ON24, Inc.

Greetings and welcome to the ON24 Second 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 and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Lauren Sloan, Investor Relations for ON24. Thank you. You may begin. Thank you.

Hello and good afternoon, everyone. Welcome to ON24's Tech at Quarter 2023 Earnings Conference Call. On the call with me today are Shirat Charan, Co-Founder and CEO of ON24, and Steve Fatuoni, Chief Financial Officer of ON24. Before we begin, I would like to remind everyone that some of the information provided during this call will include forward-looking statements regarding future events in financial performance, including the execution of our capital return program and guidance for the third quarter in fiscal year 2023, as well as certain third 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 statement. 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 substitutes 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'll now turn the call over to Shiraz. Please go ahead.

Thank you and welcome everyone to ON24's Second Quarter 2023 Financial Results Conference Call. We appreciate you joining us. With me today is Steve Battuoni, Chief Financial Officer. Before we get into the results, a quick reminder of who we are and what we do for our customers. Through our platform, industry-leading B2B enterprise companies engage with their prospects and customers through a portfolio of experiences that drive engagement at scale, generate first-party data and insights, support compliance, training, and certification, and leverage the power of generated AI to drive cost-effective revenue growth. We focus predominantly on the following industries and use cases. In the technology manufacturing and information services verticals, global demand generation teams use our platform to drive pipeline In the highly regulated industries of life sciences, we help pharma and medical device organizations engage and educate healthcare providers and patients through digital channels. In healthcare and insurance, we enable our customers to adhere to strict compliance standards while virtually enrolling new members, delivering employee benefits and training agents and brokers. And finally, in the financial and professional services verticals, Our solutions support new business development, client engagement, and broker enablement, while also providing our customers with a digital-first approach to running compliant professional certification and credentialing programs at scale. Turning to Q2 results. Revenue for the second quarter was in line with our expectations and at the high end of guidance. and we are pleased to report that we exceeded our goal to reach breakeven non-GAAP EPS in Q2. We also achieved non-GAAP EBITDA breakeven. We believe that achieving the non-GAAP EPS target, which is a key profitability milestone, is a testament to the actions we have taken to streamline our expense structure. Profitability will remain a key priority to our long-term growth strategy, which I will elaborate on shortly. Revenue from our core platform, including services, in Q2 of 2023 was $40.5 million, and total revenue, including virtual conference, was $42.1 million. Of total revenue for the quarter, subscription and other platform revenue was $38.3 million, and professional services revenue was $3.8 million. We ended Q2 with $140.6 million in ARR related to our core platform, representing a sequential decrease from Q1 of $8.6 million. While we had a forecaster decline in net new ARR, I'd like to spend a few minutes explaining why our core platform ARR for Q2 was weaker than originally expected. As we shared in Q1, our customers' budgets for our solutions stem predominantly from their marketing departments which have continued to endure budget cuts and layoffs as a result of heightened macroeconomics uncertainty. We had expected more budget scrutiny from our customers, which is why we had forecasted a decline in net new ARR in Q2. However, this pressure persisted and increased through the second quarter and was even more pronounced than we had originally expected. Specifically in Q2, We saw pressure on downsells, which we found became even harder to balance with expansions to augment net new ARR growth. Our customers are still looking to cut costs as their budgets remain under pressure and face greater scrutiny from the CFO office. In fact, in Q2, we saw the highest level of downsells come from our enterprise customers, where this high degree of budget scrutiny is continuing to put pressure on large deal activity. We also saw the highest levels of churn come from our smallest customers. In this uncertain market environment, budget constraints are pushing these customers to resort to lower cost tools, even as they admit that those tools don't match our product's capabilities. As we have stated previously, we know how to sell in a tough recessionary environment. However, the most challenging aspect of this recent quarter came from being in limbo with customers who have taken a pause in their spend until they have more certainty on what to expect next. Based on what we are hearing in customer discussions, it seems as if customers are expecting the second half of the year to look similar to the first, and they're simply waiting to reinvest or spend more on demand generation and marketing. We believe this is not a permanent change. the economic direction becomes more certain and our customers focus on growth and as marketing budgets begin to normalize we believe that we will see our customers reinvest and grow with us in the meantime we remain laser focused on controlling