ON24 INC. Q1 FY2021 Earnings Call

Good afternoon and welcome. Please note that the live interactive webcast of today's call may be accessed via the Investor Relations section of the company's website at www.investors.on24.com. Upon completion of the prepared remarks, we will open the call for questions, which may be submitted via the webcast portal or the dial-in line. Please note that this call is being recorded. At this time, I'd like to turn the conference over to Maili Bergman with The Blueshirt Group. Please go ahead.

Thank you. Hello and good afternoon everyone. Welcome to ON24's first quarter 2021 earnings conference call. On the call with me today are Sharat Sharan, the Founder and CEO of ON24; and Chief Financial Officer, Steve Vattuone. 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 the expected timing and benefits, if any, of such trends. These forward-looking statements may contain such words as project, outlook, future expects, will, anticipates, believes, intends, or refer to as 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 with existing customers, fluctuation in our performance, competition in our market 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 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 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 operation 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, Maili. And welcome everyone to ON24's first quarter 2021 financial results conference call. Thank you for joining us. For our call today, I'll share a quick overview of our financial results for Q1 2021 and then provide an update on our business momentum. I'll finish with a recap of our annual conference and product announcements before turning it over to Steve to review our first quarter financials. I'm pleased to report strong financial results for the first quarter of 2021, exceeding the high end of our guidance. For the first quarter, we delivered revenue of $50.1 million, up 102% compared to the same period last year. Our Digital Experience Platform business grew 111% year-over-year to a total of $50 million and ARR increased 90% year-over-year ending our first quarter of 2021 with $163.1 million in ARR. At the same time, we demonstrated significant leverage, which drove non-GAAP operating income of $2.8 million and $3.2 million in free cash flow in the first quarter. As we have many listeners who are just getting to know ON24, I plan to spend some time discussing the background of ON24. ON24 delivers a digital experience platform that enables thousands of businesses to convert millions of prospects into customers. These digital experiences, which 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 to our AI-driven platform, and makes the data actionable by integrating that within our customer sales and marketing ecosystem. Today, we count some of the world's largest and most recognized businesses among our customers, including three of the five largest global technology companies, four of the five largest U.S. banks, three of the five largest global healthcare companies, and three of the five largest global industrial and manufacturing companies. We have a very large total addressable market that we currently estimate to be over $42 billion worldwide annually and expect this market opportunity to grow as digital is increasingly the norm. Our platform is a system of engagement that delivers experiences purpose-built for marketing and sales. A single ON24 live experience averages 15 minutes to audiences of more than 200 attendees, delivering over 20 data points of engagement for each attendee and that's just a single experience. We don't provide seconds of engagement. ON24 delivers hours of engagement with prospects. Many of our customers deliver hundreds of thousands of experiences per year. As prospects engage with these experiences, they provide additional data. The deeper the engagement, the better the first-person data, and with better data, our customers can further personalize the next experience for their prospects through our AI-driven engine, increasing the overall business impact. That creates a flywheel effect and that is what is at the core of our platform today. We believe our cloud-based platform stands alone when it comes to driving engagement and delivering data. This is the ON24 data-rich system of engagement. Now let's talk more specifically about our platform and its components. There are three key components: ON24 Experiences, ON24 Intelligence, and ON24 Connect. First, regarding ON24 Experiences, we have a suite of four products: ON24 Elite, our flagship live, interactive webinar experience product; ON24 Virtual Conference, an 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 product. Every ON24 Experience product is backed by our analytics layer, ON24 Intelligence. As customers engage with these experiences, they generate first-person data, which we run through the ON24 Intelligence module. Those insights fuel our AI engine, recapturing lifetime activity for every prospect, providing a 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 many leading CRM, marketing automation, and business intelligence tools. It is our holistic platform approach—experiences, data, integrations—that sets us apart. We combine interactive multimedia experiences with rich customer intelligence and an AI-driven engine. Enterprises would typically need multiple different providers to do what we do. Our platform provides a single integrated solution and we are delivering all of this while also supporting critical enterprise requirements on a global