ON24, Inc.

Good day, ladies and gentlemen, and welcome to the On24 First Quarter 2024 Investor Call. Our host for today's call is Shio Denloy, Investor Relations. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host. Mr. Denloy, you may begin.

Thank you. Hello and good afternoon, everyone. Welcome to ON24's first quarter 2024 earnings conference call. On the call with me today are Sharaf Sharan, co-founder and CEO of ON24, and Steve Battaglione, 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 in financial performance, including guidance for the second quarter and full fiscal year 2024, 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 Onc24'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. On 24 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'll 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 press release. I will now turn the call over to Sherrod. Sherrod?

Thank you and welcome everyone to ON24's first quarter 2024 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 our platform and recent innovation. Our platform intelligently combines best-in-class digital experiences with AI-powered personalization and content to enable industry-leading B2B enterprise companies to drive engagement at scale, act on connected insights, and deliver cost-effective revenue growth while also supporting compliance for highly regulated industries. These capabilities make our platform an ideal fit for use cases such as demand generation and technology and manufacturing, healthcare professional and patient engagement in life sciences, continuing education in the professional services industry, and member enrollment and broker and agent enablement in commercial and health insurance. In January, we launched our next-generation intelligent engagement platform, which brought significant innovations, including our new AI-powered analytics and content engine called AI-powered ACE, which further drives revenue generation and more effective and efficient customer engagement. We'll share an update on our platform evolution, enterprise focus, and profitability milestones later in the call. Turning to Q1 results, I'm pleased to report that our momentum from the end of 2023 continued into Q1 with solid Q1 performance on the top line and another quarter of execution on our profitability target where we achieved positive adjusted EBITDA in Q1 for the fourth quarter in a row and also achieved positive non-GAAP EPS for the fourth quarter in a row. Revenue from our core platform, including services in Q1 of 2024, was $36.8 million, and total revenue, including virtual conference, was $37.7 million. Of total revenue for the core, subscription and other platform revenue was $34.8 million, and professional services revenue was $2.9 million. Now, turning to ARR. We ended Q1 with $133.3 million in ARR related to our core platform, representing a sequential decrease from Q4 of $2.9 million in line with the expectations we provided on our last earnings call. We continue to see meaningful signs of improvement in our install base. Actions we have taken. to improve our gross retention are having a positive impact with gross retention posting amidst single-digit improvement both year over year and compared to the average gross retention in 2023. We also continue to see meaningful reductions in down sales as a percentage of the renewal base, another sign of the growing stability within our install base. We are excited about our AI-powered ACE solution. Although we are still in the early stages of ARR contribution, the initial signs are positive. Our AI-powered ACE ARR booked in Q1 as a percentage of growth ARR during the quarter reached the double-digit mark, and we believe AI-powered ACE will be a tailwind to our ARR growth in the future. Despite the positive trends we saw in Q1, it is important to note that we are still operating in an uncertain environment where marketing budget constraints continue to affect new logo acquisitions and as prospects remain in a longer holding pattern. Because of this, coupled with some larger customer renewals coming due in the quarter, we decided to be incrementally prudent with our expectations for ARR growth in Q2. At the same time, We continue to believe that as marketing budgets begin to normalize, we will see customers reinvest in revenue-generating initiatives such as our platform. Further, we reiterate our expectation that assuming no deterioration in the macro environment, we will return to sequential ARR growth in the second half of 2024, driven by improving stability in our install base, our new products, and our enhanced go-to-market focus. Overall, I'm excited by the progress we have made, and I'd like to provide an update on our three strategic growth priorities. First, the rollout of our next generation intelligent engagement platform, which includes our new AI-powered ACE offering. Second, continuing to strengthen our enterprise go-to-market strategy especially with mission critical digital transformation use cases across regulated industries. Third, focus on returning to growth while continuing to deliver on our profitability targets. Starting with our next generation platform. As mentioned at the beginning of our call, in January we announced the general availability of the ON24 Intelligent Engagement Platform which includes AI-powered ACE. Now our platform enables enterprises to do more with less with a differentiated AI-driven solution in three key ways. One, personalization at scale. We have developed what we believe to be the industry's first and only capability for delivering unique messages to different audience segments within the same digital experience, whether a live webinar experience or an on-demand content experience. This means that our customers can turn standard experiences into personalized experiences that are highly targeted for the prospect, customer, or partner segments most important to their business without losing their ability to scale reach across the globe. Because personalization is such a business critical issue for enterprise go-to-market teams, we are seeing traction from our install base. Since we made these features available, over 20% of our customers have turned on the capability and hundreds of segments built which facilitates personalization. Two, derivative content. One of the most time-consuming and costly aspects of sales and marketing today is creating the different types of content and videos that are needed to execute a high-performing digital campaign. Our platform's generative AI makes it possible for our customers to turn their long-form event presentations into new promotional copy, e-books, snackable videos, and others. With a simple click of a button, our customers can generate at least five times as many assets than they started with. Over the past three months, our customers have used our platform to produce thousands of new videos and written pieces of content, saving them resources and fueling their pipeline results. Three, continuous engagement and nurtures. Today, it takes a significant number of marketing and sales interactions for enterprises to acquire and expand their customers. At the same time, there is increasing pressure for go-to-market teams to get revenue results faster, forcing teams to try to condense and expedite interactions. We believe our platform's nurture capabilities unlocks