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Good morning, everybody, and thank you for joining us today for the Nitro quarterly trading update. Apologies for the delay in the start time. We've been trying to resolve some Internet broadband issues with Sam. Unfortunately, he's had to dial in so we wouldn't keep you waiting any longer. So we've got Sam on phone, and Rohit Shrawagi on video for the Q&A. We will commence with a short presentation that Sam will walk you through, which is on the screen. Afterwards, there will be an opportunity for Q&A. Please put your questions in the Q&A box, not in the chat. I'll be referencing the Q&A box when I moderate that session. Sam, if I can hand the mic over to you to walk us through the slide deck, please?
Thank you very much, Ron. And apologies again to all for the technical issues so far, hopeful this line holds up okay. So look, good morning or good afternoon or good evening, wherever you are and welcome to our trading update for Q2 2022. I'm Sam Chandler, the co-owner and CEO here at Nitro. Ana Sirbu, our CFO, who usually would join me is not with me today since she just welcomed her second daughter into the world 2 days ago. So we wish Anne and her expanding family the very best, should be back with us soon. We have a short presentation for you today. We're going to provide an update on the business, including our planned go-to-market restructure and cost savings initiatives. We're going to provide more information about our revised guidance, and then we'll go to Q&A. And just a reminder, as always, that all the figures that we're presenting are in U.S. dollars.
So we'll start today with some first half highlights. We saw strong growth in the half with continued high revenue and ARR growth and record cash receipts for the period. ARR was up 52% year-on-year, 32%, excluding Connective. Revenue was up 32% year-on-year or 22% excluding Connective. And we saw record Q2 cash receipts of $16.2 million, up 43% from Q2 2021. Given those strong cash flows and the balance sheet that we started the quarter with, Nitro is a robust financial position as we enter the second half. We have over $35 million in cash and no debt.
Moving to Slide 3 now. I'd like to talk about ARR growth in the half. We finished the half at $51.5 million in ARR. That's up from $46.2 million at December 31. So we added $5.3 million. So while total ARR added in the period was roughly the same as the first half of 2021, new and expansion ARR added actually slightly higher, but the contribution from flips reduced substantially. That's shown here in orange on the chart on the right. That is because our transition to subscription in our business sales channel was effectively completed in the second half of last year. So there will be very little flip contribution to ARR in 2022. That is maintenance and support contracts that are converting to subscription licensing. We had expected a greater step-up in ARR added in the half and so we'll talk about why we didn't see that. But in addition to the cessation of 0material -- previously material flips contribution, there were 2 other big factors at play.
The first was the macro environment. As we've seen in a couple of other occasions during the pandemic and in recent times of market volatility, some customers are pausing or deferring their procurement decisions. And in very late Q2, we saw between about 1/3 and 1/2 of our sales pipeline push into the second half. These are highly unusual push pipeline numbers. We really haven't ever seen those sorts of pipeline dynamics before, except on 2 occasions, both of which were in the last 2 years or so.
The first was in March 2020 when the pandemic emerged. And the second was actually in December of last year when the Omicron variant appeared. And so I think the key point here is that even though our finish was not what we wanted it to be, almost all of that pipeline still remains in play. The expected close dates have changed. That hurts in the short term, but it doesn't change our long-term growth thematic or expectations. Secondly, though, in terms of the things that we can control, we could have done a bit of job and go to market in the half. But I think out of ARR from expansion grew very nicely that added ARR from new customers did not. And this was in part due to challenges with enabling the sales organization sell Connective and the additive complexity in both the product offering and the sales cycle and the time and attention that we spent ramping up on the new product lines and integrating the connective team, which did have an impact on our core peer productivity business, but that was really just in the last couple of weeks of the quarter when pipeline was slipping. It also became clear in Q2, though, that the structure and the processes and the systems of our go-to-market organization would need to change to be more effective and more successful in our new multiproduct world. And we'll talk more about those changes today, which are already being implemented. But finally, before we move on to the next slide and talk a bit more about revenue, I do call out our gross and net retention rates, which remain in line with the prior period and strong at 94% and 113%, respectively. I also want to point out, as you can see that our subscription revenue in the half reached 72% of the total, that's up from 63% in the first half of 2021.