what we can control and we continue to focus our execution and innovation against the three strategic priorities which we expect to further strengthen our business first continuing to deliver on our profitability targets. Second, continuing our relentless innovation with generative AI powering the next generation of our platform. Third, continuing to strengthen our enterprise go-to-market strategy where we offer differentiated solutions. First, I'll talk about our focus on profitability. Continuing to deliver on our profitability target is a top priority. and we expect that when the macro stabilizes, we will see additional operating leverage in the business. We are pleased to report positive non-GAAP EPS in the quarter. We achieved this goal by continuing to streamline our organization with our cost reduction initiatives. We plan to continue to make improvements in our operational efficiency and expect to exit 2023 with breakeven non-GAAP events. As I shared in our Q1 earnings call, we are committed to achieving long-term profitable growth, and I remain confident that this business is capable of generating double-digit top-line growth with double-digit EBITDA margins. Moving to our second priority, developing the next generation of our platform through our new generative AI capabilities and innovation roadmap. Let me start by explaining how our platform's first-party data advantage uniquely positions us to develop a differentiated set of generative AI solutions. Each year, our customers run hundreds of thousands of ON24 experiences, engaging millions of professionals for nearly an hour per experience. At the end of Q2, we saw engagement levels increase with the number of interactions per attendee at an all-time high. By capturing each of these individual interactions, more than 20 plus unique data points per attendee per experience, we believe we have been able to develop an unmatched source of human generated first party data, which gives us a strong foundation to power generative AI capabilities. This quarter, we launched a new generative AI powered optimization suite, which provides a number of innovations to our customers including the ability to turn each of their live webinar experiences into AI-generated written content like a transcript, summary, e-book, or blog. Over 200 of our customers are currently in free trial, and based on the momentum and positive feedback we are hearing, we are optimistic that we will be able to turn free trials into expansion sales. Because this solution enables rapid content creation, cost and resource intensive aspect of sales and marketing, we believe this offering could prove to be a high velocity sale as it provides our customers with a fully integrated offer. To give you a sense of what's coming on our roadmap and shaping the next generation of our platform, I'll highlight two more solutions built on our foundation of first party data. The first is personalization. Across our platform, we are enabling our customers to create highly personalized experiences that they can deliver at scale to unique audiences. With more personalized experiences, we expect that attendees will engage with even more content, generating more first-party data and enabling greater personalization, creating a flywheel effect for our customers that helps them increase revenue results with less resources. A second innovation I'll highlight is the ability to automatically turn long form content into short form content like videos based on proprietary set of analytics called Key Moments that provides a heat map of content performance based on audience engagement. This intelligence is foundational to developing future AI generated content and experiences, which we believe will give us additional levers to drive retention and expansion from our install base while enhancing our platform differentiation. Lastly, moving to our third priority, our enterprise go-to-market strategy, where we are focused on mission-critical use cases tied to digital transformation initiatives. As I shared on our Q1 call, the majority of our business, close to 80%, is with 1,000-plus employee companies. While we did see macro pressure on marketing budgets result in more downsells with our enterprise customers, tenure remains strong. And in fact, the percent of ARR and multi-year agreements was in the mid 40s and all time high. We believe that in today's environment, especially as companies look to consolidate solutions and vendors, providing our enterprise customers with a single platform that support a broad spectrum of use cases gives us a differentiated advantage. Let me give more color on each. Beginning with our most predominant use case of demand generation, we help large organizations primarily in the technology and manufacturing sectors, scale engagement and pipeline growth. As we have shared, These verticals are under the greatest amount of macro pressure, especially their demand generation budgets as companies pause on growth agendas. With that backdrop, we are currently finding more success with the highly regulated industries where an enterprise-grade solution like our platform is essential. Let me explain our platform's differentiation in supporting these digital transformation use cases. For pharma and life sciences companies specifically, our platform is critical for helping them digitally innovate healthcare provider and patient engagement, seamlessly capture that data and integrate it with their business systems, all while supporting compliance. In the healthcare and commercial insurance categories, our platform helps customers establish a digital-first, compliant approach