scale. That puts our platform at the epicenter of customer engagement across the enterprise. Now looking forward, we believe the future is all about digital-first hybrid engagement. While physical events will come back in some form, they will be used to complement and augment our digital-first strategy. Ladies and gentlemen, there is no going back. This is not just a new normal; it is a better way. Our strong first quarter results are proof that our digital-first future is now the new normal for how we drive revenue today. We just have to look at what our customers are telling us and the incredible results they are achieving. One of the world's top CRM software companies has been a $100K plus ARR customer over several years and has engaged millions of their prospects and customers through our platform. Thirty teams across demand generation, product marketing, field marketing, and more use ON24 Elite and Virtual Conferences to create and deliver thousands of digital webinar experiences and virtual events in 34 different languages. The more digital experiences they do, the greater their return on marketing. In 2020, their digital engagement strategy resulted in a 60% increase in deal size, a 135% increase in marketing sourced pipeline, and almost a 200% increase in their average contract value. Another long-term $100K plus ARR customer is a multinational industrial conglomerate. We enable multiple business units, including Energy, Healthcare, and Manufacturing to build thought leadership, provide channel enablement, and drive direct sales pipeline to thousands of live and on-demand digital experiences powered by ON24 Elite and Engagement Hub. In just one of their business units alone, we power digital engagement with hundreds of thousands of their prospects and customers each month, which led to a 400% increase of leads moving into pipeline in 2020. Our platform also enables a leading biopharmaceutical company's sales peer-to-peer scientific exchanges for exploring new medical innovations. We needed to reimagine how the company could engage healthcare professionals in a digital-first world using ON24 Elite, Engagement Hub, and Target. They created digital experiences, including virtual conferences, seminars, and on-demand content hubs to increase engagement with physicians by 200%. As the pharmaceutical industry becomes increasingly digital, we see great momentum within this vertical, and in our first quarter, we acquired new customers from various industries like pharmaceuticals, manufacturing, and even retail, where we're seeing new use cases in March. For example, one of our multi-product wins in Q1 comes from one of the nation's largest home improvement retailers that is using our platform to educate and engage contractors and individual homeowners in a digital-first way. This is an important part of the company's strategy as they've got contractor and consumer revenue streams. They're using ON24 Elite, Engagement Hub, and Virtual Conference to deliver do-it-yourself content, home improvement tips, and even digital coupons for online and in-store purchase. Another expansion in Q1 came from the chemical business unit of one of the largest global oil and gas companies that chose ON24 to accelerate traditionally long sales lines. They're using ON24 Elite, Engagement Hub, and Target to create a system of engagement to target hard-to-reach audiences. We had already been working with their technology and oil and gas divisions, giving us internal traction to land and expand, and we are accelerating our international land-and-expand motion with greater sales capacity, 24x7 follow-the-sun support, multilingual capabilities, and more. This quarter, we've grown our footprint within a leading Japan-based multinational IT equipment and services company that uses ON24 Elite, Engagement Hub, Target, and Virtual Conference—all four—to power their digital channel enablement strategy in APAC, EMEA, and North America. Now let's shift to the topic of innovation. At ON24, we are committed to continuously innovating across our platform. We recently made announcements in three key areas. One, developing the next level of digital engagement to continue to truly capture audience attention and offer dynamic and effective experiences that drive deep engagement and first-person data. Two, the powerful AI engine we built to power experiences and create unique personalized journeys for every individual audience member. Finally, we make all the first-person data and buying signals we collect available to the sales and marketing ecosystem of our customers. We have near real-time deep integrations with many leading CRM, marketing automation, and business intelligence tools, and we have made several recent announcements in this area to add important new integrations and further expand our rich ecosystem. Now let me present our latest innovations and building the next level of digital engagement. We have been seeing growing demand for bidirectional video engagement—presenters and attendees, attendee to attendee, and finally between sales and attendees—that is why we created ON24 Breakouts. The ON24 Breakouts are available on ON24 Elite today. We are enabling our customers to have even more flexibility in audience engagement within and beyond the live webinar experience. Attendees can have seamless entry into breakout rooms for peer-to-peer networking, moderated sessions with truly interactive two-way video Q&A sessions with subject matter experts, and can enable immediate one-on-ones with sales reps accelerating conversion. This is a very exciting new