Cvent Holding Corp.
Q3 2022 Earnings Call Transcript

Published: 6 Nov 2022

[Operator:]

Hello, everyone. My name is Stephanie, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Cvent Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. April Scee, Investor Relations. You may begin your conference.

[April Scee:]

Good evening, and thank you for joining us on today’s conference call to discuss the financial results for Cvent’s third quarter 2022. With me on today’s call are Reggie Aggarwal, Cvent’s Founder and Chief Executive Officer; and Billy Newman, Cvent’s Chief Financial Officer. During today’s call, we will review our financial results for the third quarter of 2022 and discuss our guidance for the fourth quarter and full year of 2022. In addition, our earnings press release, SEC filings and a replay of today’s call can be found on our Investor Relations website at investors.cvent.com. Today’s call will include forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding our financial outlook, including our guidance for the fourth quarter and full year 2022, our market opportunity, market position, product strategy and growth opportunities. Forward-looking statements involve known and unknown risks, estimates and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent our management’s beliefs and assumptions only as of the date made, and the company assumes no obligation to update these statements, whether as a result of new information, future events or otherwise. Information on factors that could affect the outcome of the matters covered by these forward-looking statements is included in our periodic filings with the SEC, including in the section titled Cautionary Note Regarding Forward-Looking Statements and Risk Factors in our quarterly report on Form 10-Q for the quarter ended September 30, 2022, filed with the SEC today and in our most recently filed Annual Report on Form 10-K along with other filings the company makes with the SEC from time to time. Additional information is available on the cautionary language included in our earnings press release issued earlier today. In addition, during today’s call, we will discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Reconciliation to the most directly comparable GAAP measure of the non-GAAP financial measures discussed on this call, including adjusted EBITDA and adjusted free cash flow are included in our earnings release issued today along with definitions for those terms. The release is filed with the SEC and available on our Investor Relations website. And now I’d like to turn the call over to Reggie.

[Reggie Aggarwal:]

Thanks, April, and thanks, everyone, for joining today’s call. I’m excited to share our Q3 2022 results. Our revenue for the quarter was $161.3 million, which was $2.3 million above the high end of our guidance, representing 20% revenue growth year-over-year. Additionally, our cost containment measures enabled us to exceed the high end of our adjusted EBITDA guidance by $5.1 million and adjusted EBITDA margin guidance by 290 basis points. These results demonstrate our commitment to delivering balanced top line growth and margin expansion, even in an uncertain macro environment. We’re excited about our solid Q3 performance and our prospects for the remainder of 2022. As a result, we are raising both our revenue and EBITDA guidance for the full year. Now while we’re not immune from macroeconomic pressures, we’re confident that our established market leadership and recession-resilient platform positions us to outperform competitors and successfully navigate this unique macro environment. For those of you who are new to our story, here’s a brief overview. Cvent is a SaaS platform that is comprised of our event and hospitality cloud solutions. Organizations use our Event Cloud products to plan market and organize engaging events of all sizes across their total event program, which includes all events and organizations post or tens. And our Hospitality Cloud offers a marketplace that enables meeting organizers to find and book event space at hotel and unique venues. In addition, hotels and venues use our software to promote, manage and automate their meetings and events businesses. Fundamentally, our platform helps customers grow their top line revenue, drive engagement and deliver leads while reducing OpEx and facilitating greater compliance. Before I dive more deeply into our Q3 2022 performance by cloud, I’d like to discuss some market trends that we’re seeing. First, the return of in-person events, which are the bedrock of the event industry. Nothing beats face-to-face human connection and interaction, which is why we continue to see in-person events returned so quickly. In fact, just a couple of weeks ago, I attended IMEX America, one of the largest trade shows in the U.S. for the global meetings and incentive travel industry. The event attracted 12,000 in-person attendees just shy of their 2019 attendance. The return to in-person is also reflected in our sourcing data from the Cvent Supplier Network, which is our global marketplace where planners can source and find meeting space at more than 290,000 hotels, destinations and special event venues. Our data shows that our RFP volume has increased since the beginning of the year and through Q3, sourcing volume in North America averaged about 95% of 2019 levels, which were $18 billion for the full year. Second, marketers are continuing to invest heavily in events, which are often their biggest area of programmatic spend. However, in an uncertain market environment, they will look to maximize reach and ROI and for that, they need event technology. Our platform digitizes events, enabling CMOs to capture more data and attending insights to accelerate and optimize their sales and marketing efforts, making events more valuable as a marketing tactic than ever before. Third, the triple threat, which is the powerful combination of all three event formats; in person, virtual and hybrid, is coming to life. For example, in Q3 of 2022, the events hosted in our Cvent attendee hub were about 46% in-person, 30% virtual and 23% hybrid. To put that in context, pre-pandemic, more than 95% of our revenue was for in-person only. So we’re truly experiencing a meaningful change in the way people meet, and we believe this is a trend that’s here to stay. With our platform approach, we’ve embraced this new dynamic, which is why we believe Cvent is uniquely positioned to support this new event environment. The final topic I’d like to discuss is how Cvent is positioning itself during the time of economic uncertainty and why we believe Cvent is well-positioned to weather an economic downturn. In a recessionary environment, we believe events has an increasingly critical component of the customer journey will remain prominent, and our platform can help organizations run events more efficiently on budget and increase their ROE, which is the return on event, all with fewer resources. The total cost of an event can vary up to 90% depending on what format they choose. And our platform’s flexibility ensures organizations will be able to continue to host their events in whatever format they like. Due to how well-positioned we are for varying economic conditions, we believe Cvent will continue to attract a disproportionate share of Event Spend going forward. So even though our business is not recession-proof, we believe we’re recession resilient. Now, I’ll dive more deeply into the performance of our two clouds. First, I’ll discuss the Event Cloud and how some of these market trends are working in our favor. Let’s start with return to in-person. In-person events, our receiving has been a leader for more than 23 years. The interest in our on-site solutions is a great proof point for the return of in-person events. Let me give you an example. To prepare for more in-person events in 2023, a top cloud computing company and one of the fastest-growing SaaS companies in history, grew their total contract value in Q3 from $5,000 to nearly $1 million. This organization bought more of our in-person solutions as they look to digitize their in-person events to maximize ROI, something we’re seeing repeatedly across many of our customers. The second trend I’ll discuss is the triple threat coming to life. Today, the need to deliver a total event program with a mix of all three event formats is a given for most organizations because of the blend of event formats offers more ways to connect and interact with your customers and your prospects. Cvent offers an all-in-one platform to support the triple threat, which appeals to organizations that are looking to execute these more complex event programs. This new events landscape is also helping further elevate events in our organization’s go-to-market strategy. In our prospect and client conversations, we’re seeing more and more engagement from the marketing division from marketing operations up to the CMO level. In addition, we landed new logos and deal expansions in the following industries

