ON24, Inc.

Thank you. Hello and good afternoon, everyone. Welcome to ON24's first quarter 2021 earnings conference call. On the call with me today are Shirat Sharan, the founder and CEO of ON24, and Chief Financial Officer Steve Baccarone. I would like to remind everyone that some information provided during this call may include forward-looking statements, including, without limitation, statements about ON24's future events, expected financial and operating results, business trends, global economic trends, and expected timing and benefits, if any, of such trends. These forward-looking statements may contain such words as project, outlook, future, expect, will, anticipate, believe, intend, or refer to as guidance. These forward-looking statements reflect beliefs, estimates, and predictions as of today, and I-24 expressly assumes no obligation to update any such forward-looking statements. These forward-looking statements are only predictions and are subject to substantial risk. Factors that could cause or contribute to such differences include, but are not limited to, risks associated with our ability to attract new customers and expand to existing customers, fluctuation in our performance, competition in our market, and any decline in demand for our solutions, our ability to expand our sales and marketing capabilities and otherwise manage our growth, the impact of COVID-19 pandemic, and other risks identified in the company's SEC filing. For a detailed description of risks and uncertainties which could impact these forward-looking statements, you should review ON24's periodic SEC filings, including the risks identified in today's financial press release. 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 practice. I will now turn the call over to Shirat. Shirat?

Thank you, Miley, and welcome everyone to ON24's first quarter 2021 financial results conference call. Thank you for joining us. For our call today, I'll share a quick information of our financial results for Q1 2021 and then provide an update on our business momentum. I'll finish with a recap of our annual conference and product announcements before turning it over to Steve to review our first quarter financials. I'm pleased to report strong financial results for the first quarter of 2021. exceeding the high end of our guidance. For the first quarter, we delivered revenue of $50.1 million, up 102% compared to the same period last year. Our digital experience platform business grew 111% year over year to a total of $50 million, and ARR increased 90% year over year, ending our first quarter of 2021 with $163.1 million in ARR. At the same time, we demonstrated significant leverage, which drove non-GAAP operating income of $2.8 million and $3.2 million in free cash flow in the first quarter. As we have many listeners who are just getting to know ON24, I plan to spend some time discussing the background of ON24. On24 delivers a digital experience platform that enables thousands of businesses to convert millions of prospects into customers. These digital experiences, which include interactive webinar experiences, virtual conferences, and always-on multimedia content experiences, allow companies to deeply engage with their prospects at scale. The On24 platform takes that audience engagement, converts that into first-person data, personalizes that to our AI-driven platform and makes the data actionable by integrating that within our customers' sales and marketing ecosystem. Today, we count some of the world's largest and most recognized businesses in the world as our customers, including three of the five largest global technology companies, four of the five largest U.S. banks, three of the five largest global healthcare companies, of the five largest global industrial and manufacturing companies. We have a very large tank that we currently estimate to be over $42 billion worldwide annually and expect this market opportunity to grow as digital is increasingly the norm. Our platform is a system of engagement that delivers experiences purpose-built for marketing and sales. A single On24Live experience averages 50 minutes to audiences of more than 200 attendees, delivering over 20 data points of engagement for each attendee. And that's just a single experience. We don't provide seconds of engagement. ON24 delivers hours of engagement with prospects. Many of our customers deliver hundreds of thousands of experiences per year. As prospects engage with these experiences, they provide their digital body language. The deeper the engagement, the better the first-person data. And with better data, our customers can further personalize the next experience for their prospects through our AI-driven engine, increasing the overall business impact. That creates a flywheel effect, and that is what is at the core of our platform today. We believe our cloud-based platform stands alone when it comes to driving engagement and delivering data. This is the ON24 data-rich system of engagement. Now let's talk more specifically about our platform and products. There are three key components, ON24 Experiences, ON24 Intelligence, and ON24 Connect. First are the ON24 Experiences. They are a suite of four products. ON24 Elite, our flagship live interactive webinar experience product. ON24 virtual conference, an immersive, scalable digital events product. ON24 engagement hub, a curated, always-on multimedia content experience product. And ON24 target, a personalized, hyper-relevant, rich media content experience product. Every ON24 experience product is backed by our analytics layer. On24 intelligence. As customers engage with these experiences, they generate first-person data, which we run through the On24 intelligence module. And those insights fuel our AI engine. We capture lifetime activity for every prospect, their history of business interests, to automatically recommend relevant content and personalize the next experience. This propels buyers forward, taking them from one relevant experience to the next, reducing friction and accelerating conversion and revenue. Finally, through ON24 Connect, we make the data available in the sales and marketing ecosystem of our customers. We have built near real-time deep integrations with many leading CRM, marketing automation, and business intelligence tools. It