capability that has a great deal of interest from our customer base. Once again, ON24 is redefining engagement in a digital-first world and will soon be delivering this product across additional experienced products including our Virtual Conference offer. Next, as our customers often use our platform as their primary system for sales and marketing to engage prospects and customers, we are seeing demand for integrations with conversational AI chat tools. Our first integration of this kind is with the market leader in conversational AI, Drift. Now through our seamless integration, our customers can immediately connect live webinar and event prospects with their sales teams. Another key product introduction is our virtual conference growth, which complements our existing virtual conference enterprise product. Targeted for the commercial market, customers can quickly set up online conferences, trade shows, group training, or other multi-session events. Audiences can create their own agendas, watch keynotes, visit sponsors, explore demos, and network with experts and other attendees. With our introduction of Breakouts, Conversational AI, and Virtual Conference Pro, we continue to deliver the next level of digital engagement. The second area of innovation is around our powerful AI engine that creates unique personalized journeys for every individual audience member. On April 23, we launched a new AI-based personalized recommendation engine. The ON24 AI engine leverages a vast pool of data collected through millions of engagement points across ON24 Experiences to inform dynamic content delivery. Based on user history of consuming content, our AI engine creates unique content recommendations specifically tailored to individual interests. Our AI engine powered by first-person data will continue to take digital experiences to the next level and enable our customers to automatically generate journeys that are uniquely matched with each individual lead or prospect. The third area of product enhancements is with our real-time data integration. With ON24 Connect, we are delivering the most connected digital engagement platform ecosystem. We have made deep engagement data available in the sales and marketing ecosystem of our customers, enabling them to take near real-time action. We have built deep integrations with many leading CRM, marketing automation, and business intelligence tools. We recently announced two new and important integrations. In the life sciences and pharmaceutical industries, we announced our new integration with Veeva CRM events, the leading player in the market. The integration enables life science marketers to capture every level of ON24 digital experience data—from registration and attendance to various points of engagement. Together with Veeva, we will provide customers a single view into audience and engagement information to better inform and trigger actions across marketing and sales. I'm also excited about the work we are doing to extend our ecosystem of deep integrations to sales engagement tools. Our 360-degree view of prospect engagement has become central to our customer sales motions, providing critical insights for sales to prioritize and personalize lead follow-ups. This data is already integrated with leading CRM systems and now we are partnering with Outreach, a leading sales engagement platform, to take it one step further. With this integration, sales teams will be able to take immediate action on first-person data in near real-time, increasing the return on engagement. This new integration joins others that ON24 supports today with ON24 Connect, including CRM and marketing automation tools such as Salesforce, SAP, Adobe Marketo, Oracle Eloqua, and many others. There is so much more we are working on as we increase our pace of innovation across the platforms, so we can remain true to our commitment to creating the most engaging, data-rich, dynamic, scalable, and enterprise-class digital experience platform. We look forward to continuing to update you on our progress in this area. Now let me share some information about our growth rate. First, we are adding sales capacity to drive new customer acquisition, expansion, and upsell. Second, we are entering new international markets including Japan and DACH, and finally, we are investing in our R&D organization and continuing to develop new products to add to our overall platform. To wrap up, we are very excited about the customer momentum we are seeing for both new customer acquisition and existing customer expansion and upsell. Our platform today enables thousands of companies to convert millions of prospects into customers. We just came off a very successful virtual conference, the ON24 Experience. We had thousands of attendees join us. It is available on-demand and I encourage all of you to watch. You can find the link to the on-demand replay on our homepage banner at on24.com. We have also included the link in the earnings call webinar. The highlight of the conference was the customer participation and the stories that they shared on the results they are achieving using ON24. The customers presenting included Salesforce, GE, Honeywell, SAP, Google Looker, Fidelity National Information Services, and Zendesk. 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 digital-first hybrid world, we believe that we are ideally positioned with the data-rich digital-first system of engagement that enables business growth for our customers. With that, I'll hand it over to our CFO, Steve Vattuone, to walk you through our Q1 results in more detail. Thank you.

