invest in R&D to build for the future. G&A expense was $7.3 million for the quarter, compared to $6.4 million in the Q3 last year.

This represents 15% of total revenue, compared to 15% in the same period last year. Our G&A expenses have increased due to the costs associated with being a publicly traded company. Over time, we expect G&A expense to scale and decrease as a percentage of our revenue.

Operating loss for Q3 was $1.4 million or a negative 3% operating margin, compared to operating income of $7.5 million and an operating margin of 18% during the same period last year. Net loss in Q3 was $1.6 million or $0.03 per share based on approximately 47 million basic and diluted shares outstanding.

This compares to net income of $7.2 million or $0.42 per diluted share in Q3 last year, using approximately 17 million diluted shares outstanding. Turning to the balance sheet and cash flow. We ended the quarter with $399.7 million in cash, cash equivalents and marketable securities.

Cash used in operations in the third quarter was $0.9 million compared to cash flow from operations of $11.5 million in Q3 last year. Free cash flow was negative $1.6 million in Q3 compared to positive $11.1 million in Q3 last year. Free cash flow margin was negative 3% in the third quarter compared to positive 26% in Q3 last year.

Now turning to guidance. I would like to first point out that we face a challenging comp for the upcoming fourth quarter. In the year ago period revenue excluding legacy increased 137% year-over-year and Professional Services represented an outsized 22% of the total revenue mix.

We expect to see improvement in net-new ARR compared to Q3, while we still lap another COVID-influenced quarter. For Q4 the percentage of first-time renewals drops to approximately 30% of the total renewal cohort. As Sharat mentioned, we have become increasingly focused on selling an integrated platform with enterprise accounts.

These are strategic deals which can be more complex and lead to longer sales cycles. While it's still early to draw trends we are being prudent in factoring this dynamic into our Q4 forecast and guidance. As such we expect total revenue in the range of $51 million to $52 million.

We anticipate Professional Services revenue to contribute approximately 13% to 14% of total revenue for the fourth quarter of 2021. We expect a non-GAAP operating loss in the range of $4.7 million to $3.7 million and a non-GAAP net loss per share of $0.10 to $0.08 per share based on 48.2 million basic and diluted shares outstanding.

And for the full year 2021 we are updating our guidance range for revenue to $202.6 million to $203.6 million which represents year-over-year growth of approximately 29% to 30%.

We expect Professional Services will represent approximately 13% to 14% of total revenue excluding our legacy business for the full year 2021 compared to 22% in fiscal 2020 and 18% in 2019.

We expect a non-GAAP operating loss in the range of $0.9 million to non-GAAP operating income of $0.1 million and a non-GAAP net loss per share of $0.04 per share to $0.02 per share using 43.6 million basic and diluted shares outstanding. Looking out to fiscal 2022 I would like to make a few initial observations.

Q1 will mark the last COVID-influenced renewal quarter. In the first half of fiscal 2022 we expect revenue growth to be muted given the large year-over-year comparisons and outsized growth we experienced last year. However in the second half of the year with the tough compares largely in the rearview mirror, we expect revenue growth to inflect.

Overall we expect a return to historical seasonality patterns with Q2 and Q4 representing our seasonally strong quarters. Lastly our current view is that the mix of Professional Services revenue will be in the low teens as a percentage of total revenue for fiscal 2022.

We plan to offer detailed guidance on our outlook for fiscal 2022 on our Q4 earnings call. With that Sharat and I will open the call for questions.

Operator?.

[Operator Instructions] We'll take our first question from Rob Oliver of Baird. .

This is Srinek [ph] going on for Rob. So one quick question for Sharat and then one for Steve. Sharat you mentioned the focus on selling an integrated platform and customer events the non-Elite ARR nearly doubling from 2019 earlier in the call like some longer-field cycle.

So on the new products right that you announced in particular the Go Live for mid-market we did get a sense of the specific use cases with the templates and then the events and in terms of the fit targeting the mid-market.