[Billy Newman:]

Thanks, Reggie, and good afternoon, everyone. I’ll first walk you through our Q3 2022 financial performance and then discuss our guidance for Q4 2022 and updated guidance for full year 2022. Q3 revenue was $161.3 million, an increase of 20.3% year-over-year. Normalizing for the year-over-year timing difference of our client conference, Cvent CONNECT, which was held in Q2 this year and Q3 last year, revenue growth would’ve been 22.9%. We beat the high end of our guidance for the quarter by $2.3 million. The beat was primarily driven by higher upsells of our core event management product in the quarter as the impact of the pandemic continues to moderate and planners quickly adapt to the return of in-person meetings. Breaking down Q3 revenue by cloud, Event Cloud revenue was $112.9 million, an increase of 22.1% year-over-year, and Hospitality Cloud revenue was $48.4 million, an increase of 16.5% year-over-year. After adjusting for the year-over-year timing difference of Cvent CONNECT, Event Cloud revenue grew by 23.7% and Hospitality Cloud revenue grew by 21%. While revenue associated with our virtual solution is still one of our top Event Cloud revenue components and grew during the quarter, the primary driver of Event Cloud revenue growth resulted from the continued return of in-person meetings. The same was true for the Hospitality Cloud, where the continued return of in-person meetings as increasing hotels demand for our advertising and software solutions. We also saw sequential expansion of our net dollar retention rate in Q3, which increased from 114% in Q2 2022 to 116% due to increased spend by our existing clients in both clouds. Although, we’re very happy with the 116% net dollar retention rate in the quarter, the larger than anticipated improvement in this metric is influenced by a quick pivot back to in-person meetings and comparing results to a prior year period, when in-person meetings were less prevalent. In the near-term, we believe our net dollar retention rate will return to pre-pandemic levels and longer term, we still believe our net dollar retention rate will be approximately 115% exceeding pre-pandemic levels as a result of the increased need for technology across the total event program. In discussing the remainder of the income statement, unless otherwise noted, all references to expenses and operating results are on a non-GAAP basis. You can find information on the most directly comparable GAAP metrics and reconciliation to those metrics in our Q3 2022 earnings release available on the Investor Relations page of our website at investors.cvent.com. Non-GAAP gross profit in Q3 was $117.4 million or 72.7% of revenue compared to 74.7% in the same period of the prior year due to a higher percentage of our total revenue in the quarter coming from onsite solutions and merchant services, which have lower margin profiles. Compared to the prior substantial quarter of Q2 2022, gross margin expanded by 110 basis points after excluding the one-time impact of Cvent CONNECT on our gross margin in Q2. Like adjusted EBITDA margin, gross margin typically increased sequentially throughout the year and declines between Q4 and Q1 of the following year, primarily due to the reset of employer payroll costs and 401(k) match, higher PTO accrual and our annual merit increase. Moving down the income statement to non-GAAP operating expenses. Non-GAAP operating expenses as a percentage of revenue continue to sequentially decline, declining by 310 basis points between Q2 2022 and Q3 2022 after normalizing for the one-time expense impact of Cvent CONNECT in Q2. The sequential improvement was driven by leverage in all operating expense lines as a pandemic continues to ease and our competitive position strengthens, allowing us to operate more efficiently. Year-over-year growth and total expense – operating expenses moderated as well, growing by only 14% in Q3 compared to the same period of the prior year. Shifting to earnings, Q3 adjusted EBITDA was $33.7 million or 20.9% of revenue, which represents a $5.1 million beat over the high end of our guidance and a 290 basis point beat in terms of margin. The earnings beat is a result of our revenue over performance – result of our revenue over performance, tactically shifting some Q3 projects into the future and higher cost containment. Relative to Q2 2022 and normalized for the one-time Cvent