So moving on now to Slide 4 and talking about total revenue. In terms of revenue performance, we had a strong half that actually exceeded the expectations of our internal plan for both subscription and perpetual revenue. And while a transition to a solution business model does reduce the total revenue growth for a period, we're starting to see the dominance of the subscription business increasingly in recent periods and the associated subscription revenue driving the total revenue number and the overall growth rate. So over the 3-year period, the first half performance, including Connective, we achieved a 31% comp annual growth rate of CAGR, and that was 22%, excluding [ Pactiv ].
Before we get into more details about the plans for the second half and our revised revenue guidance. I do want to call out some of the Q2 big logo wins. We had a significant number of very large customers expanding and renewing with us in the quarter and some excellent new logo wins in addition to some Connective cross-sell wins. Connective is now known as latrine premium. But we are starting to see it create opportunities and indeed close deals in some of our largest customers. So in the U.S., we sell have added wins at iconic names like GE, which is already one of our very largest accounts. And Time Warner Cable customers like Silicon Valley Bank, Grand Barton and even Facilities Giant ABM. In Europe, we saw a number of deals at household names like Nestle or Novartis and other big wins at Thales and Julius Baer, Festo, OMV and many more. And in Australia, it was wonderful to see expansions or renewals at work cover Queensland and UGL. We actually had too many recognizable logos to feature on this slide for Q2. And I think it's proved that many of the world's largest companies rely on the traffic productivity and workflow.
So look, let's move on to the GTM restructure. I think this is an important slide, and I want to talk about what we're doing here and kind of the why. As I mentioned, it became clear during the half, specifically during Q2 as we really began to integrate and sell Connective while at the same time, the macro environment changed substantially that we would need to make changes to our go-to-market model to be more effective and efficient. We have been investing significantly coming into this year and our original plan for 2022 was to continue with that high level of investment. However, obviously, the world changed and given those changes in the macro and market environment and some of the sales challenges that presented themselves to us at the end of Q2, and particularly with those pipeline dynamics that we saw in June, the appropriate thing to do was to change tac. And so to that end, we've begun executing a restructure of the go-to-market model that really focuses on 2 goals, effectiveness and efficiency. And effectiveness is all about driving improved sales performance and efficiency is about driving better go-to-market intent economics that really is going to help us accelerate our return to cash flow breakeven.
So for effectiveness, we've begun rolling out a number of things that are designed to simplify the way we segment our customer base, for example, or prospect to new customers and manage the sale of PDF productivity and e-signing solutions side by side. These initiatives will better align the sales, marketing, customer success and channel organizations in our new multiproduct world and drive more performance from our programs for acquiring and retaining and expanding customers. So there's a strong focus there. And there's also a very strong focus on sales rep enablement specifically, which did take a bit longer in the half than we anticipated.
For efficiency, the goal here is very clear. It's to do more with less. And with a lower cost structure and a more optimized organizational design, we can significantly improve key productivity efficiency metrics like CAC or customer acquisition cost and payback period. So we have reduced the size of our go-to-market organization. We have also won back our hiring plan. We have simplified the overall organizational structure, and we've created a number of new processes and systems for opportunity routing and customer account management and more. And all these changes, including a very sharp focus on -- given economic discipline will drive efficiency improvements in the company's overall financial profile. Which is all about getting to cash flow breakeven as fast as practicable while maintaining good overall levels of growth.
On this next slide here, if we move forward, you can see our new simplified sales segmentation model at a high level. This hopefully helps to explain what we're doing a little better. So the model really reduces complexity, first and foremost, and ensures that we can effectively and efficiently sell both peer productivity and e-signing to smaller and larger customers with the appropriate cost structure to align with expected deal sizes and customer lifetime values. So we are reducing the costs associated with acquiring and supporting customers through a pretty thoughtful revised approaches to how we prospect and do expansions and renewals in the cross-sell ocean and more. And so in this new multiproduct world and one where -- in a macro world where efficient growth is paramount, this is the appropriate organizational model supported by the appropriate systems and programs.
