ON24, Inc. (ONTF) Q4 2021 Earnings Call Transcript

ON24, Inc. (ONTF 1.05%)
Q4 2021 Earnings Call
Feb 28, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome. Please note that the live and interactive webcast of today's call may be accessed via the Investor Relations section of the company's website at www.investors.on24.com. [Operator instructions] Please note that this call is being recorded. At this time, I would like to turn the conference over to Nate Pollack, vice president of investor relations.

Please go ahead. 

Nate Pollack -- Vice President, Investor Relations

Thank you. Hello, and good afternoon, everyone. Welcome to ON24's fourth quarter and full year 2021 earnings conference call. On the call with me today are Sharat Sharan, co-founder and CEO of ON24; and Steve Vattuone, chief financial officer of ON24.

Before we begin, I would like to remind everyone that some information provided during this call will include forward-looking statements regarding future events and financial performance, including guidance for the first quarter and full fiscal year 2022. These forward-looking statements are subject to known and unknown risks and uncertainties. ON24 cautions that these statements are not guarantees of future performance. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that occur after this call.

Please refer to the company's periodic SEC filings and today's financial press release for factors that could cause our actual results to differ materially from any forward-looking statements. We'd also like to point out that on today's call, we will report both GAAP and non-GAAP results. We use these non-GAAP financial measures to evaluate our ongoing operations and for internal planning and forecasting purposes. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP.

To see the reconciliations of these non-GAAP financial measures, please refer to today's financial press release. I will now turn the call over to Sharat. Sharat? 

Sharat Sharan -- Co-Founder and Chief Executive Officer

Thank you, and welcome, everyone, to ON24's fourth quarter and full year 2021 financial results conference call. Thank you for joining us. On today's call, I'll share some 2021 highlights, review our Q4 results, address some near-term factors relevant to our outlook and outline our priorities for fiscal 2022. Looking back, 2021 was the most pivotal year in the company's history.

I'm proud to share some of the numerous milestones we achieved in terms of business accomplishments and financial results. Across our platform, our customers delivered hundreds of thousands of immersive digital experiences to tens of millions of attendees, which help them drive measurable business results. We saw attendee engagement with tools, such as polling, content, surveys, and other buying signals, increased more than 30% year over year. Total revenue increased by 30% year over year to $203.6 million, subscription and other platform revenue increased by 43% year over year to $175.9 million, and we generated positive free cash flow for the year.

Our investments in new geographies, such as Japan and Germany, are paying off with international revenue growth of 43% year over year. We are a market leader serving over 2,100 global customers, including 366 with ARR over $100,000, representing 21% year-over-year growth in that cohort. Our wallet share continues to grow with average ARR customer 47% higher than the end of 2019. As a sign of our increased strategic positioning, we now have 19 customers with ARR over $1 million, representing 36% year-over-year growth in that cohort.

Customers are also increasingly making longer-term commitments to our platform with multiyear contracts comprising 35% of our ending ARR, compared to 29% at the end of 2020. We've made early inroads with our partner channel with new bookings contribution increasing from low single digits in Q1 to high single digits by Q4. Lastly, we doubled down on R&D investment in the pace of innovation in 2021, launching two new experience additions to our platform, Breakouts and Go Live, and introducing the next generation of our flagship product, Webcast Elite. Our platform approach is resonating with customers evident by the fact more than 35% of our customers have two or more products, compared to 30% in 2020 and 17% in 2019.

We are keeping up the drumbeat on product innovation, and we'll continue to bring new products to the market. Let me briefly highlight some of our exciting wins within the fourth quarter. One of the largest healthcare membership organizations with over 100,000 members runs hundreds of sponsored webinar experiences per year as a key revenue stream. Previously, they had been using a legacy vendor that lack data insights and analytic capabilities, realizing that they could deliver more value to their sponsors, they turn to ON24 for our deep engagement data and AI-driven analytics, including our prospect engagement profile, which will be integrated into their Salesforce Marketing Cloud.

This was a highly strategic six-figure platform deal, which included Elite, Engagement Hub, and Breakout rooms and has provided substantial ROI to the customer. In Germany, we landed a six-figure win with a leading building and construction software company that had been using a legacy vendor to drive demand generation with approximately 500 global webinar experiences per year. We displace this legacy vendor based on our real-time integrations across the customers' martech stack, user experience, and world-class services and support. One of the world's largest oil field services companies has been using ON24 for both demand gen and thought leadership as their end users and buyers are increasingly moving to digital.