CONNECT costs, we saw 420 basis points of sequential margin expansion. This improvement continues the very healthy margin expansion we’ve seen since the beginning of the year. Turning to our balance sheet, we ended Q3 with cash, cash equivalents and short-term investments of $110.6 million, a decrease of $12.8 million from the end of the second quarter of 2022. This decrease was primarily the result of further paying down our new revolving credit facility by $30 million in the quarter. We paid down $70 million in Q2 2022, and we have now paid down $100 million since we closed the facility in late May. As a reminder, the $500 million credit facility was put in place to expand our borrowing capacity for potential future M&A. We do not intend to use this facility to fund normal operations given our positive adjusted free cash flow position. And we expect the balance of the facility to fluctuate from quarter-to-quarter, as we use excess cash to minimize interest expense. Finally, adjusted free cash flow before interest payments on our long-term debt and the change in client cash related to merchant services was $2.1 million in Q3 2022 compared to $17.9 million in Q3 of last year. Adjusted free cash flow in Q3 of last year was atypically high as a result of payment plans that allowed clients to defer payments of their 2020 invoices to 2021 due to COVID. Year-to-date in 2022, we have generated $64.5 million in adjusted free cash flow. Deferred revenue at the end of Q3 was $246.2 million, an increase of 8.8% compared to Q3 of the prior year due to year-over-year bookings growth across the business. Now let’s turn to our guidance for Q4 2022 starting with revenue. We expect Q4 revenue of $169.3 million to $170.3 million, up 17.4% at the midpoint compared to Q4 of 2021. This guidance is in line with our midpoint of the implied guidance we gave in our Q2 earnings call in August, when we provided Q3 and full year 2022 guidance. Shifting to full year 2022 revenue guidance. As a result of our Q3 2022 beat, we are increasing our full year guidance range to $628.9 million to $629.9 million, up 21.3% compared to the prior year at the midpoint and reflecting a $2.8 million increase of the midpoint of the guidance we shared in our last earnings call in August. Moving to adjusted EBITDA, we expect Q4 adjusted EBITDA of $38.5 million to $39.8 million, representing 23 point – representing a 23.1% adjust EBITDA margin at the midpoint. Q4 adjusted EBITDA margin is forecasted to sequentially expand compared to Q3 2022 by 220 basis points at the midpoint, continuing the operating leverage expansion we’ve seen this year as the business continues to operate more efficiently with the pandemic easing and our competitive market position strengthening. Compared to the implied Q4 2022 guidance provided in our last call in August, our adjusted EBITDA expectation is lower, and that is the result of the Q3 2022 projects we tactically shifted into the future and some of the higher Q3 2022 cost containment not recurring in Q4. Turning to full year adjusted EBITDA guidance, as a result of the higher than expected cost containment we saw in Q3 2022, we are increasing our full year adjusted EBITDA guidance range to $108.4 million to $109.7 million. This reflects a $1.9 million increase over the midpoint of the guidance we shared in our last earnings call in August and a 20 basis point increase in our adjusted EBITDA margin guidance at the midpoint. $1.9 million raise is less than the $5.1 million Q3 2022 beat due to a portion of the Q3 beat coming from the Q3 projects that were shifted from Q3 to the future and higher cost containment at Q3 that will not return in Q4. In closing, we’re pleased with our Q3 22.9% revenue growth and 420 basis points of adjusted EBITDA margin sequential expansion, both on a normalized basis. We believe these results exhibit are strong competitive position and the industry trends that work in our favor. Every quarter that goes by, we believe we are getting closer to a more normalized state. As Reggie mentioned, while we’re not immune from the current macroeconomic environment, our platform approach enables Cvent to power the event landscape regardless of an organization’s budget or how they choose to meet. And longer term, we feel we are well positioned to take our disproportionate share of the $30 billion TAM. Now I’ll turn it over to the operator for Q&A.