It's really important to note, though, that while we're taking some cost out, we're not making wholesale changes to our approach. Rather, we're just building on the specialized sales team model that is sometimes referred to as Hunter Farmer that we implemented last year. So we're keeping what's working, and we're evolving or correcting what's not, especially now that we have some experience selling the Connective products alongside our core offering. And then, of course, we're kind of adapting our approach here to the changed macro environment. So it's really all about simplification and optimization rather than substantial change. In total, we've reduced head count in the GTM org by about 13% or 14%. Overall head count as part of these broader cost reductions that we're talking about today is about 8% or 9% of total head count. So we'll talk a little bit more about that in a moment.
So moving on to some detail on the cost savings initiatives. In terms of total cost savings, incremental to the reductions outlined in our April market update, we have about $5 million of additional savings that we delivered in the second half. So please note that, that is just the second half 2022 number. That is not the annualized number for those savings, which is closer to double that. And this incorporates the GTM savings that we just talked about as well as savings in product and engineering. We do not have any head count reductions in product engineering, but we have scaled back our hiring plans, and it includes reductions in G&A, where we're focused on both head count and operating costs. And so these combined reductions provide us with an accelerated and indeed sort of lower risk path to cash flow breakeven next year and a much more efficient financial profile overall.
And finally, before we talk to guidance, I do want to provide a quick update on Connective. We'll talk more about the acquisition and the product road map and other things more fully at the half year results. But given that the acquisition is now about 2 quarters old, there are a few key updates for today. The first is that the team is now fully integrated into the Nitro organization. So every Connectivian is now in Nitro, the harmonization project is complete, all connected employees now have natural contracts and a part of the natural organization.
Secondly, from a product point of view, an important development during the half was that we implemented local data residency support for the U.S. and Australian markets. That's important for High Trust siting use cases where data sovereignty is important. So that's particularly the case in the highly regulated industries, but also in government. And we already have excellent feedback from customers and prospects and our frontline teams on those releases. There were some really big important releases for the half and really talks to the -- everybody speaks to rather the global opportunity for Connective. And indeed, we are creating opportunities and selling the product globally already. And indeed, our pipeline reflects that. If you look at the current Connective opportunity pipeline, it's very well distributed in all the regions that we sell in with no particular bias even though there's a strong European heritage and a proven history in Europe, the interest levels are just as high in the U.S. and Australia and other places. So a good start there.
The third thing I want to talk about Connective is that we've now completed most of our key sales enablement activities. And these did take longer than we anticipated, but we are pleased now with the general level of knowledge and enablement within the team as we move through Q3. So it did take longer, as I said, and that's been a factor indeed in our rep performance to date. But we are pretty happy with where the team is at as of now. The fourth thing here is that even though we are reducing our synergy revenue guidance for this year, and that really is a prime -- it's a fact of our slower start on enablement ready and the broader macro and buying anything else. We did actually have a lot of success creating cross-sell opportunities. So the pipeline has been building. We've created over 250 connected cross-sell opportunities in the first half, representing millions of dollars of pipeline and customer interest there is high. And actually, most of those 250 opportunities and indeed, most of that pipeline was created just in the 4 months from kind of March to June. So it's still relatively early days, and we need to prove that we can close that pipeline, but the product itself has been proven by Connective and we are improving our sales effectiveness every month, every quarter. So even though it's been a slower start, we believe very strongly in the long-term opportunity.
