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Walkme (WKME) Q2 2021 Earnings Call Transcript

By Motley Fool Transcribing – Aug 12, 2021 at 12:21PM

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WKME earnings call for the period ending June 30, 2021.

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Walkme (NASDAQ: WKME)
Q2 2021 Earnings Call
Aug 11, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the WalkMe second-quarter earnings call. [Operator instructions] At this time, I'd like to turn the conference over to Ms. Nicole [Inaudible], investor relations. Please go ahead, ma'am.

Unknown speaker

Great, thank you. Hello, everybody. Welcome to WalkMe second-quarter 2021 earnings conference call. On the call with me today are Dan Adika, CEO and co-founder of WalkMe; Raffi Sweary, president and co-founder of WalkMe; and Andrew Casey, the company's chief financial officer.

Certain statements we make today may constitute forward-looking statements and information within the meaning of Section 27A of the Securities Exchange Act of 1933 Section 21E of the Securities Exchange Act of 1934 and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events. These forward-looking statements are subject to risks, uncertainties, and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance.

Actual outcomes may differ materially from the information contained in forward-looking statements. As a result of a number of factors, including those set forth in the section titled risk factors in our prospectus filed with the Securities and Exchange Commission on June 16, 2021, and other documents filed for furnish with the SEC. These statements reflect management's current expectations regarding future events and operating performance and seek only as of the date of this press release. You should not put undue reliance on any forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by applicable law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date of which these statements are made or to reflect the occurrence of unanticipated events. See our press release dated August 11, 2021 for additional information. In addition, certain metrics we will discuss today are non-GAAP metrics.

The presentation of this financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparison. We believe that these measures provide useful information about operating results, enhance our overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used in management and its financial and operational decision making. For more information on the non-GAAP financial measures, please see the reconciliation tables provided in our press release dated August 11, 2021.

With that, I'll hand the call over to Dan. 

Dan Adika -- Chief Executive Officer and Co-Founder

Thanks, Nicole, and thanks, everyone, for joining us on our call today to discuss our second-quarter results. I'm excited to be here today on our first call as a public company. Before I get started, I would like to thank our employees, customers, partners, and investors for their support over the years as we work toward this significant milestone. I speak for the rest of the team when I say we're looking forward to this next stage of our growth as a public company.

We had a very strong quarter, and we're very pleased with the results we achieved. Our sales organization has continued to execute very well, driving strong momentum in revenue, ARR and customer metrics. Andrew will cover the financial in detail in a few minutes, but on a high level, total revenue grew 28% year over year to 46.8 million with subscription revenue growing 31% year over year to 42.2 million, an acceleration over our growth in Q1. ARR at the end of the quarter 191 million, up 31% year over year.

And non-GAAP operating loss was 11.7 million, a margin of negative 25%. Since this is our first earnings call, I would like to provide some guidance on WalkMe and the opportunity ahead of us. Much has been said in technology industry and in enterprises across the globe about digital transformation. It can be a complex topic with far-reaching implications.

But in basic level, the common element in every digital transformation is buying and customizing software to create compelling user interfaces and experiences that improve business processes, sometimes as simple as a website or a mobile application. As straightforward as it sounds, there is a compounding problem that is hindering the digital transformation efforts, or even the largest enterprises. You've probably heard the phrase, there is an app for that. Organizations are proving that to be true and they buy and develop new cloud-based application at a record-breaking rate, each with the aim to improving any one of an uncountable number of business processes along with the related experiences of employees and customers.

So what's the problem? There are actually two. First, when I talk to CIOs, the biggest challenge they have is figuring out how their multimillion dollar IT budgets are driving improvement across their businesses. They tell me that they lack visibility and insight into digital assets and business processes, which make it very hard for them to extract value from applications including those that they may not control or even know about. Looking through log after log and app after app to find the data they need to even understand what is happening, break it down quickly.

Each time someone in their organization has a new app, it's just become that much harder to visibility to the whole. This is why it's important to recognize the compounding nature of the problem. CIOs can't outrun it. Second is the risk of creating poor user experience for both employees and customers.

As I noted earlier, one of the basic elements of digital transformation is to create compelling user experiences. These turned out to be extremely difficult when there are no UI standards for application and software with a single use case doesn't by its nature consider the user experience across all of the application required to complete business processes. How does management even know if the experience is working for the user that intended? At WalkMe, we recognize that the key to successful digital transformation is not about the software you buy or the experiences you accept. It's about user adoption.

To achieve user adoption, organizations need two critical things. One, deep visibility and insight into their tech stack. Who is and who isn't using each application, where using getting stuck and abandoning processes, where a system's end user's errors are happening, where integrations are breaking. The permutation across all of the application in the enterprise are endless.

It is a compounding problem. Second, is an efficient and agile way to action inside a GPS-like experience using no code, constructs and automation that puts the employee and customers at the center, where every change directly improve their experience and in turn drives adoption. Being data first is the most important thing when designing a digital transformation strategy. Without the visibility to the data and the ability to declare and measure the KPIs, there is no way to improve application, deliver the experience employees and customers expect, and fully realize the value of digital transformation.