[Operator:]

Your first question is from Josh Baer with Morgan Stanley. Please go ahead.

[Josh Baer:]

Great. Thanks for the question and congrats on another beat and race. I was hoping that you could talk a little bit about the partnership with American Express and some of the benefits that it brings to you.

[Reggie Aggarwal:]

Hey, Josh. Thanks for the question. So American Express, there’s two parts. There’s the business travel and meetings and events side. This is more regarding their corporate credit card. So basically, it’s a payment solution. So let me just give you some context. So what happens with American Express is, they give it what we call a p-card. So for every single event what you have is your meetings, a virtual credit card’s giving. So every expense for that meeting can be consolidated and tracked. So it’s really giving planners a better idea of what they’re spending across everything. So let’s say, you’re flying somewhere and it’s a person taking people out to dinner after the event, all that is could put on the p-card. So it’s a way to control spend. So it allows our customers to be able to get that better visibility per event. And it’s really helping them stay on budget and accurately calculate their meeting ROI. And it’s really what it does, is it gives another breath – another example of the breadth and depth of our ecosystem with our ability to partner with other market leaders to help drive kind of that ROE, which is return on event. And so it’s – we’re also helpful in compliance because a lot of our pharma and financial customers and just in general, it helps them have more compliance in particular with individual events as well as the total event program. So that’s really what it’s doing.

[Josh Baer:]

Okay, great. And then I know billings isn’t a focus for you and we can look to full year revenue guidance moving higher as a pretty good indicator of the state of the business. But just wondering if there’s any puts and takes on billings invoicing in the quarter. I think we’re looking at like a decline in the growth rate in billings to single-digit, anything to note there?

[Billy Newman:]

Yes. I’ll take that Josh. Using deferred revenue on a quarterly basis is not a great proxy for billings growth. And that’s because – this quarter for example, we saw higher than expected performance, because of upsells in the quarter, which often get closed in the quarter. And then get recognized in the quarter. Additionally, with the quick return back to onsite, we’ve got deals that will close in the quarter and then the event will happen within the quarter as well. So it’s a little difficult to use deferred revenue as a proxy for that. So that being said, I think we’re happy with the billings growth that we saw. It was relatively in line with what we were expecting. And I think what that’s showing is that the recession resiliency that our platform provides is helping us from a macroeconomic perspective currently.

[Josh Baer:]

Okay, Thank you both.

[Operator:]

Your next question comes from Tyler Radke with Citi. Please go ahead.

[Tyler Radke:]

Thank you for taking the question. Can you just help us understand kind of the moving pieces between the Q3 versus Q4 updated guidance? Obviously, the numbers came in Q3 ahead of where you guided. How much of that – but the Q4 implied guidance is a little bit below where you guided last quarter. So how much of it was timing impacts? And then are you kind of making any macro assumptions for Q4 just given what you’re reading in the news? Just help us understand if there was any timing impacts or if anything from just a guidance philosophy has changed. Thank you.

[Billy Newman:]

Yes, I’ll take that one. Look, the – as I said, the over performance that we saw in Q3 was primarily due to the higher upsells that we saw in the quarter. So although, it’s possible this could recur in Q4. We want to make sure we’ve got a number out there that we feel confident in and which we do for our Q4 numbers. And so we haven’t assumed that recurs in Q4. And so really no change in the expectations that we saw at the beginning of when we spoke to you last August in terms of the applied guidance. That’s why it’s – at the midpoint, it’s relatively in line. You’ll – so it’s really – and outside that, it’s really just the tightening of the guidance. We’re sitting here in November, so we have very good visibility into the quarter. As we sit here today, we have – and this is very typical for any given quarter, 90% of our revenue is contractually locked in. So it gives us really good visibility in addition to just our multi-year deals, the recurring nature of our revenue. And so really the – you just had some tightening of the spread around the midpoint given that we’ve got that great visibility as we sit here.

[Tyler Radke:]

Great. And just a follow-up for Reggie or maybe Billy too, but I’m curious, did you talk to customers and you talk to them about their plans next year? How are they just thinking about their overall event budgets? Is it still up next year? Are they still kind of hoping to increase the size of these events even for the folks that did kind of do their first in person events this year? And maybe just kind of share how you’re thinking about the planning process as you look towards next year, given the puts and takes of the macro environment combined with what still seems like a pretty good return to in person.