Can you comment on the up-sell, cross-sell opportunity there as well as relative positioning and pricing, vis-à-vis the legacy offering, which is the Virtual Conference geared towards the large-scale events, and then, one for Steve later..

Srinek [Ph], I think the question is how does Go Live fit within our product portfolio? And how does that fit in -- within the Virtual Conference product that we currently have? So, yeah as we looked at ….

That's right, and ....

… yeah, Srinek as we looked at our experience platform we've got -- we had the webinar platform, we've got the Engagement Hub one with the new addition like Netflix'. We had -- we launched Breakouts. And we have ON24 Target. These are our personalized landing pages. And then, we also had our Virtual Conference product.

The Virtual Conference product traditionally has been more -- that's the only part of our product offering that's more managed services or allow for more complex virtual conferences, global complex virtual conferences. Again, it had a little more services in it. What we saw was that we were missing a product in the last 12 months or so.

We saw the emergence of a category of product which was extremely self-service simple, a video-centric virtual event that really has very strong audience participation and networking and interactivity. So that was -- we thought that was something that we did not have as part of our platform.

And our approach to our customers, and you talked about up-sell and cross-sell our approach to our customers is that we are a one-stop shop for these engagement products. So we have beefed that up. We are bringing that into the market. Initially it allows us to open the TAM even more in the mid-market which is where we will start.

And as we expand that, this will provide a significant opportunity to bundle the products together to up-sell and cross-sell for larger enterprise deals across the world too.

So the Virtual Conference product will continue to be managed complex virtual conferences across -- delivered across the world, while Go Live will be simpler, self-service, video virtual events, very audience-centric very easy to do. So that's how we see that.

And the important thing is that all the data from all these experience products now for our customers with the one-stop go into the data framework. And then are integrated in their sales and marketing ecosystem to drive business results..

Got it, got it. Thanks a lot. That's really what I need. And one question for Steve, so you mentioned the headwinds to the ARR, adds to the decline. You added 3.9 in Q3 and should be more meaningful in Q4.

So if you can provide any update or color on that front and also help us think through the NRR or normalization trends going forward looking out into 2022?.

Yeah. So I think there are two questions there. Let me take the first one, first on the ARR growth in Q4. So we do expect to see some improvement and progress in net-new ARR compared to Q3, while we are still lapping another COVID-influenced quarter.

Now for Q4 the percentage of first-time renewals drops to approximately 30% of the total renewal cohort, while being our second-largest cohort -- renewal cohort ever. We are assuming a first-time renewal rate for Q4 similar to what we saw in Q2 and Q3. So we're being prudent with our outlook.

And now looking ahead, we believe, Q1 of 2022 will mark the last COVID-influenced quarter and the headwinds from first-time renewals will abate as we exit Q1 of 2022. Now your question on NRR, we will be providing NRR on our Q4 earnings call. And that's generally not something we provide quarterly.

But that being said, Q3 NRR was consistent with what we stated on the Q2 earnings call, rounding in the low-100s. Now there are a lot of moving parts to that. We're being conservative in our forecast and outlook there. And we do expect it would hover around or slightly dip below-100 before trending back up in 2022..

Got it. Thank you..

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

Hi. Great. Thanks for taking the question here. I just want to get a better sense for, I guess, the kind of 4Q guide and how to think about that into the first part of next year. It just looks like it dipped down maybe a bit versus what we were previously thinking in 4Q.

I just want to get a better sense for kind of what's driving that and how much the little longer deal cycles that I think you called out are impacting some of the pieces here..

Sure. I'll go ahead and take that. First of all, let me talk a little bit about the annual guide and then I'll jump into Q4. So on the annual guide, we are tightening the range on that from what we gave previously and we are actually increasing the midpoint of that a little bit.

And we did bring up the low end of the guide and we're doing that based on increased visibility, now that we're further along in the year and we're seeing how things are playing out. And I will also mention that we are increasing the bottom line and will guide a little bit as well.