The WalkMe digital adoption platform, or DAP, analyze and understand any application with a simple no-code implementation. CIOs and CTOs are provided with immediate insights to find the gaps between the user experience with technology and an organization's business role. With actionable insight, organizations can create and deliver elegant experience that enable users to access the full functionality and value of their application, ensuring the adoption and ultimately fulfilling the promise of digital transformation. This is why WalkMe has become not only a category leader, but a category creator.

In Q2, we have continued to make huge investments in innovation, and I'm excited to share with you the following insights. We completed the acquisitions and integration of the best enterprise search built with for digital adoption. Now users of Workstation, our unified employee solution, can search what they need at the moment they need it and get personalized AI-driven results. For example, imagine the productivity increase in sales when they no longer need to remember which application haystack to search in to find the latest version of presentation, order form, or contract.

I'm also proud to share that we've completed another milestone in the development of our machine learning capabilities we call DeepUI. With DeepUI, WalkMe analyzes how humans interact with software, and proactively recommend ways to improve the user experience with actions they can be taken immediately right from the WalkMe platform. For example, organization using Salesforce license can turn on WalkMe UI intelligence and expose in full detail data-driven insights for all forms. That professional can now see which fields are redundant, understand where users waste a lot of time, or make form field error, in short, the optimal path to form completion.

Imagine how powerful it is for a CIO to deliver a radically better user experience across application and align to business processes without any configuration changes or human interaction from your team. Everything is done automatically powered by AI and machine learning to extract data, better user experience, equal better digital adoption, and more value from digital transformation. The best way to understand WalkMe is where customer success stories and hearing about how they use data first approach to close the gap between user interactions with technology and their business call. We had a very strong Q2 in terms of both new logos and expansion with enterprise customers.

As of the end of Q2, we service more than 2,000 customers globally. Given our enterprise focused approach, we continue to see outside growth in that market. To that end, we added 15 new enterprisewide DAP customers in that quarter, which is growth of 110% year over year. The growth we are seeing in these enterprisewide deployments demonstrate our platform become a really strategic part of our customers digital transformation strategy once they are reaping the benefits of data visibility and better employee and customer experiences delivered by WalkMe.

I'd like to share how a bank in Southeast Asia extended with WalkMe to support its hybrid workforce strategy. The bank formally launched its hybrid work program 14 months ago with the goal to increase support from 700 to 45,000 employees across eight markets. Today, nearly 37,000 employees have a flexible working arrangement. The hybrid work program is powered by four applications: ServiceNow, an e-learning platform, Talent Marketplace and SuccessFactors.

WalkMe connects business processes across these four applications so managers have the data and visibility they need and employees have the right user experiences. Each can now optimize the use of all four applications to push the bank's future of work initiatives forward in efficient and smooth way. With WalkMe, bank employees intuitively adopt new platform, improving productivity and task completion rates. Engagement rates are high, 99.9% of employees have interacted with WalkMe to complete business processes on ServiceNow and 93.9% of the bank's e-learning platform.

Let's look at another expansion view. Here is an example of a large multinational tech company that first became a customer in 2016. Like organization around the globe, the company embraced a remote workforce model as a result of COVID and today is one of the most successful hybrid workforce success stories. Not to be derailed by the new normal, while moving forward with their planned IT initiative, they started off with the WalkMe pilot primarily for its customer experience transformation.

Their goal was to onboard 7,000 customers service managers on new processes in Salesforce.com to better support the new software product as they move away from their hardware focused strategy. With the data and visibility they gained with WalkMe, the company provided new user experiences. They reduced the average handle time for critical business processes in Salesforce by more than 50% while improving process completion rates. The success of the pilot got the attention of the sales organization who ultimately decided to onboard WalkMe to facilitate their global sales transformation.

Since we first started working with them, we expanded from one application to four applications, 7,000 users to 30,000 users, and we close a two-year article and renewal in Q2. We're now in talks to expand their use of WalkMe DAP so they can realize even more value from their transformation initiative. These are two perfect examples of companies that look to WalkMe to drive their hybrid work strategies by gaining better visibility to their data and using insight to create better user experiences. They connect the data and action on the WalkMe platform to deliver outstanding business outcomes.

Customers are at the center of everything we do. Now let's widen the lens and look at our category and ecosystem. While we have directly seen the positive impact in ROI of data across our customer base, major industry analysts, Gartner and Forrester, have increasingly been featuring WalkMe as enabler of digital transformation and have recognized the category of digital adoption platform which we have helped define and shape. In 2019, Gartner classify digital adoption solution as an emerging category across software landscape alongside the likes of ACM and CRM software, recognizing that WalkMe couldn't be put into a narrow category that under appreciate the value of what our platform can deliver.

Gartner stated that by 2025, 70% of organization will use digital adoption solutions. They believe that the number is only somewhere between 5% to 20% today. Most recently, Gartner featured WalkMe in digital adoption solution in two hyped cycles, where digital adoption solution has advanced the stage in the maturity phase. In addition, Forrester has done extensive research on the economic impact of WalkMe for enterprises.

Forrester found that walking drove an ROI of over 368% based on cost savings across employee-facing applications and customer-facing services. These translates to a payback period of less than three months and over 20 million in savings to the company over a three-year period for the composite company studies in the report. Strong ecosystems are important. The most valuable companies in the world have them.