is our holistic platform approach. Experiences, data, integrations, that sets us apart. We combine interactive multimedia experiences with rich customer intelligence and an AI-driven engine. Enterprises will typically need multiple different providers to do what we do. Our platform provides a single integrated solution. and we are delivering all of this while also supporting critical enterprise requirements on a global scale. That puts our platform in the epicenter of customer engagement across the enterprise. Now, looking forward, we believe the future is all about digital-first hybrid engagement. While physical events will come back in some form, they will be used to complement and augment our digital-first strategy. Ladies and gentlemen, There is no going back. This is not just a new normal. It is a better way. Our strong first quarter results are proof that our digital first future is now the new normal for how we drive revenue today. You just have to look at what our customers are telling us and the incredible results they are achieving. One of the world's top CRM software companies has been a hundred K plus ARR customer for several years and has engaged millions of their prospects and customers to our platform. Thirdly, 25 teams across demand generation, product marketing, field marketing, and more use On24 Elite and virtual conferences to create and deliver thousands of digital webinar experiences and virtual events in 34 different languages. The more digital experiences they do, the greater their ROI. In 2020, their digital engagement strategy resulted in a 60% increase in deal size, 135% increase in marketing source pipeline, and almost a 200% increase in their average contract value. Another long-term, $100K-plus ARR customer is a multinational industrial conglomerate. We enable multiple business units, including energy, healthcare, and manufacturing, to build top leadership, provide channel enablement, and drive direct sales pipeline to thousands of live and on-demand digital experiences powered by On24 Elite and Engagement Hub. For just one of their business units alone, we power digital engagement with hundreds of thousands of their prospects and customers each month. which led to a 400% increase of leads moving into pipeline in 2020. And our platform is how a leading biopharmaceutical company sails peer-to-peer scientific exchanges for the exploration of new medical innovations. We needed to reimagine how the company could engage healthcare professionals in a digital first world. Using On24 Elite, Engagement Hub, and Target, They created digital experiences, including virtual conferences, seminars, and on-demand content hubs to increase engagement with physicians by 200%. As the pharmaceutical industry becomes increasingly digital, we see great momentum within this vertical. And in our first quarter, we acquired new customers from various industries, like pharmaceuticals, manufacturing, and even retail, where we are seeing new use cases emerge. For example, one of our multi-product wins in Q1 comes from one of the nation's largest home improvement retailers, which is using our platform to educate and engage contractors and individual homeowners in a digital-first way. This is an important part of the company's strategy to safeguard contractor and consumer revenue streams. They're using On24 Elite, Engagement Hub, and Virtual Confluence to deliver multimedia, do-it-yourself content, home improvement tips, and even deliver digital coupons for online and in-store purchases. Another expansion in Q1 came from the chemical business unit of one of the largest global oil and gas companies, which chose ON24 to accelerate traditionally long-sale prices. They're using ON24 Elite, engagement hub and targets, to create a system of engagement to target hard-to-reach audiences. We had already been working with their technology and oil and gas divisions, giving us internal traction to land and expand. And we are accelerating our international land and expand motion with greater sales capacity, 24 by 7 all-of-the-sun support, multilingual capabilities, and more. His score We've grown our footprint within a leading Japan-based multinational IT equipment and services company, which uses All24 Elite, Engagement Hub, Target, and Virtual Conference, all four, to power their digital channel enablement strategy in APAC, EMEA, and North America. Now let's shift to the topic of innovation. At ON24, we are committed to continuously innovating across our planet. We recently made announcements in three key areas. One, developing the next level of visual engagement to continue to truly capture audience attention and offer dynamic and effective experiences that drive deep engagement and first person data. Two, The powerful AI engine we built to power experiences and create unique personalized journeys for every individual audience member. And finally, we make all the first-person data and buying signals we collect available to the sales and marketing ecosystems of our customers. We have built near real-time, deep integrations with many leading CRM, marketing automation, and business intelligence tools. And we have made several recent announcements in this area that add important new integrations and further expand our rich ecosystem. Now let's take a look at our latest innovations in building the next level of digital engagement. We have been seeing growing demand for bidirectional video engagement between presenters and attendees, attendee to attendee, and finally between sales and attendees. And that is why we created ON24 Breakouts. With ON24 Breakouts available on ON24 Elite today, we are enabling our customers to have even more flexibility in audience engagement within and beyond the live webinar experience. You can enable seamless entry to breakout rooms for attendees to do peer-to-peer networking. You can have moderated sessions with truly interactive two-way video Q&A sessions with subject matter experts. And you can enable immediate one-on-ones with sales reps, accelerating conversion. This is a very exciting new capability that has a great deal of interest from our customer base. Once again, ON44 is redefining engagement in a digital-first world. And we'll soon be delivering this product across additional experience cards, including a