ON24, Inc.

Greetings and welcome to the ON24 fourth quarter and full year 2022 financial results. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lauren Sloan, Investor Relations for ON24. Thank you. You may begin.

Thank you, hello, and good afternoon, everyone. Welcome to ON24's fourth quarter and fiscal year 2022 earnings conference call. On the call with me today are Shirat Charan, co-founder and CEO of ON24, and Steve Attuoni, 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 the execution of our capital return program in guidance for the first quarter in fiscal year 2023, as well as certain second quarter non-GAAP projections. These forward-looking statements are subject to known and unknown risks and uncertainties that could adversely affect ON24's future results and cause these forward-looking statements to be inaccurate, including our ability to grow revenue, attract new customers, and expand sales to existing customers the success of our new products and capabilities, and other statements regarding our ability to achieve our business strategies, growth, or other future events or conditions, such as the impact of adverse economic conditions and macroeconomic deterioration, including increased inflation. ON24 cautions that these statements are not guaranteed a future performance. All forward-looking statements made today reflect our current expectations only and we undertake no obligation to update any statement to reflect the events that occur after this call. Please refer to the company's periodic SEC filings in 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 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 Shirat. Please go ahead.

Thank you and welcome everyone to ON24's fourth quarter and full year 2022 financial results conference call. We appreciate you joining us. With me today is Steve Battuoni, Chief Financial Officer. Before we get into results, as a reminder, the ON24 platform includes six products to create live, always-on, and personalized experiences that work together to drive deep engagement, generate first-party data, and provide a unified set of customer insights that integrate with our customers' business systems so that sales and marketing organizations can take the right actions to deliver pipeline and revenue growth. We define this as our core platform, which excludes the managed service virtual conference product. As we stated on our last call, we are de-emphasizing the virtual conference product With the return of large-scale in-person events, we are seeing less demand for this product and have experienced a churn rate that is significantly greater than our core products over the past several quarters. By the end of this year, we expect the ARR from this product to be low single digits as a percentage of our total ARR. The focus of the core platform, we now view the metrics from this business such as revenue, ARR, and NRR as the best KPIs moving forward. Turning to Q4 results, revenue from our core platform, including services in Q4 of 2022, was $44.2 million, and total revenue, including virtual conference, was $46.6 million. Of total revenue for the quarter, subscription and other platform revenue was $42 million, and professional services revenue was $4.5 million. We posted a non-GAAP operating loss of $3.5 million in Q4, as we continue to take significant actions to align our cost structure towards achieving profitability, which I will elaborate on momentarily. We ended 2022 with $152.6 million in ARR related to our core platform, representing a sequential decrease from Q3 of $3 million, when excluding the impact of foreign currency, which is currently $400,000. Let me provide some commentary on the performance. Added to a sequential decrease in our ARR for the core platform, net of foreign currency, we saw a higher reduction than anticipated. Since our last call, the macro environment has become more challenging. Of the five verticals we which each account for 10% or more of our annual core platform ARR. We saw mid-single-digit percentage reductions in ARR between Q3 and Q4 2022 in technology and manufacturing. Technology, our largest vertical, which accounts for over a third of core platform ARR, was especially affected with over 1,000 technology companies having layoffs according to third-party data. This had the single greatest impact on our core platform ARR performance. We also saw challenges in new business logo acquisition, both in enterprise and commercial segments, due to customer hesitancy in the current macro environment. From a geographical perspective, Europe continued to be soft, and our international business revenue declined by almost two times the rate of the overall business in Q4 2022. Despite those challenges, the life sciences and professional services verticals saw positive traction with low to mid single digit percentage growth in core platform sequential ARR growth from Q3 to Q4 2022. We saw improvements during Q4 in the in-period gross dollar retention, which reflects both churn and downsells from existing customers of our core platform, with Q4 gross retention among the highest in 2022. Additionally, the in-period Q4 dollar churn rate improved to near historical levels. The contribution from new products that we launched in 2022 was the highest in Q4, and our customers are committing to longer multi-year contracts, which ended the year at the highest level ever. As we look forward, the larger digital transformation trends that have accelerated our business over the past few years are still unfolding, and we are aligned with several market trends that will provide tailwinds to the business once the macro pressure eases. These include the modernization of sales and marketing and their move to digital channels to drive pipeline and revenue growth, transition of the B2B prospect to self-educate and research online before engaging with sales, and the importance of first-party data as compliance and privacy regulations become increasingly restrictive. The time for a solution is very large, and we are in the early stages of this market opportunity. We have managed through