a new way to expedite interactions, personalized to the individual, extending the life of an event and its content beyond its live day, and helping our customers close this gap by nurturing people through the delivery of continuous personalized content. In Q1, we saw some of our early adopters get as much as 5% increase in engagement by using our automated nurtures to drive continuous engagement beyond their live event. Based on the success of our early adopters, we are optimistic about the traction of the intelligent engagement platform and AI PowerDays. Since the beginning of the year, over 15% of our customers have used or tested our AI capabilities. As stated earlier, our AI-powered ACE ARR book in Q1 has a percentage of growth ARR during the quarter reached the double-digit mark, and we continue to see a healthy pipeline of demand. To give some color, here are a few AI-powered ACE wins from Q1. The first AI-powered ACE win I'll highlight is with a large enterprise software company with over 1,000 employees. After already seeing strong results using our platform in North America, this organization wanted to standardize their go-to-market execution across the globe and consolidate their tech stack on our platform, removing point solutions. By adding AI-powered ACE, their US-based corporate team will be able to develop global campaigns that their field marketing teams in APAC and EMEA can then localize and personalize for their specific market needs. This gives the resource-strapped teams greater efficiency while giving them a more consistent and streamlined way to go to market. The next AI-powered ACE win came from a multi-billion-dollar cloud software company with over 5,000 employees. Having faced a reduction in resources, their team was looking for a way to efficiently nurture their prospects, increase conversion to pipeline, and accelerate deals. Using AI PowerDays, their marketing team is able to automatically produce streams of short-form video content from their long form webinars and deliver them across channels and tailor them for specific audiences. They believe this will help them increase engagement and better educate leads throughout the sales cycle, improving their pipeline efficiency and results. As we continue to develop and mature our next generation offering, we are laser focused on helping our customers take actions with the first party data our platform generates. We believe our foundation of first-party data that's been gathered across millions of experiences and hundreds of millions of B2B interactions gives us a competitive edge and uniquely positions ON24 to lead the market in AI innovation for marketing and sales engagement. Moving to our next priority, our enterprise go-to-market focus. Our Q1 enterprise business performance was strong across our key metrics. The average core ARR per customer reached a record high, demonstrating our enterprise customer focus. Additionally, the percentage of ARR in multi-year agreements and the percentage of customers using two or more products again landed at record levels. In addition to the strong enterprise customer metrics in Q1, our go-to-market execution remains focused on our enterprise customers with increased emphasis on industries that are still in the early stages of digital transformation, primarily life sciences and financial services, including asset management and insurance. In fact, we've been able to diversify our business over the last few years with these above-mentioned verticals having grown from 20% to almost a third of our total core ARR in just over four years. Overall, close to a quarter of our business now comes from mission-critical digital transformation use cases. For example, we work with large pharma companies to develop a digital strategy for engaging healthcare professionals that supports compliance, enabling their company's brands to scale their commercial and medical education across the globe. Similarly, professional services organizations use our platform to take their continuing professional education programs digital, automating the process to save their teams significant time and resources while generating more leads and pipeline. And in the financial services vertical, asset management and commercial insurance firms enable advisors, agents and brokers through our platform, as well as directly engage new investors and members, helping to scale their reach and drive business growth. We believe that this diversification gives our business greater resiliency and positions us for growth. To give you more color on our enterprise focus, let me highlight a few new business wins in Q1. First, we landed one of the world's largest hedge fund administrators, a company that manages trillions of assets and has over 10,000 employees. As they matured their digital sales and marketing strategy, this organization needed a purpose-built platform that could help them scale professional certification and generate leads for their business development team. Given their investor and institutional focus, our first-party data was important to providing insights that they could use to deliver a high-touch, personalized customer experience at scale. Next, we want to deal with one of the largest private hospital providers in the United Kingdom, with over a billion dollars in revenue and more than 8,000 employees. As a hospital network, The company operates a decentralized go-to marketing strategy that requires direct patient outreach in local cities across the country. It came to us seeking a more cost-effective and data-driven way to engage patients while supporting compliance. Now, our platform will centralize patient education across each of their hospitals streamlining and enriching their insights for more efficient execution and a better patient experience. And finally, an update on profitability. In Q1, we continued our momentum from last year and achieved our profitability targets, delivering positive adjusted EBITDA and positive non-GAAP EPS for the fourth quarter in a row. We expect to be EBITDA breakeven in Q2 and remain committed to achieving our target of EBITDA breakeven for 2024. To conclude, the first quarter was a solid start to a pivotal year for ON24. We beat our top line and profitability targets and are encouraged by the continued signs of stability we see in our install base. with a mid-single-digit improvement of retention when compared to both Q1 2023 and 2023 as a whole. We are seeing early signs of traction with our newly launched AI Power Days and are building a healthy pipeline. And we are focusing our go-to-market execution successfully on customers with mission-critical digital transformation initiatives. Additionally, we have a streamlined organization that is meeting our profitability targets, and we are driving an improvement in our gross margin profile while maintaining a healthy cash flow. In the longer term, we are attacking a massive market opportunity by enabling B2B companies to leverage ON24's digital engagement platform to more efficiently grow revenue, and engage and understand their customers and prospects. These factors give me confidence that the state is set for ON24 to continue executing on our strategic growth priorities and reach our long-term targets of double-digit revenue growth and double-digit EBITDA margins. With that, I'd like to turn the call over to Steve.