[Reggie Aggarwal:]

Yes. So thanks for the question. So look, first, look, as Billy said, we had a great Q3, we’re confident in our Q4 guide. But what we’re hearing from the field is that some customers are being a little cautious with spend, we’re seeing a little bit of elongated sales cycle. I think they still tend to move forward, but it is causing a little bit of lengthening of the sales cycle. They’re getting a little bit more people involved. And they’re still trying to figure out from their budgets, right, what they’re doing in the blend. Is it in person virtual or hybrid? And then they’re trying to – everyone’s trying to figure out what – everyone else is doing kind of thing. But look, so we’re not immune to the macro level environment, but I think we’re prepared. And part of it is, is that we’re still – people still want to meet in person. You still have this latent kind of push that, people are still wanting to meet the person, because it’s been so long. CMOs are seeing that’s incredibly important. They’re getting more involved with events, because they see getting people in person how that really helps their top line. And I think that we’re still seeing all that momentum. I think with the macro level environments, people are all trying to figure it out and trying to see what happens. So that is a little bit elongating your sales cycle, but I think the fundamentals are still the same that we’ve had in the prior time. And I think this in person is going to continue to kind of push it a little bit more than it would normally go, because of that pent-up demand. But look, the macro level is elongating our sales cycle a little bit as we’re starting to see.

[Tyler Radke:]

And just to clarify with those elongated sales cycles, would that mean you kind of expect growth maybe a little bit below where historical patterns have been? Or how would you just think about those longer sales cycles translating into revenue?

[Reggie Aggarwal:]

So couple things. Like I said, we feel good about our Q4 guidance. We’re not kind of – we’re not giving guidance to 2023 at this point. We’ll do that in our Q4 call that we’ll do. But look, the macro environment, it is slightly elongating sales cycles. It’s hard to predict what – how it will continue on. So that’s probably the best I can say right now. But I think the fundamentals are still there. And we’re still trying to understand that ourselves. But just today, just literally two hours ago, I was meeting with the VP of Marketing of a Fortune 100 company, their VP, Mark, was in our office and we were spending some time just now just talking about what they’re going through and so forth. And we were talking about their saying what are other customers saying, but I think in the end, people are firmly committed to events and they’re trying to figure out if there is budget cuts, let’s say, for certain company, they could always do less in person, more virtual, because it tends to be less expensive. And so then that mixes a lot of what people are trying to figure out. The good news with virtual that wasn’t around before the other recessions is they can replace cost tremendously by going virtual. Our event technology is very similar. We get pretty similar economics. We get more if it’s a hybrid, little bit less if it’s in person, even a little bit less than that if it’s virtual. But we’re still a critical part of them switching from in person to virtual if they’re trying to save budgets. So I think people are all starting to work through that.

[Tyler Radke:]

Thank you.

[Operator:]

Your next question comes from with Credit Suisse. Please go ahead.

[Unidentified Analyst:]

Hi, Reggie and Billy, thanks for taking the question. So couple of questions here. First, could you maybe help us better understand what you’re currently seeing in the environment as in person events and business traveler still returning? How has your competitive landscape changed? And also maybe help us better understand how you’re seeing the overall opportunity today, even versus perhaps six months ago.

[Reggie Aggarwal:]

Yes. It’s a good question. So let’s take first the in person. There’s a bunch of questions there. So in person just give me one second. So I’m just trying to see what the in person. Sorry, you asked like three different questions. So I’m just trying to repeat the in person one. I apologize.

[Unidentified Analyst:]

The question just had to do with what are you seeing in terms of the trends of the return in person relative to even six months ago? And then the two follow ups were around the changes in the competitive landscape, and then structurally in the overall opportunity that you see from a revenue perspective.

[Reggie Aggarwal:]

Okay. So start with the in person. So look, there’s been a big shift in the last six months, as you know, it’s really been pretty incredible how fast in person came back. It was almost like a whiplash, almost similar to when virtual came and out of nowhere. So we’re seeing that trend. It used to be a trend. It’s no longer a trend to us, it’s just now the fundamental what it is. People are comfortable meeting in person. There’s still – we’re not up to the in-person numbers that we were previously, from an RFP volume for example, we’re about 75%. So I think if you look at a typical event, you’ll probably have about 75% of the attendees, let’s say, that you have. So they’re – in terms of the registrants you’re having less registrants coming, but this growing every quarter. The good news for us, our registration counts are up because the virtual events were something that was an addition to what we had. So we’re actually up in registrations as a company at Cvent, but in in-person events, it’s starting to continue to move back. And in September, we saw it to be the highest number that we’ve seen. So that’s kind of from an in-person view. In terms of a competitive view, so look, we continue to feel better every quarter about where we are competitively. And so I think last earnings call we talked about, there were a lot of layoffs with a lot of our competitors. But I think we showed the ability to break out of the pack. We scaled obviously $600 million plus in revenue and generating actual profits. I think most of our competitors have been able to generate cash profit, and they’re having a difficult time scaling, and they’re not getting this unlimited investments where they were just investing in a lot of things, where they could keep their prices low and keep investing. Now they have to, for example, start – because they have to be profitable. They have to focus on maybe raising their prices. They have to be more thoughtful about how they spend. And that’s better for companies like us who are very – trying to take a balanced approach. Look, our platform thesis is playing out, I think by our strong growth that we’ve shown, which is to have everything under one. Most of our competitors tend to be point solutions. And just a couple last things as I think that our India office, for example, utilizing that has given us a real competitive advantage so we can continue to grow and we can continue to invest, because of our cost structure that we’ve built over the last 23 years. And I think that gives us a big opportunity to take part of – larger part of that $30 billion TAM. So I think that the combination of all this and our thoughtful way of expanding and have been through these recessions has really given us a leg up to our competitors. So and the last question – sorry, I was right, the last question was regarding…

