Market Value Potential

Optimizing Your

Tyler Sloat, CFO

@tylersloat

Agenda

1 How’s Wall Street is Valuing Subscription Companies

2 What Are Your Levers

3 How to Optimize Those Levers

How’s Wall Street valuing subscr ip t ion businesses?

The Market

loves subscriptions.

the value of subscriptions.

realizing They’re getting better at R

even

ue M

ultip

le

(nex

t yea

r’s r

even

ue)

high-growth subscription businesses.

premium on They’re placing a

why the disparity?

But

Y o u r f i r s t l e v e r

f o r o p t i m i z i n g y o u r M a r k e t p o t e n t i a l :

Efficient Growth

Growth is good.

Efficient

growth is better.

0%

100%

50%

ARR Non-Growth Expense

Growth Expense

COGS, G&A, R&D

50% Recurring

Profit Margin

Sales, Marketing, Customer Success

BREAK EVEN & 35%

GROWTH

INVEST IN FIELD & GROW

FASTER

OR

Sales, Marketing, Customer Success

The Subscription Model

Non-Growth Spend

Growth Spend incurred to maximize ACV

traditionally sales & marketing efforts

sometimes customer success

incurred to support the organization

traditionally COS, R&D, admin functions

vs.

measured by GEI. Growth is best

$100M Growth Exp. _________________ 1.5 GEI

= $65M ARR Growth

Therefore, if GEI is 1.5 and $100M is spent on growth:

Growth Expense _________________ ARR Growth

= Growth

Efficiency Index (GEI)

Growth Expense _________________ GEI

= ARR Growth

higher valuation multiples.

drives Better efficiency

GEI on ARR companies w/ similar (30-40%) revenue growth

EV /

20

15E

Rev

enue

Y o u r s e c o n d l e v e r

f o r o p t i m i z i n g y o u r M a r k e t p o t e n t i a l :

Net Retention Rate

Starting ARR + Upsell – Churn / Starting ARR

N e t R e t e n t i o n R a t e :

16

A R R n+1 / A R R n

Min $5k ACV

“We calculate our retention rate as of a period end by starting with the annual contract value (ACV) from customers with contract value of $5,000 or more as of 12 months prior to such period end (Prior Period ACV) and a subscription term of at least 12 months. We then calculate the ACV from these same customers as of the current period end (Current Period ACV). Finally, we divide the aggregate Current Period ACV for the trailing 12-month period by the aggregate Prior Period ACV for the trailing 12-month period to arrive at our retention rate.“

17

M R R n+1 / M R R n

“We calculate our dollar-based net expansion rate by dividing our retaining revenue net of contract and churn by our base revenue. We define our base revenue as the aggregate monthly recurring revenue of the paid customer accounts on our customer service platform as of the date one year prior to the date of calculation. We define our retained revenue net of contraction and churn as the aggregate monthly recurring revenue of the same customer base included in our measure of base revenue at the end of the annual period being measured.”

18

M R R n+1 / M R R n

each month compounded to arrive at annual expansion rate

“Our dollar-based net expansion rate compares our recurring subscription revenue from customers from one period to the next. We measure our net expansion rate on a monthly basis because many of our customers change their subscriptions more frequently than quarterly or annually. To calculate our annually dollar-based net expansion rate, we first establish the base period monthly recurring revenue from all our customers at the end of a month. This represents the revenue we would contractually expect to receive from those customers over the following month, without any increase or reduction in any of their subscriptions. We then (i) calculate the actual monthly recurring revenue from those same customers at the end of that following month; then (ii) divide that following month’s recurring revenue by the base month’s recurring revenue at arrive at our monthly net expansion rate; then (iii) calculate a quarterly net expansion rate by compounding the net expansion rates of the three months in the quarter; and then (iv) calculate our annualized net expansion rate by compounding our quarterly net expansion rate over an annual period.”

i s b e c o m i n g t h e c o n s e n s u s .

Net Retention Rate

retention rate means

higher What a

Net Annual Retention Rate

EV /

20

15E

Rev

enue

How do you opt imize these levers?

Optimizing for Efficient Growth

Al ign your growth organizat ion

Marketing is measured on pipeline generation

Sales are compensated on generating net new ACV

Customer Success focuses on driving adoption & customer

around maximiz ing ARR

stickiness that results in upsells

Optimizing for Efficient Growth

Systems & Processes

Discipline in contract structure to enable upsells

Product Management developing features for add-ons

Optimizing for Efficient Growth

Bui ld ing ef f ic iency in to

Executing a land & expand strategy

Organic upsell via pricing & packaging

Low sales turn over

your sales model

Increased quotas

Optimizing for Net Retention

Al ign ing your Customer Success

Regular communication around product feature enhancements

Identify upsells opportunities based off usage trends

Have key customers help drive the roadmap

around product adopt ion

Optimizing for Net Retention

Understanding & engaging

Identify & track churn risks

Engaging to drive conversions from free to paid customers

Build a payment structure that facilitates flexible payment options

your users

Optimizing for Net Retention

A serv ices organizat ion that

Rapid deployments

Align implementation partners to your definition of success

Commit to consistent engagement throughout the deployment cycle

cons is tent ly del ivers

successfu l deployments

In Summary

Wall Street gets it

Growth is determined by ARR

Net Retention as an efficiency indicator

We build modern, flexible and easy to use enterprise software that enables companies to manage all aspects of their

relationship with their subscribers.

29

the end. Tyler Sloat, CFO

@tylersloat