In the fourth quarter, they expanded with us to cover four of their divisions and more than tripling their animal spend. The power of our data, real-time integration and enterprise scale, reliability, privacy, and compliance for the deciding factors for this customer expansion. Lastly, we signed the largest single deal in our history, a three-year global enterprisewide subscription agreement with an existing customer in the pharmaceutical industry. Given the scope, the customer had a global RFP, and we won based on the scale of our platform, deep integrations across their entire marketing stack, and best-in-class compliance and support.

Let me review high-level results from the fourth quarter. For the fourth quarter, we reported total revenue of $52 million at the high end of our guidance range. Subscription and other platform revenue in the quarter was $45 million, representing an increase of 9% year over year against a very challenging comparable of 115% growth in the year-ago period. Professional services revenue was $7 million, a decrease of 41% year over year and in line with our expectations that we provided last quarter.

Net new ARR was $4.2 million, resulting in ending ARR of $171.4 million, and we posted a non-GAAP operating loss of $1.8 million for the quarter, ahead of our guidance. While we had solid Q4 financial results, we have also experienced some recent challenges, which are impacting our Q1 and full year outlook. As we previously discussed, we believe Q1 2022 marks the last COVID influence renewal quarter, and this cohort comprises a significant portion of large deal renewals, which included expansions throughout COVID that are running for the first time. During January, as it became clear, the world was moving from pandemic to endemic.

We have seen a handful of customers with large expansions since the beginning of 2020, reassess the post-pandemic digital budgets. While we had forecasted some rationalization to take place, our visibility into these specific customers' post-pandemic needs was limited. For context, it is important to note that these select customers had expanded by as much as three times during COVID and their annual spend still stands and average meaningfully higher than Q1 2020. Let me share an example.

One of our customers is a leading international exhibition organizer, which runs thousands of physical and digital events for leading B2B brands. When the physical conference world was shut down, this customer turned to ON24, to run thousands of digital experiences with amazing success and increased their spend by three times since Q1 2020. As we move to a post-pandemic world, the customer has begun to shift some events back to in person, but will continue to use ON24 for its digital strategy, committing to a multiyear seven-figure annual investment, with spend still two times higher than pre-COVID. Our Q1 outlook reflects the impact of the higher-than-anticipated rationalization and the full year incorporates our early view on this pandemic digital budgets.

Looking ahead, we believe that Q1 will mark the trough for 2022. By far, our largest challenge in 2021 was the first-time renewal cohort which is four times the dollar value of first-time renewals in 2019, and had a churn rate that was approximately double that are first-time renewals in 2019. We see an improving customer profile for first-time renewals with a lower representative share in future cohorts and also believe that many customers have now adjusted their prior expansions accordingly to align with their post-pandemic needs. As a signpost, gross retention for pre-2020 cohorts has been stable, which gives us confidence that overall retention will begin toward in 2022 as we move past the last of these COVID influence cohorts.

Steve will provide more details on our outlook later on this call. Moving forward, we are also proactively making improvements in areas of our business to reaccelerate growth and continue toward our path of reaching $500 million of ARR and beyond. To help achieve this, we have set four key priorities for fiscal 2022: one, enhancing our customer success and retention capabilities; two, scaling our go-to-market for better operational leverage; three, improving our multiproduct sales motion in the enterprise segment; and four, delivering upon our robust product innovation road map. Turning to our first priority.

Enhancing our customer success and retention capabilities. Since the end of 2019, the ON24 customer base has grown more than 50%, and our ARR renewal base has more than doubled. Over the years, we've built a solid foundation of a customer success function. But as we become a more strategic partner to customers, it is crucial that we have a best-in-class customer success motion.

After taking a closer look, we have identified enhancements that can be made to the function and which are now underway in order to create a better-integrated customer journey. We believe the first 90-day experience for a new ON24 customer is critical. Recently, we have revamped our onboarding program to ensure that the hand up between sales and the CSM is more seamless, and we are better enabling the customer so we deliver faster time to value. As our product team continually makes new enhancements to our platform, guiding our customers to adopt the full breadth of the platform, including our leading integrations must be a top priority across the organization.

We are expanding the team to improve coverage ratios, as well as bringing in new senior talent with experience at scale to drive best practices and operational rigor. Combined, we believe that these changes will improve our overall retention rate in the quarters ahead. Moving to our second priority. Scaling our go-to-market for better operational leverage.

In fiscal 2021, we saw steady growth in business sourced from our partner channel, increasing from low single digits percentage of new bookings in Q1 to high single digits by Q4. To continue our momentum and scale ON24 to the next level, we believe that it is critical to strengthen our ecosystem of partners across interacting agencies, large strategic marketing cloud platform players, ISVs, and system integrators with each having an important role in our long-term success. Last week, we announced the launch of the ON24 partner network, creating an ecosystem of leading solutions and technology partners and formalizing how we integrate, co-market, and co-sell together. This ecosystem will broaden our reach extend our product and service offerings and drive leverage in our go-to-market model.