Now in terms of the Q4 revenue specifically, there are some puts and takes there. As we mentioned, we did make progress in Q3 with $3.1 million in net ARR adds and churn was in line with our expectations. Now as Sharat mentioned, we did see some longer sales cycles for the larger more complex deals in Q3.

Now it's a little too early to draw trends, but we are being prudent in fact through that dynamic into our Q4 forecast and guidance. Now long-term we view this as a positive, because we are becoming more strategic to our customers. And this ultimately provides an opportunity for larger deals and improved retention.

And I will just reiterate again that for Q4 the percentage of first-time renewals does drop to approximately 30% of our renewal cohort, which is down meaningfully from the current quarter..

Let me add to what Steve just said and provide a little more kind of a high-level color. As we look at it, Steve, we have a very large market opportunity and still a very small share of that. And the momentum we are seeing in verticals that is manufacturing and life sciences, gives us the confidence that we are barely scratching the surface.

We've got 14 of the top 20 pharmaceutical companies are our customers. We are also strengthening our customer quality. Our ARR for enterprise customers, we talked about in the prepared remarks, at the end of Q3 is approximately 60% higher than it was pre-COVID, so strong improvement there.

And we're also -- here we're also adding these exciting platform innovations that we are bringing to the market, we believe will drive the next phase of durable growth. So in the near term, we are facing headwinds from these first-time renewals and these large comps, but we expect that these will abate by the second half of next year..

Okay. No, that's helpful context there. I guess, just on the go-to-market, it seems like there is a bigger point of focus on some of those verticals you called out there.

But I guess how are you kind of augmenting what you've been doing historically to kind of better go after some of these new opportunities you're seeing?.

Yes. So, I think, our go-to-market is almost getting bifurcated, Steve, in two directions. One is our enterprise business, which is our focus where our execution is in North America and in global markets. And I'll talk about international separately. So there's a lot more kind of account-based marketing focus there that kind of an execution.

So that's the enterprise business. Then we also have the mid-market and commercial business, which is a little more mass market and that is where Go Live also comes in. So that is the way we attack that particular market. And we believe that Go Live will open up our TAM much more in that particular market also.

Now, the third part of our execution also from an expansion point of view a new business point of view is our international focus. One of the things just to mention, international is close to 25% of our revenue, but if you look at from a bookings point of view it's north of 30%.

So our investments in EMEA and JPAC are working and we are -- one of the markets that we are going to invest more resources is in the Japan market.

So -- and why this is important, because in the enterprise execution, once we land an account then we grow that account on a global basis, because all these global customers have privacy, security, compliance and data requirements that we can support these customers on a global basis. So that's the way we are seeing our go-to-market..

Okay. Great, that’s helpful. Appreciate you taking the questions there..

Thank you -- Our next question from Brent Bracelin of Piper Sandler. .

Hi, guys. This is actually Hannah Rudoff, on for Brent today. Just the first one, I guess this is the first quarter that we saw new adds down sequentially. It sounds like SMB churn was a big component of that.

But I guess, how should we think about both total customers and sequential adds going forward?.

Yes. Let me go ahead and take that question. So in terms of Q3, given our learnings from the last couple of quarters, we are really most focused on customer quality and adding enterprise and mid-market customers that really meet our ideal customer profile. I can tell you that SMB was the largest contributor to the customer count decrease in Q3.

And I do want to point out that our $100,000-plus ARR customers did increase 32% year-over-year and increased sequentially as well. Now these $100,000-plus ARR customers they represent 60% -- 67% of our total ARR now which is trending up from what it was in the prior quarter.

Now looking ahead, we do expect that we would return to net logo growth in Q4. .

Great. And then second question here a hybrid mode in ON24 webcast Elite like it could be a really good driver of retention and growth going forward.

I guess, how has initial feedback been for that? And what are your expectations for that product or that feature?.

Yes. Hannah based on what our customers are telling us, the future is about hybrid engagement. The early reaction on the hybrid capability in our product line has been -- the feedback has been very strong. Again, our customers based again on what they tell us physical events really provide no data.