And finally, today, we'll talk about guidance. So we want to cover these updates, and then we'll go to Q&A. So the summary of changes is basically as follows. So first of all, we are reducing our 2022 ARR guidance from $64 million to $68 million from $57 million to $60 million, taking a cautious outlook there, just given what we're seeing in the macro and some of that unpredictability. We're maintaining our 2022 revenue guidance of $65 million to $69 million. So that revenue guidance is unchanged. Revenue performance, as I said earlier, has been ahead of our expectations year-to-date. And we are improving our 2022 operating EBITDA loss guidance from $15 million to $18 million, which was already an upgrade on our original 2022 guidance to $10 million to $13 million.
And so for a little bit more detail on some of those things. In terms of the ARR guidance, the primary drivers of the revised guidance, including the slower start to the year, particularly collective ration revenue is indeed the smaller go-to-market organization that we have now with less carried quota. So we do have roughly a $5 million reduction in carried quota in the year, for example, with the head count reductions, including quota-carrying reps in go-to-market. But the macro environment really is a key factor also. Given the pipeline slippage that we saw in Q2 and the prospect of continued market volatility and a possible global recession, we're taking a more cautious approach to the full year forecast. We just think that is prudent and obviously resetting on the cost line reflects that as well. And because of the slower Connective start with consideration for the fact that on go-to-market restructure will take a few months to fully implement, we're reducing our expectations for the Connective synergies to $1 million from $2.5 million.
On the cost savings on the bottom line. As I've said, we are accelerating our return to cash flow breakeven, and that is the financial profile that Nitro has been in for much of its life, apart from the kind of heavier investment periods. And so the go-to-market restructure and the broader cost savings here will deliver a significantly reduced operating EBITDA loss and a financial profile that is better suited to this economic environment. So in closing, we remain passionate believers in both the scale of the opportunity here in the dock and productivity and workflow market as well as in the business model of enterprise software. And while there's a lot of uncertainty in the world today, our confidence in the potential of the company and indeed of this product space is unchanged. We think we have a revised plan here for the second half. It's just a strong response to the conditions that we're facing. And we really thank you all for your support as shareholders along this journey, both to date and through the future. So with that, we'll open up for Q&A.
Thanks, Sam. I know that there's a few questions in the Q&A box so we'll try and cover as many as we can within the time allotted. There's a couple of questions from James Bales, are the changes in the sales organization in any way related to the enterprise sales changes made in the second half of 2021? And is the shortfall on Connective synergies sales or issue?
I'm sorry, the last part of that question, Ron, were the words sales or issue?
Yes.
Yes, got you. So I would say that what we saw in the first half doesn't have a lot to do with what we saw in the second half of last year, although the dynamics are similar in terms of we saw a little bit of slippage, a large amount of slippage in December last year than we would have expected from the pipeline that we had. And we saw that same dynamic at play, but on a larger scale in June. And I mentioned earlier that we saw kind of between 1/3 and 1/2 of pipeline push. And as I said, that pipeline for the most part, remains open. But it's just an unusual dynamic, and it does really indicate that procurement dynamics are being affected by something other than the competitive environment that we are in, or the way that we're selling because our win rates have been pretty constant. It's really been just a matter of the deals being delayed or deferred.
We did have some challenges with our U.S. North American team in later last year. We've still been rebuilding that team. By contrast, our EMEA performance or Europe, Middle East and Africa performance remains pretty strained out so that the U.S. organization continues to sort of rebuild and develop. So it's a kind of a minor factor. But the biggest issue really in the Connective -- sorry, in the finish first for the half was really the pipeline shifts and pushes. We would have liked to have more pipeline. We always would like to have more pipeline, but we certainly have enough pipeline for a very decent finish. And that all kind of pushed out in the very last days of the quarter.
And then from a Connective point of view, really our -- it's less of a sales org issue and more of a delayed start issue. It's just taken longer to actually ramp and enable reps to sell Connective and figure out how to sell a pretty different productivity and signing side by side. So it's probably a bit more of a process issue and systems issue, pricing and packaging issue as opposed to an org issue. I think the old changes are much more focused on efficiency. And then really in terms of effectiveness, we have specific pipeline initiatives that we're focused on with an emphasis on new customer acquisition. And it's probably enablement rather than the org itself. Most of the oil changes really are about ensuring that you are efficiently touching customer accounts in a world where there isn't as much demand or you've got pipelines that is like we've seen. You do not want to have a heavy cost structure set against that opportunity. So the revised cost structure here is much more a reflection of that. And really the Connective synergies update is primarily on account of the slower start, but also with consideration for the macro.