virtual conference offering. next as our customers often use our platform as a primary system for sales and marketing to engage prospects and customers we are seeing demand for integrations with conversational ai cat tools our first integration of this kind is with the market leader in conversational ai drift now through our seamless integration our customers can immediately connect live webinar and event prospects with their sales teams. Another key product introduction is our Virtual Conference Pro, which complements our existing Virtual Conference Enterprise product. Targeted for the commercial market, customers can quickly stand up online conferences, trade shows, group training, or other multi-session events. Audiences can create their own agendas, watch keynotes, visit sponsors, explore demo grounds, and network with experts and other attendees. With our introduction of Breakouts, Conversational AI, and Virtual Conference Pro, we continue to deliver the next level of digital engagement. The second area of innovation is around our powerful AI engine. that creates unique personalized journeys for every individual audience member. On April 23, we launched the new AI-based personalized recommendation engine. The ON24 AI engine leverages the vast pool of data collected through millions of engagement points across ON24 experiences to inform dynamic content delivery. Based on a user's history of consuming content, our AI engine creates unique content recommendations specifically tailored to their individual interests. Our AI engine, followed by first-person data, will continue to take digital experiences to the next level and enable our customers to automatically generate journeys that are uniquely matched with each individual lead or process. The third area of product enhancements is with our real-time data integration. With ON24 Connect, we are delivering the most connected digital engagement platform ecosystem. We make the deep engagement data available in the sales and marketing ecosystem of our customers, enabling customers to take near real-time action. We have built deep integrations with many, leading CRM, marketing automation, and business intelligence tools. We recently announced two new and important integrations. In the life sciences and pharmaceutical industries, we announced our new integration with Aviva PRM Events, the leading player in the market. The integration enables life science marketers to capture every level of ON24 digital experience data, from registration and attendance to various points of engagement. Together with Viva, we will give customers a single view into audience and engagement information to better inform and trigger actions across marketing and sales. Integrating On24 Elite with Viva CRM events, we will provide marketing and sales teams with an end-to-end solution for planning, executing, and measuring the impact of digital events and engagement activities with healthcare professionals. I'm also excited about the work we are doing to extend our ecosystem of deep integrations to sales engagement tools. Our 360-degree view of prospect engagement has become central to our customer sales motions, providing critical insights for sales to prioritize and personalize lead follow-up. This data is already integrated with leading CRM systems, and now we are partnering with Outreach, a leading sales engagement platform, to take it one step further. With this integration, sales teams will be able to take immediate action on first-person data in near real time, increasing the return on engagement. This new integration joins others that ON24 supports today with ON24 Connect, including CRM and marketing automation tools such as Salesforce, SAP, Adobe Marketo, Oracle Eloqua, and many others. There's so much more we are working on as we increase our pace of innovation across the platforms so we can remain true to our commitment to creating the most engaging, data-rich, dynamic, scalable, and enterprise-class digital experience platform. We look forward to continuing to update you on our progress in this area. Now, let me share some information about our growth tech. First, we are adding sales capacity to drive new customer acquisition, expansion, and upsell. Second, we are entering new international markets, including Japan and DOC. And finally, we are investing in our R&D organization and continue to develop new products to add to our overall platform offer. To wrap up, We are very excited about the customer momentum we are seeing for both new customer acquisition and existing customer expansion and upsell. Our platform today enables thousands of companies to convert millions of prospects to customers. We just came off a very successful virtual conference, the ON24 experience. We have thousands of attendees, Joanna. It is available on demand. and I encourage all of you to watch it. You can find the link to the on-demand replay on our homepage banner at on24.com. We've also included the link in the earnings call webinar. The highlight of the conference was the customer participation and the stories that they have shared on the results they are achieving using On24. The customers presenting included Salesforce, GE, Honeywell, SAP, Google Looker, Fidelity National Information Services, and Zendesk. The business benefits that our customers are achieving with our platform in generating sales and pipeline are impressive and undeniable. As we move forward into our digital-first hybrid world, we believe that we are ideally positioned with a data-rich, digital-first system of engagement that enables business growth for our customers. With that, I'll head it over to our CFO, Steve Batzewani, to walk you through our Q1 results in more detail. Thank you. Steve Batzewani Thank you, Shirat, and good afternoon, everyone. As Shirat mentioned, we are very pleased with our first quarter results. I'm going to start the discussion of our results with revenue. The majority of our revenue is generated from subscriptions that we sell to our digital experience platform which is delivered through cloud-based software. We also generate revenue from professional services, which primarily consists of implementation and support services. Digital experience platform revenue excludes revenue from our legacy product offering, which we stopped selling to new customers in 2018, and is 0.2% of our revenue in Q1 2021. Total revenue for the first quarter was $50.1 million, an increase of 102% compared to Q1 of 2020. Our digital experience platform revenue was $50 million, an increase of 111% year over year. Subscription and other platform revenue for the first quarter of 2021 was $42.9 million, an increase of 115% compared to the first quarter of 2020. As a reminder, This includes overages, which are generally around 3% to 4% of our revenue and can fluctuate depending on customer usage of our platform and seasonality. Professional services revenue in the first quarter was $7.2 million, an increase of 49% year-over-year, representing 14% of total revenue. As we mentioned last quarter, the first quarter is typically a seasonally low quarter for professional services for us. We expect this revenue as a percentage of total revenue to be up in the mid-teens during Q2. 