ON24, Inc. (ONTF) Earnings

Management highlights

Sharat mentioned that ON24 delivered a strong Q3 with revenue and profitability above guidance, strong gross margins, and free cash flow. Commercial highlights include a major partnership with LinkedIn to transform digital events, strong performance from AI offerings with nearly 20% of customers paying for AI, and win backs from boomerang customers, especially in regulated industries. Product innovation around AI includes new offerings like AI Translate and AI Propel Plus, as well as focus on AI agents, genetic AI video clip optimization, and AI and LLM search discoverability. Internally, ON24 is leveraging AI to increase efficiency in operations, targeting a double-digit improvement in sales and marketing expenses as a percentage of revenue over the next two years.

Guidance

For Q4, total revenue is expected to be in the range of $33.9 million to $34.5 million, core platform revenue in the range of $33.3 million to $33.9 million, gross margin 76% to 77%, non-GAAP operating loss in the range of $800,000 to $200,000, and non-GAAP net income per share $0.01 to $0.02. For the full year 2025, total revenue is expected to be in the range of $138.6 million to $139.2 million, core platform revenue in the range of $136 million to $136.6 million, non-GAAP operating loss in the range of $4.2 million to $3.6 million, non-GAAP net income per share $0.05 to $0.06, gross margins 76% to 77%, expect adjusted EBITDA positive in Q4 and 2025, and positive free cash flow in 2025.

Segment performance

Total revenue for the third quarter was $34.6 million, with total subscription and other platform revenue at $32 million and professional services revenue at $2 million, representing approximately 8% of total revenue. Core platform revenue including services was $34 million. Total ARR at the end of Q3 was $124.5 million, with core platform ARR at $122.4 million. The average core ARR per customer reached over $80,000, the percentage of ARR in multiyear agreements hit an all-time high of 51%, and the percentage of customers using two or more products hit an all-time high. Nearly one in five customers are paying for AI solutions.

Risks & headwinds

Forward-looking statements are subject to known and unknown risks including the ability to grow revenue, attract new customers, expand sales to existing customers, success of new products, achieving business strategies, and the impact of adverse economic conditions and macroeconomic deterioration.

Analyst Q&A

• Q: Great. Thanks, operator. Good afternoon. The first question for me is around Sharat, I think you called out nearly 20% of customers paying for your AI solutions. That is a really impressive number. Was hoping to get a sense from you guys of what sort of potential uptick you are seeing from that, recognizing it's still early, but that's a pretty sizable chunk. And so I just wanted to get a sense of how that's impacting contracts, whether that's contributing to that continuously improving ACV number at enterprise. Any color there would be helpful. I just had a quick follow-up for Steve as well.

  A: Yeah. Rob, as you said, we now have one in five customers that are paying for AI solutions. And this number as a percentage of revenues continues to increase every quarter. We expect it to continue to increase in Q4 and in future quarters. And this also provides a significant white space as we move forward. And now we have recently announced our AI Translate and AI Propel Plus offerings. AI Translate allows the customers to take a webinar and convert that into 30 different languages and campaigns. And AI Propel Plus is a brand new modern intuitive AI-powered solution that can easily turn every webinar or digital event into an omnichannel, multi-touch campaign or engagement. So these two offerings, in addition to AI, will continue to provide increased momentum and grow penetration with our AI offerings. You asked a question about, you know, already our AI solutions are, if you look at our expansion agenda, after our content marketing solutions, they are number two in terms of where they fall in. And my open expectation is sometime next year, they will cross to become the largest driver of expansion for ON24. We expect our ASP on that number to increase with the additional products. We also expect the penetration on the number of customers to increase. Now the other thing is this is also helping我们 from a retention point of view. It is helping我们 from an expansion point of view. And also, close to 40 to 50% of our new deals are including AI too. So that is an important thing as we move forward. Now as we move yeah. I've talked about AI Propel Plus. I talked about AI Translate. As we move forward, we continue to focus on our agentic AI and AI search discoverability agenda also. And so all this that we are doing, Rob, is building on our strengths and first-party data. We have over a billion engagement minutes annually in our platform. We have hundreds of thousands of webinar experiences on our platform. And in the age of AI, both content and first-party data will win. The last thing I want to also mention, which I we will also mention on the call, that we are not only doing this for our customers, but we are also leveraging agents and others internally in the business, and that's what gives us confidence in some of the stuff that we talked about on sales and marketing. Hope that helps.

• Q: Yeah. That does help. And that actually was gonna be part of my second question for Steve was around, you know, clearly, it sounds, Steve, like you guys are, you know, some of that really nice improvement on the sales and marketing and efficiency is coming from AI. Wondered if you could give us a little bit more color around how much is that tech innovation, how much of it is that low-hanging fruit internally, how much of it is potentially headcount? And then you guys have made some nice progress not just stabilizing the business, but also growing at the higher ARR accounts at the enterprise level. So I guess two-part question. One, some more color around the component of those that go-to-market efficiency. And secondly, how do you do that in a way where you make sure you do not disrupt kind of the improvements that you guys have been showing at the upper end of the client range? Thanks very much.