So even if they do things that are physical they probably do less events that are physical because they're more expensive and they provide no data. But people will want to go back to them. They will continue to hold these events as hybrid because they can get their data, get the personalization all within one system of engagement.

So we believe based on what our customers are telling us that that is the future. We are excited about that and that will continue to further our implementation and retention with our customers. .

Great. Thank you..

Thank you. We'll take our next question from Scott Berg of Needham & Company. .

Hi, guys. This is John Godin on for Scott. Appreciate you taking my questions. Just curious if you can provide an update on your progress with your partner network sales and marketing agencies.

Are you seeing any additional kind of leverage here? And could this be kind of an avenue to help maybe pull in some of those longer sales cycles over the longer term? Thanks..

Yes. This continues to be a major strategic priority that we are focused on to kind of increase the leverage in our model. I mean, it's still about mid-single digits. My target is to get this number to about double digits by next year. And there are three areas. We've even expanded the areas of focus. And now we've got a very strong team focused on that.

One is the key technology partners the marketing automation and CRM systems. These are these larger companies that we -- the Adobes or the Veevas and others that we are partnering with not only on integration but looking at go-to-market. So that's one.

The second one is -- which we have also added are the system integrators, both national and regional system integrators.

Actually we grow -- these are people who may have maybe an Adobe practice or an Eloqua practice or some of those people who do integration work for customers --we added - we signed two of the regional system integrators in the last 30 to 60 days. So we are excited about that.

And we are continuing to make a major push on the sales and marketing agencies. So we are attacking this in three different segments. And my goal but it's not a target but my goal is by end of next year we get that number to about double digits. So that's really the focus. But one of the top five priorities for me is to build this..

Great. Okay. And then next, I mean, you've been investing a lot higher in sales across both enterprise and the mid-market. Just curious how you're seeing current hiring patterns trending if you're seeing any potential negative impacts on the tighter labor environment or hiring trends are maybe robust? Thank you..

So, on the sales side, we started ramping sales hiring in the second half of last year. And just for your perspective some of those early-stage reps are just beginning to get ramped up, and they are starting to show some impact. Our capacity right now stands about 50% higher compared to what it was in Q3 2020.

So, some of that was really catch-up, because we were really behind last year. But now that, we are here, we are continuing to add capacity, but we are being a lot more selective about it, and with our additions, and more focused really on driving enhanced sales productivity. So that's really what our focus is a lot more driving.

We will continue to hire not at the way that we were hiring before, but again, a lot more focus on the enhancing productivity..

Great. Thank you, guys..

Thank you. We'll take our next question from Bhavan Suri of William Blair. .

Hey, guys. Thanks for taking my question. It was a nice job in the quarter. I guess, especially in that $100,000 customer count, I think can we focus on that? I understand that's so much of the revenue now and sort of growing sequentially again. I think that's helpful. I guess, I want to ask a high-level question.

I know, we're getting something competitive.

But as customers become more deliberate in their approach to digital engagement right everyone is being to understand this is really important, I guess, are you seeing more multiproduct lands? I suspect you are, but I would love to understand how – some color on sort of are customers asking initially for multiproduct lands? And so what does that do to the sales cycle? Does that lengthen sales cycle slightly, or – deliberation speeding up sales cycles? Help me think through how that actually plays out in the field..

Yeah. So I think Bhavan you asked two, kind of two questions. You asked a question about multiproduct lands and you talked about sales cycle..

Yeah. .

So let me give you a color of that, okay? So generally, we've been – there's no question the customers are being very deliberate, right? But generally, our sales cycles have been short. They've been about three to six months longer on the enterprise.

And now with our – in the enterprise based on the learning's that we had in the last couple of quarters, and others our focus is on selling our platform, with the multiple products. But the other thing that, we're also seeing is that privacy and security around data is becoming more important.

So something, we saw in Q3 is some – for some deals some longer sales cycles. Now keep one thing in mind Q3 tends to be a seasonally softer quarter. So even though we are factoring it in, but it's too early to draw a trend. But in the long term, this is a positive for us, because it's an opportunity for large deals and higher retention.

