ON24, Inc.

Greetings, and welcome to the ON24 First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the 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, Lauren. You may begin.

Thank you. Hello and good afternoon, everyone. Welcome to ON24's first quarter 2023 earnings conference call. On the call with me today are Sharath 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 and guidance for the second quarter in full fiscal year 2023, as well as certain second quarter and full year 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 our revenue, attract new customers, and expand sales to existing customers the success of our new products and capabilities, 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 guarantees of 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 view 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 Shirat. Please go ahead.

thank you and welcome everyone to on 24's first quarter 2023 financial results conference call we appreciate you joining us with me today is steve vatoni chief financial officer before we get into results as a reminder the on 24 platform includes six integrated 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 and analytics that integrate with our customers' business systems so that sales and marketing organizations can take the right actions to deliver cost-effective revenue growth. We define this as the core platform, which supports enterprises predominantly in six verticals, technology, life sciences, professional services, financial services, manufacturing, and B2B information services, with a focus on the following use cases, demand generation, healthcare professional engagement, life certification and training, partner enablement, and member enrollment. As we stated on our last call, we have deemphasized the virtual conference product and are now focused on our core platform. We are pleased to report Q1 results in line with our expectations. Q1 core platform revenue, including services, was $41.2 million, and total revenue, including virtual conference, was $43.1 million, both at the high end of our guidance range. Of total revenue for the quarter, subscription and other platform revenue was $39.4 million, and of professional services revenue was $3.7 million. We posted a non-GAAP operating loss of $4.2 million in Q1. We ended Q1 with $149.2 million in ARR related to our core platform, representing a sequential decrease from Q4 of $3.3 million in line with our expectations. Regarding our paths to profitability. We are on track to achieve our previously stated goal of reaching breakeven non-GAAP EPS by Q2 23. Following our cost reduction programs, our headcount now stands 13% lower as compared to December 2022. While the actions we have taken have been difficult, We believe a streamlined cost structure positions us for profitable growth in 2024 and beyond. We continue to operate in a period of heightened macroeconomic uncertainty, resulting in greater budget scrutiny from customers, particularly in the technology and manufacturing verticals, which, as a reminder, account for close to half of our core platform ARR. Our customer budgets for our solutions stem predominantly from their marketing departments, which are currently seeing the highest impact from the macro, resulting in budget cuts and layoffs. Despite these challenges, which we believe are temporary in nature, I'm pleased with the results and the progress we made the first quarter, and I'm optimistic about the steps we are taking to focus on our profitability. We have reduced our cost structure expect to achieve non-GAAP EPS breakeven by Q2 23, and our next milestone will be to achieve breakeven EBITDA in Q4 of 2023. As we disclosed in March, we have taken additional measures to enhance shareholder value, including an expanded capital return program of $125 million, which Steve will discuss in more detail. We also have strengthened our corporate governance with the addition of three new board members. We are excited to welcome Cynthia Paul, Ron Mitchell, and Teresa Anania to the board and believe they already are providing valuable insights. Cynthia is the founder, chief investment officer, and chief executive officer of Linrock Lake LP. She's a seasoned investor and executive with nearly 30 years of experience investing across the full capital structure of public and private technology companies. Ron is the co-founder and chief executive officer at Humanity Health and joins the board with more than 20 years of experience building, managing, and growing technology-enabled consumer businesses. Theresa is the Senior Vice President of Global Customer Success, Renewals, and Customer Experience at Zendesk. She has a proven track record of increasing customer lifetime value and retention while driving revenue growth. We continue to enhance our corporate governance, and with these appointments, we have expanded our board to nine directors, eight of whom are independent and six of whom were appointed in the last three years. I'm looking forward to working with our new directors and leveraging their collective experience and valuable insights as we navigate ON24 to the next phase of profitable growth. With the added expertise on our expanded board, I'm even more bullish on the market opportunity that lies ahead. Digital sales and marketing is still in its early days, and we are uniquely positioned to help enterprises adapt their go-to-market strategy. The shift of audience engagement to digital channels is especially important for the key use cases we support. One, scaling demand generation programs and improving pipeline conversion. enhancing healthcare professional and patient engagement with omnichannel content and experiences. Three, facilitating continuing professional education and certification for accounting, legal, and other service professions. Four, enabling channel partners. And five, enrolling members and enabling brokers. While we cannot control the macro environment, We are laser focused on controlling what we can control, and we have three main priorities to further strengthen our business. First, delivering on our profitability targets. Second, focus on enterprises with over 1,000 employees where we offer differentiated solutions. Third, relentless platform and product innovation with a focus on generative AI. First, I'll talk about our path to profitability. We are on track to reach breakeven non-GAAP EPS in Q2 of this year. We will not stop there. We will continue to make improvements in our operational efficiency. We expect to achieve breakeven non-GAAP EBITDA by Q4 2023, and we are committed to long-term profitable growth in 2024 and beyond. I am confident that this business will generate double digit growth and double digit EBITDA margins. Second, I'll discuss our focus on enterprises with over a thousand employees, where we offer differentiated solutions. The majority of our business close to 80% is with thousand plus employee companies. In Q1, Our enterprise customers continue to commit to longer deals, and our multi-year ARR from this cohort was at its highest ever. Our enterprise customer