A question from Shar Yang. In terms of the quota-carrying sales reps that are no longer with the organization, were the lower quartile performers in the team or have you lost some high-performing individuals as well?
Yes, they were lower quartile. So we have completed a head count reduction. And yes, typically, anybody included in that step would have been a lower quartile performer where they are quite a bearing rep.
Just staying on head count, question from Brendon Kelly. What are employee numbers now? And what are they expected to be at year-end?
So if we look at where we are now, I don't want actually call on Rohit who's on the line as well, who's our VP of FP&A, who might have exact numbers to hand. But before the restructure, we were about 350, so back down to about 320 post the restructure. And Rohit, do you have an updated number to hand for head count approximately at end of year?
Yes, I do. So yes, to your point, we were about 350 ending June, and we plan to end the year around 350 to 360. So a little bit of an update from where we are today.
Thanks, Rohit. A couple of questions on ARR guidance. The first one from Whitney Saka. Could you explain why the ARR guidance has been reduced, but overall revenue guidance remains unchanged?
So obviously, the revenue guidance incorporates a lot of the flow-through of prior period sales performance and bookings. And so it's a much more stable number. It reflects both the -- it's essentially a complete of the success that you're having in period and the performance of prior periods, whereas the ARR number is just much more sensitive to the current period. So I think given what we saw with the slippage in June, we are concerned about the border macro picture for at least the short to medium term. And we felt it was appropriate to make the ARR adjustment to be very cautious there. But the revenue performance is quite easy to forecast. It's very predictable. And it's obviously a function of also our nonrecurring revenue in the business, which is very predictable. So our online sales are the tiny fraction of business sales that are remaining a little bit or perpetual. So given where the revenue number is derived from, it's easy to kind of forecast with that high degree of predictability.
Just a second question on ARR from Chris Gallar. You need to add approximately $5.5 million ARR in the second half of '22, just to hit the low end of guidance, the same as first half '22. What gives you confidence in that given the pipeline slippage and the deteriorating macro environment?
Well, I mean, I think a key point is the pipeline slippage. So there is a lot of pipeline there that is just carried over. So it hasn't disappeared. Our pipeline creation rates have been increasing. So even though we've seen, yes, dynamics that I think are predominantly kind of macro factors affecting the close rates in the quarter. That pipeline has not been closed lost. It is persisting and so it means longer sales cycles and kind of a bit of short-term pain. But we do see the majority of those deals closing if they were indeed forecast to close with a high degree of probability, but just on a longer-term line. So there is the pipeline carrying over, the rate of pipeline creation increased particularly towards second half of half. And just getting some more maturity in the go-to-market model is important. We really have to learn how to sell Connective -- when you sell workflow solutions alongside productivity tools, there is some complexity to that in terms of managing parallel slightly different sales cycles. So we've sort of been navigating that, learning that over the last quarter or 2. And so we feel like we have our arms around it more so than we did even a few months ago. So I think, yes, there's more pipeline. Our pipeline coverage for the half is strong. We're creating more of it, we've carried a bunch forward. And yes, we have that go-to-market maturity emerging. And I think the changes that we are proposing to make will make us more effective.
We have some questions from Jules Cooper. I might just pick on the first one with pipeline. Jules' first question, regarding the third to half push of the pipeline, could you comment on regional experience here, please?
Regionally, our push rates tend to be pretty similar. Interestingly, when it comes to pipeline dynamics, it is not really different between regions. So we have 3 regions. We have APAC, the Americas and EMEA. And the pipeline characteristics are pretty similar everywhere. Creation characteristics tend to be a bit different and even by segment those creation attributes could be different. But in terms of the way the pipeline performs across stages and in terms of sales cycles and kind of conversion rates or close rates by stage, it's pretty similar across the 3 regions. There'd be no material differences to kind of call out.
