ON24(ONTF) - 2023 Q4 - Annual Results

Executive Summary CEO's Strategic Commentary ON24's CEO highlights Q4's sequential ARR stability, exceeded profitability targets, and improved customer retention - Q4 Core Platform ARR was approximately flat sequentially, and the company exceeded profitability targets, achieving positive non-GAAP EPS and positive adjusted EBITDA[2] - Key metrics improved, with gross retention being the highest in three years and new business acquisition the highest in six quarters, signaling stability in the customer base[2] - For 2024, ON24 plans to focus on improving retention and bringing the next generation of its platform with significant AI innovations to market, aiming for long-term double-digit top-line growth with double-digit EBITDA margins[2] Fourth Quarter 2023 Financial Highlights The company exceeded profitability targets for the third consecutive quarter, showing sequential ARR stability and improved cash flow - Launched the next generation ON24 Intelligent Engagement Platform and AI-Powered ACE[4] - Exceeded profitability targets for the third quarter in a row[4] Q4 2023 Key Financial Metrics | Metric | Q4 2023 (Millions) | Q4 2022 (Millions) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :------------- | | Core Platform Revenue (incl. services) | $38.3 | N/A | N/A | | Total Revenue | $39.3 | $46.6 | -15.7% | | Core Platform ARR (as of Dec 31) | $136.2 | N/A | N/A | | Total ARR (as of Dec 31) | $139.7 | N/A | N/A | | GAAP Operating Loss | $(12.2) | $(13.6) | Improved | | Non-GAAP Operating Income (Loss) | $0.2 | $(3.5) | Improved | | GAAP Net Loss | $(9.9) | $(12.1) | Improved | | GAAP EPS (diluted) | $(0.24) | $(0.25) | Improved | | Non-GAAP Net Income (Loss) | $2.6 | $(2.0) | Improved | | Non-GAAP EPS (diluted) | $0.06 | $(0.04) | Improved | | Adjusted EBITDA | $1.4 | N/A | N/A | | Net cash used in operating activities | $(0.9) | $(7.6) | Improved | | Free cash flow | $(2.0) | $(8.9) | Improved | | Cash, Cash Equivalents & Marketable Securities | $198.7 | N/A | N/A | Full Year 2023 Financial Highlights FY 2023 showed significant improvements in non-GAAP profitability, narrowing losses and reducing cash usage from operations Full Year 2023 Key Financial Metrics | Metric | FY 2023 (Millions) | FY 2022 (Millions) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :------------- | | Core Platform Revenue (incl. services) | $158.1 | N/A | N/A | | Total Revenue | $163.7 | $190.9 | -14.2% | | GAAP Operating Loss | $(62.0) | $(59.6) | Worsened | | Non-GAAP Operating Loss | $(5.9) | $(18.9) | Improved | | GAAP Net Loss | $(51.8) | $(58.2) | Improved | | GAAP EPS (diluted) | $(1.16) | $(1.23) | Improved | | Non-GAAP Net Income (Loss) | $4.3 | $(17.6) | Improved | | Non-GAAP EPS (diluted) | $0.09 | $(0.37) | Improved | | Adjusted EBITDA | $(1.0) | $(13.8) | Improved | | Net cash used in operating activities | $(12.2) | $(20.5) | Improved | | Free cash flow | $(14.4) | $(24.2) | Improved | Full Year 2023 Customer Metrics & Business Highlights Nearly half of total ARR came from multi-year contracts, and the company launched its AI platform and won industry awards - 49% of total ARR comprises multi-year contracts[11] - 37% of customers are using two or more products[11] - Launched the next generation ON24 Intelligent Engagement Platform and AI-powered ACE to thousands of customers and prospects[11] - Swept TrustRadius 'Best of Awards' in 2023 for platform capabilities, global support, and sales/marketing results[11] - Named a Leader in the 2023-2024 IDC MarketScape for Virtual Events Applications, recognized for AI innovation, data, integrations, and engagement/revenue driving actions[11] Business Overview About ON24 ON24 provides an intelligent engagement platform for B2B sales and marketing to drive cost-effective revenue growth - ON24's mission is to help businesses bring their go-to-market strategy into the AI era and drive cost-effective revenue growth through its intelligent engagement platform[25] - The platform enables customers to combine experiences with personalization and content to capture and act on connected insights