ON24 INC. Q1 FY2024 earnings call

• Platform Innovation: In January, launched next-generation intelligent engagement platform including AI-powered ACE, which offers personalization at scale, derivative content, and continuous engagement and nurtures. • Q1 Financial Performance: Achieved solid top-line performance and positive adjusted EBITDA and non-GAAP EPS for the fourth consecutive quarter. • ARR Situation: Ended Q1 with $133.3 million in Core Platform ARR, saw mid-single digit improvement in gross retention, and AI-powered ACE ARR booked in Q1 reached double-digit percentage of growth ARR. • Enterprise Go-to-Market Strategy: Strong enterprise business performance with average core ARR per customer at record high, high percentage of ARR in multi-year agreements and customers using 2 or more products; focused on industries like life sciences and financial services. • Profitability: Continued momentum with positive adjusted EBITDA and non-GAAP EPS for Q1, expecting EBITDA break-even in Q2 and for 2024.

In Q1 2024, revenue from the Core Platform including services was $36.8 million. Total revenue including Virtual Conference was $37.7 million. Subscription and other platform revenue was $34.8 million, representing approximately 92.3% of total revenue, and professional services revenue was $2.9 million, representing approximately 7.7% of total revenue. ARR related to the Core Platform ended Q1 at $133.3 million, a sequential decrease of $2.9 million from Q4. Gross retention improved mid-single digits year-over-year and compared to 2023 average, and downsells as a percentage of the renewal base decreased.

• Q2 Guidance: Core Platform revenue expected $35-$36 million, total revenue $35.8-$36.8 million; gross margins expected mid-70s; non-GAAP operating loss $1.7 million to $0.7 million, non-GAAP net income per share $0 to $0.02; Core Platform ARR expected to decline 2%-3% sequentially in Q2; ARR from virtual conference product expected ~$2.5 million at end of Q2. • Full-Year Guidance: Core Platform revenue expected $139.8-$143.8 million, total revenue $143-$147 million; non-GAAP operating loss $5.5 million to $3.5 million, non-GAAP net income per share $0.03 to $0.07; gross margins consistent with 2023 (75%); expected EBITDA break-even for 2024.

• Marketing budget constraints affecting new logo acquisitions and prospects remaining in longer holding patterns. • Impact of adverse economic conditions and macroeconomic deterioration, including increased inflation.

Q: Scott Berg asked about confidence in returning to ARR growth in the second half and differences from prior expectations.

A: Sharat Sharan said they are seeing improved stability in install base, gross retention improved, AI-powered ACE ARR booked in Q1 reached double-digit percentage of new growth ARR, and expect continued progress in retention, mission-critical use cases, and AI-powered ACE for second half growth.

Q: Robert Oliver asked about uplift from early adopters of AI-powered ACE and its role in pipeline.

A: Sharat Sharan said AI-powered ACE includes 3 modules, bookings reached double-digit percentage of growth ARR, over 15% of customers have used or tested AI capabilities, and it will provide tailwinds into 2025.

Q: Ryan asked about appetite for AI and ACE platform in regulated industries.

A: Sharat Sharan said larger enterprises in technology are early adopters, some modules easier to understand and adopt, like derivative content, but regulated industries have compliance hoops which may delay sales cycle.

Q: Noah Herman asked about small customers and levers to improve profitability.

A: Sharat Sharan said logo count decrease is primarily driven by smallest customers feeling market pinch; Steve Vattuone said they aim to balance profitability with growth, continue to look at cost structure, and will adjust as needed while focusing on returning to growth.