Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ON24 Inc (ONTF, Financial) delivered Q2 revenue and non-GAAP EBIT above guidance, achieving positive adjusted EBITDA and positive non-GAAP EPS for the fifth consecutive quarter.
- The company reported positive free cash flow for the second consecutive quarter.
- Revenue from the core platform, including services, was $36.5 million, with total revenue at $37.3 million.
- Gross retention rates improved sequentially, with significant reductions in churn and downsells.
- AI-powered ACE solution showed strong traction, with ARR from AI-powered ACE growing to the high teens as a percentage of growth ARR.
Negative Points
- Total revenue from the core platform decreased by 10% year over year.
- ARR related to the core platform decreased by $2.2 million compared to Q1 2024.
- Professional services revenue decreased by 15% year over year.
- The macroeconomic environment remains challenging, impacting marketing budgets and new purchasing commitments.
- Forecasting ARR more than one quarter ahead remains difficult due to the uncertain macro environment.
Q & A Highlights
Q: Sharat, you mentioned that half of the customers that came up for renewal in the quarter resulted in growth. Can you give more color on what customers are buying when they are expanding? Is it the core platform or ACE?
A: Sharat Sharan, CEO: The growth came from large customer renewals, particularly seven-figure deals for the core platform. Customers are expanding by purchasing different licenses for demand generation, customer marketing, and partner enablement. They are also adding products like Engagement Hub, Target, and Go Live for various use cases. AI-powered ACE is also contributing significantly to growth, reaching high teens of total growth ARR.
Q: Have you made any changes to your pricing strategy given the current macroeconomic conditions?
A: Sharat Sharan, CEO: We are expanding use cases and bringing additional products to counter downsells. We are also converting annual deals to multi-year agreements with price increases, which has led to our multi-year ARR being at record levels, over 50%.
Q: How are you thinking about the prudence in your guidance considering the macro environment? Are you seeing any normalization in customer reinvestment?
A: Sharat Sharan, CEO: We have diversified our business, focusing on industries like life sciences and financial services. Marketing budgets are still tight, and we are not factoring in any improvements for the second half. However, we expect sequential improvement in ARR performance in Q3, driven by improved gross retention and AI-powered ACE adoption.
Q: Can you quantify how much of the ARR guidance for the second half hinges on AI-powered ACE offerings?
A: Sharat Sharan, CEO: We are not providing specific guidance on this, but we expect AI-powered ACE to continue ramping and provide tailwinds into 2025. We are balancing our enthusiasm with the reality of a tough macro environment.
Q: What are the key takeaways from your customer conference in June?
A: Sharat Sharan, CEO: Customers are enthusiastic about our AI tools, and we received valuable feedback on product improvements. Customers shared successful use cases, which helps in faster adoption. We are also considering decoupling some features of AI-powered ACE for easier adoption.
Q: How long do you think it will take to get sales and marketing expenses to around 30% of revenue? Do you need to get back to a certain growth rate to hit your long-term profitability targets?
A: Steven Vattuone, CFO: We are prioritizing a return to growth while balancing profitability. We expect positive trends in ARR to impact the top line positively. We will continue to monitor the cost structure and make key investments without significantly increasing expenses.
Q: What has been the difference between your expectations a few quarters ago and where the business is today? Has it been more on the net new side or retention dynamics?
A: Sharat Sharan, CEO: The challenge has been more on the net new side. We have seen improvement in gross retention and expect AI-powered ACE to continue ramping. However, it is tough to forecast ARR more than one quarter ahead in this environment.
Q: Are you seeing any signs of customers reinvesting in revenue-generating initiatives?
A: Sharat Sharan, CEO: While marketing budgets are still tight, we are seeing improvements in gross retention and AI-powered ACE adoption. We expect sequential improvement in ARR performance in Q3 and continued stabilization.
Q: What are the main benefits of AI-powered ACE for your customers?
A: Sharat Sharan, CEO: AI-powered ACE helps with hyper-personalization at scale, automated content creation, and continuous engagement through automated content nurtures. It addresses key challenges for enterprise sales and marketing teams, providing significant ROI and cost savings.
Q: How are you balancing cost discipline with investments to return to growth?
A: Steven Vattuone, CFO: We are maintaining a balanced approach, focusing on cost discipline while making key investments in product innovation and go-to-market strategies. We expect to achieve positive adjusted EBITDA for 2024 and continue improving our financial performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