Thank you, Sharat and good afternoon everyone. As Sharat mentioned, we are very pleased with our first quarter results. I'm going to start the discussion of our results with revenue. The majority of our revenue is generated from subscriptions that we sell to our Digital Experience Platform, which is delivered through cloud-based software. We also generate revenue from professional services, which primarily consist of implementation and support services. Digital Experience Platform revenue excludes revenue from our legacy product offering, which we stopped selling to new customers in 2018 and is 0.2% of our revenue in Q1 2021. Our revenue for the first quarter was $50.1 million, an increase of 102% compared to Q1 of 2020. Our Digital Experience Platform revenue was $50 million, an increase of 111% year-over-year. Subscription and other platform revenue for the first quarter 2021 was $42.9 million, an increase of 115% compared to the first quarter of 2020. As a reminder, this includes overages which are generally around 3% to 4% of our revenue, but can fluctuate depending on customer usage of our platform and seasonality. Professional Services revenue in the first quarter was $7.2 million, an increase of 49% year-over-year, representing 14% of total revenue. As we mentioned last quarter, the first quarter is typically a seasonally low quarter for professional services for us. We expect this revenue as a percentage of total revenue to be up in the mid-teens during Q2. 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. 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. Total ARR at the end of Q1 2021 is $163.1 million, an increase of 90% year-over-year. The growth of our ARR is underpinned by both new customer acquisition, which continued at a strong pace in Q1, as well as existing customers, continuing to expand usage of our products. A key driver of our ARR is new customer acquisition. We ended the first quarter of 2021 with 2062 customers, representing growth of 37% year-over-year. In addition, at the end of the first quarter, we had 325 customers with ARR of $100,000 or more, representing growth of 102% year-over-year. This demonstrates our ongoing traction with larger enterprise customers. We are confident we will continue to leverage our existing customer base to upsell our speed of experiences, providing a long runway for ongoing growth. 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 in our earnings release. Gross profit in the quarter was $39.7 million, representing a gross margin of 79% compared to 73% in the year-ago period. We intend to continue to invest in scaling the business throughout fiscal 2021, and as a result, we expect this to reduce gross margins in the near term. Turning now to operating expenses. Sales and marketing expense in Q1 was $22.2 million compared to $11.9 million in Q1 last year. This represents 44% of total revenue, an improvement compared to 48% in the first quarter last year. We intend to continue investing in sales and marketing to support increased demand for our digital experience. R&D expense in Q1 was $7.2 million compared to $4 million in Q1 last year. This represents 14% of total revenue versus 16% in the same period last year. We have increased our R&D spending in absolute dollars over the past year and as we move through 2021, we intend to continue to invest in R&D. G&A expense was $7.5 million for the quarter compared to $3.3 million in the first quarter last year. G&A was 15% of revenue versus 13% of revenue last year. Our G&A expenses have increased as a percentage of our revenue due to the costs associated with being a publicly traded company. Over time, we expect G&A expense to decrease as a percentage of our revenue. Operating income for Q1 was $2.8 million or a 5.5% operating margin compared to an operating loss of $1.1 million or negative 4.5% during the same period last year. Net income in Q1 was $2.2 million or $0.05 per diluted share based on approximately 42.2 million weighted average diluted shares outstanding. This compares to a net loss of $1.7 million or $0.18 per share in Q1 last year using 9.1 million basic and diluted shares outstanding. Turning to the balance sheet and cash flow. We ended the quarter with $392 million in cash, cash equivalents, and short-term investments. Cash flow from operations in the first quarter was $3.7 million compared to $1.3 million in Q1 last year. Free cash flow was $3.2 million in Q1 compared to $1.2 million in Q1 last year. Free cash flow margin was 6% in the first quarter compared to 5% in Q1 last year. In terms of headcount, as of March 31, 2021, we had 652 full-time employees which reflects growth of 19% compared to the 547 full-time employees we had at the end of 2020. This demonstrates the continued investments we're making in headcount as we scale the business. And finally, turning now to guidance. We are very pleased with the positive momentum in our business, especially our continued new customer growth in Q1 and high engagement from existing customers. At the same time, it is early in the year and we are coming off a year of explosive expansion for our business with the peak of COVID-related renewals in Q2. Balancing these factors in the second quarter of 2021, we expect revenue in the range of $50.5 million to $51.5 million, which represents year-over-year growth of approximately 39% to 42%, non-GAAP operating income in the range of $0 to $1 million, or a margin of 0% to 2%, and non-GAAP net loss per share of $0.01 per share using 47 million basic and diluted shares outstanding to non-GAAP earnings per share of $0.01 per share using 57 million diluted shares outstanding. And for the full year 2021, we expect revenue in the range of $207.5 million to $210.5 million, which represents year-over-year growth of approximately 32% to 34%. Non-GAAP operating income and loss range from a $2 million operating loss to operating income of $1 million or a margin of negative 1% to positive 0.5%. A non-GAAP loss per share of $0.02 per share to $0.08 per share using 44.4 million basic and diluted shares outstanding. In summary, we are pleased with our Q1 results and are well positioned to benefit from the investments we have made in all functional areas of the company. We expect to continue to benefit from the trends driving the need for our data rich digital engagement platform. With that, Sharat and I will open the call for questions.