to developing new business, facilitating member enrollment and benefits, and enabling and training agents and brokers, all of which used to happen in person and was costly and time-intensive to scale. Finally, our platform enables professional services organizations to digitize and automate professional certification and credentialing programs, thereby increasing the scale, reach, and cost efficiency of running these programs while supporting compliance. Because of the traction we are seeing with customers who have these transformation initiatives underway, we are continuing to make these use cases and verticals a strategic focus of our enterprise go-to-market execution. We believe this will help us to further expand our business and give our go-to-market greater agility and resilience. To further enhance our go-to-market execution, against these digital transformation use cases, we are making two key strategic changes. First, we are simplifying our pricing and packaging and providing solutions by use case, which will provide our customers with more value and ROI from our platform while reducing their costs and streamlining our internal efficiency. Second, we have evolved our customer success model to incorporate a digital first motion for our smaller customers, enabling us to efficiently scale our global support resources while focusing on expanding our most strategic enterprise customers undergoing digital transformation initiatives. Before I turn things over to Steve, I'd like to share a few highlights from new and expansion deals in Q2. Starting with new business, I'll highlight a few wins that further represent the traction we are seeing with digital transformation use cases. We landed a life sciences logo in a win with a worldwide leader in advanced medical devices with over 1,000 employees focused on a unique segment of healthcare provider specialists. We believe that we won this deal because of our platform's ability to help this customer deliver personalized, high-tech experiences that are unique to different providers while also capturing insights on each physician and maintaining privacy and compliance. In the vertical of professional services, a 6,000-plus employee multinational organization came to us to serve as the foundational layer in a digital transformation initiative that has a goal of turning their go-to-market execution, which is primarily happening in offline channels, into a digital-first model. Through our platform, they can attack multiple use cases and gain a comprehensive solution for generating demand and pipeline delivering professional certification programs at scale and training their partner network. Finally, we landed a multinational biotech firm that has a portfolio of products for special diseases. With the presence across different international markets, this company was challenged with maintaining compliance while building out an omnichannel strategy. Through our platform, they are able to enable a standardized scalable approach healthcare provider engagement that can be tailored to unique regional needs turning to expansion wins we expanded our footprint with an existing 10 000 plus employee multinational insurance firm out of the uk who's continuing to execute against its digital transformation initiative through our platform they are using our platform to develop a centralized content resource center for their customers agents and brokers while unifying the insight from each audience. We also continue to grow our business with another win with one of the largest biomedical companies in the country, which is over 50,000 employees. Having already proven our ability to streamline compliance approvals and meet their stringent security standards, we brought a new department of this customer onto our platform to help visually scale their training and enablement programs. Lastly, 11,000-plus employees, multinational software company, doubled down on their investment in the ON24 as a primary platform for the pipeline generation engine. After an initial pilot resulted in 12 times ROI for the company, their go-to-market teams, including demand generation and customer success, decided to make ON24 their standard platform for digital engagement growth. While marketing budgets continue to be under pressure and we are disappointed with the change in net ARR in Q2, we are focused on the things we can control. Our pace of innovation, adjusting our go-to-market, and driving more profitability. In these areas, we are optimistic about the changes we have made and remain confident in our ability to return to long-term profitable growth. We are making strategic changes to increase our win rates with new logos, especially around use cases that resonate in the current environment. We are also shifting resources to drive better growth within our install base. And we are making profound innovative changes to our platform around generated AI. We believe that these actions, coupled with improved renewal cohort dynamic, positions us to see better ARR performance in the second half I remain bullish about the long-term fundamentals and market opportunity for the business. We provide our customers with a single platform to support their demand generation and digital transformation initiatives, and we are uniquely positioned to provide an integrated solution for a set of use cases across our six key verticals. We have a strong competitive mouth, and we are confident that with our focus on our priorities, combined with our long-term commitment to profitable growth, we will deliver long-term shareholder value. With that, I'd like to turn the call over to Steve.