WalkMe has made important strides in this area. Our ecosystem, WalkMe Beyond, is about extending beyond WalkMe's core platform by bringing together two key elements, talent and technology to drive new opportunities. This ecosystem is built around a digital adoption institute, which empowers our customers, partners, and users to become skilled-working professionals. Through our self-study courses and certification programs, an ecosystem of WalkMe users and collaborators is growing rapidly.

Over 2,000 individuals actively engaged in the institute to grow their skill set in Q2, and over 15,000 have joined it to develop the skills of the future since its launch last fall. Experienced DAP professionals are championing WalkMe into a professional and industry network, which increases mindshare and awareness. And we find industry best practices around digital adoption to realize more value from digital transformation. More than 3,500 professional features digital adoption platform in WalkMe scale on their LinkedIn profile, and there are more than 30 companies with open job requisition for these skill sets.

The ecosystem also provides another layer of resources to increase the strategic value of WalkMe for our customers, including access to community service marketplace, market research integration app and solution. This is the power of our ecosystem, which enable our customers to maximize the value of our platform. As we look ahead, we're excited about what the future has in store for WalkMe. In particular, we look forward to the launch of new products that leverage the power of AI to enhance the intuitive nature of our platform, the expansion of our echo system to amplify the power of our network effect and the investment in our sales and marketing organization to drive increasing brand awareness and further recognition of our leadership as a leader in digital adoption platform.

While we have made great progress, become a category leader and achieve scale to date, we strongly believe that we're still in a very early stage of our journey. We look forward to discussing our progress with you in the quarters ahead. With that, I will turn the call over to Andrew to walk us through our financial results.

Andrew Casey -- Chief Financial Officer

Thanks, Dan, and thanks to everyone for joining us. Before I get into the results for the quarter, I want to provide a quick overview of our business model and the key metrics that we look to measure our business. We deliver our digital adoption platform through a subscription SaaS offering in the cloud, which represents our subscription revenue. Our services revenue includes professional services and training.

In terms of key rhetoric, we focus on remaining performance obligations, or RPO, as well as annual recurring revenue, or ARR, which we believe provide a better view of our current business momentum relative to revenue growth. RPO represents all the contracted revenue not yet recognized, including both deferred revenue and non-cancellable contract amounts that will be invoiced and recognized as revenue in future periods. Moving on to the second quarter results, as Dan discussed, we had a very strong second quarter with great customer momentum. The strength that you're seeing is reflective of strong value proposition our platform, the horizontal application of our solutions, strong operational focus, and sales execution.

In the second quarter, total revenue was 46.8 million, an increase of 28% year over year. Subscription revenue grew 31% year over year to 42.2 million. Remaining performance obligation, or RPO, ended the quarter at 260.5 million, representing growth of 48% year over year. And current RPO, which is contracted subscription revenue expected to be recognized over the next 12 months grew 36% year over year to 151 million.

ARR at the end of Q2 with 191 million, representing growth of 31% year over year, an acceleration from Q1. The strong top-line metrics are reflective of the growing importance of visual adoption within the world's largest organizations. As Dan mentioned, we have seen continued strong momentum with larger enterprises, which we measure as organizations with more than 500 employees. Looking at ARR from customers with more than 500 employees, this grew 38% year over year in Q2 to 165.2 million, representing 87% of our total ARR, up from 86% in Q1 '21 and 82% in Q2 of 2020.

In addition, we look at enterprisewide digital adoption platform customers, or DAP customers, and the additions is a sign of the growing strategic nature of our platform across our customer base. We added 15 new DAP customers in the second quarter, which represents a growth of 110% year over year. The ARR from these DAP customers grew 129% year over year and represented 34% of our total ARR, up from 19% in Q2 last year. Taking a look at dollar-based net retention, the natural land and expand motion of our platform translates into a strong net retention rate.

We look at dollar-based net retention with our enterprise customers who are normally stickier through the disruption that COVID caused with smaller businesses last year. Our enterprise dollar-based net retention, which includes customers with more than 500 employees, was 117% as of the end of Q2 on a trailing four-quarter basis. This was down slightly from the prior quarter due in part to the continued impact of COVID on customers and the specific industries we serve. If we look at the quarterly view of dollar-based net retention, it was 121% in Q2, up from 118% in the first quarter.

Before turning to gross margin, expenses and profitability, I would like to note that I will be discussing non-GAAP results going forward. Gross margin was 76.8%, up 120 basis points year over year. Gross profit was 35.9 million, up 30% year over year. We expect our overall gross margins will increase over time as we continue to optimize our hosting operations and improve our services engagement model, leveraging partners where feasible.

Turning now to operating expenses, we remain focused on investing for growth to capture share in the large market opportunity that Dan described. Sales and marketing expenses for Q2 was 28.1 million compared to 19.3 million in Q2 last year. This represents 60% of total revenue compared to 53% in the second quarter last year. The year-over-year increase in sales and marketing expenses is a direct result of the hiring freeze we put in place at the onset of the global pandemic last year, followed by an acceleration in hiring as the business activity return to a more normalized levels in subsequent quarters.

We're also investing aggressively in our go-to-market teams to address the increasing opportunities we see in U.S. federal market, partner expansion, and broader coverage across all geographies. R&D expenses in Q2 was 10.7 million compared to 6.7 million in Q2 last year. This represents 23% of total revenue versus 18% in the same period last year.