And we'll take our first question today from Sterling Auty with JPMorgan.

Yes, thanks, hi guys. I wanted to drill in on the new customers that you added during the quarter. Can you give us a sense of what industries they represent and what sized companies? Because I think one of the questions we get is, right, who is that already selling digitally, who are the latecomers, and who's left to come to the ON24 platform?

Yes, Sterling this is Steve, I'll go ahead and start that one. We had a really good quarter in Q1 in terms of customer growth. We added 68 net new customers and ended with 2,062 customers, and our customers with ARR greater than $100,000 increased by 23 to 325 at the end of Q1. So we're very pleased with the progress we continue to make in adding new customers. In terms of forward-looking guidance, we don't really disclose that on customer count. We'll obviously report that at the end of Q2, but we're seeing very good momentum. We added a lot of large customers and we're seeing it in multiple verticals.

Just to add to what Steve just said Sterling, our ideal customer profile really focuses on technology, manufacturing, life sciences, financial services, professional services, and media and entertainment, and we are seeing traction across the board. Of course, you would expect the technology sector to be leading, but industries like pharmaceuticals and manufacturing are also showing very good traction. I'll give you an example of a company in the financial services sector that we closed last year in May and they increased their spend significantly. This is one of the top five largest banks in North America; they were a $100K ARR customer last year, and they came and worked with us on the capital market side. They used Elite, Engagement Hub, and Virtual Conferences. They've doubled their run rate and increased their spend with us in Q1. So, we are seeing momentum across that, I gave the example of integration with Veeva in the pharmaceutical space, which is a very important category that we are seeing on a global basis.

Great. And then you mentioned your own virtual conference that you held. What does this end up being, a big lead generation and customer expansion event for you each year? Just maybe some color around the experience that you typically get coming out of your conference and what you experienced this year?

So generally, Sterling, in the past, we have conducted these experiences physically, and this is the first year we really did this digitally. We will probably do another one of them later this year. Typically, there were 2, two-and-a-half days and we did this in North America, we would do it in EMEA and APAC, and so mark three or four of these events at one time. We had over 6,000 people who attended this event. It was a one-day event. It was done 24/7; it started in APAC, EMEA, and then North America. About over 3,000 people attended, and we had about 14 to 15 customer stories. Because it was virtual, we kept it to one day, and I think there are two key things that we are going to see. One is, of course, from new customer acquisition—people get more educated about the platform; they can see it in action. They can see a lot of the demos. And the other thing is almost—this has always been almost like a bear hug, for our existing customers to be able to see what their peers are doing and learn from that. That's always been a very important part about the conference we've been able to do. Now that we are going to move to a more hybrid situation going forward, we will probably do this conference a little more frequently than we did previously.

Thanks for taking my question. You talked about some new product additions, I think Breakouts and some others as well. I know these are probably still very early and not contributing yet, but can you just talk in general about how the cross-sell motion is going? And I don't think I heard you speak to net dollar retention or multi-product customers, and I admit I missed it? But I don't think I heard that in the script. So can you just please update us on those metrics if you can or maybe just comment in general on how the cross-sell motion is going? Thanks.

So let me take the first part. And Steve, you can take the second part of the question. So we are really excited, Chris, in terms of the expansion and upsell that we saw in Q1. We are excited by how it has continued in Q2, specifically about Breakouts. There's a lot of excitement from our customer base for this product. Now you can not only reach 200 to thousands of people who are interacting and engaging with buying signals and engagement data in a live experience, but now you can move into one-on-one interactions, peer-to-peer networking, and group meetings. So it takes you further down the funnel from marketing driven sales to close that deal. So there is a lot of excitement and yes, we expect this to provide an uplift, but it is early. I mean we just launched it, Chris. So it is early, but this is a major part of our expansion and another part of our expansion and upsell cadence. Steve?