In the months ahead, we'll be enabling our partners on the ON24 platform building more integrations and driving pipeline. Our goal is to grow partner bookings over time to a 20% or higher contribution. This is not something that happens overnight, but the early progress we have made formalizing partnerships with over 40 partners gives us confidence in the long-term partner leverage opportunity. Now to our third priority, improving our sales motion in the Enterprise segment.

Today, we count approximately 20% of the Fortune 1000 as customers and still have massive white space to further penetrate the Enterprise. As I mentioned last quarter, we are focused on a multiproduct sales motion for Enterprise acquisition, which is leading to larger, more complex deals. These deals require a more focused consultative selling approach to elevated levels of the organization compared to a single product sales motion to practitioners that worked in our earlier years. As such, we are making improvements to more effectively enable our Enterprise sales team with the right resources for this type of sales motion.

That not only makes them more successful, but also makes the Enterprise customers excited to engage with us in consultative ways. Turning to our fourth priority, product innovation. In 2022, we are focused on continuing to execute against our robust product innovation road map across each of the three pillars of our platform webinar marketing, virtual events, and personalized content experiences. Our vision is anchored by delivering a system of engagement for marketing and sales teams to create digital experiences that engage audiences, turn engagement data into insights and use those insights to drive results.

Within our virtual events pillar, go live as the newest solution and released at the end of December. It's a self-service, multi-session video and networking event experience that maximizes social networking and audience participation. Organizations can build complete end-to-end external or internal events, such as road shows, user groups, virtual pop-ups, customer and partner summits, town halls, or company meetings, using prebuilt templates and an easy-to-use and engaging interface. First-party engagement data continues to be the foundation of each of our products of our platform.

And ON24 Go Live registrant event activity and attendee engagement is captured along with other ON24 experiences into a single dashboard and prospect engagement profile. We have received positive market feedback and expect this product to ramp in the coming quarters as we build awareness in the market and throughout our customer base. According to a recent McKinsey report, two-thirds of corporate customers intentionally now reach for digital or remote over in-person engagement when given a choice, and they are doing so at every stage of the purchasing journey. As a result, sales and marketing teams are dealing with a new set of buyer expectations to garner our attention in a crowded field.

To adapt to this new world, we believe creating personalized digital experiences at scale is table stakes to break ahead from the pack, but must go beyond contact name and logo. We believe it should be driven by first-party data insights. Throughout the year, we will be releasing enhancements to our AI-driven personalization capabilities. Whether our customers are targeting known or unknown individuals.

Our platform will be able to tell a personalization experiences by, among other things, account to the specific organization, contact to a specific role, call to actions and content, and buyer intent and segmentation. This is all backed by first-party data and insights, collected from every ON24 digital experience. These personalization enhancements will empower our customers with a deeper understanding of buyer preferences and deliver real-time, personalized experiences directly within our platform. To sum up, I continue to be optimistic as ever about our future.

We have experienced tremendous growth in a short period of time with our ARR increasing by 123% over the past two years. While we are now moving into a post-pandemic world, a powerful transformation continues to be underway in the B2B world. Across industries, sales and marketing for B2B organizations is rapidly moving toward digital channels, and there is an increasing need for our digital engagement platform that leverages data and insights to drive revenue growth. We are focused on improving areas of our business and remain confident of both our long-term growth opportunity and ability to reaccelerate growth in the coming quarters.

ON24 is a growth business against the backdrop of powerful secular trends and a large TAM. With that, I'll hand it over to our CFO, Steve Vattuone, to walk you through our Q4 results in more detail and provide our outlook. Steve? 

Steve Vattuone

Thank you, Sharat, and good afternoon, everyone. I'm going to start with our fourth quarter and full year 2021 results, and we'll then discuss our outlook for the first quarter and full year 2022. Total revenue for the fourth quarter came in at the high end of our guidance range at $52 million, representing a decrease of 2% year over year against a comp of 123% growth in the year-ago period. Subscription and other platform revenue was $45 million, an increase of 9% year over year against a comp of 115% growth in the year-ago period.

As a reminder, other platform revenue includes customer overages, which had historically trended in the range of 3% to 4% of total revenue, depending on customer usage of our platform and seasonality. We are seeing more of our customers choosing to add additional capacity into their contracts at the time of renewal. As such, overages were approximately 2% of total revenue in Q4 and we expect that trend to continue. Professional services revenue was $7 million, a decrease of 41% year over year and representing approximately 14% of total revenue, compared to 23% in the year-ago period.