tenure is very strong, and our top 25 customers have expanded their core platform aggregate spend with us by over five times in the past five years. We are seeing our multi-product strategy pay off. our ASP for new enterprise customers in Q1 increased year over year to its highest level in the last four quarters. As we move forward, we are increasingly focused on driving mission-critical use cases that enable our customers to grow revenue cost-effectively. I would like to highlight four use cases where our customers utilize our differentiated solutions. First, our solutions support large global demand generation teams in the verticals of technology, manufacturing, and information services where we power the ability to engage prospects and customers across the globe and convert that engagement into new sales opportunities and ultimately revenue. Having a single platform to centralize streamline, and automate processes is critical to our customers' ability to increase pipeline generation, improve conversion rates, and gain significant ROI. Second, in the highly regulated industries of pharma and life sciences, our platform's ability to support compliance standards at a global scale power, multiple experience types with a single platform, and provide data that is integrated into leading life science CRM systems helps our customers educate and engage with healthcare professionals. Third, our platform automates the entire process from start to finish to enable professional services and financial services organizations to run and manage large-scale compliant professional certification and credentialing programs, thereby increasing the reach and cost efficiency of running these programs while supporting compliance. Fourth, our platform supports privacy and compliance standards in the strictly regulated healthcare and commercial insurance categories as these customers look to acquire new corporate clients, drive enrollment of potential members, provide virtual member benefits, and develop new business for their agents and brokers. Returning to our three main priorities to further strengthen our business. We've already touched on our goals to achieve our profitability targets and offer differentiated solutions to our enterprise clients. Now I would like to discuss a third initiative, our relentless focus on platform and product innovation powered by generative AI. As I shared at the beginning of our call, our platform allows customers to engage with millions of their prospects and customers. We take the audience engagement across these experiences, capturing more than 20-plus unique data points per attendee per experience, unify those data points into a single source of first-party data, and convert that data into insights made actionable through our deep, real-time integrations with CRM, marketing automation platforms, and other business systems. Audiences spend almost an hour on average interacting with ON24 experiences, providing unique insights that other marketing channels cannot supply since they have interactions that typically last seconds or minutes. This differentiation has allowed us to develop a rich, unmatched resource of millions of human-generated interactions, And we believe that our foundation of first-party data and insights provides a significant competitive advantage. As we execute on our AI strategy, we are focused on three key areas. First, the automation of derivative content. Second, engagement-driven content creation, recommendations, and nurture capabilities. Third, an AI-based program optimization engine. While I want to be careful not to disclose too much about our future product roadmap, I will highlight two tools that we introduced at the beginning of Q2. For digital marketing and sales teams to be successful today, content creation is critical but is also one of the most resource intensive and time consuming aspects of sales and marketing. Our generated AI capabilities will provide a solution for this problem. And unlike other tools, our content will be tuned for a brand's voice and messaging based on our rich source of human-driven engagement data. At the beginning of Q2, we introduced an embedded content generation tool within our platform called Smart Text that makes it possible for our customers to develop an entire promotional campaign with a simple prompt. We also produced a first-of-its-kind key moments tool a report that heat maps the sections of the experience that garnered the most audience engagement. You can imagine our ability to extend these capabilities in future quarters as we leverage AI to automate the creation of content, to extend campaigns, to drive more engagement with prospects and customers, to capture more first-party data, and to drive better results from programs through an AI-based optimization engine. Our goal is to help our customers to do more with less, which is especially important in the current uncertain macro environment. To learn more about our roadmap of platform innovations and our customers' success stories, we invite you to join us at our annual Global User Conference, the ON24 Experience 2023 which we are hosting virtually on June 13th through June 15th. Before I turn over to Steve, let me quickly highlight a few of Q1's key new business wins and expansion deals. First, our ability to power multiple experience types while providing best practices And 24 by 7 support from our professional services team resulted in a seven-figure multi-year deal with a $10 billion plus, 40,000 plus employee multinational insurance provider based in the UK. Second, an IT services provider with 1,000 plus employees switched to ON24 from their point solution after seeing the ROI we helped others in their industry achieve. They are focused on how our solution can help reduce their customer acquisition costs and improve their profit margins. Third, an existing insurance and financial services customer with approximately 25,000 employees and close to $30 billion in revenue last year expanded its ARR from a pilot engagement to mid-six-figure annual deal. Our ability to architect a holistic enterprise-grade solution that supports accessibility and compliance standards while automating and streamlining internal processes was a key factor to increasing their commitment by 14x. An existing global manufacturer of healthcare products with nearly $20 billion in revenue and 50,000 employees expanded its ARR footprint with us by over 80 times over the past decade as they scale digital engagement across their supply chain from educating healthcare networks to training ultrasound technicians. In summary, Against the challenging macroeconomic backdrop, we delivered results in line with our expectations, continued to execute on our profitability targets, announced $125 million capital return program, and strengthened our corporate governance. While marketing budgets currently are under pressure, that will not last forever. And we believe that our platform enhancements, AI capabilities, enterprise focus, and paths to profitable growth will enhance long-term shareholder value. With that, I will hand it over to Steve.