Yes, so Chris, you'd also asked about net revenue retention and the multi-product metric we talked about last time. So let me start with NRR; we don't really report on NRR on a quarterly basis, but as expected, we had a very strong quarter for NRR. Our average ARR per customer continued to go up in Q1 to our highest it's ever been. We do expect our NRR to return to something closer to pre-COVID levels over time. And our NRR was about 110% pre-COVID with our enterprise business typically being five to seven points higher than that. Enterprises make up 70% of our business. In terms of the customers with multiple products and cross-sells, we are really pleased with the increase from 17% to 30% we saw in 2020 for the customers with two or more products. Now, we don't expect it to increase at that rate this year; it's not really a metric we're going to disclose quarterly. But I can say that the number of customers we have with two or more products did increase during Q1, and we're really pleased with our continued progress in that area.

Okay, great. Thank you. And maybe one other question, it seems like another theme in the remarks is around integrations. I think you mentioned a couple with Drift, an outreach into companies within the CRM suite more broadly. Can you talk a bit about, I guess, maybe, I know that’s again probably early, but the impact that is having with your customers about increasing platform stickiness for you all? And then just secondly, in terms of the data that's being captured, does that often go into a database that the customer maintains separately or is this—with the integrations—is the data going directly from ON24 to these other platforms? Just trying to understand the kind of the pain points that are being solved here for customers and how we think about improved platform stickiness over time? Thanks.

So Chris, this is Sharat. Just overall integrations within a customer sales and marketing ecosystem is extremely, extremely important for us, and we spent millions of hours building one of the most robust third-party ecosystems of deep integrations of our engagement data and buying signals within these systems, some of those include Marketo from Adobe or whether it's Eloqua, whether it's Salesforce, SAP. So that is a very important part. Sixty percent of our ARR is integrated, and we generally see much better, much more stickiness when that happens. So, we announced the integration of Veeva in the life sciences space, and that is very important to us. But it's not just basic integration; we take all the 20 to 30 different engagement data points, and we've created this almost near real-time engagement. So when a salesperson—when a prospect is ready to buy and they are saying they're ready to buy 90 days from now, we want that information to go almost in close to real-time through the marketing and sales ecosystem that our customers use. So we are not trying to create a silo with our data; we integrate our data within our customer sales and marketing ecosystem. If they've got Salesforce, if they've got Marketo, it's integrated in that, so it's available to the sales and marketing people. So clearly, it helps stickiness very significantly. Now the example about Outreach, Outreach is a sales enablement tool. They enable sales development representatives and others, and what we're trying to do with this, we provide something called a prospect engagement profile. It's a 360-degree view of a prospect and their first engagement on our platform—everything that they have done. What we are doing is integrating that within the profile of that particular prospect within Outreach. So when the SDRs are following up, they know a lot more about that customer again adding value. Things about Drift, Drift comes more in the direction of the engagement platform. If people come into the engagement platform and they want to converse one-on-one with sales, we are integrating that in that perspective so that people can move the funnel deeper into sales conversations. So all these integrations—one is the data integration—those are extremely, extremely important from a stickiness point of view from our side, but also the value it brings to our customers and the other integrations that we are also doing on the engagement part of the platform are making sure it continues to transform sales and marketing for our customers.

Thanks for taking my questions. Sharat, I had one for you to start. Just, I know you guys are making some investments in both international and the go-to-market side, as well as on the product side on language, and I just wanted to touch on those. In particular, in the wake of your user event where we saw some big companies, big multinationals like Honeywell talk about how they're kind of redefining their dealer and distributor model using ON24. So I'm curious now, as we talk about the expansion within existing accounts, how you look at that of the addition of new languages as a driver for expansion with some of these accounts that are already using you guys that are true multinational corporations? And then I had a quick follow-up for Steve.