We've been making investments in our platform and plan to continue to invest in R&D as we build out our product and invest in our ecosystem in the quarters ahead. G&A expense was 8.8 million for the second quarter compared to 4.5 million in the second quarter last year. G&A was 19% of revenue versus 12% of revenue  last year. We are investing in the infrastructure of our business to continue to drive long-term scale in our business.

And going forward, the primary areas investment for us will be R&D, sales and marketing, as we look to capitalize our large market opportunity. Operating loss in the quarter was 11.7 million compared to a loss of 2.9 million last year. Operating margin of negative 25% was down 17 points compared to the same period last year. We held back on spending and investing meaningful last year during the pandemic as we chose to preserve cash.

As discussed, we've reaccelerated our investment plans as we look to capitalize on our opportunity. Longer term, we expect to see ongoing improvements in operating leverage as we scale and are structuring our investments in sales and marketing and R&D accordingly. Net loss per share in Q2 was $0.16 using 75 million weighted average shares outstanding. Free cash flow is negative 7.4 million in Q2 compared to a negative 0.1 million in Q2 last year.

Free cash flow margin was negative 15.9%, down from negative 0.3% in Q2 last year. In the near term, we expect to see fluctuations in cash flow. Longer term, we expect that increasing operating leverage will result in positive free cash flow, though margins will fluctuate on a quarterly basis in the near term, and improvement will not be linear. Turning to the balance sheet, we ended the quarter with 371.7 million in cash, cash equivalents and short-term deposits.

Turning now the guidance for the third quarter of 2021, we expect revenue in the range of 48.5 million to 50 million, representing growth of 25% to 29% year over year. Non-GAAP operating loss in the range of 17 million to 15.5 million. For the full-year 2021, we expect revenue in the range of 189.5 million to 191.5 million, representing growth of 28% to 29% year over year, non-GAAP operating loss in the range of 59 million to 57 million. With that Dan, Raffi and I will take your questions.

Questions & Answers:

Operator

[Operator instructions] And we will go first to Josh Baer of Morgan Stanley.

Josh Baer -- Morgan Stanley -- Analyst

Great, thank you for the question and congrats on your first quarter. I was hoping you could talk a little bit about the competitive landscape and your moat? How much of a lead do you think you have from a technology standpoint? How would you characterize your differentiation? And how important is scale and analyzing large amounts of that interaction data as part of your competitive moat?

Dan Adika -- Chief Executive Officer and Co-Founder

Thanks for the question, Josh, this is Dan. So regarding the moat and the technology, what's important to understand is that how that is actually built. And in order to really provide digital adoption platform, you need both things. One is deep data into the system, as I described briefly before, and the ability to action on that data.

So what we have and actually provide in what we call DeepUI, which is our UI intelligence. And for what we know, we are the only one that can actually understand human behavior and UI elements in such a precision that give us the ability to create that value to our customers. The second case is connecting the data to our engagement layer, and actually provide actionable analytics and actionable insights and guidance to those customers. So I would say today, we're not seeing anything like that.

There is point solution that we're seeing around that, or the product analytics space, or in the training space, and so on. But we're not seeing a real DAP solution like WalkMe today.

Josh Baer -- Morgan Stanley -- Analyst

That's helpful. And if I could sneak another in. Wondering, when you think about the sale cycle and the education component of that, given the nascency of the market opportunity, just wondering like thinking over the last couple years, or even since IPO if the educational component of the sale is getting any easier, as you're building out the ecosystem and the market develops. Thank you.

Dan Adika -- Chief Executive Officer and Co-Founder

Yeah, that is a great question as well. So absolutely, we're seeing a huge progress there, especially when we're getting more coverage by Gartner and Forrester and other analysts. Digital adoption platform become a true category. Still, when we're going to customers, the biggest challenge that we have is the status quo, and customers usually start with WalkMe with one or two applications, and then slowly going into digital adoption platform.

What we're seeing in the past, I would say here, especially with the tailwinds of COVID is that more and more and more CIOs understand that they need to adopt a data-first approach. And this is where we have a huge opportunity to actually go and sell the entire platform from the get go. And this is why we're seeing such a strong growth number in our DAP customers, and our expansion as well. So I would say we're still not 100% there, and the market's evolving, but we're seeing very strong indication that it's going there.

And one of the quotes that I gave a few minutes ago is that Gartner believed that by 2025, 70% of organizations will use a digital adoption platform. So this is what we're basically building on and pushing on because there is no way to run a successful digital transformation strategy and be successful without digital adoption platform.

Josh Baer -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

And we'll go next to Tyler Radke of Citi.

BoYoung Kim -- Citi -- Analyst

Hi, this is BoYoung Kim on for Tyler. Thank you for taking the question. I want to hear about the diversions in billings and ARR growth rates. What's driving that divergence? And when should we expect to see them converge?

Andrew Casey -- Chief Financial Officer

Hi Kim, this is Andrew Casey. So what I would tell you is that billing isn't the primary metric that we focus on. We really focus investors on our remaining performance obligations. And one of the things that we talked a lot about was really focusing our energies, our sales motions on customers with greater than 500 employees at that enterprise identify space.

And what you're seeing there is that -- that's where we're seeing the largest growth rate. And as a result of that, those customers are the ones who really want those longer strategic relationships with us, such that they're treating us as a platform supplier to enable their strategic objectives. That's why you see the RPO number growing so rapidly. And we expected that that is certainly going to be our focus going forward, and we're making those investments.

