ON24 Inc. Q1 2023 Earnings Call
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Greetings and welcome to the <unk> 24 first quarter 2023 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure Tim.
Curious your house, Lauren Sloane Investor Relations for <unk> 24. Thank you Lauren you may begin.
Thank you Hello, and good afternoon, everyone. Welcome to our 24th first quarter 2023 earnings conference call on the call with me today are shot Sean co founder and CEO of <unk>, 24, and Steve <unk> Chief Financial Officer on 24.
Before we begin I would like to remind everyone that some information provided during this call will include forward looking statements regarding future events and financial performance, including the execution of our capital return program and guidance for the second quarter and full fiscal year 2023, as well as certain second quarter and full year non.
GAAP projection is.
Forward looking statements are subject to known and unknown risks and uncertainties that could adversely affect 'twenty for future results and cause these forward looking statements to be inaccurate.
Including our ability to grow our revenue attract new customers and expand sales to existing customers.
Success of our new products and capabilities.
Until measures please refer to today's financial press release.
I will now turn the call over to scrap. Please go ahead.
Thank you and welcome everyone to 120 fours four score 2023 financial results Conference call.
We appreciate you joining us with me today is Steve <unk> Chief Financial Officer.
Before we get into the results.
As a reminder.
2004 platform includes six integrated products to create live all of us on and Personalised experiences that work together to drive deep engagement generate first party data.
And provide a unified setup customer insights and analytics.
Integrated with our customers business systems, so that sales and marketing organizations can take the right actions to deliver cost effective revenue growth.
Redefined this is the core platform, which supports enterprises predominantly in sixth verticals Tech.
Technology.
Life Sciences professional services financial services manufacturing and be to be information services.
With a focus on the following yields cases demur.
Demand generation healthcare professional engagement.
<unk> certification and training partner enablement and remember enrollment.
As we stated on our last call. We have emphasized the virtual conference product and are now focused on our core platform.
We are pleased to report Q1 results in line with our expectations.
Q1, Cor platform revenue, including services was $41.2 million in total revenue, including virtual conference was $43.1 million.
Both at the high end of our guidance range.
Of total revenue for the quarter subscription and other platform revenue was $39.4 million and a professional services revenue was three $7 million.
We posted a non-GAAP operating loss of $4.2 million in Q1.
We ended Q1.
With $149.2 million.
And are are related to our core platform, representing a sequential decrease from Q4 of $3.3 million in line with our expectations.
Regarding our path to profitability.
We are on track to achieve our previously stated goal of reaching breakeven non-GAAP EPS by a Q2 23.
Following a cost reduction programs are headcount now stands 13% lower as compared to December 22000.
While the actions we have taken.
Have been difficult, we believe a streamlined cost structure positions us for profitable growth in 2024 and beyond.
We continue to operate in a period of heightened macroeconomic uncertainty, resulting in greater budget scrutiny from customers, particularly in the technology and manufacturing verticals, which as a reminder account for close to half of our core platform era.
Our customer budgets for our solutions stemmed predominantly from the marketing departments, which are currently seen the highest impact from the macro resulting in budget cuts and layoffs.
Despite these challenges, which we believe are temporary in nature I'm pleased with the results and the progress we made the first quarter.
And I'm optimistic about the steps we are taking to focus on our profitability.
We have reduced our cost structure.
Expect to achieve non-GAAP EPS breakeven by Q2 twenty-three and our next milestone will be to achieve breakeven EBIDTA in Q4 of 2023.
As we disclosed in March we have taken additional measures to enhance shareholder value, including an expanded capital return program of $125 million, which Steve will discuss in more detail.
We also have strengthened our corporate governance with the addition of three new board members.
We are excited to welcome Cynthia Paul Ron Mitchell, and Theresa Nania to the board and believe they already are providing valuable insights.
Cynthia is the founder Chief investment Officer, and Chief Executive Officer of Lindroth Lake LP.
She's a season investor an executive with nearly 30 years of experience investing across the full capital structure of public and private technology companies.