I'll give you an example, and I discussed this in the prepared remarks. In Q3, we closed a $300,000 deal with one of the EMEA-based multinational industrial companies out of the Nordics. And they bought – in the first buy they bought four experience products Elite, Engagement Hub, Target, Breakouts.

They integrated our products within their sales and marketing ecosystem. So it took a little longer, but it is going to play up really well for us on expansion, and also in terms of retention of this customer.

And that's why if you look at the multiproduct in Q3 the number of customers who signed multiproduct deals, if you look at our ARR in here, but if you look at the number of customers now that we have with multiproduct engagements, it's the highest we've ever – quarter-to-quarter increases and year-over-year increases.

And there's a number of customers, who are signing. The ARR in multiyear agreements is also the highest ever in – from a quarter-to-quarter basis, and from a year-to-year basis. So we are excited about that. You also talked about the 67% ARR and the $100,000.

I'm excited that, yeah, we've had some rationalization in the midterm add-ons, and others we have talked about. But if you compare our enterprise customers at the end of – at the beginning of COVID at the end of Q4 2019 to where we sit at the end of Q3, it's a 60% increase in what the enterprise customers spent with us.

So, all those trends are really kind of solidifying our base, making our customer cohorts very, very strong as we move forward..

Yes. That's super helpful, Sharat. I appreciate that. Let me just ask one last one here, just about the customer focus shifting towards hybrid events. And I think someone has asked a question about that before.

But I guess how does that change the competitive landscape? Are you going to start competing more with vendors that have kind of the traditional routes in physical events? How should we think about the competitive landscape and how that changes from sort of the webinar-only guys, who can only do basic webinars, which you can easily compete against versus the guys that may have more traditional routes on the physical side? Help us think through that.

Thank you..

Yes. So first of all, let me just say one thing, Bhavan. I mean, this is a large market and there will be some more competition, but there's room for many companies to be successful, okay? Now, on that let me go back and talk about this, first of all who we are.

I mean, we are a sales and marketing engagement platform that uses engagement data ARR-driven personalization and deep integrations to drive revenue growth. Webinar is where experiences -- is where we started our journey. But now with the Go Live coming on, we've got -- we'll have six experiences all interconnected.

All that data is being put through ON24 Intelligence through the AI [ph] and being integrated in their sales and marketing ecosystem. So, we don't see anybody as a sales and marketing engagement platform doing what we are doing.

And also in this business, the more time you are spending with the customer, the more competitive advantage you have because you've got so much more data. Now we see the market bifurcating the competitive market bifurcating. On one side, you have the collaboration guys like Zoom, IT buyer and more video collaboration-focused.

We like -- people get their one-on-one of digital engagement there and then they come to us for sales and marketing. So we like that. Now the other category of competitors which you alluded to is these virtual events kind of competitors.

And you're also seeing some of these physical event companies, trying to have a virtual event product, okay? Now, these guys are generally competing in the commercial space in the SMB space. But we are seeing some of these people have point solutions some people who are physical events now doing virtual events.

But they are very virtual events kind of focused, where our focus really is the sales and marketing platform, okay, deliver to enterprises on a global basis to drive revenue growth..

Got you..

Does that help?.

No, I appreciate the color. Appreciate taking the time. Thanks for taking my questions guys..

Thank you. We'll take our next question from Drew Glaeser with JPMorgan..

Hi, this is Drew on for --. I had to join late, so apologies if this was already asked.

But could you speak to the productivity of your new reps and how the sales and marketing hiring is tracking?.

Yes. So look Drew, I did talk about that, but let me kind of answer that. So, we started our ramp in the second half of last year and some of those reps are now pretty ramped up and beginning to show some impact. And our capacity right now compared to Q3 -- end of Q3 -- the beginning of Q3 stands at about 50% higher.

Now, some of this was catch-up because we were behind. So, now that we have these people, now that we have these people kind of ramped up, we are being more selective about our additions and much more focused in terms of enhancing productivity.