[Unidentified Analyst:]

Just the opportunity from a revenue perspective.

[Reggie Aggarwal:]

Okay. Opportunity from a revenue. So maybe give me more specifics in terms of just in general, what our opportunities are.

[Unidentified Analyst:]

When we think about the mix of virtual shifting over to hybrid and in-person, just how do you think of that opportunity deferring across those types of events?

[Reggie Aggarwal:]

So let’s first start. So our mix, historically, this is before the pandemic was 95% of our revenue was in-person. So effectively there’s hardly any virtual or hybrid. Now what we’re seeing is about roughly 50%, 25%, 25%, 50% in-person, 25% hybrid, 25% virtual. So that’s – so we’re seeing a permanent shift where virtual is certainly going to be a major part of the event landscape, which we think is good because it creates complexity, creates the need for software. But most importantly, in, let’s say recessionary environments allows people to have flexibility to be able to use whatever format they need to leverage the right budgets. So that’s kind of from a high level. But look, buyers are looking for solutions. We think for the total event program, which is again a mix of these, and they want the flexibility to go back and forth and be able to pivot because they’re – before it was the pandemic that was driving people’s need to go to virtual, now it might be the recession. But look, because of the triple threat, we win more often at the outset. And so we think from a – compared to our competitors and keeping everything under consideration with the macro outlook, we think we will disproportionately be advantaged because of our scale, because of our ability to pivot and the depth of our product because in-person was our strength. But now that it’s combined in one platform or virtual, we can again do that pivot. So we think from an opportunity, we think we’re really well-positioned. And if virtual becomes a more important part of the segment.

[Unidentified Analyst:]

Thank you.

[Operator:]

Your next question comes from Scott Berg with Needham. Please go ahead.

[Michael Rackers:]

Hi, everyone, congrats on the quarter. And thanks for taking my question. This is Michael on for Scott today. Just a couple of quick questions here. You mentioned the strong demand you’re seeing on the advertising side of the Hospitality Cloud, could you talk a little bit about that and maybe compare it to your expectations coming out of the pandemic, and just give us a little color there? Thank you.

[Reggie Aggarwal:]

Yes. So first, in-person is the light blood of hospitality. And so that’s obviously coming back. And so people really want to get their fair share of that. What’s happened is in 2022, a lot of the demand was driven by consumer, leisure and some business transient. So actually, hotels fared pretty well. What’s really happening for 2023. So we, again, feel pretty good about where we are for Q4, as we mentioned. So we think though that when it comes to 2023, what’s happening is there’s going to be less leisure business. So with less leisure business, events become more important. And so for larger hotels, they tend to be the largest segment of their top line revenue tends to be meeting the group for the larger hotels. So it’s very important, it’s often the most profitable, but really what I think that people like as they’re locked in when you sign event contracts. Unlike if we travel somewhere to visit someone, a grandmother in Miami or we go to a business trip we can cancel within 24 hours with an event business, you can’t cancel because it really gives that stability. So I think that we’re seeing demand is growing. We’ve seen that with our RFP volume, as I talked about in the script. Now with the macroeconomic, how will that kind of play out that we’ll have, I’m sure, a little bit of impact as people start maybe potentially coming back. But I think hotels need a bigger portion of their revenue that come from meetings because leisure is coming back a little bit, business transient coming back. And there’s a term called group up, and that’s what hotels try to do. Group up means if a recession comes, which is locked that in now to get the signed contracts. So if things go down, they lease to have these contracted business that people can’t cancel at the last minute. So it’s kind of a balance between a recession happening, but then also needing that group business. So we’re feeling pretty good we’re going to Q4. And like I said, I think hotels are really needing to group up for 2023 because they’re kind of expecting a little bit of economic headwinds for 2023.

[Billy Newman:]

And Michael, two other things I would add. First off, look, there are record labor shortages in the hospitality industry right now. So that really forces hotels to move to more digitization to make up for those labor shortages. And then also when planners are booking for events or looking for events through our CSN, there are a lot of times looking for events that are 12 months, 18 months out. So even though there might be things that are going on in real time next year as it relates to macroeconomic environment, they’ve got to make sure they’re getting that business in 2024 and beyond when things might be much different. So that is another thing that could help to mitigate potential macroeconomic factors just in the short-term.

