ON24 INC. Q4 FY2023 earnings call

• Launched the ON24 Intelligent Engagement Platform including AI-powered ACE, which combines digital experiences with AI-driven personalization and content. - Focused on enterprise go-to-market strategy in highly regulated industries, seeing traction with enterprise customers in these sectors. - Implemented cost reduction strategies to achieve profitability targets, with gross margin improvement and positive non-GAAP EPS and adjusted EBITDA in Q4. - Saw improvements in customer retention, with churn and downsell trends better in Q4, and new business acquisition at a six-quarter high. - Highlighted new logo and expansion deals in Q4, including a large wireless carrier and a multinational law firm.

In Q4 2023, revenue from the Core Platform including services was $38.3 million, and total revenue including Virtual Conference was $39.3 million. Subscription and other platform revenue was $35.8 million, and professional services revenue was $3.6 million. Ending ARR related to the Core Platform was $136.2 million, representing approximately flat sequentially. Multiyear contracts increased to 49% of ARR at the end of 2023, the highest ever, and the percentage of customers using two or more products ended the year at 37%, up slightly from 2022.

• Q1 2024 Core Platform revenue (including services) expected to be in the range of $35.6 million to $36.6 million, total revenue (including Virtual Conference) in the range of $36.5 million to $37.5 million. Gross margins expected to be in the mid 70s. Non-GAAP operating loss expected in the range of $2.7 million to $1.7 million. - 2024 full-year Core Platform revenue (including services) expected to be in the range of $139.5 million to $143.5 million, total revenue in the range of $143 million to $147 million. Non-GAAP operating loss expected in the range of $5.5 million to $3.5 million, and non-GAAP net income per share expected to be $0.02 per share to $0.05 per share. Expected to return to sequential ARR growth in the second-half of 2024 assuming no macro deterioration.

• Adverse economic conditions and macroeconomic deterioration, including increased inflation, could affect the ability to grow revenue, attract new customers, and expand sales to existing customers. - Uncertainty regarding the success of new products and capabilities like the AI-powered ACE solution.

Q: Arjun Bhatia asked about whether the new capabilities of ACE allow customers to be more open from a data perspective and adoption uplift for existing customers.

A: Sharat Sharan responded that on new business, there are preconfigured subscription packages including AI-powered ACE, and on expansion, offering an upgrade; from a data perspective, ACE helps customers build on first-party data to hyper-personalize, get more data points, and integrate with existing CRM and marketing automation.

Q: Patrick Schulz inquired about where the spend for ACE is coming from and margin drivers.

A: Sharat Sharan said some spend is from existing budgets as it allows doing more with less, and some from AI investments; Steven Vattuone mentioned gross margins expected to be in the mid 70s, with target model at 78%-80%, and investments in AI-powered ACE and regulated use cases while being disciplined on costs.

Q: Noah Herman asked about linearity in Q4 and guidance conservatism.

A: Sharat Sharan said December was very strong for business closure in Q4, and guidance is prudent due to choppy marketing budget environment and new product launch timing.

Q: Unidentified Analyst asked about 100k plus ARR customer growth and sales focus on regulated industries.

A: Sharat Sharan said saw worst of downsells past, but need better macro sense for 100k plus growth; regulated industries are part of focus with sales productivity improving in second-half 2023.

Q: Thomas Blakey asked about prudence in guidance and unique use cases of ACE.

A: Sharat Sharan said prudence due to choppy marketing budget and new product launch timing; unique use cases of ACE include hyper-personalization in webinars and creating bite-sized video highlights beyond events.