several economic downturns before, and we are intently focused on our four main priorities to set our business for success as the macro environment recovers. These are, one, accelerating our path to profitability in 2023. Two, relentless platform and product innovation. Three, laser focus on enterprises with over 1,000 employees. for our global footprint across Europe and APAC. First, I'll talk a little bit about our path to profitability. Looking ahead, we are focused on what we can control, continuing to improve our execution and running the business in a profitable manner while driving long-term durable growth. I'm pleased to share that we've accelerated our timeline to reach breakeven non-GAAP EPS to next quarter, which is two quarters ahead of schedule from our initial target of Q4 2023. To achieve our accelerated goal, we have initiated additional cost reduction measures in the first quarter across all areas of the company. In addition to reducing non-employee related costs, we are undertaking an approximately 13% reduction in headcount in Q1 relative to December 22, both through natural attrition without backfilling positions and through headcount reductions. Once complete, these actions, in addition to those already taken in 2022, restore headcount to similar levels to the end of 2020. We have an incredibly talented team, and this was a difficult but necessary decision to best position ON24 to deliver long-term profitable growth, achieving breakeven profitability under our accelerated timeframe. Steve will share more about this shortly. Next, I'll explain our relentless focus on platform and product innovation. Engagement on the platform, as measured by engagement per attendee, was at record levels in Q4, with audiences spending more time and having more interactions with our experiences. The uplift in audience engagement levels demonstrates the maturity of our platform and payoff of developing our extensive experience product portfolio over recent years. This level of deep engagement provides our customers with unmatched first-party engagement data and buying intent to drive their pipeline and revenue results. In the near term, we are most focused on leveraging a platform's foundation of first-party engagement data and buying intent to develop new capabilities across three major product areas. The first is personalized. segmentation which enables our customers to dynamically personalize experiences for their prospects based on rule sets first and third party intent data and real-time audience behavior second we are making enhancements to analytics and insights with the first of its kind key moments report that measures the performance of live experiences based on audience behavior and launch of a new ROI attribution dashboard in Salesforce. This allows companies to measure the pipeline attribution to ON24 solutions. The third product focus is one we are very excited about, our roadmap of new AI-driven content generation capabilities. Content creation is one of the most important yet costly resource intensive and time consuming aspects of sales and marketing today. As companies reduce headcount, it is even more important to have solutions that enable them to do more with less. Starting in Q2, we will introduce several features to help our customers solve this problem. Starting with embedded AI based content generation tools. We believe that the combination of our first-party engagement data, personalization, and AI-driven content generation capabilities will further strengthen our platform's significant competitive advantage and uniquely position us for future growth. I'll now discuss a laser focus on the enterprise. Close to 80% of our business is with companies with over a thousand employees. As a one-time disclosure, I'd like to unpack our in-period gross retention performance within this segment. Gross dollar retention reflects churn and downsell. As we move through the post-COVID normalization quarters, we saw our gross dollar churn rate within the enterprise segment deteriorate by a mid-single-digit amount compared to our historical churn rate. I'm pleased to share that as a result of our initiatives in customer success, in the 1,000 employee and above customer cohort, Gross dollar churn rate improved sequentially for the past three quarters and improved to 10% in Q4, which is consistent with pre-COVID levels. This is a compelling data point as it shows that customers that comprise an overwhelming majority of our business and are our primary focus are committed to the platform. However, downsells remain elevated given customer budgetary constraints in the current macro environment, which we believe is transitory and gives us confidence in the growth of our business when the recovery comes. As previously discussed, life sciences and professional services verticals were strong performers, where we increased core platform ARR quarter over quarter and year over year. while technology and manufacturing were behind. To further bolster our enterprise go-to-market strategy across new customers and expansion of existing customers, we have refocused resources from mid-market to our enterprise segment. We also continue to build up our partner ecosystem and develop new partnerships with service providers who focus on enterprise clients in our key vertical. In Q4, we saw the overall percentage of partner influence bookings increase to low teams, and we expect to see further leverage in 2023 as this motion matures. Finally, our international business. We have already invested in expanding our footprint outside of the US with teams in place across Europe and APAC, including Japan, and have a marquee customer base across these regions. While these regions have been impacted by the macro trends over the past year, we strongly believe they will be important growth vectors during the recovery process, given that many organizations are still very early in the adoption of digital engagement. At the same time, as we are executing on these priorities, The board and the management team have taken a deep look at our balance sheet and capital position relative