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. ARR growth reflects our ability to both land new customers and expand our footprint within existing customers as they add additional users, capacity, and products, and our platform becomes more strategic across their businesses. Total ARR at the end of Q1 2021 was 163.1 million, an increase of 90% year-over-year. The growth of our ARR is underpinned by both new customer acquisition, which continued at a strong pace in Q1, as well as existing customers continuing to expand their usage of our product. A key driver of our ARR is new customer acquisition. We ended the first quarter of 2021 with 2,062 customers, representing growth of 37% year over year. In addition, At the end of the first quarter, we had 325 customers with ARR of $100,000 or more, representing growth of 102% year over year. This demonstrates our ongoing traction with larger enterprise customers. We are confident we will continue to leverage our existing customer base to upsell our suite of experiences, providing a long runway for ongoing growth. 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 in our earnings release. Gross profit in the quarter was $39.7 million, representing a gross margin of 79 percent compared to 73 percent in the year-ago period. We intend to continue to invest in scaling the business throughout fiscal 2021, and as a result, we expect this to reduce gross margins in the near term. Turning now to operating expenses. Sales and marketing expense in Q1 was $22.2 million, compared to $11.9 million in Q1 last year. This represents 44% of total revenue, an improvement compared to 48% in the first quarter last year. We intend to continue investing in sales and marketing to support increased demand for our digital experience. R&D expense in Q1 was $7.2 million compared to $4 million in Q1 last year. This represents 14% of total revenue versus 16% in the same period last year. We have increased our R&D spending in absolute dollars over the past year, and as we move through 2021, we intend to continue to invest in R&D. G&A expense was $7.5 million for the quarter, compared to $3.3 million in the first quarter last year. G&A was 15% of revenue versus 13% of revenue last year. Our G&A expenses have increased as a percentage of our revenue due to the costs associated with being a publicly traded company. Over time, we expect G&A expense to decrease as a percentage of our revenue. Operating income for Q1 was $2.8 million, or a 5.5% operating margin, compared to an operating loss of $1.1 million, or negative 4.5% during the same period last year. Net income in Q1 was $2.2 million, or $0.05 per diluted share, based on approximately 42.2 million weighted average diluted shares outstanding. This compares to a net loss of $1.7 million, or $0.18 per share in Q1 last year, using 9.1 million basic and diluted shares outstanding. Turning to the balance sheet and cash flow, We ended the quarter with $392 million in cash, cash equivalents, and short-term investment. Cash flow from operations in the first quarter was $3.7 million compared to $1.3 million in Q1 last year. Free cash flow was $3.2 million in Q1 compared to $1.2 million in Q1 last year. Free cash flow margin was 6% in the first quarter compared to 5% in Q1 last year. In terms of headcount, as of March 31st, 2021, we had 652 full-time employees, which reflects growth of 19% compared to the 547 full-time employees we had at the end of 2020. This demonstrates the continued investments we're making in headcount as we scale the business. And finally, turning now to guidance. We are very pleased with the positive momentum in our business, especially our continued new customer growth in Q1 and high engagement from existing customers. At the same time, it is early in the year, and we are coming off a year of explosive expansion for our business with the peak of COVID-related renewals in Q2. Balancing these factors, for the second quarter of 2021, we expect Revenue in the range of $50.5 million to $51.5 million, which represents year-over-year growth of approximately 39% to 42%. Non-GAAP operating income in the range of $0 to $1 million, or a margin of 0% to 2%. And non-GAAP net loss per share of $0.01 per share, using $47 million basic and deleted shares outstanding, to non-GAAP earnings per share of $0.01 per share, using 57 million diluted shares outstanding. And for the full year 2021, we expect revenue in the range of $207.5 million to $210.5 million, which represents year-to-year growth of approximately 32 to 34 percent. Non-GAAP operating income and loss, a range of a $2 million operating loss to operating income of $1 million, or a margin of negative 1 percent to positive 0.5 percent. And non-GAAP loss per share of $0.02 per share to $0.08 per share, using 44.4 million basic and diluted shares outstanding. In summary, we are pleased with our Q1 results and are well positioned to benefit from the investments we have made in all functional areas of the company. We expect to continue to benefit from the trends driving the need for a data-rich digital engagement platform. With that, Sharad and I will open the call up for questions. Operator?

Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow us to not treat your equipment. Again, press star 1 to ask a question. And we'll take our first question today from Sterling Otte with JP Morgan.