But I would gear investors and analysts more toward RPO and ARR, rather than a billing metric, because billing metrics can often be influenced by periodicity associated with it and a lot of other things, which is more difficult to translate back into future growth. RPO is the best indicator for us on this stability and understanding of our future revenue growth.

BoYoung Kim -- Citi -- Analyst

Great. Thank you.

Operator

And we will go next to Michael Turrin of Wells Fargo Securities.

Michael Turrin -- Wells Fargo Securities -- Analyst

Hey, thanks. Good afternoon, congrats to the team on the first set of quarterly results. The large customer metrics look especially strong, but maybe the total ARR improvements here were a bit more modest sequentially versus last quarter. Can you walk through some of the dynamics of what's driving the difference between the large customer ARR and the combined and if there's a point where you'd expect some of the headwinds from smaller customers, assuming that's the case, to maybe subside here?

Andrew Casey -- Chief Financial Officer

Thanks, Michael. Thanks for the question. I think what I what I'd say is remember that we were accelerating investments in our sales and marketing, and we're ramping up new sales reps, at the end of last year, as we were coming out of COVID. And for us, we have a typical sales cycle of nine to 12 months, and such that you need those sales reps have slowly but surely ramp up before they're really overall productive.

But we are seeing that the motions and the leavers we're pulling are showing up in that greater than 500-employee area. And I tell you, typically, you see in that group of customers, somewhere between 20 to 50 that are being added any given quarter, and we're seeing equally the expansions that are happening within those clients. Recall also that we talked about, there was a group of clients we have that have less than 500 employees. And that's been the most challenging area for us as far as customer adds, because it includes small and medium-sized business customers who have been the hardest impacted from COVID through Q4 and Q3 '20 of last year.

So you see that dynamic going on in our business. It's one that we were pretty upfront that we were making the changes in our coverage model and we are investing in sales and marketing coverage to go drive increasing ARR from that customer class. It's certainly a transition we're seeing. But I'll point right back to our ARR for the period and the percentage that greater than 500 employee accounts represented.

And it's been steadily increasing now to 87% of our total ARR, which is an increase from last year, and a dramatic increase over the last few years.

Michael Turrin -- Wells Fargo Securities -- Analyst

It's extremely helpful detail. There's also a useful split here on just the retention stats. I think you have the trailing 12 months and then a quarterly snapshot as well. Looking at that, it looks like while the trailing 12 is still maybe modestly declining, Q4 represents the trough on a quarterly basis.

So maybe you can just discuss the dynamic there. And maybe if there are target levels or a level you'd expect retention rate to trend toward, that's also useful. Thank you.

Andrew Casey -- Chief Financial Officer

Yeah, so thanks for pointing that out because it's really a great metric that reflects the fact that we had some real churn in that customer base in Q3, Q4. By the way, there were a lot of companies who were very much struggling during the COVID periods and not just small, medium-sized business, there was plenty of customers who had to cut back on spending or put their employees first. And so that was a low point in our dollar-based net retention. That's why it's so important that we give to The Street and to investors and understanding of that trailing four quarters, the tick down from prior quarters is really reflective of the past.

And that's why we took great pains to make sure you understood the quarterly dynamic that's happening, that Q4 drop of that 112 is now jumped up to 121, which is reflecting the fact that we are seeing those customers greater than 500 employees start to expand with us. We are gaining more and more customers in that category. And as we're generating value for those clients, they're expanding with us across multiple departments, applications, and in some cases, enterprisewide. So over time, we certainly think that that we can drive our database net retention well above 125% for that customer class.

Now it's going to take some time, and it's going to take concerted efforts in our coverage and continued focus and success with our DAP customers. But that's our strategy. And so it was important for -- thanks for pointing that out. It is very important for investors to understand the trailing four-quarter dynamic versus the quarterly dynamic.

And the quarterly dynamic really reflects the reacceleration we're seeing in the dollar-based net retention figures.

Michael Turrin -- Wells Fargo Securities -- Analyst

Thank you.

Operator

And we will hear next from Keith Bachman of Bank of Montreal.

Keith Bachman -- BMO Capital Markets -- Analyst

Yes, thank you and echo the congratulations on your first public company quarter. I had two. The first is on your large enterprise agreements. Could you talk a little bit about what your upsell cadence is with those customers have after they sign such a large agreement? And what are the drivers? Is it seats, is it usage? How do you expand that? And how does it compare to say, the balance of your customer relationships?

Unknown speaker

I'm not sure I understand.

Dan Adika -- Chief Executive Officer and Co-Founder

Thanks, Keith. This is Dan. Probably it was really that that pops up there. So it's a great question.

So when we're looking at expansion, it goes two ways. One is more application. So companies that are doing growing digital transformation, they basically implementing more and more and more platforms, right? It can be an HCM, a CRM, an ERP, and so on and so on. And usually, they will go to WalkMe and they will start adding WalkMe to help them with those business processes.

What we will see that soon enough, they will start to add WalkMe in more and more and more applications, in internal and external as well. And the way we price, we price per seat per app. And we have an enterprise license agreement when it's just per seat. So there is a certain point where it makes sense to just move into an enterprise license agreement.

