ON24(ONTF) - 2024 Q1 - Quarterly Report

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This section highlights that the report contains forward-looking statements based on management's beliefs and assumptions, primarily in "Risk Factors" and "Management's Discussion and Analysis" It cautions readers not to place undue reliance on these statements due to inherent risks and uncertainties, and the company assumes no obligation to update them publicly - The report contains forward-looking statements, particularly in "Risk Factors" and "Management's Discussion and Analysis," which are subject to known and unknown risks and uncertainties[9][10] - The company assumes no obligation to publicly update forward-looking statements, even if new information becomes available in the future[11] - Key areas of forward-looking statements include revenue growth, customer acquisition/expansion, performance fluctuations, competition, economic conditions, sales/marketing expansion, impact of in-person marketing, technology disruptions, cybersecurity, sales cycle, international presence, data privacy, intellectual property, and common stock market price[12][159] PART I—FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for ON24, Inc., including the Balance Sheets, Statements of Operations, Statements of Comprehensive Loss, Statements of Stockholders' Equity, and Statements of Cash Flows, along with detailed notes explaining the company's business, accounting policies, revenue disaggregation, marketable securities, fair value measurements, balance sheet components, intangible assets, credit facility, commitments, stockholders' equity, other income, income taxes, net loss per share, related party transactions, and restructuring activities Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets from $280.3 million at December 31, 2023, to $269.2 million at March 31, 2024 This was primarily driven by a significant reduction in cash and cash equivalents, partially offset by an increase in marketable securities Total liabilities also decreased from $100.1 million to $94.7 million, while total stockholders' equity decreased from $180.2 million to $174.4 million Balance Sheet Summary | Metric | Dec 31, 2023 (in thousands) | Mar 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $53,209 | $18,292 | $(34,917) | -65.6% | | Marketable securities | $145,497 | $177,766 | $32,269 | 22.2% | | Accounts receivable, net | $37,939 | $28,523 | $(9,416) | -24.8% | | Total current assets | $253,787 | $243,852 | $(9,935) | -3.9% | | Total assets | $280,302 | $269,164 | $(11,138) | -4.0% | | Total current liabilities | $96,085 | $91,300 | $(4,785) | -5.0% | | Total liabilities | $100,085 | $94,741 | $(5,344) | -5.3% | | Total stockholders' equity | $180,217 | $174,423 | $(5,794) | -3.2% | Condensed Consolidated Statements of Operations For the three months ended March 31, 2024, ON24 reported a net loss of $10.7 million, an improvement from a $17.6 million net loss in the same period of 2023 Total revenue decreased by 12% year-over-year to $37.7 million, primarily due to a decline in subscription and other platform revenue Gross profit decreased by 6% to $27.9 million, but gross margin improved from 69% to 74% Operating expenses significantly decreased by 18.8% due to cost management and headcount reductions Statements of Operations Summary | Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Change (in thousands) | % Change | | :-------------------- | :------------------------------ | :------------------------------ | :-------------------- | :------- | | Total revenue | $37,727 | $43,063 | $(5,336) | -12.4% | | Total cost of revenue | $9,782 | $13,206 | $(3,424) | -25.9% | | Gross profit | $27,945 | $29,857 | $(1,912) | -6.4% | | Total operating expenses | $40,419 | $49,794 | $(9,375) | -18.8% | | Loss from operations | $(12,474) | $(19,937) | $7,463 | -37.4% | | Net loss | $(10,703) | $(17,590) | $6,887 | -39.1% | | Basic and diluted net loss per share | $(0.26) | $(0.37) | $0.11 | -29.7% | Condensed Consolidated Statements of Comprehensive Loss The total comprehensive loss for the three months ended March 31, 2024, was $11.4 million, an improvement from $16.6 million in the prior year period This change was primarily driven by a reduced net loss, partially offset by a shift from other comprehensive income to loss, mainly due to unrealized losses on available-for-sale debt securities Statements of Comprehensive Loss Summary | Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Change (in thousands) | % Change | | :-------------------- | :------------------------------ | :------------------------------ | :-------------------- | :------- | | Net loss | $(10,703) | $(17,590) | $6,887 | -39.1% | | Total other comprehensive (loss) income | $(696) | $969 | $(1,665) | -171.8% | | Total comprehensive loss | $(11,399) | $(16,621) | $5,222 | -31.4% | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased from $180.2 million at December 31, 2023, to $174.4 million at March 31, 2024 This was primarily due to a net loss of $10.7 million and other comprehensive loss of $0.7 million, partially offset by stock-based compensation expense of $10.3 million and proceeds from stock option exercises Share repurchases also reduced equity by $5.3 million Statements of Stockholders' Equity Summary | Metric (in thousands) | Dec 31, 2023 | Mar 31, 2024 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total Stockholders' Equity | $180,217 | $174,423 | $(5,794) | | Net loss | — | $(10,703) | $(10,703) | | Repurchase of common stock | — | $(5,270) | $(5,270) | | Stock-based compensation expense | — | $10,337 | $10,337 | | Other comprehensive loss | — | $(696) | $(696) | Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2024, net cash provided by operating activities was $2.1 million, a significant improvement from $4.2 million used in the prior year Net cash used in investing activities was $32.3 million, primarily due to marketable securities purchases exceeding maturities/sales Net cash used in financing activities decreased to $4.6 million, mainly due to lower share repurchases Overall, cash, cash equivalents, and restricted cash decreased by $34.9 million, ending the period