Yes, I think Rob, we have built this enterprise-grade accessible, reliable, scalable, privacy-compliant, multilingual platform for global enterprises and commercial companies—that's where we focus on. And so the example of when we bring the customer, we talked about the Japan-based customer in my prepared remarks, and once we bring that customer, our focus really is to expand that customer globally because that's how these multinationals expand. I want to give you an example of one of the largest industrial manufacturing companies. They've been a customer of ours for a long time, but they brought in several divisions in multiple parts of Europe in 2020. As they expanded into those, the first division—one of the divisions for the first live experiences that it, had over 1,000 attendees. Their audiences are also more engineering, supply chain—all of these people really gravitate more towards digital, even more than physical, so these guys are committed to more of a hybrid engagement going forward. So when we talk about languages and others, our focus really is we might bring somebody from DACH or Germany, but then our focus is expanding that across the world. That's a very key part and that's what you also heard in the virtual conference. So enterprise scale, multiple languages, and being privacy-compliant—that's a very important part of what we provide to our customers and take their headache out as they're trying to engage with their prospects at scale, and that's probably what you heard in the conference too.

Okay, great, that's helpful Sharat. Thanks. And then Steve, just a quick one for you. As you thought about the guidance for the rest of the year, just curious for any color on what assumptions you had embedded in there for a return in the economy. I know we're still at various stages globally in terms of lockdown and stuff, and just curious how you guys thought about the impact of COVID relative to the guidance? Thank you, guys.

Sure. Our annual guidance reflects our best view as we see the business going forward at this point. Our customers continue to engage with us quite well. We're seeing a very high level of customer engagement across the board with our customers, and that's reflected in our Q1 results and also the guidance that we've provided. And Sharat, do you want to add anything to that?

No, I think we are seeing very strong trends from new customer wins to expansion and upsell. We do, Rob—as we do look at Q2 and the year if we are early in the year, we don't want to get ahead on our cues. We did—if you look at Q2, it is our toughest comp quarter by far. The renewal base in Q2 is largest by a significant magnitude. That's also something that we factored in our guidance because in Q2, we did see some COVID-related buying, but we've always factored that within our guidance.

I guess, Sharat, I want to drill down a little bit more on the peak renewal cycle. How are customer conversations shifting as we get close to the reality of a reopening? How are some of the early renewal conversations going? Are there any customers that are going to completely go physical and not virtual and it's going to be hybrid? Just walk us through how you're engaging with some of these existing customers and how there may be the messages pivoting more heavily towards lead-gen or something else? Just trying to get an early view on what those existing customers and renewal conversations look like today.

Yes, let me answer it in two parts, Brent. First of all, we are thrilled with the customer engagement that we saw in Q1, and that has continued in Q2. Based on what our customers are telling us, the future is about hybrid engagement. There has been a permanent change in behavior. As a data point, I'll tell you, it's a time when attendees spent on our platform in Q1 was up from Q4 last year by 4% or 5%. I'll give you an example of one of the largest HMOs in the country. In 2020, they moved their sales people to interact with hospitals, but even though they are moving into more of a hybrid cadence this year, they increased their spend with us. So, those are the conversations that we are hearing again and again with many of our customers. In my prepared remarks, I talked about one of the largest CRM companies that increased their deal size by 60%, marketing sourced by 135%, and average contract value by 200%. So, with that kind of business impact, there is no going back for these companies. That being said, we didn't know that in Q2 last year it was the peak of COVID-related buying, and many of these accounts are up for renewal, but we expect that some showing downsizing in a minority of those accounts and we've always factored that into our guidance. So, we are prepared for that. That's what we've already factored in.

Good, that's certainly helpful color there. And then my last one really is just around sales capacity. If I look at sales and marketing investments, it's up I think 87% year-over-year into Q1. You talked about heavily investing in adding capacity over the last couple of quarters? How much more do you have to go here, how are you feeling relative to kind of coverage relative to the plan at this point—just any additional color relative to additional investments in sales and marketing going forward exiting kind of Q1?

Yes, so last year, we were really behind, Brent. Part of that was and also the productivity numbers increased significantly. This year we are planning for—we are trying to catch up and adding the capacity. So we've added a significant number of sales capacity this year; we've added marketing, and we expect to add that more. I think we are not done yet, but we should expect that the people we hired in the second part of last year because that's when we really started to ramp and generally assume a six to nine months ramp—that some of those people will start producing by the end of Q2. The areas that we're going to focus on have been enterprise, commercial, and international, including new markets. I think we will continue to add more people on the commercial side. I expect that we will continue to add more people on the international side; those are areas we are seeing good traction.