Second question from Jules. Can you please detail any changes to implementation and/or restructuring costs?
Sorry, I missed that. Ron, detail any changes? Was it changes or costs to?
Can you please detail any changes to implementation or restructuring costs?
I'm not sure I understand the question. Can we move on?
We'll move on to another question from Jules then. Can you provide some more detail on the synergy sales opportunities closed in the quarter? And how you see that ramping across Q3 and Q4?
Yes. So as we talked about, we created over 250 opportunities in the first half. Most of those in the last 4 months of the half. And average sales cycle time for these opportunities is looking like about 90 days. We've sort of seen sales cycles anywhere from kind of 30 to 90 thus far. What is interesting is, as I mentioned in my comments, is that the opportunities in that pipeline are very well distributed around the world. So in fact, the pipeline and the number of opportunities maps pretty evenly to our peer productivity sales mix. That is, we see a pretty even balance between EMEA and North America and then kind of -- which is sort of each somewhere between 40% and 50% of the total and then kind of a 10% APAC contribution. And that's kind of reflected in the pipeline right now.
So I think there's a strong trajectory there. We're expecting kind of every rep to be creating opportunities for the Connective products actively. And I think the reps really started to learn what e-signing -- in enterprise-grade e-signing is all about over this past quarter. There's plenty more to learn. The job is far from done. But I think that the team has gone from a fairly limited knowledge of how sophisticated workflow software gets deployed and how you sell really an API-driven product to actually getting into RFPs, getting into deals. Almost every rep in the organization now has at least one e-site opportunity. In fact, I think we're probably at 5 or 6 opportunities per rep at this point. Right now on average in terms of e-sign cross-sell opportunities matter per rep. We obviously up from kind of from a standing start of 0 just a few months ago.
So yes, look, I think the proof will be in the putting in the second half, but the deals we've been closing them, yes, in basically all the regions. Mostly smaller deals thus far just because that would make sense given that most of these sales cycles only started in kind of March, April, or May and then really closed in June, May or June. So typically sort of 1- to 3-month sales cycles on the deals have closed so far. So naturally, they're the smaller ones. But there's some big opportunities in there, actually, with the existing Nitro customers with whom we have strong relationships as well as some net new opportunities.
I'm just conscious of time and quickly last 2 questions. Jules sent through a clarification point on his question that Nitric previously talked about $5 million of restructuring implementation costs associated with Connective weighted to FY '22. So does this amount increase now?
Rohit, do you want to take that one?
Yes. Sure. As of now, no, we don't expect any increases in the implementation cost of connected and in fact, we are quite on target with getting to around that $4 million to $5 million early next year. So the $5 million of integration costs still stands as of today and is built into our model.
And last question from Sean Barnes. How long before the sales force is at full selling efficiency in terms of selling both products?
That's a good question. I think it's -- look, there's a maturity life cycle or curve here. Really Q2 was the first quarter we were really selling Connective. Q1 was really just about beginning to integrate the acquisition. Of course, the acquisition closed right before Christmas last year. So we got the teams together early in the year, began system integration, and on all of that foundational staff. And then Rapenablement really took place over kind of February, March and then it was really only kind of April onwards that we started to see any significant engagement with customers both new and existing. And so there's really a few months of experience under our belt now. So I think we've gone from 0 to 1 in that period, and we are probably still in the first year. But I expect us to kind of get into second or third gear in this next half. So I think there'll be a decent amount of maturity, particularly with the revisions to the org that we are implementing. We've learned enough already, I think, to have very strong views on the changes that we're making. So I think from here, the learning rate accelerates.
Sam and Rohit, thank you. That concludes the Q&A session. We've gone slightly over time. And thank you, everybody, for participating on the briefing this morning. That now ends this session. Have a great day.