at $18.4 million Statements of Cash Flows Summary | Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Change (in thousands) | | :-------------------- | :------------------------------ | :------------------------------ | :-------------------- | | Net cash provided by (used in) operating activities | $2,138 | $(4,167) | $6,305 | | Net cash (used in) provided by investing activities | $(32,250) | $88,762 | $(121,012) | | Net cash used in financing activities | $(4,636) | $(10,947) | $6,311 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(34,921) | $73,778 | $(108,699) | | Cash, cash equivalents and restricted cash, end of period | $18,377 | $100,947 | $(82,570) | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering significant accounting policies, revenue disaggregation, marketable securities, fair value measurements, balance sheet components, intangible assets, credit facility, commitments and contingencies, stockholders' equity and equity incentive plans, other income, income taxes, net loss per share, related party transactions, and restructuring activities Note 1. Description of Business and Significant Accounting Policies ON24, Inc. provides a cloud-based intelligent engagement platform for sales and marketing, offering interactive digital experience products to generate actionable data and insights The financial statements are prepared in accordance with U.S. GAAP, and there have been no significant changes to accounting policies in Q1 2024 The company is assessing new FASB ASUs on income tax and segment reporting, not expecting a material impact - ON24 provides a cloud-based intelligent engagement platform combining experiences, personalization, and content for sales and marketing organizations[27] - The platform offers interactive digital experience products to capture real-time data, providing buying signals and behavioral insights to convert prospects into customers[27] - No significant changes to accounting policies occurred during the three months ended March 31, 2024[30] - The company is assessing new FASB ASUs (2023-09 on Income Taxes and 2023-07 on Segment Reporting) but does not expect a material impact on its financial statements and disclosures[31][32] Note 2. Revenue Total revenue for Q1 2024 was $37.7 million, a decrease from $43.1 million in Q1 2023 The United States accounted for the majority of revenue ($29.1 million), followed by EMEA ($6.4 million) No single foreign country or customer contributed 10% or more of total revenue The aggregate amount of transaction price allocated to remaining performance obligations was $127.5 million as of March 31, 2024, with 77% expected to be recognized within the next 12 months Revenue by Geographic Region | Geographic Region | Three Months Ended Mar 31, 2024 (in thousands) | Three Months Ended Mar 31, 2023 (in thousands) | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | | United States | $29,112 | $33,332 | | EMEA | $6,421 | $6,864 | | Other | $2,194 | $2,867 | | Total revenue | $37,727 | $43,063 | - No individual foreign country or single customer accounted for 10% or more of total revenue in Q1 2024 or Q1 2023[33] - As of March 31, 2024, remaining performance obligations totaled $127.5 million, with 77% expected to be recognized as revenue over the subsequent 12 months[37] - Amortization of deferred contract acquisition costs was $3.8 million in Q1 2024, slightly down from $3.9 million in Q1 2023, and is included in sales and marketing expense[39][41] Note 3. Marketable Securities Marketable securities, classified as available for sale, increased from $145.5 million at December 31, 2023, to $177.8 million at March 31, 2024 The portfolio primarily consists of U.S. Treasury securities The company did not recognize any credit loss related to these securities during the periods presented Most securities (over 72%) have contractual maturities of one year or less Marketable Securities Summary | Metric (in thousands) | Dec 31, 2023 | Mar 31, 2024 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total marketable securities (Fair Value) | $145,497 | $177,766 | $32,269 | | U.S. Treasury securities (Fair Value) | $136,081 | $176,039 | $39,958 | - The company did not recognize any credit loss related to its available-for-sale debt securities during the three months ended March 31, 2024 or 2023[45] Marketable Securities by Contractual Maturities | Contractual Maturities | Fair Value (in thousands) as of Mar 31, 2024 | | :--------------------- | :------------------------------------------- | | One year or less | $128,623 | | Over one year through three years | $49,143 | | Total | $177,766 | Note 4. Fair Value Measurement The company's financial instruments recorded at fair value on a recurring basis include cash equivalents (money market mutual funds) classified as Level 1 and marketable securities (U.S. Treasury and Agency securities) classified as Level 2 Total cash equivalents and marketable securities increased from $179.4 million at December 31, 2023, to $186.6 million at March 31, 2024 Fair Value Measurement of Financial Instruments | Metric (in thousands) | Dec 31, 2023 | Mar 31, 2024 | Change | | :-------------------- | :----------- | :----------- | :----- | | Cash equivalents - money market mutual funds (Level 1) | $33,952 | $8,798 | $(25,154) | | Marketable securities (Level 2) | $145,497 | $177,766 | $32,269 | | Total cash equivalents and marketable securities | $179,449 | $186,564 | $7,115 | - Cash equivalents are classified as Level 1 (quoted market prices), and marketable securities are classified as Level 2 (observable inputs other than quoted prices)[48] Note 5. Balance Sheets Components Property and equipment, net, increased from $5.4 million at December 31, 2023, to $6.1 million at March 31, 2024 The majority of these assets are located in the United States Accrued and other current liabilities decreased from $16.9 million to $13.6 million, primarily due to a reduction in accrued bonus and commissions Property and Equipment and Accrued Liabilities | Metric (in thousands) | Dec 31, 2023 | Mar 31, 2024 | Change | | :-------------------- | :----------- | :----------- | :----- | | Property and equipment, net | $5,371 | $6,130 | $759 | | Accrued