at scale[25] - ON24 serves industry-leading companies, including major global technology, asset management, healthcare, and industrial firms, providing valuable first-party data for sales and marketing innovation[26] Definitions of Key Business Metrics The Core Platform is a suite of interactive experiences, and ARR is the annualized value of subscription contracts - The ON24 Core Platform includes products like ON24 Elite, Breakouts, Forums, Go Live, Engagement Hub, Target, and the new AI-powered ACE, all designed for interactive engagement and content delivery[16][17][18] - Annual Recurring Revenue (ARR) is the annualized value of subscription contracts, excluding professional services, overages, and Legacy revenue[18] Financial Outlook First Quarter 2024 Outlook ON24 anticipates Q1 2024 total revenue between $36.5 million and $37.5 million with a non-GAAP operating loss Q1 2024 Financial Outlook | Metric | Range (Millions) | | :-------------------------------- | :----------------- | | Core Platform Revenue (incl. services) | $35.6 - $36.6 | | Total Revenue | $36.5 - $37.5 | | Non-GAAP Operating Loss | $(2.7) - $(1.7) | | Non-GAAP Net Loss per Share | $(0.02) - $0.00 | | Restructuring Charge (excluded from Non-GAAP) | $0.6 - $0.9 | Full Year 2024 Outlook The company projects full-year 2024 total revenue between $143 million and $147 million with positive non-GAAP net income per share Full Year 2024 Financial Outlook | Metric | Range (Millions) | | :-------------------------------- | :----------------- | | Core Platform Revenue (incl. services) | $139.5 - $143.5 | | Total Revenue | $143.0 - $147.0 | | Non-GAAP Operating Loss | $(5.5) - $(3.5) | | Non-GAAP Net Income per Share | $0.02 - $0.05 | Non-GAAP Financial Measures Non-GAAP Definitions and Rationale ON24 uses non-GAAP measures to assess operating performance by excluding items like stock-based compensation and restructuring costs - Non-GAAP operating income (loss) excludes interest expense, other (income) expense, net, income tax, stock-based compensation, amortization of acquired intangible assets, shareholder activism related costs, restructuring costs, charges for underutilized real estate, and certain other costs[19] - Non-GAAP net income (loss) excludes stock-based compensation, amortization of acquired intangible assets, shareholder activism related costs, restructuring costs, charges for underutilized real estate, and certain other costs[19] - Free cash flow is defined as net cash provided by (used in) operating activities, less purchases of property and equipment[19] - These non-GAAP measures are used to evaluate ongoing operations, for internal planning, and to provide consistency and comparability with past financial performance, but are not a substitute for GAAP financial information[20][21] Reconciliation of GAAP to Non-GAAP Gross Profit and Operating Expenses Reconciliations from GAAP to non-GAAP gross profit and operating expenses adjust for items like stock-based compensation GAAP to Non-GAAP Gross Profit and Margin Reconciliation | Metric | Q4 2023 (Thousands) | Q4 2022 (Thousands) | FY 2023 (Thousands) | FY 2022 (Thousands) | | :---------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | GAAP Gross Profit | $29,327 | $33,329 | $117,445 | $138,087 | | Add: Stock-based compensation | $808 | $1,006 | $3,359 | $4,051 | | Add: Restructuring costs | $87 | $0 | $2,364 | $390 | | Add: Impairment charge | $0 | $0 | $227 | $0 | | Non-GAAP Gross Profit | $30,222 | $34,335 | $123,395 | $142,528 | | GAAP Gross Margin | 75% | 72% | 72% | 72% | | Non-GAAP Gross Margin | 77% | 74% | 75% | 75% | GAAP to Non-GAAP Operating Expenses Reconciliation (Q4 2023) | Expense Category | GAAP (Thousands) | Less: Stock-based Comp (Thousands) | Less: Restructuring Costs (Thousands) | Less: Impairment Charge (Thousands) | Less: Amortization of Acquired Intangible Asset (Thousands) | Less: Shareholder Activism Fees (Thousands) | Non-GAAP (Thousands) | | :----------------------- | :--------------- | :--------------------------------- | :------------------------------------ | :---------------------------------- | :---------------------------------------------------------- | :------------------------------------------ | :------------------- | | Sales and Marketing | $20,645 | $(3,669) | $(288) | $0 | $0 | $0 | $16,688 | | Research and Development | $9,363 | $(2,410) | $(110) | $0 | $(139) | $0 | $6,704 | | General and Administrative | $11,541 | $(4,839) | $(88) | $0 | $0 | $0 | $6,614 | GAAP to Non-GAAP Operating Expenses Reconciliation (FY 2023) | Expense Category | GAAP (Thousands) | Less: Stock-based Comp (Thousands) | Less: Restructuring Costs (Thousands) | Less: Impairment Charge (Thousands) | Less: Amortization of Acquired Intangible Asset (Thousands) | Less: Shareholder Activism Fees (Thousands) | Non-GAAP (Thousands) | | :----------------------- | :--------------- | :--------------------------------- | :------------------------------------ | :---------------------------------- | :---------------------------------------------------------- | :------------------------------------------ | :------------------- | | Sales and Marketing | $89,200 | $(13,974) | $(2,246) | $(256) | $0 | $0 | $72,724 | | Research and Development | $41,122 | $(9,126) | $(1,397) | $(569) | $(558) | $0 | $29,472 | | General and Administrative | $49,124 | $(18,558) | $(391) | $(409) | $0 | $(2,656) | $27,110 | Reconciliation of GAAP to Non-GAAP Operating Income, Adjusted EBITDA, and Net Income Detailed reconciliations from GAAP net loss show significant profitability improvements on a non-GAAP basis for 2023 GAAP Net Loss to Non-GAAP Operating Income (Loss) Reconciliation | Metric | Q4 2023 (Thousands) | Q4 2022 (Thousands) | FY 2023 (Thousands) | FY 2022 (Thousands) | | :-------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Net Loss | $(9,875) | $(12,130) | $(51,786) | $(58,208) | | Add: Interest expense | $13 | $36 | $93 | $181 | | Add: Other (income) expense, net | $(2,820) | $(2,331) | $(11,303) | $(2,514) | | Add: Provision for income taxes | $460 | $795 | $995 | $958 | | Add: Stock-based compensation | $11,726 | $9,435 | $45,017 | $38,543 | | Add: Amortization of acquired intangible asset | $139 | $149 | $558 | $434 | | Add: Restructuring costs | $573 | $589 | $6,398 | $1,659 | | Add: Impairment charge | $0 | $0 | $1,461 | $0 | | Add: Fees related to shareholder activism | $0 | $0 | $2,656 | $0 | | Non-GAAP Operating Income (Loss) | $216 | $(3,457) | $(5,911) | $(18,947) | GAAP Net Loss to Adjusted EBITDA Reconciliation | Metric | Q4 2023 (Thousands) | Q4 2022 (Thousands) | FY 2023 (Thousands) | FY 2022 (Thousands) | | :-------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Net Loss | $(9,875) | $(12,130) | $(51,786) | $(58,208) | | Add: Interest expense | $13 | $36 | $93 | $181 | | Add: Other (income) expense, net | $(2,820) | $(2,331) | $(11,303) | $(2,514) | | Add: Provision for income taxes | $460 | $795 | $995 | $958 | | Add: Depreciation and amortization | $1,180 | $1,314 | $4,802 | $4,982 | | Add: Amortization of acquired intangible asset | $139 | $149 | $558 | $434 | | Add: Amortization of cloud implementation costs | $38 | $38 | $149 | $138 | | Add: Stock-based compensation | $11,726 | $9,435 | $45,017 | $38,543 | | Add: Restructuring costs | $573 | $589 | $6,398 | $1,659 | | Add: Impairment charge | $0 | $0 | $1,461 | $0 | | Add: Fees related to shareholder activism | $0 | $0 | $2,656 | $0 | | Adjusted EBITDA | $1,434 | $(2,105) | $(960) | $(13,827) | GAAP Net Loss to Non-GAAP Net Income (Loss) Reconciliation | Metric | Q4 2023 (Thousands) | Q4 2022 (Thousands) | FY 2023 (Thousands) | FY 2022 (Thousands) | | :-------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Net Loss | $(9,875) | $(12,130) | $(51,786) | $(58,208) | | Add: Stock-based compensation | $11,726 | $9,435 | $45,017 | $38,543 | | Add: Amortization of acquired intangible asset | $139 | $149 | $558 | $434 | | Add: Restructuring costs | $573 | $589 | $6,398 | $1,659 | | Add: Impairment charge | $0 | $0 | $1,461 | $0 | | Add: Fees related to shareholder activism | $0 | $0 | $2,656 | $0 | | Non-GAAP Net Income (Loss) | $2,563 | $(1,957) | $4,304 | $(17,572) | Reconciliation of GAAP to Non-GAAP Basic