[Reggie Aggarwal:]

Yes, just if you look at it, so we’re helping in the sales and marketing part, as Billy said, the productivity part, because people have permanently left the industry, especially sales people. And they are getting a little bit overwhelmed. They’re not stacked for some of the demand they’re getting for events. And so I think these productivity tools, which is 45%-plus of our Hospitality Cloud revenue. So both those elements are super important. And so I think efficiency in getting more business is what they’re all going to want. And I think we have technology tools that really helped us.

[Michael Rackers:]

Great. Thank you. And then on the customer expansion side of things, you mentioned that it drove most of the beat this quarter, but then you’re going to move back down to pre-pandemic levels, which were I think a little under 110 and then push back up to 115. Could you talk a little bit about that dynamic? And just kind of especially more on the movement to 115 longer-term, and then maybe what would you like to see from that aspect? Thank you.

[Billy Newman:]

Yes, Michael. So as you mentioned, we have seen a really good improvement in the net dollar retention rate over the last few quarters. You hit the trough in Q1 of 2021, we were at 84%. And so now we were at 116% in the most recent quarter. And just like last quarter, we’re really happy with the metric, but a lot of it is because we’re just seeing that such a quick swing in the pendulum back in-person plays to our strength. We’re seeing a lot of spend coming back. You mentioned the upsells in the quarter, that’s another indication of just quick return to spend. And so that’s what’s really driving it in the near-term or currently, we think in the short-term, that spend as much as we’d love to see that rate of spend increase continuing, we do believe it’s going to start to level off just naturally, irrespective of whether we were going into any sort of special macroeconomic situations. And so over time, you have that we believe in the short-term, it will come back to our historic pre-pandemic levels as people swing back into on-site. But then longer-term, there is going to be that pandemic is going to start to swing back where the on-site will be there, but then there’ll be more and more virtual and hybrid that will come out of that as companies just realize, hey, there is – virtual gives me the ability to do more events than I normally would have done. I can get more attendees at those events. When they do it, hybrid obviously was – with virtual becoming really popular during COVID, CMOs are going to want to retain that virtual piece. And when they’re getting back on site, right? They’re swinging back to what they knew, but then they’re going to realize, wait a second, I can do virtual and hybrid together or in-person together. And so that over time, with just the general digitization of the industry, and that’s both on the Event Cloud side and the Hospitality Cloud side. That’s what we believe will start to move the net dollar retention rate from those historic levels to the 115% over the longer-term.

[Michael Rackers:]

Great. Thanks so much. Very helpful.

[Operator:]

Your next question comes from Arjun Bhatia with William Blair. Please go ahead.

[Arjun Bhatia:]

Awesome. Thank you, guys for taking the question. Reggie, when you called out long deal cycles, I think you’re obviously not unique in seeing that. We’re seeing that across the space, but what are some of the levers that you think you have available that your customers have available to get deals ultimately across the finish line? Can they adjust the number of events they’re planning, the size of events, right, reduce registrants. Like are those levers something that customers are considering? Is that something that your sales team is proactively bringing to customers to say, hey, maybe we can start smaller to just get you on the platform and start using the total event program across all event types. How are you thinking about that?

[Reggie Aggarwal:]

Yes. What you just said it’s all of the above, Arjun. So look, the big thing is what actually what we try to do is try to tell them, this is the time to do all your event programs over – the total event program over to us because we’re a triple threat and we can save you money. The ROI there just first from a people, people are looking at cutting budgets, which generally also means people, and they’re looking to get more efficient. But I think our lever is the triple threat and that standardization because it’s inefficiently done right now. And there’s a lot that they’re not getting. And we talk a lot about saving money but it’s also growing the top line. There’s a lot of things that people do with events that they don’t take advantage of getting the top line revenue growth. Like just very basic things that they don’t do to get more attendees there, for example, or to make sure you follow-up quickly, and we have all kinds of products and tools that help you do both, for example. So I think, look, when we meet with customers, of course, we try to get in any way we can, and it could be trying to get into some of their programs and say there’ll be less registrants. But I think the biggest cost savings you’re going to see if we do hit some bad economic times as people will switch some of their in-person to virtual. And generally, you can say the 80% to 90%. I talked a lot about that in the last quarter, the last earnings call, which is if you do an event, and the example I gave is, let’s say, you did the event that might be in-person, $7 million or $8 million. You can take that down to probably $700,000 or $800,000 if you went from pure in-person all the way to virtual. But what we see a lot of clients will do and we’ll coach with them and strategize with them saying, hey, maybe do it a hybrid event to have less people there but bring your best customers. And so maybe that event will become somewhere between $7 million and $700,000, but you’ll get your best customers there, wow, so you can build that personal relationship, but then the other people will be virtual, so you can save money. So the thing is we can do it either way. And I think, look, we have some free modules to help them dip their toe in, there’s all kinds of tactics and techniques we have to get them trying. But one thing because we’ve been through so many recessions, one powerful thing if you have an economic downturn is that people tend to be more open-minded about automating things. And I don’t want people to forget that because we’ve lived through so many of these downturns, automating things. And so that’s when sometimes sure, they don’t have as much money, but they also say, hey, I want to automate it because I want to reduce my costs. And so that sometimes spurs behavior that would normally happen in a normal cycle because everyone is looking at their cost and use the software makes you more efficient. So there’s that trend also. So between all those things, we’ll try to do, of course, our best to convince them, but we’ve been through it, and we have lots of institutional ways from a sales tactic and marketing tactics, but I think more most importantly, is the platform. That’s really that flexibility to do your events. And the last thing I’ll say on that is, in the past recessions, you couldn’t go virtual. It’s pretty much are you doing the event or you not or maybe you can reduce it. But now if you convert it to virtual, it just doesn’t seem smart for people to cancel events if they’re compelling because of cost because they can still do some engagement with virtual and then bring it back to next year in-person.