bonus and commissions | $7,095 | $3,091 | $(4,004) | | Accrued and other current liabilities | $16,907 | $13,559 | $(3,348) | - Depreciation and amortization expense for property and equipment was $1.1 million in Q1 2024, down from $1.3 million in Q1 2023[50] Note 6. Intangible Assets The company's net intangible asset, primarily developed technology, decreased from $1.3 million at December 31, 2023, to $1.1 million at March 31, 2024 This asset is amortized on a straight-line basis over a 4-year useful life, with a remaining amortization period of 2.0 years Amortization expense was $0.1 million for both Q1 2024 and Q1 2023 Intangible Assets Summary | Metric (in thousands) | Dec 31, 2023 | Mar 31, 2024 | Change | | :-------------------- | :----------- | :----------- | :----- | | Intangible asset, net | $1,305 | $1,102 | $(203) | - The intangible asset has a remaining amortization period of 2.0 years as of March 31, 2024[52] - Amortization expense for intangible assets was $0.1 million for both Q1 2024 and Q1 2023, included in research and development[53] Estimated Future Amortization Expense | Estimated Future Amortization Expense (in thousands) | | :----------------------------------- | | Remainder 2024 | $411 | | 2025 | $546 | | 2026 | $145 | | Total | $1,102 | Note 7. Credit Facility ON24 has a revolving line of credit with a maximum borrowing capacity of $50.0 million, maturing in August 2024 As of March 31, 2024, the company had not drawn down on this facility and had a borrowing capacity of $50.0 million The facility is secured by substantially all assets and is subject to certain financial covenants, which the company met by maintaining deposit requirements The agreement was amended in April 2023 to allow for dividends and share repurchases - ON24 has a revolving line of credit with a maximum borrowing capacity of $50.0 million, maturing in August 2024[54] - As of March 31, 2024, the company had not drawn down on its line of credit and had a full borrowing capacity of $50.0 million[54][56] - The revolving credit facility was amended in April 2023 to permit payment of dividends and share repurchases[56] Note 8. Commitment and Contingencies As of March 31, 2024, ON24 had non-cancelable unrecognized purchase commitments totaling $5.2 million, primarily for software license fees and co-location services, with the majority due in 2024 and 2025 The company is involved in a consolidated putative class action lawsuit related to its IPO, which was dismissed with prejudice in March 2024, but the plaintiff has filed an appeal The company believes the allegations are without merit and cannot reasonably estimate a possible loss Purchase Obligations | Purchase Obligations (in thousands) | | :------------------------ | | Remainder 2024 | $2,089 | | 2025 | $1,852 | | 2026 | $1,108 | | 2027 | $115 | | Total | $5,164 | - A consolidated putative class action lawsuit against ON24 and its officers/directors, alleging misstatements in the IPO registration, was dismissed with prejudice in March 2024 The plaintiff has filed an appeal[60][153] - The company believes the allegations in the lawsuit are without merit and cannot reasonably estimate a possible loss[60][153] Note 9. Stockholders' Equity and Equity Incentive Plan As of March 31, 2024, ON24 had 41,796,012 shares of common stock outstanding and 20,161,921 shares reserved for future issuance under equity incentive and employee stock purchase plans The company completed a $75 million share repurchase program in February 2024 and approved a new $25 million program in March 2024, with $25.0 million remaining available Stock-based compensation expense totaled $10.3 million in Q1 2024 - As of March 31, 2024, 41,796,012 shares of common stock were issued and outstanding[14] Common Stock Reserved for Future Issuance | Common Stock Reserved for Future Issuance (as of Mar 31, 2024) | Shares | | :---------------------------------------------------- | :---------- | | Stock options outstanding | 6,604,136 | | Restricted stock outstanding | 5,755,580 | | Remaining shares available for future grant (2021 Equity Incentive Plan) | 5,572,289 | | Remaining shares available for future issuance (2021 Employee Stock Purchase Plan) | 2,229,916 | | Total shares of common stock reserved | 20,161,921 | - The company completed a $75 million share repurchase program in February 2024 and approved a new $25 million program in March 2024, with $25.0 million available for future repurchases[66][67][129] Share Repurchase Activity | Share Repurchase Activity (Three Months Ended March 31) | 2024 | 2023 | | :---------------------------------------------------- | :---------- | :---------- | | Number of shares repurchased | 702,620 | 1,279,127 | | Total repurchase costs (in millions) | $5.3 | $10.7 | Stock-Based Compensation Expense | Stock-Based Compensation Expense (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Total stock-based compensation expense | $10,337 | $10,121 | Note 10. Other Income, Net Other income, net, for Q1 2024 was $(2.3) million, compared to $(2.6) million in Q1 2023 This primarily consists of interest income and accretion on marketable securities, partially offset by foreign currency losses The change was mainly driven by an increase in investment income Other Income, Net Summary | Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :-------------------- | :------------------------------ | :------------------------------ | | Interest income | $(855) | $(958) | | Accretion on marketable securities | $(1,507) | $(1,826) | | Foreign currency losses | $87 | $265 | | Other income, net | $(2,277) | $(2,572) | - The change in other income, net, was primarily driven by an increase in investment income[126] Note 11. Income Taxes The provision for income taxes increased to $0.5 million in Q1 2024 from $0.2 million in Q1 2023, primarily due to an increase in realized foreign exchange gains in foreign jurisdictions The company maintains a valuation allowance against its U.S. deferred tax assets Provision for Income Taxes | Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :-------------------- | :------------------------------ | :------------------------------ | | Provision for income taxes | $495 | $196 | - The increase in income tax provision was primarily driven by increased realized foreign exchange gains in foreign jurisdictions[75][127] - The company has recorded a valuation allowance against its U.S. deferred tax assets[76] Note 12. Net Loss Per Share Basic and diluted net loss per share for Q1 2024 was $(0.26), an improvement from $(0.37) in Q1 2023 The weighted-average shares used in computing net loss per share decreased to 41.3 million from 47.3 million Various potential common shares, including stock options and RSUs, were excluded from diluted EPS computation as they were antidilutive due to the net loss Net Loss Per Share Metrics | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Net loss per share (Basic and diluted) | $(0.26) | $(0.37) | | Weighted-average shares outstanding (Basic and diluted) | 41,313,674 | 47,304,983 | - Total antidilutive securities, including stock options, restricted stock units, performance stock units, and ESPP purchase rights, amounted to 12.4 million shares in Q1 2024[78] Note 13. Related Party Transactions ON24 incurred $0.6 million in engineering and quality assurance costs from a third-party vendor in Q1 2024, whose CEO is an immediate family member of ON24's CTO This amount was recorded in research and development expense - ON24 incurred $0.6 million in Q1 2024 (vs. $0.7 million in Q1 2023) in research and development expense from a third-party vendor, whose CEO is an immediate family member of ON24's CTO[79] Note 14. Restructuring ON24 continued its cost reduction efforts in Q1 2024, incurring $1.2 million in restructuring costs, primarily severance and termination benefits, down from $3.1 million in Q1 2023 The company expects to incur an additional $0.6 million to $0.9 million in restructuring costs in Q2 2024 Restructuring Costs | Restructuring Costs (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :------------------------------- | :------------------------------ | :------------------------------ | | Total restructuring costs | $1,181 | $3,053 | - The company expects to incur additional restructuring costs of $0.6 million to $0.9 million in the second quarter of 2024[82][130] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on ON24's financial condition and results of operations for the three months ended March 31, 2024, compared to the same period in 2023 It covers the company's business overview, key factors influencing performance, key business metrics, detailed analysis of revenue and operating expenses, liquidity and capital resources, and critical accounting policies The discussion highlights a decrease in revenue and net loss, driven by cost management and restructuring efforts, alongside challenges in customer acquisition and retention Overview ON24 provides a cloud-based intelligent engagement platform for B2B sales and marketing, enabling personalized digital experiences and actionable insights The platform has evolved from webinar services to a comprehensive suite of interactive products, including the recently launched AI-powered Analytics and Content Engine (ACE) For Q1 2024, revenue was $37.7 million (down 12% YoY) and net loss was $10.7 million (improved from $17.6 million YoY) - ON24 offers a cloud-based intelligent engagement platform for B2B sales and marketing, providing interactive digital experience products to capture real-time data and insights[84] - The company launched the ON24 AI-powered Analytics and Content Engine (ACE) in January 2024, enabling hyper-personalization and automated content creation[93] Key Financial Metrics | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | % Change | | :----- | :------------------------------ | :------------------------------ | :------- | | Revenue | $37.7 million | $43.1 million | -12% | | Net loss | $10.7 million | $17.6 million | -39.1% | - As of March 31, 2024, ON24 had 1,698 customers[94] Key Factors Affecting Our Performance ON24's performance is influenced by ongoing cost management (including workforce reductions), the ability to acquire new customers (targeting Enterprise and Commercial segments), retention and expansion within existing customers (through upsell/cross-sell and new users), continuous innovation (especially AI-powered capabilities like ACE), and international expansion (currently 23% of revenue from outside the US) - The company is actively managing costs through workforce reductions, with additional restructuring costs expected in Q2 2024[95][130] - Growth depends on attracting new customers across Enterprise (2,000+ employees) and Commercial (1-1,999 employees) segments[96][97] - The company aims to grow by retaining existing customers, expanding their usage with new users and products, and leveraging a multi-dimensional "land and expand" model[98] - Innovation, particularly in AI-powered capabilities like the new ACE, is a key focus to enhance the platform and drive revenue growth[99] - International expansion is a significant opportunity, with 23% of Q1 2024 revenue from outside the United States, but it presents challenges related to local compliance and geopolitical risks[100] Key Business Metrics ON24's key business metrics show a decline across customers, Annual Recurring Revenue (ARR), and $100k Customers As of March 31, 2024, the company had 1,698 customers (down from 1,916 YoY), ARR of $136.5 million (down from $155.6 million YoY), and 324 customers contributing at least $100,000 in ARR (down from 333 YoY) The decreases are attributed to customer churn, rationalizing contractual entitlements, reduced demand for the Virtual Conference product, and seasonally lower new business activity Key Business Metrics Summary | Metric (in thousands) | Mar 31, 2024 | Dec 31, 2023 | Mar 31, 2023 | | :-------------------- | :----------- | :----------- | :----------- | | Customers | 1,698 | 1,784 | 1,916 | | ARR | $136,480 | $139,708 | $155,584 | | ARR - Core Platform | $133,265 | $136,155 | $149,242 | | $100k Customers | 324 | 325 | 333 | - The decrease in customer count (86 net customers in Q1 2024 vs Q4 2023) is primarily due to customer churn, especially in lower-value contracts, and fewer new customer acquisitions[102] - The decrease in ARR is mainly due to customer