Thank you, Sharath. Good afternoon, everyone. I'm going to start with our second quarter 2023 results, and we'll then discuss our outlook for the third quarter of 2023 and full year 2023. Before I get into the numbers, I wanted to remind everyone that our focus will be on the core platform business, as it was in the prior quarters, as we are de-emphasizing the virtual conference product. We view the metrics from our core platform, such as revenue, ARR, and NRR, as the best KPIs to measure our performance. Revenue from our core platform, including services in Q2 of 2023, was $40.5 million, representing a decrease of 9% year-over-year. Total revenue for the second quarter, which includes revenue from our virtual conference product, was 42.1 million, representing a decrease of 13% year-over-year. Total subscription and other platform revenue was 38.3 million. Overages represented approximately 1% of total revenue in Q2. Total professional services revenue was 3.8 million, a decrease of 28% year-over-year, representing approximately 9% of total revenue compared to 11% in the year-ago period. 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. Any ARR related to our core platform was $140.6 million, a decrease of $8.6 million from Q1 2023. Although we had forecasted a decline in Q2 and were not anticipating any improvement in the demand environment from the prior quarter, we saw some incremental softness from customers during the month of June, which is inconsistent with our historical linearity. This weaker environment resulted in fewer expansion opportunities from existing customers and continued pressure on downsells as our customers froze any additional spend or even looked to reduce their current spend. These factors were the primary drivers of our ARR performance in Q2. We also saw a number of new business opportunities get delayed or scaled back to smaller initial deal sizes until customers have more certainty around their budgets. ARR for our virtual conference product was $4.2 million at the end of Q2 2023, down from $6.3 million at the end of Q1 2023. Total ARR was $144.8 million at the end of Q2 2023, as compared to $155.6 million at the end of Q1 2023. Turning to customer metrics. For a core platform ARR, our average ARR per customer at the end of Q2 2023 was $77,000 per customer, consistent with your end 2022 levels. The ARR contribution from the $100,000 plus customer cohort continues to represent approximately two-thirds of our total ARR which is consistent with the prior quarter and demonstrates the strength of our larger enterprise customers and their continued commitment to our platform. The number of customers contributing more than $100,000 in total ARR totaled 323, down from 333 last quarter. This decline primarily resulted from some customers reducing their spend under the $100,000 threshold due to budgetary pressures. We continue to see customers making longer-term commitments to our platform. Multi-year contracts, which comprise 41% of our ARR at the end of 2022, increased sequentially as a percentage of our ARR in Q2, the highest ever, and currently stands in the mid-40s as a percentage of our total ARR.