Ron is the co founder and Chief Executive Officer at humanity help and joins the board with more than 20 years of experience building, managing and growing technology enabled consumer businesses.
Teresa as a senior vice president of global customer success renewals and customer experience at Zendesk.
She has a proven track record of increasing customer lifetime value and retention, while driving revenue growth.
We continue to enhance our corporate governance and with these appointments we have expanded our board to nine directors eight of whom are independent and six of whom were appointed and the last three years.
I'm looking forward to working with a new directors and leveraging their collective experience and valuable insights as we navigate on 24 to the next phase of profitable growth.
With the added expertise on our expanded board I'm, even more bullish on the market opportunity that lies ahead.
Digital sales and marketing is still limits early days and we are uniquely positioned to help enterprises adapt they'll go to market strategy.
The shift of audience engagement two digital channels is especially important for the key use cases, we support.
One scaling demand generation programs and improving pipeline conversion.
To enhancing healthcare professional and patient engagement with omnichannel content and experiences.
Three facility.
Facilitating continuing professional education and certification for accounting legal and other service professions.
For enabling channel partners, and five enrolling members and enabling brokers.
While we cannot control the macro environment, we are laser focused on controlling what we can control and we have three main priorities to further strengthen our business.
First.
Delivering on our profitability targets.
Second.
Focus on enterprises with over a thousand employees, where we offer differentiated solutions.
Third relentless platform and product innovation with a focus on generate of AI.
First.
I'll talk about our path to profitability.
We are on track to reach breakeven non-GAAP EPS and Q2 of this year.
We will not stop there.
We will continue to make improvements in our operational efficiency.
We expect to achieve breakeven non-GAAP EBITDA by Q4, 2023, and we are committed to long term profitable growth in 2024 and beyond.
I am confident that this business will generate double digit growth and double digit EBITDA margins.
Second I'll discuss in our focus on enterprises with over a thousand employees, where we offer differentiated solutions.
The majority of our business close to 80% is with thousand plus employee confidence.
And Q1 or enterprise customers continued to commit to longer deals and a multiyear IRR from this cohort was at its highest ever.
Our enterprise customer tenure is very strong and our top twenty-five customers have expanded that core platform aggregate spend with us by over five times in the past five years.
We are seeing are multi product strategy pay off.
Our ASB for new enterprise customers, and Q1 increase year over year to its highest level and last four quarters.
As we move forward, we are increasingly focused on driving mission critical use cases that enable our customers to grow revenue cost effectively.
I would like to highlight for use cases, where our customers utilize our differentiated solutions.
First.
Our solution support large global demand generation teams and the verticals of technology manufacturing and information services will repower, the ability to engage prospects and customers across the globe and convert that engagement and the new sales opportunities and ultimately revenue.
Having a single platform to centralize streamlined and automate processes is critical to our customers ability to increase pipeline generation improve.
Improved conversion rates and gain significant Ottawa.
Second in.
The highly regulated industries are far mine life Sciences.
Our platform the ability to support compliance standards at the global scale power multiple experienced types with a single platform and provide data that is integrated into leading lifestyles CRM systems helps our customers educate and engage with healthcare professionals.
Third.
Platform automates the entire process from start to finish to enable professional services and financial services organizations.
Run and manage large scale compliance professional certification and Credentialing programs.
Thereby increasing the reach and cost efficiency of running these programs while supporting compliance.
For our platform supports privacy and compliance standards and that's strictly regulated healthcare and commercial insurance insurance categories. As these customers look to acquire new corporate clients.
Drive enrollment of potential members.
Like virtual member benefits and develop new business for the agents and brokers.
Returning to our three main priorities to further strengthen our business we've already touched on our goals to achieve our profitability targets and offer differentiated solutions to our enterprise clients.
I would like to discuss a third initiatives.
<unk> focus on platform and product innovation powered by generated AI.
As I shared at the beginning of our call our platform allows customers to engage with millions of their prospects and customers.
Take the audience engagement across these experiences gap.
Capturing more than 20, plus unique data points per attendee poor experience <unk>.
Unified those data points into a single source of Forest Party data.