churn, rationalizing contractual entitlements, decreased demand for the de-emphasized Virtual Conference product, and seasonally lower new business activity[103] - The ARR contribution from $100k customers in Q1 2024 was consistent with Q4 2023 but decreased from Q1 2023 due to lower value contract renewals and fewer new acquisitions[104] Results of Operations This section provides a high-level overview of the consolidated statements of operations data, including revenue, cost of revenue, gross profit, operating expenses, and net loss, for the three months ended March 31, 2024, and 2023 It also details the breakdown of stock-based compensation and restructuring costs within these line items Consolidated Statements of Operations Data | Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :-------------------- | :------------------------------ | :------------------------------ | | Total revenue | $37,727 | $43,063 | | Total cost of revenue | $9,782 | $13,206 | | Gross profit | $27,945 | $29,857 | | Total operating expenses | $40,419 | $49,794 | | Loss from operations | $(12,474) | $(19,937) | | Net loss | $(10,703) | $(17,590) | Stock-Based Compensation Expense Breakdown | Stock-Based Compensation Expense (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Total cost of revenue | $789 | $937 | | Sales and marketing | $3,058 | $3,057 | | Research and development | $2,128 | $2,021 | | General and administrative | $4,362 | $4,106 | | Total stock-based compensation expense | $10,337 | $10,121 | Restructuring Costs Breakdown | Restructuring Costs (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :------------------------------- | :------------------------------ | :------------------------------ | | Total cost of revenue | $204 | $839 | | Sales and marketing | $675 | $1,211 | | Research and development | $112 | $773 | | General and administrative | $190 | $230 | | Total restructuring costs | $1,181 | $3,053 | Comparison of the Three Months Ended March 31, 2024 and 2023 This section provides a detailed comparison of ON24's financial performance for the three months ended March 31, 2024, versus the same period in 2023, analyzing changes in revenue, cost of revenue, gross margin, and operating expenses (sales and marketing, research and development, general and administrative), as well as interest expense, other income, and provision for income taxes Revenue Total revenue decreased by $5.3 million (12%) to $37.7 million in Q1 2024 compared to Q1 2023 Subscription and other platform revenue, which constitutes 92% of total revenue, decreased by 12% ($4.5 million) Professional services revenue decreased by 22% ($0.8 million) The decline was primarily due to lower net customers, reduced ARR, and decreased demand for the de-emphasized Virtual Conference product Revenue by Type | Revenue Type (in thousands) | 2024 | % of Total Revenue (2024) | 2023 | % of Total Revenue (2023) | $ Change | % Change | | :-------------------------- | :---------- | :------------------------ | :---------- | :------------------------ | :---------- | :------- | | Subscription and other platform | $34,829 | 92% | $39,364 | 91% | $(4,535) | -12% | | Professional services | $2,898 | 8% | $3,699 | 9% | $(801) | -22% | | Total revenue | $37,727 | 100% | $43,063 | 100% | $(5,336) | -12% | - Revenue excluding the Virtual Conference product decreased by 11% ($4.4 million)[110] - The decrease in subscription revenue was primarily due to lower net customers and reduced ARR[111] - Professional services revenue decreased as more customers opted for "self-service" options[112] Cost of Revenue and Gross Margin Total cost of revenue decreased by $3.4 million (26%) to $9.8 million in Q1 2024, primarily due to active cost management and headcount reductions from restructuring activities This led to an improvement in gross margin from 69% in Q1 2023 to 74% in Q1 2024 The company expects gross margin for 2024 to be relatively consistent with 2023 Cost of Revenue and Gross Margin Summary | Metric (in thousands) | 2024 | % of Total Revenue (2024) | 2023 | % of Total Revenue (2023) | $ Change | % Change | | :-------------------- | :---------- | :------------------------ | :---------- | :------------------------ | :---------- | :------- | | Total cost of revenue | $9,782 | 26% | $13,206 | 31% | $(3,424) | -26% | | Gross profit | $27,945 | 74% | $29,857 | 69% | $(1,912) | -6% | | Gross margin | 74% | | 69% | | 5 pp | | - Cost of revenue decreased primarily due to active cost management and headcount reduction related to restructuring activities[114] - Gross margin improved due to cost reductions across the business, despite continued investment in cloud infrastructure[115] - Gross margin for 2024 is expected to be relatively consistent with 2023[116] Operating Expenses Operating expenses saw significant reductions across all categories in Q1 2024 compared to Q1 2023, primarily driven by headcount reductions from restructuring activities and active cost management Sales and marketing, research and development, and general and administrative expenses all decreased, contributing to improved operating loss Sales and Marketing Sales and marketing expense decreased by $4.3 million (18%) to $20.1 million in Q1 2024, primarily due to a $3.0 million reduction in personnel-related expenses from headcount reductions and active cost management The company expects this expense to decrease in absolute dollars in 2024 Sales and Marketing Expense | Metric (in thousands) | 2024 | % of Total Revenue (2024) | 2023 | % of Total Revenue (2023) | $ Change | % Change | | :-------------------- | :---------- | :------------------------ | :---------- | :------------------------ | :---------- | :------- | | Sales and marketing | $20,074 | 53% | $24,417 | 57% | $(4,343) | -18% | - The decrease was primarily due to a $3.0 million reduction in personnel-related expenses from headcount reductions and active cost management[117] - Sales and marketing expense is expected to decrease in absolute dollars in 2024 compared to 2023[118] Research and Development Research and development expense decreased by $2.0 million (18%) to $9.1 million in Q1 2024, driven by active cost management and headcount reductions The company is focusing