This decrease was in line with our expectations that we provided last quarter. For the full year, total revenue was $203.6 million, an increase of 30% year over year. Subscription and other platform revenue was $175.9 million, an increase of 43% year over year. Professional services revenue was $27.7 million, a decrease of 19% year over year.

Moving on to ARR. ARR represents the annualized value of all subscription contracts at the end of the period and excludes professional services and overages. Net new ARR in Q4 was $4.2 million, resulting in ending ARR of $171.4 million. This represents an increase of 12% year over year against a comp of 100% ARR growth that we delivered in 2020.

We continue to see customers make longer-term commitments to our platform with multiyear contracts, comprising 35% of our ending ARR, compared to 30% at the end of 2020. Our dollar-based net retention rate, or NRR, ended the year at 97%. As a reminder, NRR is a lagging indicator and reflects the impact of elevated churn that we experienced over the past few quarters with first-time renewals, particularly with organizations that were not our ideal customer profile and had one-time needs, as well as some customers that rationalized their expansions. In fiscal 2022, we expect that we will see improvement in our NRR as the year progresses.

Despite the elevated churn, our average ARR per customer at the end of 2021 stands at 81,000, compared to 77,000 in 2020 and 55,000 in 2019. Turning to customer metrics. We had a strong quarter for new logo acquisition. Total customer count increased by 68 quarter over quarter to 2,122.

We ended the year with 366 customers contributing ARR of $100,000 or more, representing an increase of 21% from the prior year. These $100,000-plus ARR customers comprised 67% of our ending ARR. As a sign of our strategic positioning and strong expansion, we now have 19 customers contributing ARR of $1 million or more, representing an increase of 36% year over year. Before turning to expense items and profitability, I would like to point out that I will be discussing non-GAAP results going forward.

Our non-GAAP results exclude stock-based compensation, as well as certain other items. Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results can be found within our earnings release. Gross profit for the quarter was $40.1 million, representing a gross margin of 77% and a decrease of 400 basis points year over year. We continue to invest in our cloud infrastructure capabilities to enable sustained growth and growing our customer success teams.

Turning to operating expenses. Sales and marketing expense in Q4 was $24.9 million, compared to $19.5 million in Q4 last year. This represents 48% of total revenue, compared to 37% in the same period last year. We have been investing in go-to-market enablement and marketing to drive market awareness.

R&D expense in Q4 was $8.1 million, compared to $5.8 million in Q4 last year. This represents 16% of total revenue, compared to 11% in the same period last year. We have been ramping our investment in R&D as we accelerate our pace of product innovation and bring new products to market. G&A expense in Q4 was $8.9 million, compared to $6.9 million in Q4 last year.

This represents 17% of total revenue, compared to 13% in the same period last year. Our G&A expenses have increased due to the costs associated with being a publicly traded company. Over time, we expect G&A expense to scale and decrease as a percentage of our revenue. Operating loss for Q4 was $1.8 million or a negative 3% operating margin, compared to operating income of $11.1 million and an operating margin of 21% during the same period last year.

For the full year, operating income was $2.1 million or a 1% operating margin. Net loss in Q4 was $1.7 million or $0.03 per share based on approximately 47.8 million basic and diluted shares outstanding. This compares to net income of $11 million or $0.57 per diluted share in Q4 last year using approximately 19.1 million diluted shares outstanding. For the full year, net income was $1.4 million or $0.03 per diluted share using approximately 51.5 million diluted shares outstanding.

Turning to the balance sheet and cash flow. Cash used in operations in Q4 was $4.5 million, compared to cash flow from operations of $10.7 million in Q4 last year. Free cash flow was negative $5.6 million in Q4, compared to positive $10.3 million in Q4 last year. Free cash flow margin was negative 11% in Q4, compared to positive 19% in Q4 last year.

For the full year, we generated free cash flow of $1.6 million and ended the year with $382.6 million in cash, cash equivalents, and marketable securities. In December 2021, the board of directors authorized a $50 million share repurchase program. During the fourth quarter, we repurchased 428,218 shares at a weighted average price of $16.88 per share utilizing $7.2 million of the $50 million authorized under the program. We believe our current market valuation does not reflect our long-term growth potential, and we will continue to be opportunistic with our share repurchase program.

With that, let's turn to guidance. At a high level, we look at fiscal 2022 as a tale of two halves with a challenging start and improving sequentially each quarter. Our largest challenge that we experienced in 2021 was the first-time renewal cohort, which was four times the dollar value of first-time renewals in 2019, and we experienced a churn rate that was approximately double that of the 2019 cohort. The share of first-time renewals in 2022 is expected to normalize back toward 2019 levels against the backdrop of an improving customer profile.