and Diluted Net Income (Loss) Per Share Adjustments for non-cash and non-recurring items transform the GAAP net loss per share to a positive non-GAAP EPS GAAP to Non-GAAP Basic and Diluted Net Income (Loss) Per Share Reconciliation | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------------------- | :------ | :------ | :------ | :------ | | GAAP Net Loss per Share (Basic & Diluted) | $(0.24) | $(0.25) | $(1.16) | $(1.23) | | Non-GAAP Net Income (Loss) | $2,563 | $(1,957) | $4,304 | $(17,572) | | Non-GAAP Weighted-Average Common Stock Outstanding (Basic) | 41,646,792 | 47,996,905 | 44,644,792 | 47,486,225 | | Non-GAAP Weighted-Average Common Stock Outstanding (Diluted) | 46,002,784 | 47,996,905 | 49,131,426 | 47,486,225 | | Non-GAAP Net Income (Loss) per Share (Basic) | $0.06 | $(0.04) | $0.10 | $(0.37) | | Non-GAAP Net Income (Loss) per Share (Diluted) | $0.06 | $(0.04) | $0.09 | $(0.37) | Reconciliation of GAAP Cash Flow from Operating Activities to Free Cash Flow Free cash flow, though negative, improved significantly in Q4 and full-year 2023 compared to the prior year GAAP Cash Flow from Operating Activities to Free Cash Flow Reconciliation | Metric | Q4 2023 (Thousands) | Q4 2022 (Thousands) | FY 2023 (Thousands) | FY 2022 (Thousands) | | :-------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Net cash used in operating activities | $(859) | $(7,568) | $(12,202) | $(20,461) | | Less: Purchases of property and equipment | $(1,107) | $(1,297) | $(2,183) | $(3,697) | | Free Cash Flow | $(1,966) | $(8,865) | $(14,385) | $(24,158) | Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets Total assets and stockholders' equity decreased as of December 31, 2023, primarily due to a reduction in marketable securities Condensed Consolidated Balance Sheet Highlights (Thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Cash and cash equivalents | $53,209 | $26,996 | +97.1% | | Marketable securities | $145,497 | $301,125 | -51.7% | | Total current assets | $253,787 | $391,295 | -35.2% | | Total assets | $280,302 | $425,473 | -34.2% | | Deferred revenue | $74,358 | $83,453 | -10.9% | | Total current liabilities | $96,085 | $110,731 | -13.3% | | Total liabilities | $100,085 | $117,512 | -14.8% | | Total stockholders' equity | $180,217 | $307,961 | -41.5% | Condensed Consolidated Statements of Operations Revenue decreased in 2023, but a reduction in operating expenses led to an improved GAAP net loss for the full year Condensed Consolidated Statements of Operations Highlights (Thousands) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------------- | :------ | :------ | :------ | :------ | | Total Revenue | $39,337 | $46,567 | $163,708 | $190,872 | | Total Cost of Revenue | $10,010 | $13,238 | $46,263 | $52,785 | | Gross Profit | $29,327 | $33,329 | $117,445 | $138,087 | | Total Operating Expenses | $41,549 | $46,959 | $179,446 | $197,670 | | Loss from Operations | $(12,222) | $(13,630) | $(62,001) | $(59,583) | | Net Loss | $(9,875) | $(12,130) | $(51,786) | $(58,208) | | Net Loss per Share (Basic & Diluted) | $(0.24) | $(0.25) | $(1.16) | $(1.23) | Stock-based Compensation Details Stock-based compensation expense increased to $45.0 million in 2023, primarily allocated to general and administrative expenses Stock-based Compensation Expense (Thousands) | Category | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------------- | :------ | :------ | :------ | :------ | | Cost of Revenue (Subscription & other platform) | $682 | $835 | $2,814 | $3,375 | | Cost of Revenue (Professional services) | $126 | $171 | $545 | $676 | | Sales and Marketing | $3,669 | $3,318 | $13,974 | $14,304 | | Research and Development | $2,410 | $2,033 | $9,126 | $7,958 | | General and Administrative | $4,839 | $3,078 | $18,558 | $12,230 | | Total Stock-based Compensation Expense | $11,726 | $9,435 | $45,017 | $38,543 | Restructuring Costs Details Restructuring costs, mainly from severance, totaled $7.9 million in 2023, a significant increase from the prior year Restructuring Costs (Thousands) | Category | Q4 2023 Severance | Q4 2023 Lease Impairment | Q4 2023 Total | FY 2023 