investments on generative AI capabilities for its product offerings, such as ACE This expense is expected to moderately decrease in absolute dollars in 2024 Research and Development Expense | Metric (in thousands) | 2024 | % of Total Revenue (2024) | 2023 | % of Total Revenue (2023) | $ Change | % Change | | :-------------------- | :---------- | :------------------------ | :---------- | :------------------------ | :---------- | :------- | | Research and development | $9,109 | 24% | $11,099 | 26% | $(1,990) | -18% | - The decrease was primarily due to active cost management and headcount reduction related to restructuring activities[119] - Investments are focused on generative AI capabilities for product offerings like ACE[119] - Research and development expense is expected to decrease moderately in absolute dollars in 2024[120] General and Administrative General and administrative expense decreased by $3.0 million (21%) to $11.2 million in Q1 2024 This was primarily due to the absence of $2.4 million in professional advisory expenses related to activism defense incurred in Q1 2023, along with active cost management and headcount reductions This expense is expected to decrease modestly in absolute dollars in 2024 General and Administrative Expense | Metric (in thousands) | 2024 | % of Total Revenue (2024) | 2023 | % of Total Revenue (2023) | $ Change | % Change | | :-------------------- | :---------- | :------------------------ | :---------- | :------------------------ | :---------- | :------- | | General and administrative | $11,236 | 30% | $14,278 | 33% | $(3,042) | -21% | - The decrease was primarily due to the absence of $2.4 million in professional advisory expenses associated with activism defense incurred in Q1 2023[107][121] - General and administrative expense is expected to decrease modestly in absolute dollars in 2024[122] Interest Expense Interest expense remained relatively flat at $11 thousand in Q1 2024 compared to $29 thousand in Q1 2023 Interest Expense Summary | Metric (in thousands) | 2024 | % of Total Revenue (2024) | 2023 | % of Total Revenue (2023) | $ Change | % Change | | :-------------------- | :--- | :------------------------ | :--- | :------------------------ | :------- | :------- | | Interest expense | $11 | 0% | $29 | 0% | $(18) | -62% | Other Income, Net Other income, net, was $(2.3) million in Q1 2024, an 11% decrease from $(2.6) million in Q1 2023 This change was primarily driven by an increase in investment income Other Income, Net Summary | Metric (in thousands) | 2024 | % of Total Revenue (2024) | 2023 | % of Total Revenue (2023) | $ Change | % Change | | :-------------------- | :---------- | :------------------------ | :---------- | :------------------------ | :------- | :------- | | Other income, net | $(2,277) | -6% | $(2,572) | -6% | $(295) | -11% | - The change was primarily driven by an increase in investment income[126] Provision for Income Taxes The provision for income taxes increased by $0.3 million (153%) to $0.5 million in Q1 2024, primarily due to an increase in realized foreign exchange gains in foreign jurisdictions Provision for Income Taxes Summary | Metric (in thousands) | 2024 | % of Total Revenue (2024) | 2023 | % of Total Revenue (2023) | $ Change | % Change | | :-------------------- | :--- | :------------------------ | :--- | :------------------------ | :------- | :------- | | Provision for income taxes | $495 | 1% | $196 | 0% | $299 | 153% | - The increase was primarily driven by the increase in realized foreign exchange gains in foreign jurisdictions[127] Liquidity and Capital Resources As of March 31, 2024, ON24 had $196.1 million in cash, cash equivalents, and marketable securities The company completed a $75 million share repurchase program in February 2024 and approved a new $25 million program in March 2024 Restructuring costs of $1.2 million were incurred in Q1 2024, with an additional $0.6-$0.9 million expected in Q2 2024 The company believes existing liquidity will be sufficient for at least the next 12 months, but future capital requirements depend on various factors including growth rate and R&D investments - As of March 31, 2024, ON24 had $196.1 million in cash, cash equivalents, and marketable securities[128] - The company completed a $75 million share repurchase program in February 2024 and approved a new $25 million program in March 2024, with $25.0 million available[129] - Restructuring costs of $1.2 million were incurred in Q1 2024, with an additional $0.6 million to $0.9 million expected in Q2 2024[130] - The company believes existing cash, cash equivalents, and marketable securities will be sufficient to meet needs for at least the next 12 months[132] Operating Activities Net cash provided by operating activities increased by $6.3 million, shifting from $4.2 million used in Q1 2023 to $2.1 million provided in Q1 2024 This improvement was primarily due to a $6.9 million decrease in net loss, partially offset by unfavorable changes in operating assets and liabilities Operating Activities Cash Flow | Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Change (in thousands) | | :-------------------- | :------------------------------ | :------------------------------ | :-------------------- | | Net cash provided by (used in) operating activities | $2,138 | $(4,167) | $6,305 | - The increase in cash inflow from operating activities was primarily attributable to a $6.9 million decrease in net loss[135] - Working capital used $2.1 million in Q1 2024, an increase of $0.4 million in cash outflow compared to Q1 2023[137] Investing Activities Net cash used in investing activities was $32.3 million in Q1 2024, a significant unfavorable change from $88.8 million provided in Q1 2023 This was mainly driven by a decrease in proceeds from maturities and sales of marketable securities, partially offset by a decrease in purchases of marketable securities Investing Activities Cash Flow | Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Change (in thousands) | | :-------------------- | :------------------------------ | :------------------------------ | :-------------------- | | Net cash (used in) provided by investing activities | $(32,250) | $88,762 | $(121,012) | - The