Total customer count was 1,826 customers compared to 1,916 in the prior quarter.

The largest contributor to customer churn in Q2 was our smallest customers, the cohort of customers with less than 250 employees, with some of them moving to lower cost solutions with basic capabilities due to budgetary constraints. 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, restructuring charges, impairment charges for real estate, amortization of acquired intangibles, shareholder activism-related costs, as well as certain other items. Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results, can be found within our earnings release. We are pleased to report an improvement in gross margin to 75%, which is an increase of 200 basis points from Q1, which had a gross margin of 73%, and an increase from 74% in Q2 of last year. The sequential increase in our gross margin in Q2 reflects the cost reduction actions we took in the first half of this year. Now turning to operating expenses. Sales and marketing expense in Q2 was $18.3 million compared to $25.2 million in Q2 last year. This represents 43% of total revenue compared to 52% in the same period last year and 47% in the prior quarter. Our sales and marketing expenses have decreased in absolute dollars from the prior quarter and year largely due to the cost savings measures we have implemented. R&D expense in Q2 was $7.6 million compared to $8.9 million in Q2 last year. This represents 18% of total revenue, which is consistent with the same period last year and down from 19% last quarter. Even as we rationalize our spend, we continue to make meaningful investments in product innovation with a focus on reallocating our R&D spending to the most impactful projects, including our investments in generative AI capabilities for our products. G&A expense in Q2 was $6.7 million compared to $8.1 million in Q2 last year. This represents 16% total revenue, down from 17% in the same period last year, and down from 17% last quarter. We have taken actions as part of our broader cost containment measures to reduce our G&A costs, and as a result, our G&A expenses and absolute dollars have decreased as compared to the prior year and prior quarter. As I move on to our bottom line performance, I am pleased to report that we beat our profitability targets that we provided in the prior earnings call. We achieved non-GAAP EPS profitability in Q2, as well as achieving non-GAAP EBITDA breakeven. As Sharad mentioned, we continue to make improvements to our operational efficiency and plan to exit 2023 with breakeven non-GAAP EBITDA in Q4. We achieved our targets by executing our cost reduction program, which I will cover in more detail shortly. Operating loss for Q2 was 0.9 million or a negative 2% operating margin compared to an operating loss of 6.2 million and a negative 13% operating margin for the same period last year. Net income in Q2 was 2.1 million or $0.04 per share based on approximately 50.7 million diluted shares outstanding. This compares to a net loss of $6.4 million or $0.14 per share in Q2 last year using approximately 47.2 million basic and diluted shares outstanding. Turning to the balance sheet and cash flow. We ended the quarter with $240.5 million in cash, cash equivalents, and marketable securities. Our strong balance sheet has allowed us to return a total of $41 million under our prior share purchase program through February 2023, while also initiating an additional $125 million capital return program we announced in March. We plan on completing the $125 billion capital return program no later than Q1 2024. In total, With these two programs, we will be returning $166 million to our shareholders by the end of Q1 2024. As a reminder, the $125 million capital return program consists of two components.

The first component is a special cash dividend of $1.09 per share, which totaled approximately $50 million and was paid out in June.