to our investment needs and our ability to maintain sufficient capital in the current macro environment. Combined with significant shareholder engagement around these topics, the board determined to authorize a new $100 million capital return program comprising a special dividend and a combination of an accelerated share repurchase and a share buyback program. Steve will share more specifics on this program, but I want to underscore that this new program reflects our confidence in our business. We believe it balances maintaining our focus on growth and enhancing near-term value for our shareholders while leaving ample liquidity to invest in strategic priorities and navigate uncertain macroeconomic headwinds. Furthermore, the $100 million being returned is in addition to a prior share repurchase program through which we have returned $41 million to date, bringing the total to $141 million of capital being returned to shareholders since December 2021. We are committed to this program and we intend to complete the entirety of the return in the next 12 months. The management team and board regularly evaluate the capital needs of the business and will continue to assess this dynamically as the year moves forward. Now let me highlight a few key new business wins for our company. I'll start with a new win from Japan, which comes from a multi-billion dollar IT services and consulting conglomerate with over 100,000 employees. They came to us to help centralize and scale their sales and marketing operations across multiple business units. After struggling with the current collaboration tool, they decided to overhaul their digital engagement strategy and build a single online destination for live experiences and on-demand content using a combination of On24 Elite and Engagement Hub. In addition, We brought on a global health and well-being solution provider with over 10,000 employees, which is disrupting traditional health care by providing employers with an innovative way to support and deliver employee benefits. Our ability to deeply integrate with HubSpot and Salesforce was a key differentiating factor. giving their sales and marketing teams critical insights to drive pipeline and demonstrate the value being provided to employees back to their HR leadership teams. Finally, we added the nation's largest banking association to our customer base in Q4 by providing them with a comprehensive solution for scaling their life certification programs and increasing member adoption. Our engagement data gives them a powerful set of insights to improve cross-sell, grow their membership base, and drive more sponsorship revenue. Turning to our install base, we are powering a digital transformation initiative at a multi-billion multinational pharmaceutical and biotech company with more than 90,000 employees as they innovate how their field reps and pharma brands engage healthcare professionals and set the standard for HCP engagement across all their markets. Through ON24 Elite and forums, they will be able to build and scale hundreds of HCP experiences with brand consistency from one-to-one face-to-face virtual discussions for their field reps to larger one-to-many brand-led digital summits while capturing all the engagement and data in our platform. After landing this customer in 2020, we've crippled our footprint, and they're now a seven-figure ARR customer. In addition, we had a meaningful expansion with one of the world's largest multibillion-dollar software companies with over 20,000 employees who came to us to help them take all their data-rich live experience content and use it to fuel inbound lead generation by making it available as an always-on resource center within their website. Having already Proven significant ROI by driving millions in pipeline growth from their live experiences, their demand generation center of excellence wanted to double down on their digital engagement strategy with us and consolidate all their experiences onto our platform. Since acquiring this customer five years ago, we've been able to grow our business with them by 10 times into a seven-figure ARR customer. Finally, we widened our footprint at the nation's leading association for certified public accountants. Over the last two years, we've grown our business with them by two and a half times into a seven-figure ARR customer. In Q4, they doubled down on their digital engagement strategy, expanding their use of our platform by adding our new On24Forums experience product. By integrating this new experience into their portfolio, the association will enhance its offerings to include VIP-level professional training with sponsors and members. In closing, I'd like to highlight a few important points for you to take away. In the recent past, our revenue has been impacted by two major events, post-COVID normalization and the current impact of the macroeconomic environment. So we are focused on what's in our control. One, we are continuing to retain and expand our customers with greater than 1,000 employees, which account for nearly 80% of our core platform ARR, and landing new customers that match this profile within our key verticals. Next, we are relentlessly focused on platform innovation. And lastly, we are accelerating profitability, which will in turn help us fuel sustainable and profitable growth. Additionally, we remain bullish on the long-term fundamentals and market opportunity for the business. We are confident in the long-term business trend of digital transformation as B2B sales and marketing moves to digital channels. We are in the early innings of a large market opportunity, and having managed through economic downturns before, we know that with the appropriate investments, this is an opportunity to increase market share. Lastly, while the macroeconomic environment may continue to be bumpy, we're intensely focused on and confident as ever in delivering long-term shareholder value, which is evident in our commitment to the new $100 million capital return program that we expect to execute in 2023. And with that, I will turn it over to Steve to walk through the financials.