So, really a lot more focus on productivity, while we are continuing to add capacity, but in a much more selective manner..

Got it. Thank you..

Thank you. We'll take our next question from Daniel Reagan of Canaccord Genuity. .

Excellent. Thank you for squeezing me in. So Sharat, I just wanted to circle back to the experience event where you had a few good releases like hybrid mode and Go Live.

I'm wondering about the integration of these solutions into your sales motion, the initial uptake in demand from customers following these releases and then maybe, how you're thinking internally about the contribution to revenue from these products over time?.

Yes. So let me add Dan and let me answer that question. So great feedback and for people who were not there where we showcased the next generation of Elite, where we are taking that product we introduced Go Live we showed enhancements in Engagement Hub and what we are doing with the data.

We also talked about how we've enhanced the product to be more hybrid-compatible. So this was really a customer event, Daniel. So we've heard tremendous feedback from our customers. We are still early in the cycle. Go Live is newer. We are still early in the cycle and these things are coming up in subsequent releases.

So, people will -- there are two things that are going to happen. One is the core webinar releases and others people will start getting them as they are rolled out. It allows us to also kind of focus a lot more on the redemption kind of a framework. Now -- and hybrid is something that our customers have been asking us for the long -- for some time.

So I believe that is going to continue to allow for adoption and retention of our product. The product like Go Live that we are taking to market, I believe that product is going to open up the TAM for us even more in the commercial market. So we are excited about that. But this also will allow us -- you asked a question about revenue.

It's still early to talk about it, but you should expect us as we do these enterprise deals that you will see us add more bundles into what we take to the marketplace. So there will be upsell and expansion but also more bundling of our products as we move forward, because we have the capability to do that..

Got it. That's helpful. And then Steve, at the time of the IPO, the firm had pointed out a roughly 40-day sales cycle. We've talked about this a bit on the call already. I'm wondering how much has the sales cycle gone up.

And is it directly related to a more keen focus on landing enterprise accounts, or is it that you're taking longer to land similar-sized accounts?.

Yeah. I mean in terms of the sales cycle, as we mentioned, they're generally three to six months. But we're not -- I'm not going to give a specific number for our average sales cycle, but they're generally in that range plus or minus depending on a number of factors.

As we mentioned in the prepared remarks and I talked a little bit about this earlier, we are seeing some longer sales cycles for some of the more complex deals in particular. We are doing more of a platform sale now. We are expanding the number of customers who have multiple products in their portfolio. And as a result, sales cycles were a bit longer.

Again, it's a little bit too early to draw trends but we are being prudent in our guidance and factoring slightly longer sales cycles as we provide guidance..

Yes. Let me just add to what Steve just said. I think as you can imagine in the COVID times, the sales cycles are a lot shorter. Now generally, our sales cycles are still three to six months, a little longer on the enterprise compared to the commercial as you would expect.

But more and more Daniel, our -- has become about selling multiple products in the platform and also as we have seen the churn profile in the previous quarters of the cohorts as we've talked about and increasingly a lot more focus on selling multiple products.

Also data privacy and those kind of compliance requirements are becoming important for customers. So, we are still for enterprise, we still do quite well. And you saw this a little in Q3, which is a seasonally soft quarter.

But I think our cadence about going with multiple products is important because in the long-term, we believe that is really going to help us increase our deal size and increase the retention. So we believe that is going to be a net positive for us..

Excellent. Make sense. Thank you, guys..

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

Right. As you heard today, we made progress in Q3 and expect to see continued improvement in the quarters ahead as first-time renewal headwinds continue to abate.

We have a very large market opportunity and are focused on delivering an enterprise scale sales and marketing platform that is transforming how organizations drive measurable revenue and growth.

I'm proud of the innovations that we are delivering to our customers, which will set the stage for our next phase of durable growth and generate long-term shareholder value. Thank you everyone for being on the call today..

This concludes today's call. Thank you for your participation. You may now disconnect..