[Arjun Bhatia:]

Okay. Makes sense. Very helpful. And I think you talked about competition earlier and some of your competitors may be laying off employees and downsizing a bit. It seems that, obviously, maybe that’s something that’s concentrated in competitors that are virtual only or that only address one part of this event program. What makes it – I’m sure those customers may try to switch to have hybrid capabilities to have in-person capabilities in your view, what makes it difficult, what will make it difficult for those companies to then pivot to have some in-person capabilities? What are the barriers that you have and the challenges that you’ve overcome to have – to be able to address all three that may make the moat durable for you?

[Reggie Aggarwal:]

Yes. So look, so the first thing is going in-person with a lot of companies have found if they’re a virtual company to go in-person is much more difficult. Not that virtual wasn’t difficult to do, but building in-person is takes a lot more time. Look, we’ve done it for 23 years. We have well over 1,000 engineers been building it for, let’s just say, not just for 23 years, but the last, in particular, the last decade when we had more scale, we built some remotes, we believe. And so to do that and then have it all on one platform is really where our barrier is. Is it that scale, that having in-person experience and then we built our virtual, we built it with the knowledge, knowing how in-person works where it’s hard to go from virtual to in-person. So that’s kind of, I would say, the first thing that’s difficult to do is just the platform itself and to be all in one place. I think the second thing is that the experience you need in selling in-person is tougher for virtual because just the way you interact with our clients, the support they need is just different. It’s really complex. And so I would say that it starts with the product, it’s also our scale, our brand, I mean, we’re known for in-person. Again, I mentioned 95% of our revenue was in-person to virtual. When the pandemic hit, it took us by surprise that our brand took a hit. But one thing I think by coming back is we have that huge competitive advantage because of that scale and platform. So from our competitor view, I think you had even in-person companies who went virtual. They also laid off a large amount of our top competitors. And the ones that were virtual that went to in-person, they’ve really struggled, really struggled. And so look, you’re going to have lots of competitors out there, but we’ve time and time again shown that we’ve always figured out a way to differentiate. And because we continue to invest during the pandemic and our in-person because we always knew it’s always been something we’ve been talking about is we know it’s going to come back to in-person because you can’t beat fundamentals, which is people want to connect in-person. So this is really playing to our advantage, and we’re stronger competitively now than we were a quarter ago and certainly three or four, five quarters before that. So coming out of this – out of the pandemic, we feel stronger. Now if there’s some economic uncertainty, I think very few of the companies have the experience that we do and the business model with, for example, are the way we – our cost structure, India, the way just the things we’ve done to build and be prepared for this moment. And I’ll just say one last thing on it. I mentioned that when the pandemic hit, it was the equivalent of a Category 5 hurricane, earthquake and flood hitting us at once. And it was just something like 100, 200-year storm. This economic times – this uncertain economic times is potentially hitting us or likely to. What I’ll tell you, I’ll liken it to a bad tropical storm compared to what we just went through. So I think we have the resilience, the know-how, and this is something we know well these kind of times compared to when a pandemic hit, which caught us a little flat-footed because we didn’t have virtual. But we’re prepared and we have something we didn’t have before, which is a virtual. So we can talk to people and say, hey, don’t cancel your event, just go virtual.

[Arjun Bhatia:]

Perfect. Very helpful and thanks, Reggie and good job on the execution here.

[Reggie Aggarwal:]

Yes. Thanks, Arjun.

[Operator:]

There are no further questions at this time. This concludes today’s conference call. You may now disconnect.