And convert that data into insights mid actionable two are deep real time integrations with CRM <unk>.
Marketing automation platforms and other business systems.
Audiences spent almost an hour on average interacting with on 2004 experiences.
Providing unique insights that other marketing channels cannot supply since they have interactions that typically last seconds or minutes.
This differentiation has allowed us could develop a rich unmatched resource of millions of human generated interactions.
And we believe that our foundation of first party data and insights provides a significant competitive advantage.
As we execute on our strategy, we are focused on three key areas.
First the automation of derivative content.
Second engagement driven content creation recommendations and nurture capabilities.
Third and AI based program optimization engine.
While I wanted to be careful not to disclose too much about our future product roadmap I will highlight two tools that we introduce at the beginning of <unk>.
For digital marketing and sales teams to be successful today content creation is critical but is also one of the most resource intensive and time consuming aspects of sales and marketing.
Are generated AI capabilities will provide a solution for this problem.
Unlike other tools are content will be killed for our brands voice and messaging based on a rich source of human driven engagement there.
At the beginning of Q2, we introduce an embedded content generation to within our platform called Smart text.
That makes it possible for our customers to develop an entire promotional campaign with a simple prompt.
We also produced the first of its time key moments to Ah report that heat master sections of the experience that garnered the most audience engagement.
You can imagine our ability to extend these capabilities and future quarters, as we leverage AI to automate the creation of content.
To extend campaigns to drive more engagement with prospects and customers.
Capture more forest party data and to drive better results from programs to an AI based optimization engine.
Our goal is to help our customers to do more with less.
It is especially important in the current uncertain macroenvironment.
To learn more about our roadmap of platform innovations and our customers success stories.
We invite you to join us in our annual global user conference.
On 24 experience 2023, which we are hosting virtually on June 13th through June 15th.
Before I turn over to Steve Let me quickly highlight a few of Q1 key new business wins and expansion deals.
First our ability to power multiple experience types, while providing best practices and 24 by seven support from our professional services team resulted in a seven figure multiyear deal.
With a $10 billion, plus 40000, plus employ multinational insurance provider based in the U K.
Second and Ivy services provider with a thousand plus employees switch to on 24 from their point solution. After seeing the Ottawa, we have others in the industry achieved.
Their focus on how our solution can help reduce the customer acquisition costs and improve their profit margins.
Kurt.
An existing insurance and financial services customer with approximately 25000 employees and close to 30 billion in revenue last year expanded us air or from a pilot engagement to mid six figure annual deal.
Our ability to architect a holistic enterprise Greg solution that supports accessibility and compliance standards, while automating and streamlining internal processes was a key factor to increasing their commitment by 14 X.
Four.
An existing global manufacturer of healthcare products with nearly $20 billion in revenue and 50000 employees expanded its era footprint with us, but over 80 times over the past decade at this scale digital engagement across their supply chain from educating healthcare networks, who training.
Ultrasound technicians.
In summary.
Against the challenging macroeconomic backdrop, we delivered results in line with our expectations.
Continue to execute on our profitability targets.
Announced a $125 million capital return program and.
And strengthen our corporate governance.
While marketing budgets currently are under pressure that will not last forever.
And we believe that our platform enhancements.
AIG capabilities.
Enterprise focus.
In past two profitable growth will.
Will enhance long term shareholder value.
With that.
I will hand, it over to Steve.
Thank you shot and good afternoon, everyone I'm going to start with our first quarter of 2023 results and will then discuss our outlook for the second quarter of 2023 and full year 2023.
Before I get into the numbers as we highlighted last quarter, our focus will be on the core platform business is we're deemphasizing the virtual conference product, we view the metrics to our core platform such as revenue <unk> <unk> is the best Kpis to measure our performance.
Revenue from our core platform, including services in Q1 of 2023 was 41.2 million, representing a decrease of 7% year over year.
Total revenue for the first quarter, which includes revenue for virtual conference product was $43.1 million, representing a decrease of 11% year over year.
Total subscription and other platform revenue was 39 $44 million.
