ON24 INC. Q2 FY2024 earnings call

• Q2 saw revenue and non-GAAP EBIT above guidance, with positive adjusted EBITDA, non-GAAP EPS for the fifth consecutive quarter, and positive free cash flow for the second quarter in a row.
• Focus on returning to ARR growth, with improved in-period gross retention, where downsells were close to the best in the last three years. Large customer renewals in Q2 had half resulting in growth.
• AI-powered ACE ARR grew to the high teens as a percentage of growth ARR in Q2, nearly doubling from the previous quarter, aiding new business acquisition, customer expansion, and retention.
• Enterprise go-to-market strategy focused on regulated industries like life sciences and financial services, with sequential and year-over-year core ARR growth in these verticals. For example, a multi-billion dollar global telecom provider expanded with AI-powered ACE.
• Achieved profitability targets, expecting adjusted EBITDA positive for 2024 and committed to double-digit EBITDA margins long-term.

In Q2 2024, revenue from the core platform including services was $36.5 million. Total revenue including virtual conference was $37.3 million. Subscription and other platform revenue was $34.1 million (approximately 91.4% of total revenue), and professional services revenue was $3.2 million (approximately 8.6% of total revenue). Ending ARR related to the core platform was $131 million, a decrease of $2.2 million from Q1. The ARR contribution from the $100,000 plus customer cohort represented approximately two-thirds of total ARR, with 319 customers contributing over $100,000 in total ARR. The percentage of ARR in multi-year contracts was at record levels, with over 50% of ARR in multi-year agreements.

• Anticipate net new ARR of breakeven to negative 1% in Q3 and similar in Q4, assuming no further macroeconomic deterioration.
• Q3 core platform revenue expected in the range of $34.2 million to $35.2 million, total revenue $35 million to $36 million. Professional services expected to be approximately 7% of total revenue.
• Full year core platform revenue预计$141.7 million to $144.5 million, total revenue $145 million to $147.8 million. Professional services expected to be approximately 8% of total revenue. Committed to positive adjusted EBITDA for 2024.

• Adverse economic conditions, macroeconomic deterioration including increased inflation, which could impact ability to grow revenue, attract new customers, and expand sales to existing customers.
• Uncertainty regarding success of new products and achieving business strategies, growth, or other future events/conditions.

Q: Arjun Bhatia asked about customer renewals and where upsell/expansion is coming from.

A: Sharat Sharan mentioned half of large customer renewals resulted in growth. Expansion comes from customers buying different licenses, additional product use cases (like engagement hub, target, go live), and AI-powered ACE, with AI-powered ACE contributing close to high teens of growth ARR.

Q: Noah Herman asked about macro and ARR guide.

A: Sharat Sharan stated marketing budgets are still tight, not factoring macro improvement in the second half. Anticipates sequential improvement in ARR performance in Q3 with net new ARR breakeven to negative 1% of Q2 ARR.

Q: Scott Berg asked about ARR guide difference and customer conference takeaways.

A: Sharat Sharan discussed progress in gross retention but difficulty forecasting beyond one quarter. Key takeaways from customer conference included enthusiasm for AI tools, feedback on product improvement needs, and adjusting AI-powered ACE for faster adoption