unfavorable change was primarily driven by a $165.7 million decrease in proceeds from maturities and sales of marketable securities, partially offset by a $45.5 million decrease in purchases of marketable securities[138] Financing Activities Net cash used in financing activities decreased to $4.6 million in Q1 2024 from $10.9 million in Q1 2023 This reduction in cash outflow was primarily due to $5.5 million less spending on share repurchases Financing Activities Cash Flow | Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Change (in thousands) | | :-------------------- | :------------------------------ | :------------------------------ | :-------------------- | | Net cash used in financing activities | $(4,636) | $(10,947) | $6,311 | - The decrease in cash outflow was primarily driven by $5.5 million of decreased spending on share repurchases[140] Debt Obligations ON24 has a revolving credit facility with Comerica Bank, offering a maximum borrowing capacity of $50.0 million, maturing in August 2024 As of March 31, 2024, the company had not drawn down on this facility and maintained full borrowing capacity The facility is secured by substantially all assets and includes financial covenants, which the company met - ON24 has a revolving credit facility with a maximum borrowing capacity of $50.0 million, maturing in August 2024[141] - As of March 31, 2024, the company had not drawn down on its line of credit and had a borrowing capacity of $50.0 million[142] - The facility is secured by substantially all assets and includes financial covenants, which the company met by maintaining deposit requirements[141] Commitments and Contractual Obligations As of March 31, 2024, ON24's total non-cancelable contractual obligations amounted to $12.1 million, with $5.5 million due in the remainder of 2024 and $6.3 million due between 2025 and 2026 These obligations primarily consist of operating lease obligations, finance lease obligations, equipment loans, and purchase commitments (software licenses and co-location services) Commitments and Contractual Obligations by Period | Payments Due by Period (in thousands) | Total | Remainder of 2024 | 2025 to 2026 | 2027 to 2028 | 2029 and Thereafter | | :---------------------------------- | :---------- | :---------------- | :----------- | :----------- | :------------------ | | Operating lease obligations | $4,806 | $2,242 | $2,531 | $33 | $0 | | Finance lease obligations | $44 | $44 | $0 | $0 | $0 | | Equipment loans | $36 | $36 | $0 | $0 | $0 | | Purchase commitments | $5,164 | $2,089 | $2,960 | $115 | $0 | | Other | $2,027 | $1,082 | $853 | $92 | $0 | | Total | $12,077 | $5,493 | $6,344 | $240 | $0 | Critical Accounting Policies and Estimates There have been no significant changes to ON24's critical accounting policies and estimates during Q1 2024, as previously discussed in its annual report on Form 10-K for the year ended December 31, 2023 - No significant changes to critical accounting policies and estimates occurred during the quarter[145] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses ON24's exposure to market risks, primarily focusing on interest rate risk related to its investment portfolio The company's investments consist mainly of money market mutual funds and fixed-interest marketable securities, and it employs strategies to limit risk without engaging in speculative investments A hypothetical analysis of interest rate shifts is provided Interest Rate Risk ON24's primary exposure to interest rate risk relates to its investment portfolio, which consists mainly of money market mutual funds and fixed-interest marketable securities (U.S. Treasury and Agency securities) The company attempts to limit this risk by investing in liquid, investment-grade securities and does not engage in speculative investments A hypothetical immediate parallel shift in the yield curve of +/- 150 basis points would result in a fair value change of approximately +/- $1.7 million for marketable securities - The company's exposure to interest rate risk primarily relates to its investment portfolio, consisting of money market mutual funds and fixed-interest marketable securities[147][148] - ON24 limits interest rate and credit risk by investing in liquid, investment-grade securities and does not engage in speculative investments[148] Marketable Securities Fair Value under Hypothetical Yield Curve Shifts | Hypothetical Yield Curve Shift | Fair Value (in thousands) as of Mar 31, 2024 | | :----------------------------- | :------------------------------------------- | | -150 BPS | $179,454 | | -100 BPS | $178,891 | | -50 BPS | $178,328 | | Actual (March 31, 2024) | $177,766 | | +50 BPS | $177,203 | | +100 BPS | $176,640 | | +150 BPS | $176,078 | Item 4. Controls and Procedures This section details the evaluation of ON24's disclosure controls and procedures, concluding that they were effective at a reasonable assurance level as of March 31, 2024 It also states that there were no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures As of March 31, 2024, ON24's management, including its CEO and CFO, concluded that its disclosure controls and procedures were effective at a reasonable assurance level - As of March 31, 2024, disclosure controls and procedures were effective at a reasonable assurance level[151] Changes in Internal Control over Financial Reporting There were no changes in ON24's internal control over financial reporting during Q1 2024 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2024[152] PART II—OTHER INFORMATION Item 1. Legal Proceedings ON24 is a defendant in a consolidated putative class action lawsuit alleging misstatements in its IPO registration The district court granted the defendants' motion to dismiss with prejudice in March 2024, but the plaintiff has filed a notice of appeal The company believes the allegations are without merit and does not currently expect other legal proceedings to have a material impact on its financial condition - A consolidated putative class action lawsuit related to ON24's IPO was dismissed with prejudice in March 2024, but the plaintiff has appealed[153] - The company believes the allegations are without merit and does not anticipate other legal