Overages represented approximately 1% of total revenue in Q1.
Total professional services revenue was $3.7 million, representing a decrease of 26% year over year, representing approximately 9% of total revenue compared to 10% the year ago period.
Or professional services revenue has declined as for customers to self service in the current charge economic backdrop.
Moving onto a remark.
<unk> represents annualized value of all subscription contract at the end of the period excludes professional services annual britches.
<unk> are are related to our core platform was $149.2 billion a decrease of $3.3 million from Q4 2022. It was consistent with the expectations. We set out on her last rites call.
For two line, we didn't see any improvement in the demand environment through the prior quarter Brown.
<unk>, we saw some incremental hesitancy from customers during March following the Silicon Valley Bank claps his concerns from the banking sector brought it.
Closing new business in the technology and manufacturing verticals, which collectively make up almost 50 per cent of our AOR remained challenging.
On a positive note we continued to see growth in our life sciences vertical the dive vertical growing error sequentially in Q1.
Here are for a virtual conference product with $6 $3 billion at the end of the Q1 2023 down from $7 million at the end of 2022.
Total AOR was $155.6 million at the end of the Q1 2000 twenty-three as compared to $159 $6 million at the end of 2022.
Turning to customer metrics, the number of customers contributing more than $100000 in total AOR totaled 333 down from 345 last quarter.
This number was primarily impacted by some customers reducing their spend under the 100000 dollar threshold due to budgetary pressures.
For a core platform a R. R. R. Average are are per customer at the end of Q1 2023 was the highest ever at $78000 per customer.
There are contribution from the 100 K plus customer cohort continues to represent approximately two thirds of our total a R. R which is consistent with the prior quarter and demonstrates the strength of our larger enterprise customers and their continued commitment to our platform.
Total customer count was 1960 customers compared to 1990 in the prior quarter.
Customer churn with an S M b, which comprises companies with less than 200 employees contributed more than half of the net logo reduction in Q1.
We continue to see our customers, making longer term commitments to our platform multi.
Multiyear contracts, which comprise 41 per cent of our IRR at the end of 2022 increased as a percentage of <unk> to the highest ever.
Before turning to expense items and profitability I would like to point out that I will be discussing non-GAAP results going forward or non-GAAP results exclude stock based compensation restructuring charges.
<unk> have acquired intangibles shareholder activism related costs as well as certain other items.
Financial results along with a reconciliation between gap in non-GAAP results can be found within our earnings release.
Most profit in the quarter was $31.6 million, representing a gross margin of 73%, which is a two point decrease year over year, a consistent with the commentary we provided on the primaries call.
<unk> previously longterm gross margin target is 78% to 80%.
Oh, turning the operating expenses sales and marketing expense in Q1 was $21 billion compared to $25.5 million a Q1 last year.
This represents 47 per cent of total revenue compared to 53% in the same period last year and 45% in the prior quarter.
Our sales and marketing expenses have decreased in absolute dollars from the prior quarter and year largely due to the cost savings measures implemented.
Q1, and also in the past year.
R&D expense in Q1 was $8.2 million compared to $8.7 million Q1 last year.
This represents 19% of total revenue compared to 80% the same period last year, 90% from last quarter.
We continue to make meaningful investments and product innovation with a focus on reallocating R&D spell into the highest priority R y projects.
G&A expensive Q1, with $7.5 million compared to $8.1 billion in Q1 last year.
This represents 17% of total revenue consistent with the prior quarters <unk>.
Taken actions as part of our broader cost containment measures to reduce our G&A costs. As a result are G&A expenses in absolute dollars have decreased compared to the prior year operating loss for Q1 was $4.2 billion or a negative 10% operating margin compared to an operating loss of $5 Sir.
$7 million in a negative 12% operating margin in the same period last year net loss in Q1 with $1.8 million or four cents per share based on approximately $47.3 million basic and diluted shares <unk>.
This compares to a net loss of $6 million or 13 cents per share in Q1 last year using approximately 47.6 million 30 <unk>.
Turning to the balance sheet and cash flow.
Ended the quarter with $315 $70 million.