We believe Q1 2022 will mark the last COVID influence renewal quarter. The Q1 renewal cohort comprises a significant portion of large deal renewals, and we have experienced higher-than-anticipated customer rationalization, particularly with a handful of customers who previously signed large expansions during COVID that were up for renewal for the first time. Our gross retention for pre-2020 cohorts has been stable, which gives us confidence that overall retention will begin to trend upwards in 2022 as we move past the last of these COVID influence cohorts. For professional services, we are continuing to see more of our customers electing to be self-service, which speaks to our platform's ease of use and overall user experience.

As a result, we expect that the mix of professional services revenue will be in the low teens as a percentage of total revenue in fiscal 2022, compared to 14% in 2021 and 22% in 2020 which will drive a low teens year-over-year decline for professional services revenue in 2022. As I mentioned earlier, overages which are included in other platform revenue have been trending lower to approximately 2% of total revenue as more customers choose to add additional capacity in their contract at the time of their renewal. We estimate the combination of lower expected professional services and overages revenue will act as an approximately 3-point headwind to our full year revenue growth rate with a larger impact to the first half. As Sharat highlighted, it has become clearer that the world is moving from pandemic to endemic, and we have incorporated our early view of post-pandemic digital budgets into our outlook.

Lastly, we're enhancing our customer success capabilities, launching our partner ecosystem, bringing new products to market, and making improvements to our multiproduct enterprise sales motion. We're optimistic that we will see a positive impact from these initiatives, but we believe it will take a couple of quarters to realize the benefits. Now moving to Q1 guidance. Our bookings in Q1 2021 were more heavily weighted toward the early part of the quarter compared to our normal back-end loaded quarters, which is driving atypical linearity for the Q1 2022 and renewal cohort.

In January, we experienced higher-than-anticipated customer rationalization, particularly with a handful of customers that had large expansions in prior periods. The challenges we face with rationalization, coupled with the nonlinearity of renewals will have an impact on the timing of recognized revenue, resulting in lower sequential subscription revenue. Professional services revenue is seasonally lower in Q1 compared to Q4, and we expect that it will represent approximately 10% to 11% of total revenue. Overages represented approximately 4% of total revenue in Q1 2021, and we now see overages trending to approximately 2% of total revenue in Q1 2022.

As such, we expect total revenue in the range of $47 million to $48 million. We expect a non-GAAP operating loss in the range of $8 million to $7 million and a non-GAAP net loss per share of $0.17 to $0.15 per share based on 47.7 million basic and diluted shares outstanding. And for the full year 2022, we expect revenue in the range of $200 million to $204 million. We believe 2022 will be a tale of two halves, with Q1 marking the trough and subsequent improvement in net new ARR throughout the year as the profile of renewal cohorts improves and customer rationalization of expansions in 2020 and '21 also subside.

Exiting Q4 2022, we expect an ARR growth rate in the low teens, which will accelerate into fiscal 2023. In the second half of the year, with the compares largely behind us, we expect subscription and other platform revenue growth to reaccelerate to the mid-single digits. Professional services revenue is expected to be approximately in the low teens as a percentage of total revenue for the full year 2022, compared to 14% in fiscal 2021 and 22% in 2020, resulting in a low teens year-over-year decline. Given the moving parts within revenue, we believe ARR is the most appropriate metric to evaluate the underlying momentum of the business.

We expect a non-GAAP operating loss in the range of $30 million to $27 million and a non-GAAP net loss per share of $0.64 to $0.58 per share using 49 million basic and diluted shares outstanding. As I mentioned, we faced headwinds in 2021, primarily from the elevated churn within first-time renewal cohorts and rationalization from large expansions during COVID. We're confident that these headwinds will soon abate, and believe that our long-term market opportunity has not changed. As a result, we believe that we have a unique opportunity to invest in accelerating our long-term revenue growth rate and advancing our leadership position.

In 2022, we plan to make targeted investments in our go-to-market function, public cloud infrastructure and product development initiatives. Overall, we do expect to see bottom-line improvement throughout the year as the top line reaccelerates and we drive leverage from the investments made over the last year. As we look ahead, we are laser-focused on further accelerating ARR growth in an efficient manner, improving net dollar retention, and driving operational improvements across the business. We expect an improving bottom line in 2023, and we believe that we have a clear path over the next several years to achieve our target model of 20% or higher non-GAAP operating margins while driving top-line growth.

With that, Sharat and I will open the call up for questions. Operator? 

Questions & Answers:

Operator

Thank you. [Operator instructions] We'll now take our first question from Arjun Bhatia with William Blair. Your line is open. Please go ahead. 

Arjun Bhatia -- William Blair -- Analyst

Perfect. Thank you. Thanks for taking my question. I wanted to start off with maybe just asking how you're thinking about profitability in 2022 and how you think about the ROI of the investments that you're planning to make next year, especially as the world moves from pandemic to endemic.