And that's what we're seeing with our large customers. This is how they're extending. As I mentioned earlier, we are hoping to see in the near future, that we're able to land enterprise license agreements, because we're pushing really hard on the data-first approach. But currently, the way it works is, we call it one, two, three DAP.

We're are starting with one app, two, three, and then they go full DAP. So that's usually how the dynamics work. I hope it answered your question.

Keith Bachman -- BMO Capital Markets -- Analyst

Yeah, great, thank you. And then my follow-up would be, could you give us an update on the salesforce progress? Where are you in terms of the hiring plans, quota carrying reps, training, just if you can give us a sense about how say the next 12 months might unfold in terms of sales capacity from where you are in the recent quarter or so? Many thanks.

Andrew Casey -- Chief Financial Officer

So thanks, this is Andrew, Keith. I tell you, we're executing on the plans, we kind of set out for ourselves in hiring. And by the way, it's not just sales reps, it's also the support infrastructure around reps. It's sales engineers, it's our customer success reps.

It's inside sales or BERs. So for us, it's about creating the infrastructure to make the sales team very, very productive. And so far, we've been executing pretty well on our plans for the year. Now, typically, what happens in any cycle for an enterprise software company like us is they do a lot of hiring early on in the year.

And that's because you want the sales reps to ramp as quickly as possible to be able to affect your Q4 period. I'd say we did that very well in Q1. And we're continuing to go higher into core areas in our sales team, because we see continued interest from those enterprises, like Jennifer's clients. In fact, I think you've probably seen our release where we're starting to invest into our U.S.

Federal market We've hired a leader there and they're starting to build out a team. And it's because we see enormous opportunity over the long term, especially as the government cycles actually take place over 2022, that those are going to be very, very lucrative investments for us, and we can take advantage of them. Simon is the -- we also hired leaders in leaders in EMEA and in APJ. Simon Blunn and Sandie Overtveld, they are driving a structure and a focus on enterprise software coverage in each one of those geographies which was also big areas of growth for us.

So long waited way of saying we're executing on our plans that we set out for ourselves. And as we continue to see opportunities, we will invest aggressively into them and answer them. In fact, that's what you see in our financials in our guidance is that we're not shying away from opportunity to invest in our sales and marketing organization, take advantage of long-term growth opportunities.

Keith Bachman -- BMO Capital Markets -- Analyst

OK. Thank you, team.

Dan Adika -- Chief Executive Officer and Co-Founder

Yeah, I would just add to that. This is Dan. On top of the organic growth that we have, we're increasing our salesforce. We are increasing our efforts with the partners, DSIs, and the globalist side, of course.

So we more than doubled our alliances and partnerships teams in the last six months. So that we believe is going to be another strong revenue growth driver for us in the future.

Operator

And so we will take our next question from the Raimo Lenschow with Barclays.

Raimo Lenschow -- Barclays Investment Bank -- Analyst

Hi, thanks for taking my question. And congrats on the quarter. Just to touch on that last one. Looking at your source from direct sales versus partners, it looks like it's mostly direct sales today.

But how much can you see partners contributing over time?

Rafael Sweary -- President and Co-Founder

Hi, this is Rafael. So right now the contribution of our channel partners is still marginal. We are working very hard. And here, what is more important is the direction over speed.

We want to make sure that we're not just inking contracts. We want to make sure that the partners are the right partners, and they're putting the just the investment required to be successful with our platform. So actually, there is a lot of very good things in the hopper. So I suggest for everybody to stay tuned.

But as of right now, it's still a marginal contribution.

Raimo Lenschow -- Barclays Investment Bank -- Analyst

OK. Thanks. And I know you had mentioned that some of your smaller customers are still very much being affected by COVID. But a lot of these customers may still want to try your platform.

Are you incentivizing some of these smaller customers in any way to come on, try that platform right now, try and remove some of the friction from the buying process?

Dan Adika -- Chief Executive Officer and Co-Founder

Sure, this is Dan. We serve any company in size. So WalkMe actually have four, I would say brackets from SMB to commercial to enterprise to name the count, our product fits them all. And yes, we have, I would say, very beneficial pricing even to small companies that wants to try our product.

So that's absolutely something that we always were focusing on.

Andrew Casey -- Chief Financial Officer

Yeah, maybe just add on to that. I think what Dan was referring to earlier about how customers typically start with us and our pricing structure, and it's a price per user per app, oftentimes, when a smaller customer starts with a specific use case, they'll be relatively lower cost, because they're really focusing on that specific use case. And so it may be even a subset of users for a single application. So if you think about how customers are getting value through the use of the WalkMe platform, increases in users and increases in application or process coverage is really how the pricing escalates.

So there's no barrier to entry and pricing structure for the smaller customers. In fact, I think we've done a pretty good job of structuring it such that as value accrues to customers over time through usage. That's how WalkMe captures more value to it.

Raimo Lenschow -- Barclays Investment Bank -- Analyst

OK. Great. That's helpful.

Operator

And we'll go to our next question from Pat Walravens of JMP Securities.

Pat Walravens -- JMP Securities -- Analyst

Great. Thank you. And let me add my congratulations. So if I just googled digital adoption, the ones that come out are WalkMe, Whatfix, and Pendo.

Dan, I would love to hear just sort of the quick version for how you tell customers that you differentiate from those competitors.