The second component of the capital return program is a $75 million share buyback program, which may be executed using an accelerated share repurchase program and or open market repurchases. Under this program, we utilize $6 million in Q1 and $23.5 million in Q2 by a share repurchase program using open market repurchases. Thus far in Q3, we have utilized an additional $10.5 million under this program, bringing the total repurchases to date to $40 million under this program. We are pleased to be able to undertake this meaningful capital return to our shareholders, while also maintaining a strong balance sheet with ample liquidity to invest in strategic priorities. Turning to our use of cash in the quarter. Cash used in operations at Q2 was 4.3 million compared to cash used in operations of 2.7 million in Q2 last year. Pre-cash flow was negative 4.9 million in Q2 compared to negative 3.4 million in Q2 last year. As a reminder, our cash flow also includes costs related to our restructuring efforts and other costs incurred related to our shareholder activism expenses this year. Before turning to guidance, I want to provide an update on our plan to return the profitability. As I discussed earlier, we achieved non-GAAP EPS profitability and non-GAAP EBITDA break-even in Q2. We were able to achieve these targets as a result of the cost reduction program we initiated in Q1, which we continued into Q2. Streamlining our operations to improve our bottom line is an ongoing initiative. By Q3, our total expense structure will have been reduced by over $50 million annually compared to Q2 last year. When we enter 2024, we will do so with a lower expense structure, creating operating leverage in our business model, and we expect to see expanding profitability in 2024. The measures we are taking position us well to deliver long-term profitable growth. Moving to guidance. In setting our fiscal year 2023 guidance, we are assuming that the weakness we saw in Q2 continues. As Sherrod discussed earlier, many of our customers are seeing their marketing budgets reduced until there is more certainty about the overall economic outlook. This constrained spending environment has impacted our ability to expand in our existing customers, increased the pressure from downsells at the time of renewal as customers look to reduce spending, and resulted in fewer new business opportunities as purchasing decisions are elongated or delayed until future periods. Despite the uncertainty we're seeing in the market, we're expecting to see an improvement in ARR performance in the second half of the year relative to Q2 as a result of improved cohort dynamics with a greater share of our ARR and multi-year agreements, which alleviates some of the pressure on larger customer downsells. While our guidance assumes a sequential improvement in ARR performance in Q3, we are still assuming that our core ARR declines by 4 to 4.5% sequentially in Q3 as compared to Q2. For our virtual conference product, which we have de-emphasized, we expect ARR to decline by at least half a million dollars sequentially in Q3. This would result in total ARR declining sequentially in Q3 by approximately 4.5 to 5%. For Q4, our guidance does anticipate a further sequential decline in core ARR relative to Q3, but we expect that decline to be smaller as we begin to see improved ARR performance in Q4. We believe marketing budgets and spending will stabilize and rebound over time, and as a result, we are optimistic that we will return to positive ARR growth in the future. For Q3, we expect core platform revenue, including services, in the range of $36.5 million to $37.5 million, and total revenue, which includes our virtual conference product, in the range of $37.5 million to $38.5 million. Professional services is expected to represent approximately 7% of total revenue. We expect gross margins to be in the low to mid-70s in Q3. We expect a non-GAAP operating loss in the range of $2.7 million to $1.7 million and non-GAAP earnings per share to be break-even based on 49.2 million diluted shares outstanding. We expect a restructuring charge of $0.7 million to $1.4 million in Q3 related to our ongoing cost reduction efforts, which is excluded from the non-GAAP amounts provided above. Now, let me turn to our annual guidance. For the full year, we expect core platform revenue, including services, to be in the range of 152 to 155 million, a decline of 15 to 13%. We expect total revenue to be in the range of 157 to 160 million. Professional services is expected to represent approximately 8 to 8.5% of total revenue. We expect a non-GAAP operating loss in the range of $9.5 to $7.5 million and a non-GAAP net loss per share $0.02 to net income per share of $0.02 per share, using 44.8 million basic and diluted shares outstanding and 49.6 million diluted shares outstanding, respectively. Restructuring charges incurred in the first three quarters of this year or future quarters are excluded from the full year non-GAAP amounts provided above. Our annual guidance assumes we achieve non-GAAP EBITDA breakeven in Q4 of this year and positive non-GAAP EPS in Q4 as well, despite the impact the current market uncertainty is having on our customers' marketing budgets and spending decisions, which is resulting in a more conservative top-line outlook for us in the latter part of 2023. Our estimate of shares outstanding takes into account the impact of our capital return program. In terms of margins, we expect gross margins in 2023 to be in the low to mid 70s, consistent with the expectations we laid out previously. In summary, while we are operating in a period of greater uncertainty, which is impacting purchasing decisions and stretching timelines of many of our customers, we are executing on our strategy, driving product innovation around generative AI, and delivering on our profitability targets. We have achieved profitability and driven improvement in our gross margins in order to generate leverage on our business model, which we believe will position us well to return to growth when marketing budgets stabilize and the uncertainty in the market subsides. With that, Trot and I will open the call up for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Arjun Bhatia with William Blair. Please proceed.

Hi, guys. It's Faith on for Arjun. I just wanted to touch on the profitability piece for a second. So you heard EPS break even. You were talking about a break even. Can you just talk about kind of the roadmap ahead of what additional levers are at your disposal? disposal to continue driving margin expansion and continue focusing on that profitability long term?

Faith, first in terms of what we've done this far compared to mid Q2 of 2022, which was the high watermark for our headcount, we've reduced headcount by 30%. And our total annual cost structure will be over $50 million less in Q3 than it was in Q2 of 2022, a little over a year earlier. So that's allowed us to achieve positive EPS in Q2 and positive EBITDA in Q2 as well. Now, in the second half, we expect to exit Q4 with breakeven EBITDA and positive EPS, despite a more conservative top line outlook. Now, as we enter 2024, we're going to do that with a streamlined organization and a lower cost structure, which will deliver significant operating leverage to our business as the macro starts to ease. We aim to deliver improved bottom line performance in 2024 and beyond with our target of delivering double digit non-GAAP EBITDA margins in the future.

Okay, awesome. Thank you. Thank you.

Our next question is from Noel Herman with JP Morgan. Please proceed.

Hey, guys. Thanks for taking the question. Can you just unpack a little bit in your prelude? You mentioned how you're simplifying some of the pricing and packaging, I think, to support new services based on a use case basis, and that'll help streamline some of the go-to-market, perhaps. Can you just unpack that a little bit for us?