And as you pointed out, the demand environment is being impacted or beta customers rationalize their spend going into 2022. And I would love to hear more on the go-to-market investments that you're making, but if you can answer broadly as well, that would be great.

Steve Vattuone

Hi. This is Steve. I'll go ahead and take the profitability question. So First, let me start by saying we grew our ARR by 123% over the last two years, and we've been profitable both years.

Now our market opportunity has not changed. Every company is now digital. Now we are facing some near-term factors. We're lapping the last of the COVID-impacted quarters here, and we did see some larger rationalizations in Q1.

But we believe Q1 will be the trough for that. We're seeing new customer acquisition strength. We added 68 net new logos in Q4, and we're pleased with the pipeline. But we believe ARR is the best metric to evaluate the momentum of the business and revenue is a bit of a lagging indicator.

Now we've always run this company prudently, but we are making targeted investments to drive growth, but the major issue really has been churn. And we believe that will be behind us shortly, and we'll start to see the growth inflect in the second half. Now we will obviously watch the investments we're making in 2022. And if we don't see them paying off, we'll make adjustments as needed.

Sharat Sharan -- Co-Founder and Chief Executive Officer

Yeah. Let me add, Arjun, to what Steve just said is churn has been our biggest issue. If you look at 2021, I mean, we did quite well on growth ARR but the -- we couldn't outrun the churn. And if you look at the numbers we talked about, the first-time renewal cohort where we saw the maximum churn, that size was four times what it was in Q1 in 2019 and the churn of the first-hand renewal cohort was twice what it was in 2019.

So we can outrun that churn. Now the good news is that as we get to Q2, we would have already renewed that we renewed the peak of the Q2 cohort already last year. And the largest cohort, which is the existing renewal cohort which is generally about two-thirds of total has been stable. The retention level has been stable in that through COVID.

Now regarding investments, you asked about go-to-market investments, I mean we are focused on targeted investments where we are seeing higher sales productivity and what we need to fix. The enhancements in the customer success function. Now we've made investments there, but we are continuing to learn from our customers in terms of coverage ratios, in terms of talent, in terms of leadership, what we need to do, the onboarding program that we are doing, we are elevating the quality of that. We've launched two new products in 2021.

Breakouts, which performed really well. And at the end of last year, we launched Go Live, and we are seeing good momentum on those products. And we will be adding more products in Q2 as we move forward. We have improved our leverage from our partner channel.

We've talked about this before. In early 2021, the contribution was low single digits. By the end of '21, we brought it to high single digits. My target there in the future is to get that number to about 20%.

And then, of course, the focus on our enterprise sales execution with multiple products, making sure it is consultative that we can sell multiple products. So again, we are going to make the investments prudently, but we are a growth business. And so our focus is that -- and our focus there is with these investments and what we are doing we should end the year at a growth of low teens ARR, which we should further accelerate into 2023 to high teens. That's our focus. 

Arjun Bhatia -- William Blair -- Analyst

Perfect. That's very helpful color. Thank you. 

Operator

Thank you. [Operator instructions] We'll now move on to our next question from Brent Bracelin with Piper Sandler. Your line is open. Please go ahead. 

Hannah Rudoff -- Piper Sandler -- Analyst

Hi, guys. This is Hannah Rudoff on for Brent today. Thank you for taking my question. I guess first one is just could you talk more broadly about how you're thinking about your durable growth rate in the post-pandemic world? And what is giving you confidence in that?

Sharat Sharan -- Co-Founder and Chief Executive Officer

Yeah. Let me take that. Our market opportunity has never been larger. We still see a large TAM of over $40 billion.

I mean we know that sales and marketing is moving increasingly to digital channels. So nothing has changed there. The way we look at it is Q1 is the trough of our business. Churn has been our biggest issue and as we lap the COVID quarters, there are two things that are happening.

One is our cohorts materially get better. So once we get past the Q1 cohort, the cohorts get better. So just from a mathematical point of view, it is easier for us to get past some of those churn issues, OK? Again, I just wanted to highlight the existing renewal cohort has been quite stable. Now in terms of growth rate, with the investments that we are making and the things that we are doing, we feel quite comfortable that we should end the year at a low teens ARR growth rate, which we can further accelerate in 2023 to high teens.

That's what we feel quite good about talking about based on the investment that we are making currently. 

Hannah Rudoff -- Piper Sandler -- Analyst

Great. That's helpful. And then could you remind me where you are in terms of your full productivity for your sales force?

Sharat Sharan -- Co-Founder and Chief Executive Officer

Yeah. So we closely track sales productivity. And in 2021, the sales productivity was slightly higher than 2019 in spite of the large number of hires that we made. So ARR in 2021 was mainly impacted by the churn in the first-time renewal cohort.