Yes, thank you for taking my questions. Sharat, maybe I can follow-up on the last one on the commercial side of things with Virtual Conference Pro. And maybe just remind us if this is a newer part of the market that you're going after or is it something that you've had an established presence? And if you are moving a little bit more down market to a higher velocity sales model, what do you think needs to change in the go-to-market motion or the purchasing process to see results from this segment?

So I think—Arjun, you got two questions: one is really related to commercial, and the second is related to the Virtual Conference Pro. So let me address both of them. On the commercial part of the market, we go up to 2,000 customers and down, so we break it into various categories, and we see a very large total addressable market in what we call commercial one, which is companies with 200 people and down. We are investing in that market. As we bring in now the Elite product with the Breakouts, I think that is also going to be an important product that we are going to take to that market. We see pretty strong potential there. We have a team, and we are expanding that team on a global basis that sells all our products. Now related to Virtual Conference Pro, our virtual enterprise—our Virtual Conference overall business is about 10% of our business. The Virtual Conference Enterprise product did require a little more hand-holding than we wanted then; I think it's more palatable in the commercial market. Also, the price point is a little lower, so it's our version of making it not completely self-service, but a lot more self-service compared to before and reduce the price point. I'm not sure it's still an SMB kind of level price point, but it's somewhere in the middle and it's a good entry point for the commercial market.

Okay, that's very helpful. If I can touch on the Breakout announcement, it seemed very exciting and certainly seemed like something that would resonate in the market. Just curious how you're pricing that—is that going to be part of the core platform? Is that an add-on? Is it a totally different offering that customers need to purchase? Just help us understand the pricing model there.

Yes, I can't disclose the pricing model, but I think, as we have taken out Elite, Arjun, it's an uplift to their existing subscription. So if somebody has a $75,000 subscription, one workspace, and two logins, it's an uplift to that subscription, and it's early, so we're still trying to kind of figure that thing out. But we are selling that as a subscription as an add-on. Now as this thing launches in the virtual conferencing space, we may take a different approach for the different products, but that is the approach we have. So we are going to market with all of our customers from an upsell and expansion cadence as an uplift.

Hi, great, thanks for taking my question. I wanted to follow up on an earlier question about the renewal opportunity that you're seeing in another, probably a couple of months into it at this point from the first big push from a year ago. But I guess how are those conversations progressing for either driving longer-term usage or long-term use of the platform and facilitating multi-year deals with these customers?

Steve, do you want to take that?

Yes, I can go ahead and take that. In terms of the—it was kind of two questions you asked that. Let me start with the multi-year deal question: then I'll pivot to the other one. So in terms of multi-year deals, we're very pleased with how those are going. We don't really provide guidance on how to report a quarterly basis, but it is trending in similar fashion to what we saw in the second half of 2020, even with our customer count and ARR growing significantly. So we're really pleased with how our customers continue to see the long-term strategic value in our offering, and we continue to sign multi-year deals with them. In terms of the renewal opportunity, we're happy with where things are at, and that's reflected in our guidance. As Sharat mentioned, Q2 of last year was the peak of COVID-related buying and many of these accounts are up for renewal. We do expect some churn and downsizing in a minority of these accounts, and that was always factored into our guidance we provided both last quarter and again this quarter. We are guiding to a 40% plus year-over-year growth rate that’s coming off a tough comparison in 2020, which was a year of explosive growth for us. So we're really excited about how that's going. We're excited about our new customer wins in Q1 and the great level of engagement we continue to see with our customers.

Okay, that's great to hear. And just a quick follow-up, I know you mentioned last quarter that some of those channels are being made in the agency channel, and I'm just wondering how that kind of progressing so far?

Yeah, I think, Steve, we are making the investment. We hired another channel executive also in EMEA, but these things take a little while as you know to progress, so our expectation is we are starting from a low base, so there is only upside here. I mean the announcement with Veeva is an important one. We hope to drive more ISV-related pipeline in the life sciences category. So this has got a multi-quarter runway, Steve. We will keep you updated, but this will take us a few quarters.

That will conclude today's question-and-answer session. I would now turn the call over to Sharat Sharan for any additional closing remarks.

Thank you, everyone for joining us today. See you next quarter. Thank you.

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