proceedings to materially impact its financial condition, results of operations, or cash flows[153][154] Item 1A. Risk Factors Investing in ON24 common stock involves a high degree of risk, including those related to declining revenue growth, fluctuating quarterly results, intense competition, adverse economic conditions, reliance on third-party services, cybersecurity threats, rapid technological changes, long sales cycles, and geopolitical events Risks also include those related to the company's history of net losses, ability to attract and retain personnel, and compliance with various laws and regulations (e.g., privacy, export controls, intellectual property) Summary of Risk Factors This section provides a high-level overview of the key risks detailed in Item 1A, including those related to revenue growth, customer acquisition, financial performance fluctuations, competition, economic conditions, technology, cybersecurity, international operations, legal compliance, intellectual property, and stock ownership - Key risks include the ability to grow revenue, attract and expand sales to customers, manage performance fluctuations and net losses, navigate competition and technological development, mitigate adverse economic conditions, expand sales/marketing, manage impacts of in-person marketing, address technology disruptions/cybersecurity, handle sales cycle/international presence, ensure interoperability, comply with regulations, protect intellectual property, and manage common stock market volatility[159] Risks Related to Our Business and Our Industry This section details risks specific to ON24's operations and market These include a decreasing revenue growth rate (down 12% in Q1 2024 YoY), significant quarterly fluctuations, challenges in attracting and retaining customers (due to churn and competition), intense competition from various software providers, adverse economic conditions impacting marketing budgets, and the potential for declining demand for live engagement technologies Other risks involve issues with AI in the platform, heavy reliance on third-party computing services and data centers, cybersecurity threats, inability to respond to rapid technological changes, long sales cycles for Enterprise customers, and business/economic risks from international operations (23% of Q1 2024 revenue from outside US) - Revenue growth rate has decreased, with Q1 2024 revenue down 12% compared to Q1 2023, influenced by reduced customer budgets and increased in-person marketing[158] - Quarterly results are subject to significant fluctuations due to factors like customer retention, sales cycle length, seasonality of marketing budgets, and timing of expenses[160][163] - Failure to attract new customers or retain/expand existing customer usage, especially with the de-emphasis of products like Virtual Conference, would harm the business[161][162] - Intense competition from companies like Zoom, Microsoft, and Cisco, some offering lower-priced or free alternatives, could lead to market share loss or pricing pressure[165][166] - Adverse economic conditions, including inflation and labor market constraints, can reduce spending on sales and marketing technology, impacting revenue[167] - Issues with AI-powered capabilities, including flaws, biased data, or legal uncertainties, could result in reputational harm or liability[173] - Heavy reliance on third-party cloud providers and data centers makes the company vulnerable to service interruptions, delays, or outages[174][177] - Cybersecurity attacks, data breaches, or disruptions of IT systems pose significant risks, potentially leading to unauthorized data access, regulatory actions, litigation, and reputational damage[182][184] - The company's ability to innovate and introduce new features is critical, but reduced R&D investment and workforce reductions could impact this[188] - International operations (23% of Q1 2024 revenue from outside the US) expose the company to risks like compliance with diverse laws, geopolitical instability (e.g., Ukraine-Russia war, Gaza-Israel conflict), and foreign exchange fluctuations[100][192][195] - Revenue recognition over subscription terms means sales increases/decreases are not immediately reflected, making performance difficult to discern[197] - Defects or errors in the platform, or issues with third-party hardware/software, could interrupt service, cause data loss, and harm business[199][200] - Dependence on interoperability with third-party devices, operating systems, and applications means changes by these third parties could harm the business[202][203] - Failure to maintain and enhance the ON24 brand could impair customer acquisition[204] - Loss of key senior management or failure to attract/retain qualified personnel could harm business strategy and culture[206][207] - Failure to maintain effective disclosure controls and internal control over financial reporting could impair timely and accurate financial statements[215] - Non-compliance with privacy laws (e.g., GDPR, CCPA), export/import controls, sanctions, and anti-boycott laws could lead to fines, penalties, and reputational harm[219][224][233][239] - Use of open source software may subject the company to litigation or require disclosure of proprietary code[246] - Allegations of intellectual property infringement could lead to costly litigation, redesigns, or license agreements[248][249] - Failure to protect intellectual property rights and proprietary information could diminish brand value and allow competitors to replicate the platform[253] - Acquisitions of other companies, products, or technologies could require significant management attention, disrupt business, or dilute stockholder value[255] - The company may need additional capital, which may not be available on favorable terms, and covenants in its loan agreement could restrict operations[257][258] - Indebtedness could affect financial condition and limit business expansion[259] - Fluctuations in currency exchange rates could adversely affect results of operations, as 13% of Q1 2024 revenue and 10% of expenses were non-USD denominated[260] - The ability to use net operating loss carryforwards and other tax attributes may be limit