  A: Sure. Let me go ahead and answer both of those questions for you. So first off, we have streamlined our go-to-market over the past few years, and we've reduced our sales and marketing quarterly spending from about $25 million in mid-2022 to less than $15 million a quarter in Q3. That's a reduction of about $10 million per quarter or $40 million annually. Now in terms of how we'll lower the expense going forward, we have been deploying AI within our organization to increase efficiency, and we'll continue to do that. That includes using our own products to be more efficient. We're also looking at reallocating resources within our go-to-market organization to focus on the areas with the highest growth potential, which are currently in the regulated industries, particularly in financial services and professional services. Life sciences, while currently under some macro pressure, is also an area where we have historically been strong, and we will continue to invest there. And lastly, we'll continue to look at ways to be more efficient and do more with less, which has allowed us to lower our sales and marketing spending over the past number of years, and we'll continue to do that. We can do all this while maintaining the right number of go-to-market resources. And that'll allow us to return to ARR growth in 2026.

• Q: Hi. This is actually Scott Berg. I guess lots of questions here. Sharat, I wanted to start with the deal slippage you mentioned from Q3 to Q4. Sounds like you closed a number of those transactions already in the quarter, which is obviously good. But wanted to see was there any commonalities with some of these deals that slipped out of Q3 and into Q4? Or was it more, I guess, random in nature?

  A: I think, Scott, where we saw a little challenge in Q3, if you look at the pipeline, this is especially on the new business side. We saw a little less urgency in closing a deal from proposal plus to closure. I think, you know, Q3 tends to be a seasonally summer quarter, seasonally softer. We saw deals move from discovery to proposal plus. With proposal plus, closure. We saw them, you know, we saw $6.7 million worth of deals that slipped into Q4. And like I said, about 60-65% of those deals have already closed in Q4, which gives us a good sense. And so that's what we saw predominantly on the new business side. Our installed base business was fine. We did expect it to be a seasonally soft quarter, so that's what happened. We also did see some pressure in the pharma business. Now that has been a great business for us. In the last six to nine months, we've seen some short-term pressure in the pharma business. That being said, as we talked about it, our average core ARR per customer reached its highest level ever at over $80,000 per customer. The percent of ARR in multiyear agreements hit an all-time high. And the percentage of customers using two or more products also hit an all-time high. So now as I look at let me just also give you a color on Q4 ARR. And Steve talked about it. Q4, you know, it's hard to kind of provide guidance on ARR in itself. And Q4 is even harder because it's such a back-end loaded quarter. We've given a wider range of 0.5% to minus 1%, but we believe we are within striking distance of getting to positive ARR. We expect this to be one of the best gross retention quarters in Q4 in the last four to five years. We expect continued momentum from our AI offerings both from new and expansion business. And we also expect that the LinkedIn partnership will also start helping我们 drive improved new business and customer retention. And we will continue to see momentum in win backs and continuing traction in regulated industries. So yes, we have some work to do, but we've made some significant progress and enhancements in our business.

• Q: Thank you for taking my question here. Just a quick one to start off. Since changing, updating the go-to-market motion into more of an enterprise focus, how has the new go-to-market motion performed compared to your expectations so far?

  A: Yeah. So, Linda, when we talk about the go-to-market motion, there are multiple parts to that. Again, it's more enterprise-focused. It's also we deliberately made a thing about being focused more on regulatory industries like financial services, life sciences, and professional services. I'll just provide you some information. Our regulated industries business is about 50% of our business now. Four, five years back, that was about 33-34% of our business. Now I know we are having some short-term headwinds in the life sciences business. But if you look at our financial services business, which is about 20%, and if you add our professional services business, which also has national and state regulations, so it's part of the regulated industries. Those two businesses with the 35% are growing mid-single digits year over year. They're also very high gross retention businesses close to 90%. So essentially,我think that execution and really tightening up our focus on financial services and life sciences and health. Also tightening up our focus on the go-to-market as we are focused on our strategic accounts and the next tier accounts, both from a customer success, marketing, and sales point of view, has helped us significantly. And we expect to continue to basically do that. As we move forward, you will see us continue to emphasize our AI-based offerings. You will see us continue to focus a lot more on the regulated industries. And this is also being seen in cases of the win backs. We are seeing whether it's in the regulated industries or otherwise, I'll give you an example of a customer win back. A leading provider of retirement and investment management solutions left us to go to one of the collaboration tools, and they came back to us because when they went there, they do a lot of recurring sessions, and they could not do those through a legacy provider. The team faced challenges with manual workflows and limited personalization. With ON24, they can now automate post-event engagement, integrate insights into their CRM, and deliver personalized participant experiences at scale. So as we move forward, and I think we've talked about the sales and marketing efficiency, you will see us double down even more in that category.

• Q: Well, and another question here, with the new CMO joining early in the year here, how has the transition been in terms of the onboarding of the new CMO, David Lee? And also, what are the strategies here in terms of as you guys are focusing more on the AI products and features and capabilities to your customers, in your conversations with sales teams, if you could give more color on that?

  A: Yeah. I think David has joined, and it's been some time since he joined now. In our business, that's kind of a lifetime. So he's very well ramped up. And when we look at our team's go-to-market teams, Linda, David has a head of demand generation. Now we also got to change that position. And there's a really good VP of demand generation that he brought on. Also brought on a VP of corporate marketing that's really driving a lot of our agenda on LinkedIn and other stuff. And he's got other people like VP of product marketing. Now the corporate marketing and demand generation leaders are very closely tied with the sales teams and the customer success team. So that's become a very important part of our agenda. So the focus on LinkedIn, the focus on they're doing campaigns for financial services and regulated industries. So they're doing full campaigns on the expansion team. And for AI-based offerings. So, again,我think the go-to-market team is working very, very closely. David and his team are quite ramped up. And that gives us confidence that we can, as we move forward, be more efficient in the sales and marketing spend and also continue to deliver our growth numbers.