Now we want to improve the productivity that we had in 2021, again, it was better than in 2019, but we are laser-focused in terms of improving our churn. We are laser-focused in terms of increasing our productivity. But I feel good about the capacity that we have and we are -- and the productivity where we are and we are planning to not make large investments, but very selective and targeted additions in areas where we see strong productivity like markets, like Japan, like our installed base and expansion business. So that's where we intend to continue to invest.

Hannah Rudoff -- Piper Sandler -- Analyst

Great. Thank you. 

Operator

We'll move on to our next question from Shrenik Kothari with Baird. Your line is open. Please go ahead.

Shrenik Kothari -- Baird -- Analyst

Hey. This is Shrenik Kothari for Rob. So apart from the COVID affected down renewals and the assembly churn among the non-IDEO customers that you have been talking about we've been dealing with. It also appears that the net new $100,000 ARR customer adds kind of slowed quite a bit sequentially.

So can you elaborate on the underlying factors like how much of it is this kind of demand pull-ins and rationalization affecting like gross adds versus churn, specifically among these larger customers? Or is there anything else that's going on, which we're missing? And just a follow-up after that.

Sharat Sharan -- Co-Founder and Chief Executive Officer

Yeah. Shrenik, we added four net adds to the 1 million-plus ARR customer cohort. Now we have 19 total. We added that in Q4.

We had a strong quarter of 68 net new logos, the best after Q1 at about the same levels in 2021. We saw some initial purchase that were just under the $100,000 mark, and we expect to expand those over time. Just to provide you a little more color, our average new enterprise ASP in Q4 was the highest on a year-to-date basis. That was the highest that we have all year.

So we feel quite good about where we are. We just -- that should provide you a perspective. 

Shrenik Kothari -- Baird -- Analyst

Got it. Got it. And just a quick follow-up. I know you mentioned about this briefly, but like what are the behaviors you're observing from your like most important enterprise customers like in terms of multiproduct adoption, new product adoption trends, Go Live, which is now GA, and so on. 

Sharat Sharan -- Co-Founder and Chief Executive Officer

Yeah. So let me answer that in multiple parts. So first of all, our multiproduct adoption is 35% in Q4, and its double compared to where it was in 2019, end of 2019. So we are seeing our customers adopt multiple products across the board, and we are going to continue.

That is an important motion now, especially with Breakouts earlier and Go Live currently. Specifically about Go Live, let me make a couple of comments. We've received -- we just launched it at the end of last year. So it's been about 1.5 months or so.

Excellent customer feedback. We are building awareness and pipeline, and we expect it will ramp through the year and contribution accelerate at the end of the year. Now I want to make one other comment because that is important. And in my prepared remarks, I talked about give the example of a large customer and how our large customers are behaving.

This is the example of One of the largest physical and digital events organizing firms and who increased their spend with ON24 during COVID by three times. And they just renewed their contract with ON24 in January. It's one of the rationalizations that we've talked about, but they have signed a multiyear agreement, annual ARR spend of seven figures, which is two times their pre-COVID spend. So yeah, they went to three times and came down to two times, but still, it's a pretty significant increase in the wallet share.

So that's what we are seeing in many of our large customers. And the good news there, Shrenik is, by the time Q2 happens all those customers have already gone through one cycle of -- a complete cycle of rationalization. And so we feel good about that. So hopefully, that gives you color how we see our customers evolve their spend going forward. 

Steve Vattuone

The percentage of our ARR and multiyear agreements at the end of the year was 35%, and that's the highest it's ever been.

Shrenik Kothari -- Baird -- Analyst

Got it. Got it. That's really helpful Thanks very much. 

Operator

Thank you. We'll move on to our next question from Sterling Auty with J.P. Morgan. Your line is open.

Please go ahead.

Drew Glaeser -- J.P. Morgan -- Analyst

Hi. This is Drew on for Sterling. You mentioned that ARR growth should be in the low teens as you exit 2022. Should we expect more of that to come from average ARR per customer or from customer growth?

Steve Vattuone

Yeah. I think you'll see it coming from both -- we're seeing -- our average ARR per customer has ticked up year over year, Drew. It went from 77,000 per customer at the end of 2020 to 81,000 customer at the end of this past year, we're pretty good at expanding within our customers. So I expect both will contribute to that number.

Sharat Sharan -- Co-Founder and Chief Executive Officer

Just to add to what Steve just said, and I just talked about that, is we added 68 net new customers in Q4, a which in spite of the churn, we feel very good about. So of course, the installed base will contribute, but we are also very laser-like focused on net new adds, which is the driver of the business.