Severance | FY 2023 Lease Impairment | FY 2023 Total | | :-------------------------- | :---------------- | :----------------------- | :------------ | :---------------- | :----------------------- | :------------ | | Cost of Revenue (Subscription & other platform) | $81 | $0 | $81 | $2,215 | $108 | $2,323 | | Cost of Revenue (Professional services) | $6 | $0 | $6 | $149 | $119 | $268 | | Sales and Marketing | $288 | $0 | $288 | $2,246 | $256 | $2,502 | | Research and Development | $110 | $0 | $110 | $1,397 | $569 | $1,966 | | General and Administrative | $88 | $0 | $88 | $391 | $409 | $800 | | Total Restructuring Costs | $573 | $0 | $573 | $6,398 | $1,461 | $7,859 | Restructuring Costs (Severance) (Thousands) - 2022 | Category | Q4 2022 Severance | FY 2022 Severance | | :-------------------------- | :---------------- | :---------------- | | Cost of Revenue (Subscription & other platform) | $0 | $363 | | Cost of Revenue (Professional services) | $0 | $27 | | Sales and Marketing | $564 | $1,146 | | Research and Development | $25 | $86 | | General and Administrative | $0 | $37 | | Total Restructuring Costs | $589 | $1,659 | Condensed Consolidated Statements of Cash Flows The company significantly reduced cash used in operations and generated substantial cash from investing activities in 2023 Condensed Consolidated Statements of Cash Flows Highlights (Thousands) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Net cash used in operating activities | $(859) | $(7,568) | $(12,202) | $(20,461) | | Net cash provided by (used in) investing activities | $58,690 | $5,259 | $162,315 | $(88,981) | | Net cash used in financing activities | $(15,457) | $(6,754) | $(124,183) | $(28,618) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $42,409 | $(9,364) | $26,129 | $(137,874) | | Cash, cash equivalents and restricted cash, end of period | $53,298 | $27,169 | $53,298 | $27,169 | Revenue Breakdown by Platform Revenue is primarily driven by the Core Platform, while Virtual Conference revenue continued its decline in 2023 Revenue Breakdown (Thousands) | Category | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Core Platform | | | | | | Subscription and other platform | $34,907 | $39,952 | $145,223 | $160,772 | | Professional services | $3,377 | $4,223 | $12,876 | $17,029 | | Total Core Platform Revenue | $38,284 | $44,175 | $158,099 | $177,801 | | Virtual Conference | | | | | | Subscription and other platform | $845 | $2,077 | $4,659 | $11,069 | | Professional services | $208 | $315 | $950 | $2,002 | | Total Virtual Conference Revenue | $1,053 | $2,392 | $5,609 | $13,071 | | Total Revenue | $39,337 | $46,567 | $163,708 | $190,872 | Additional Information Conference Call Information ON24 hosted a conference call and webcast to discuss financial results, with materials available on its investor relations website - ON24 hosted a conference call and live webcast for analysts and investors at 2:00 p.m. Pacific Time on the day of the announcement[14] - A webcast and management's prepared remarks are accessible on ON24's investor relations website at investors.on24.com[15] Forward-Looking Statements The document contains forward-looking statements subject to inherent risks and uncertainties, and actual results may differ - The document contains forward-looking statements regarding expected financial and operating results, capital return program, market opportunity, and success of new products like the Intelligent Engagement Platform and AI-Powered ACE[24] - These statements are based on current beliefs, expectations, and assumptions, which are subject to inherent risks and uncertainties, including the ability to attract new customers, decline in growth rate, competition, macroenvironment impact, and technological disruptions[24] - Actual results may differ materially from those indicated, and readers should not place undue reliance on them[24] Contacts Contact information is provided for both media and investor relations inquiries - Media contact: Tessa Barron at press@on24.com[51] - Investor contact: Lauren Sloane, The Blueshirt Group for ON24, at investorrelations@on24.com[51]