And cash cash equivalents and marketable securities are strong balance sheet has allowed us to return a total of $41 million under our prior share repurchase program through February 2023 will also initiating an additional 125 million dollar capital of <unk> program, which we announced in March.
Committed to completing the 125 million dollar Czapla return program by Q1 2024.
The total with these two programs, we will be returning $166 million to our shareholders by the end of Q1 2024.
As previously announced the 125 million dollar capital returned program consists of two components. The first component is a special cash dividend of one dollar at nine cents per share, which totals approximately $50 million.
As described in a disclosure we shared yesterday sharples, it's a record.
May 22nd will be entitled to receive the dividend and the dividend will be paid on or about shades of T 2023 the.
The second component of the capsule richer program is $75 million share buyback program, which may be executed using an accelerated share repurchase program and we're open market repurchases.
It's two one we utilize $6 million under this program with an additional $9.9 million utilized thus far too too.
A total of $15.9 million utilized under this program today.
We are pleased to be able to undertake this meaningful capital return to our shareholders. While also maintaining ample liquidity to invest it strategic priorities and navigate through the current uncertain macro environment.
Turning to our use of cash to the quarter cash used in operations in Q1 was $4.2 million compared to cash used in operations of 6.8 billion in Q1 last year.
Free cash flow was negative $4.3 million in Q1 compared to negative 7.8 million Q1 last year.
Free cash flow margin was negative, 10% and Q1 compared to negative 16% in Q1 last year.
Before turning the guidance I want to provide an update on our plan to return to profitability.
Last quarter, we discussed our commitment to reach you on <unk> E. P. S breakeven by Q2 2023.
Remain on track to deliver on our commitment.
Q1, we initiated and meaningful cost reduction initiatives and reduce our head count by approximately 13% during the quarter, while also reducing non head count related vendor cost.
The cost reduction actions cover all areas of the company, including rationalize in a real estate footprint.
And one year, we will have reduced our total expense structure by approximately $40 million annually.
Our next profitability milestone will be 242023, when we expect to grow EPS and achieve breakeven non-GAAP EBITA and we do not plan to stop there.
Expect to continue expanding our profitability throughout 2024.
The measures, we are taking possession as well to deliver longterm profitable growth.
Moving the guidance instead.
Setting our fiscal year 2023 guidance, we assume the macro uncertainty continues and that we continue to see softness anarchy verticals, especially in those industries are marketing budgets are being reduced at a high rate.
We also assume that the weakness we saw March continues for the remainder of the year or marketing budgets are currently challenged we're confident in our strong market position and we remain optimistic about our longterm growth opportunity for.
For Q2, we expect <unk> revenue, including services the range of $39.5 million to $40.5 billion in total revenue, which excludes our virtual conference product in the range of $41.1 million to $42.1 billion <unk>.
Professional services is expected to represent approximately 90 per cent of total revenue.
We expect a non-GAAP operating loss in the range of $2.4 million to $1.8 billion in a non-GAAP earnings per share of.
Breakeven based on 50.5 million diluted shares outstanding.
We expect a restructuring charge of $1.5 million to $2.3 million to to relate it to our ongoing cost reduction efforts.
In a separate charge, a 123 million to $1.5 million or under utilized real estate, which we discuss last quarter.
These items are excluded from the non-GAAP amounts provided above.
In addition, we expect to incur certain one time expenses in queue to.
Related to the capital return program, we announced in March.
200000 $300000.
Cause we do not consider these cost CT of our business, we're excluding them from our non-GAAP guidance provided with us.
I would also like to share perspective on I R.
<unk> seems a sequential decline of 3.5% to 4% a core plot for a <unk> you too.
For a virtual conference product, which we have Deemphasized, we expect our virtual conference product <unk>.
A R R to decline by at least $1.5 million a Q2.
This would result in total are are declining sequentially Q2 by approximately 4.5 to five per cent.
We do expect to see better performance starting in the third quarter of this year with improved renewal cohort dynamics.
In addition for the next 12 months, we now have a larger percentage of are are are in multiyear contracts. We expect this to further improve our gross retention.