No, thanks for the question.

What we are doing is, as As we've unpacked our customer use cases, first of all, we found these regulated industries compliant mission critical use cases related to, we talked about healthcare professional engagement and life sciences. We talked about member enrollment and insurance and certification and professional services and financial services. So as we unpacked them, and if you aggregate all that, The ARR in these use cases is about a fifth of our ARR, more than a fifth of our ARR. So as we look at this, the requirement for healthcare professional engagement for pharmaceutical people require different products. And so we are packaging the products for that particular use case. We are also basically looking at do we have a starter bundle and a mid-level bundle and others, especially as now we are we are developing more capabilities related to generative AI. So we are taking our multiple products, bundling them into starter and mid-level bundles for these things. Similarly, the requirements for people on the insurance side when they're focused on member enrollment is different. So we are packaging the right kind of offerings. We are focused on going to these kind of use cases with the right kind of case studies and best practices and ROI, and then having the supporting products in that. Now, we are doing this recognizing the fact that these use cases are showing the best retention and growth profile in the current market environment. And when the marketing budgets normalize and improve, in addition to growth from here, we'll also be able to basically get growth from the demand generation use case, which is still the largest portion of our business.

Great. Thank you.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star and 1. Our next call is from Scott Berg with Neham and Company. Please proceed.

Hi, everyone. This is Michael Rackers. I'm for Scott today. Thanks for taking my question. I was just wondering what you think about normalized growth and what this might look like, you know, maybe longer term or in a better macro. What would you expect the mix of new logos versus existing customer expansion to be? And then maybe just talk about kind of your current thoughts on that path. Thanks.

So, Michael, let me talk about what do we expect growth here to be. double-digit revenue growth and double-digit EBITDA growth. Look, at this stage, we are going through a patch where our core verticals are being impacted.

And marketing departments that mainly pay for our solutions are getting reduced. So this is impacting our business in the near term, but will bounce back. And just to provide a perspective, we are not the only one getting impacted. If you look at all the companies selling marketing and sales software into B2B, we have seen double-digit reduction in growth rates starting from last year. Now, from my perspective, we are about five quarters into this macro cycle. If you look at the layoffs, they seem to have stabilized. So I believe we may be closer to the end than the beginning. Now, how long it takes, I don't know. But I know with more certainty in the market environment, companies will start investing in revenue growth, and that is where our product shines. Now, what gives me confidence that we'll get there? Because we are currently focused on things we can control, our go-to-market, product, and profitability. On go-to-market, we talked about our use cases, which we are focused on. And as the macro gets better, we'll see a rebound in the demand generation use cases, which will further accelerate our trajectory. Our enterprise customer base of customers, over 1,000 employees, is very strong. Yes, we have seen some downsells, but our ARR per customer is still close to the highest ever. And our customers continue to make multi-year commitments to us with percentage of AR and multi-year deals is in the mid 40s, the highest ever. And on product, we are doing some very interesting things with our strengths and first party data. We expect generative AI to fuel an entire suite of offerings and the next generation of our platform. We will be winners here because we have our customers have a lot of their first party data on our platform. And finally, we've achieved our profitability target. So again, coming back to it, focus is to deliver double-digit revenue growth and double-digit EBITDA growth. Now, in terms of the other question about new logos and customer expansion, I mean, historically, this is customer expansion upsells have been close to 60%, two-thirds of our business, and new logos have been the other.

And we expect to get that, too, as we normalize going forward.

Now, just to add on to what Sherrod was saying, when we do return to growth, we'd expect to first see sequential ARR growth first when that happens, and then revenue growth would follow as revenue growth is more of a lagging indicator as well.

Awesome. Thanks.

Thank you. As there are no further questions at this time, I am turning the call back to Mr. Sharad Sharan, CEO, for closing comments.

Ladies and gentlemen, thank you. Thank you for your time. We appreciate your feedback. Thank you.

This concludes today's teleconference. Thank you for your participation. you may now disconnect your lines.