On24, Inc. ((ONTF)) has held its Q4 earnings call. Read on for the main highlights of the call.
The recent earnings call for ON24, Inc. presented a mixed sentiment, highlighting both positive developments and challenges. The company has experienced significant success with its AI-powered ACE platform, improved retention rates, and strong performance in regulated industries, suggesting a positive trajectory toward growth and profitability. However, challenges such as a decrease in ARR, revenue decline, and significant customer downsells indicate a cautious outlook.
AI-Powered ACE Platform Success
The AI-powered ACE platform, launched in January 2024, has been a significant contributor to ON24’s growth, accounting for over 20% of growth ARR bookings. The platform’s customer base has expanded each quarter, reaching double digits as a percentage of the overall customer base, showcasing its increasing adoption and success.
Improvement in Retention Rates
ON24 has seen its highest gross retention rates in three years, with net retention for the Enterprise business improving to 91%, marking a mid-single-digit improvement over 2023. This improvement in retention rates is a positive indicator of customer satisfaction and loyalty.
Positive Financial Metrics
The company reported an improvement in non-GAAP gross margin from 75% in 2023 to 77% in 2024. Additionally, the adjusted EBITDA margin improved by almost 200 basis points, and the free cash flow turned positive at $2.6 million, compared to a negative $14.4 million in 2023, reflecting better financial health.
Strong Performance in Regulated Industries
ON24 continues to perform well in regulated industries such as life sciences and financial services, with significant customer wins and expansions. This strength in regulated verticals highlights the company’s ability to cater to specialized market needs.
Customer Base and Multi-Product Adoption
The percentage of customers using two or more products reached an all-time high of nearly 40%. Additionally, ARR from multi-year deals increased to 51%, indicating a growing trend of customers committing to longer-term engagements with ON24.
Decrease in ARR
Despite the successes, ON24 reported a decrease in ending ARR related to the core platform, totaling $127.3 million, which is approximately $2.3 million less compared to Q3 2024. This decrease poses a challenge to the company’s growth trajectory.
Revenue Decline
Revenue from the core platform, including services, in Q4 2024 was $36.0 million, representing a 6% year-over-year decline. This decline in revenue is a concern that the company needs to address moving forward.
Significant Downsells
ON24 experienced two significant customer downsells, which adjusted the scope of their work with the company for business reasons. These downsells highlight the challenges in maintaining customer engagements at previous levels.
Forward-Looking Guidance
Looking ahead, ON24 aims to return to ARR growth in 2025, with expectations of a 1% to 2% increase compared to 2024 levels. The company projects Q1 core platform revenue between $33.4 million and $33.9 million, with total revenue ranging from $34 million to $34.5 million. ON24 plans to invest in AI innovation and maintain a disciplined approach to expenses, targeting annual core platform revenue of $136.3 million to $139.3 million and total revenue of $138.6 million to $141.6 million. The company is committed to achieving positive adjusted EBITDA and non-GAAP EPS profitability for 2025, despite a seasonally softer Q1.
In conclusion, ON24’s earnings call reflects a blend of optimism and caution. While the company has achieved notable success with its AI-powered platform and improved financial metrics, challenges such as declining ARR and revenue, along with customer downsells, require careful navigation. The forward-looking guidance suggests a strategic focus on growth and profitability, underscoring the company’s commitment to overcoming these challenges.