Dan Adika -- Chief Executive Officer and Co-Founder

Sure, a great question. So if I was talking about the first one that you mentioned, Pendo, They're mainly focused on product analytics and we're not seeing them in the digital adoption transformation space at all. And as regards to Whatfix, we're seeing currently as a small competitor. They don't come near to our ability to execute for I would say mid-sized companies to large companies, both on data analytics, deep analytics, AI and machine learning.

At the end of the day, what we're trying to solve to our customers is to get them real live from the digital transformation effort. And in order to do so, there is a lot of moving parts that need to be in the platform. And currently, we're the only one that actually has it. And we are seeing that, the entire, I would say, ecosystem grows.

So that's good to us and we welcome every competition. But overall, we think we're three, four years ahead.

Pat Walravens -- JMP Securities -- Analyst

That's great. 

Rafael Sweary -- President and Co-Founder

Pat, if I may add. If you also look at WalkMe, we define DAP customers and we clearly give a number for DAP customers. In our eyes, DAP customers are companies that really change the way they do their business regarding technology. So they're not looking for a system, they look at the business, the problem that they're trying to solve, which might be four or five different systems.

So when you look at DAP solution, a true digital adoption solution that changes the way companies do their business, we're probably the only game in town that can do it.

Pat Walravens -- JMP Securities -- Analyst

Awesome. And then Andrew, if I could ask you a quick one. I mean, so RPO, the explorations are awesome, right? 17, 36, 48, I think. How much of that is duration? And should you guys be giving a CRPO metric? Would that be helpful?

Andrew Casey -- Chief Financial Officer

We do actually disclose the current RPO metric as well, Pat, and that's growing 36% year over year. Yes, we break it out for you. Look, I think there's a big portion that is, us focusing on driving those longer term strategic relationships with clients, that sets us up for the broader discussions of not worrying so much about trying to prove value on a single use case, but rather proving value across multiple and having those broader roadmap discussions with CIOs. So it was definitely a focus for us to go drive that.

I think it has multipurpose benefits. It'll help drive better sales productivity. It'll help drive better focus on our expansions with our enterprise, large enterprise customers. So all those then show up, as you know, longer term derisk in revenue because they're committed contracts.

Pat Walravens -- JMP Securities -- Analyst

All right, and then forgive me for not having it in my fingertips. But what was what was the RPO last quarter?

Andrew Casey -- Chief Financial Officer

The RPO last quarter was -- I got it right in front of me, sorry. Last quarter was March 21st, 237 million in total. And that broke down between current of 142 million and 95 of the 237. And for this quarter, it's 260.

And that breaks down between 151 in short term and 109 million in long term.

Pat Walravens -- JMP Securities -- Analyst

OK. Great. Thanks very much.

Andrew Casey -- Chief Financial Officer

You're welcome.

Operator

And we'll go next to Michael Turits of KeyBanc.

Michael Turits -- KeyBanc Capital Markets -- Analyst

Hey, guys, congrats on the first quarter. Dan and Andrew, I totally agree that four pure numbers is important for showing up that long-term commitment. And that isn't just a single use case. But what are you doing, Dan, to help make sure that people do expand on that platform? Is it go-to-market? Is it customer success? Are you bundling? What are you doing actively to help drive additional use cases, not just a project-based approach?

Dan Adika -- Chief Executive Officer and Co-Founder

Thanks, Michael. Great question. So I would say first and foremost, is innovation and leading by our product. So we're adding a lot of capabilities.

Every quarter, we have a major release that actually answers more and more and more, I would say, difficulties that we're seeing with enterprises. So with that, every release and every product is with the mind to actually touch the entire organization and not just helping them with one legal use case. Another thing is markets education and what we call WalkMe Beyond. And we just did our Elevate event, which is the biggest DAP professional event in the world.

And we're helping people understand what is digital transformation, what is digital adoption manager, and so on. Today, we have over 3,000 people in LinkedIn that has WalkMe or WalkMe-related in their job skill. So we're creating a huge ecosystem around it. So it's not just the technology, it's the ecosystem that comes with it.

Another thing that we launched is a pre-made solution so they will have faster value. So let's say they have a big HCM rollout, they can immediately get the knowledge of other customers in pre-made solution so they can actually see the value faster. When they see the value faster usually, typically, what happened with those customers is that they're like, we have WalkMe on our ACM, why we don't have it on our CRM, why we don't have it on our financial system, and so on. So this is how we're helping them get more value.

When we're actually making our customers heroes, other departments are joining very fastly and they want to use WalkMe as well. Another big thing that we're doing, we're helping them shape a center of excellence around WalkMe. So they can actually think about WalkMe strategically when they're actually aligning their goals in digital transformation with the capabilities of WalkMe. So we're doing all of it together, the innovation, the education.

Of course, customer success in our services team are helping them. But again, the ecosystem and the know how that we're bringing to the table, I will tell you that in the past six months, I'm talking with so many CIOs around the world that have the exact same experiences. And today, they're coming to us. And they're asking us how other companies are doing, what are the benchmark? How should we approach hybrid workforce? So they're not just coming to us for our technology.

Now, they're coming to us for the benchmarks and their knowhow. And then we're showing them how to leverage our technology to get their goals. So all of it together is what we're doing in order together.