There are performance later this year.
Now, let me turn to our annual revenue guidance.
For the full year, we expect core apply for revenue, including services to be in the range of $156.5 million to $159.5 million a decline of 12% to 10%.
We expect total revenue to be in the range of $162 million to $165 million.
Professional services is expected to represent approximately nine per cent of total nephew.
We expect a non-GAAP offered a loss in the range of 10.5 billion to $8 billion in a non-GAAP net loss per share of seven cents per share two income per share a zero cents per share for Breaky, then E. P S using $45.1 million basic and delivered shares outstanding.
And 49.7 million diluted shares outstanding respectively.
Restructuring charges included.
Two one Q2 or a future quarters are excluded from full year non-GAAP amounts provided above.
Our estimate of shares outstanding takes into account the impact of our capital return program.
Bottom line annual guide this reflects the cost reduction efforts I discussed earlier, which includes reaching breakeven non-GAAP EPS by Q2 of 2023 and reaching breakeven EBIDTA.
Positive non-GAAP E P S by 242023.
In terms of margins would expect gross margins in 2023 to be in the low to mid seventies consistent with the expectations, we laid out previously.
As a reminder, or a longterm gross margin target model, 78% to 80%.
In summary.
We are operating in a challenging economic environment, we are executing on a strategy and controlling what we can control.
We believe that we are well positioned to deliver longterm profitable growth in 2024.
With profitability expanding throughout 2024.
While continuing to enhance shareholder value.
As evidenced by our 125 million dollar Chapo returned program.
With that <unk> and I will open the call up for questions.
Thank you will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line and then the question Q U a press start to if you'd like to remove your question from the Q2 participants using speaker equipment and it'd be necessary to pick up your handset before pressing with our kids.
One moment, please while we poll for questions.
First question is from <unk> with William Blair. Please proceed with your question.
Hi, guys at faith, and burnt Orange and thanks for taking my question. So can you just provide some color and what's helping drive this enterprise pipeline that you're saying are these large or a new customer lands driving increased reference ability or anything partnerships, helping bring in their names how you're thinking about that.
Yeah, Hi.
Let me take that let me talk a little about pipeline first and partnership next so <unk> pipeline creation met our expectations. It was double digit better as a percentage compared to Q4.
And actually the initiatives are new Cmis's. It has undertaken are having an impact and also be saw strong pipeline growth for for a new product again, a lot of our focus here is is to generate pipeline in the enterprise segment.
At the same time, we did see customers in general being a little more deliberate and taking longer to come at your purchases as their budgets got tighter.
The other thing that also helped us I've talked about on the partner sites that building a partner channel is one of our top priorities.
And in Q1, one of our largest deals were sourced through a partner and just overall.
Contribution of partner influence and source bookings for the quarter was the highest ever it was in the in double digits.
And we made we made good progress on that in the last 12 months.
Our goal is to grow Parker bookings overtime to 20% or higher contribution and the progress currently is encouraging.
Awesome. Thank you for the color.
Thank you. Our next question is from Scott Bird with need them. Please proceed with your question.
Hi, Steve Thanks for taking my questions.
First question is to me is it looks like you lowered your total revenue guidance for the year ear by about $4 million at the mid point you seem pretty pleased with your gross bookings and a quarter or at least they were in line with your expectations can you help us understand the delta between maybe what's different in your assumptions over the last.
Maybe days.
Yes, Scott.
Sure.
A bad cough.
Steve Let me spell that then you can jump in and let let me get provide Scott at some color on the outlook for the second quarter.
We are not seeing an improvement in the demand environment from Q1.
As we talked about majority of our customers are in tech manufacturing and financial services verticals and the marketing budget. There are getting hit the most compared to any others do lay offs and budget cuts.
And this is <unk> this is <unk>.
Realizing with pressure on down sells at renewal Scott So what our teams are focused on his too.
<unk> provide.
Providing more products to our customers, but as as we fill those down so that's creating more pressure and expanding the accounts and it's it's really the uncertainty.