Drew Glaeser -- J.P. Morgan -- Analyst

Got it. Thank you. 

Operator

Thank you. We'll now take our next question from Scott Berg with Needham. Your line is open. Please go ahead.

John Godin -- Needham and Company -- Analyst

Hey, guys. This is John on for Scott. So if you look at the customers who are downsizing their subscription, is there any commonality in terms of the industry or how they were affected by the pandemic? And then is there -- is this entirely like lower usage renewals? Or are they also decreasing the number of modules that they're using as well?

Sharat Sharan -- Co-Founder and Chief Executive Officer

Yeah. I think during the pandemic, what happened is in the physical world had stopped, people had added a lot more workspaces, logins, on a global basis across the organization. If you're a large enterprise, you needed more licenses in different markets. So what -- and so people may have gone based on the example I gave you about this -- the physical and digital events company.

People may have expanded their usage much widely. In many cases, they expanded their users to three or four times what they were doing pre-COVID. What we have seen in as people are rationalizing their thing in Q1, what we've seen them reduce some modules, remove some workspaces and log in them to really optimize it to what they really need going forward. But again, when you look at our top renewals, what you will see is -- the ARR contribution of the top renewals even after rationalization is meaningfully higher than where it was pre-COVID.

So that's a very important thing. The other question you asked about is different based on different verticals. Now I think it's been very similar based on the different verticals because one of the things that we do with these larger customers, our focus really has been on being a sales and marketing engagement platform, which provides data and insights to drive revenue. So that's a very important part that they already use.

So that usage across the -- continues to be strong, and that's what we've seen. 

John Godin -- Needham and Company -- Analyst

OK, got it. That's helpful. And then the guidance implies that you are still investing pretty aggressively in the business in terms of growing operating expenses over the next year. Can you give us some more color on what are the priorities for investment this year? And how should we think about that split, whether it's across sales and marketing, R&D versus G&A?

Sharat Sharan -- Co-Founder and Chief Executive Officer

I think let me start that. We are focused on making targeted investments this year and Steve is going to provide more color. I mean we talked about enhancing our partner channel. We also talked about areas where we have -- we are seeing strong sales productivity.

In those areas, we are going to make more investments. We talked about how last year, we were really impacted by churn. We couldn't outrun the churn. We are continuing to make investments on our engineering and product functions as you would expect because we expect to continue to bring more functionality out.

And on the customer success function, we are continuing to look at leadership and talent to enhance our go-to-market. But in each of these cases, we are very focused on very targeted investments. If you look at our expense structure, we did go up pretty significantly compared from when we started investing in the second half of 2020 to the second half of 2021. But since then, our investments have generally been a lot more targeted.

Steve? 

Steve Vattuone

And to add a little bit of color to what Sharat was saying. In terms of the gross margin, yes, we do expect to see some gross margin compression of probably a few hundred basis points year over year and 2022. Now we are making investments in customer success to enhance our capabilities and coverage ratios that was Sharat discussed to improve our customer retention and also our newer product offerings, they run in the public cloud, so they do have a slightly lower margin profile, and we're continuing to invest in our network infrastructure. Now we're not planning a wholesale move of the platform in the cloud.

It's really just the newer products that will be cloud native. We are committed to our long-term gross margin target of 78% to 80% as we grow and see leverage over time, but we are making some of these targeted investments there in 2022.

John Godin -- Needham and Company -- Analyst

Got it. Thanks, guys.

Operator

It appears there are no further questions at this time. I'd now like to turn the conference back to Sharat for closing remarks. Thank you.

Sharat Sharan -- Co-Founder and Chief Executive Officer

In closing, to reiterate 2021 was the most pivotal year in the company's history, and I couldn't be more excited for what lies ahead. I want to thank all of our dedicated employees and amazing customers for the incredible milestones that we achieved. We are the leading B2B sales and marketing perform for digital engagement, delivering actionable data and insights to drive measurable business growth. While we have some near-term factors impacting our outlook, we have a road map for execution and strong confidence in our vision and strategy.

We are proactively making improvements in areas of our business and the entire team is focused on executing against our priorities for 2022. Finally, I invite all of you to join our customer conference, the ON24 experience on April 20, where you can learn more about our platform vision, hear firsthand from our customers and see the exciting product innovation in action. Thanks everyone for being on the call today. 

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Nate Pollack -- Vice President, Investor Relations

Sharat Sharan -- Co-Founder and Chief Executive Officer

Steve Vattuone

Arjun Bhatia -- William Blair -- Analyst

Hannah Rudoff -- Piper Sandler -- Analyst

Shrenik Kothari -- Baird -- Analyst

Drew Glaeser -- J.P. Morgan -- Analyst

John Godin -- Needham and Company -- Analyst

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