Michael Turits -- KeyBanc Capital Markets -- Analyst

That's great, Dan, thanks. And then Andrew, what about the -- obviously, it's great to see that the large customer net retention picked up sequentially, obviously, another indicator, what we're just talking about with Dan. But what about the gross retention slash inverse that churn? How is that sequentially?

Andrew Casey -- Chief Financial Officer

So I would say, you see a similar pattern in the total customers, including the less than 500 employee accounts, you see that that similar quarterly bounce from Q4 and increasing. And so overall, I think that what you're going to get when you break it down sequentially that is a three-point increase quarter over quarter in total. And I'd say it's reflecting the fact we had, we had a good renewal quarter. We had low amount of -- a decreasing amount of overall term, which is good, because we're starting to see more stabilization in the overall customer base.

But like I said, the most important thing for us is to continue to focus and drive that growth in the greater than 500 employee base. I expected that as a percentage of our total ARR that will continue to increase over 90%. And that's where we're focusing our attention.

Michael Turits -- KeyBanc Capital Markets -- Analyst

So just to clarify, your total net -- your net retention rate is with total customers, not just customers over 500, also went up three points sequentially?

Andrew Casey -- Chief Financial Officer

Yes.

Michael Turits -- KeyBanc Capital Markets -- Analyst

And but I guess my question was -- which is great. Thanks for giving that. My question is did gross churn and gross retention -- in other words, your churn, stayed stable or improved sequentially?

Andrew Casey -- Chief Financial Officer

Yeah, so that's not a metric which we're going to focus on. We're going to focus on the dollar-based net retention, we're giving you both the trailing four and the quarterly. So look by its very nature, you can deduce that it improved, right, because some of the other anecdotes I gave you. And that's the point is that as we continue to focus on driving value for our clients, Dan shows we're showcasing value across multiple, multiple departments and applications, that the gross retention rate improves as well.

Michael Turits -- KeyBanc Capital Markets -- Analyst

Great. [Inaudible] model on it. I just want to know is going the right direction. Thanks.

Andrew Casey -- Chief Financial Officer

Yup, yup.

Operator

And we'll go to our next question from Scott Berg of Needham and Company.

Scott Berg -- Needham & Company -- Analyst

Hi, Dan and Raffi and Andrew, congrats on the good quarter. And thanks for taking my question. I will go with one in essence of time so it looks like we're going [Inaudible]. I wanted to see if you can give a sales update, or I guess how should we think of sales between kind of the two main product areas, WalkMe for customers and WalkMe for employees.

Do that sales mix differ than maybe what you've seen last couple of quarters? Just trying to understand if you're seeing something incremental in one area or the other? Thank you.

Andrew Casey -- Chief Financial Officer

So Scott, thanks for the question, Scott. And this is one of those areas where I would say we've had a pretty consistent pattern on demand. At some quarters, it fluctuates a little bit. But it's typically that we see customer WalkMe for employees is 70% or more, and then WalkMe for customers is around that 30% area.

Now, it's hard to nail down a lot of times, as you know, or maybe I'll just remind people is that many of our customers actually have both. And when you go through a contracting process, where it's a DAP customer, you have a broad usage parameter around it, it's hard to try and assess relative value to the components within the larger agreement. So it's one of those areas where I think it's more reflective of how we used to go to market and how we used to really talk about our solution with CIOs. It's not that the product set is not relevant.

It's just that so many of our customers either start in one place and then migrate to the other, or they quickly move to an understanding that WalkMe is really their complete solution for driving digital adoption for both their employees and their customers.

Scott Berg -- Needham & Company -- Analyst

Great, thanks for taking the question.

Dan Adika -- Chief Executive Officer and Co-Founder

If I may add, this can really explain the difference between a point solution and real change of doing how you do business. So let's say the business problem that you're trying to solve is reducing customer care. You would use WalkMe first on your external facing app to deflect calls, and second on your customer care team to shorten their handling time. So it's really looking at the business problem and not the specific system, or a few systems that a customer care agency is using, and not looking on one website, but also looking at the apps and the different ways that a customer can reach out in deflecting the calls there.

And that's the strategic nature of that versus a point solution where you put guidance on top of one application or two applications, or on a website, or on an app. Now WalkMe will give you the insights on top of everything to really see how you're improving your business KPI. Makes sense?

Operator

And so at this time, with no other questions in the queue, I will turn the call back over to Dan Adika for closing comments.

Dan Adika -- Chief Executive Officer and Co-Founder

Thank you. Thank you, everyone, for being with us on the call today. I really look forward keeping you posted in our progress in the quarter ahead. And again, thank you for joining us.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Unknown speaker

Dan Adika -- Chief Executive Officer and Co-Founder

Andrew Casey -- Chief Financial Officer

Josh Baer -- Morgan Stanley -- Analyst

BoYoung Kim -- Citi -- Analyst

Michael Turrin -- Wells Fargo Securities -- Analyst

Keith Bachman -- BMO Capital Markets -- Analyst

Raimo Lenschow -- Barclays Investment Bank -- Analyst

Rafael Sweary -- President and Co-Founder

Pat Walravens -- JMP Securities -- Analyst

Michael Turits -- KeyBanc Capital Markets -- Analyst

Scott Berg -- Needham & Company -- Analyst

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