That we are seeing in the market that is being challenging so as we look at.
The rest of them Yeah, we are being conservative went back from that and that being said as I look at the second half I'm encouraged and we've talked about we expected better on are are are in the second half because the.
The number of bills and multiyear contract is a lot better than it was in the forest App, we talked about how.
In the first quarter are are are in multiyear deals what was the highest ever. So we just have locked less to renew and secondly, we also expect.
<unk> higher S b with bundling of multiple products something we had success with in Q1 will be helpful State.
Yeah, just to add on to withdraw it was saying we are seeing increased pressure on marketing budgets, which is impacting most of our core vertical as it started with a tech manufacturing William.
Really impacting all other vehicles and because of this we are taking an incrementally more conservative view Scott for the remainder of the <unk> <unk>.
Can you expect this macro uncertainty to continue for the rest of the year.
Given our expectations for nearly tomorrow and new term core platform a are and the more limited visibility we have in the second half we think it's going to.
Be more conservative with the guidance at this point now despite the lower top why we're maintaining our bottom line guidance for the year.
And we do expect to be non-GAAP , EPS breakeven you too and our next smarter has to be.
Gap EBITA breakeven in Q4.
2024, we expect to continue to make progress on improving our bottom line performance.
Great. Thank you for the color of their then from a follow up question sure you laid out a couple of.
New initiatives on the AI front, especially with a genitive AI how should we think about how.
Customers are going to cut out I guess leverage or use those those platforms are these something that you're gonna be able to monetize.
In an incremental way or is this functionality just kind of being built into the platform to help with your general competitive differentiation. Thanks.
I I I think it's a combination of both but let me just take a step backward but for Scott.
For our business focused on sales and marketing is an enabler.
And what it allows us to do is to create technology and the platform for our customers to do more with less which is which is probably the most important in this market environment <unk>, let me explain.
But first of all our foundation of course, 40 data and insights provided a significant competitive advantage for our <unk> strategist start forward and so we have three core areas of your focused on and I've gotten some really good customer feedback.
We are still deciding on pricing and package now one is the what we call the automation of <unk> like I talked about for digital marketing and sales content of the Beast. It is where a lot of dollars are spent.
And at the beginning of Q2 reintroduced in embedded content generation tool within our platform called smart text and it makes it possible for our customers to develop an entire promotional campaign with a simple drunk now will extend these capabilities into the next floor now imagine <unk> you have the 60 minutes, a 90 minute long form content.
Webinars, you'll be able to kind of take those.
<unk> those into E books, and blogs and videos so to be able to solve your content problem without really using many more people I think we're going to continue to look at the pricing and packaging for that but that is going to be very exciting for our customers to we had also not using <unk> analysed the performance of this long.
<unk> like 60 minute webinars and producing would be called key moments reports snippets based on eight maps.
Audience engagement and based on AI. So that's already out there in the market.
And we are also looking to put together an AI based program optimization engine.
That will help our customers determine the next best action, they would be doing and executing programs again coming back to this whole thing sounds good still working on pricing and packaging, but more and more of our focus is given customer more tools to do more with less.
Okay.
Excellent. Thank you for taking my questions.
Thank you. Our next question is from Patrick Schultz with Bird. Please proceed with your question.
Hey, guys. Yeah. Thanks for taking my question I guess, the first one maybe for sure at can you just provide some additional color on what the conversation had been like with customers and I know you guys called out marketing budgets remaining under pressure and it sounds like the demand environment not improved during Q1 are you think pricing, becoming more frequent topic of conversation our customer is becoming more price sensitive and environment and hesitant.
In fact that the competitive environment.
Yeah, <unk> I think you talked about a few things. So let me talk about on on the customer side, and then I'll talk about pricing and then the competitive environment. So first first on the customer side.
The conversation that every major customer right now Patrick really starts with.
You know.
A conversation on down so I'll hate my budgets are being cut I bet I have layoffs happening I need I need to <unk>, what I'm using right now I just have lower budget. So.
That's what we start so the <unk>. So the first focus for the teams is to replenish those downstairs, which creates pressure on expanding those accounts.
So that's where we are seeing kind of the biggest challenge, especially because of every <unk> budget in our department right now marketing budgets are under the most pressure <unk> budget cuts that being said the team is still doing a good job and.
Kind of adding additional product, but it also puts the pressure on the expansion site now.
Next question was on on pricing, Yes, I mean, I think there is pressure on pricing you. When we are talking about new deals with customers. Almost every deal right now has some level of pricing pressure and and you have <unk>.
Part of that as we bring in additional product.
But you do have to add maybe 510% additional pricing than we did before okay now talking about competitive.
Just bringing it back in our focus has to be a one stop sales and marketing. Additionally engagement platform that converts engagement enter data and insight that drives revenue for our customers and an enterprise scale frankly, nobody does what we do.
Our focus on use cases like an increase in pipeline and demand gentleman version delivering Omnichannel program. So health care professionals to automating certification and Credentialing for professionals previously Patrick I've talked about how our competitors are two different environments. When is collaboration providers like zoo, but their cells.
<unk>, they don't have more data and insights.
And they are actually a good <unk>.
<unk> for us because customers get their first taste of digital engagement and then they needed <unk> data with sales and marketing platform data to us.
On the private companies side companies that up Orange solutions.
We are seeing many of these companies retreat from the market because they just don't have the balance shake too.
To compete so overall.
I think the market environment has not changed via the marketing budgets are under pressure, but this was an opportunity for us to build market share.
[laughter], okay. Thanks, I appreciate that detail caller, there and maybe Steve just switching over to tell you that the financial side you guys have done quite a bit on the expenses you know driving down a head count and just better by listening expense space, how should we be thinking about the trade off between improving revenue trends and driving profitability are there still some levers to pull on the expense side are well most of the.
Profitably improvement come with revenue recovering.
You know.
First of all the the goal is always to grow the top line and we're working.
To get back to growth, obviously, but in terms of how you can think about profitability and.
2024, and beyond them personally talk about who've done this far we reduce headcount by Q1, and Q1 by 13% and compared to mid 222022, which was a high watermark, we've reduced it by 23% total cost structure has been reduced by.
Approximately $40 million over the past year now with the cost reductions. We've made we do expect to get the breakeven <unk>.
<unk> P. P. S and Q2 has been committed to in non-GAAP you the top breakeven in queue Korean we're gonna continually work to increase our efficiency and it has crossed our cost structure.
The bottom line performance in 2024, and beyond Walmart target of delivering double digit non-GAAP EBIDTA margins in the future regardless of the top line.
Did this just to add to <unk> just to add to what Steve said, let me just add a couple of things yeah.
Patrick as we previously said, we expect to do better in the in the second half from any out of our perspective, but just with a limited visibility where marketing budgets are being hit the hardest right now we are being more conservative on second half <unk>.
Having managed to resolve these difficult environments, what differentiates this market environment. The most is the uncertainty.
We believe that one's that stabilises, even if the economy is stuff people will start investing in growth, which will help us. So severe focused on what we can control and that is product innovation with a lot of focus on data and E. I <unk>.
Driving a profitability targets.
And also the capital return program of about $125 million.
Great I appreciate the call and thanks for asking me questions.
Thank you. Our next question is from Dan Regan with Canaccord Genuity. Please proceed with your question.
Hey, guys. Thanks for taking my questions. So maybe one for Steve churn.
<unk> is still persisting with an additional 74 logos and Q1.
I'm wondering what does normalized gross for attention and net revenue retention look like in your view.
And then you know as you look ahead and has essentially a stronger cohort customers in your base.
What does that mix of growth between.
And that new business look like.
Yeah, Let me, let me take the first part on the lower growth.
Okay now.
Then on this our main focus is companies greater than a thousand employees.
And.
So the 100, K plus error or degrees by 12 customers as you know in this market environment. Their customers are renewing at the door dollar threshold, which was the largest contributor to the degrees.
Regarding the overall customer account.
It was mainly due to the SMB business, which was the largest one computer.
<unk> and also the new business Lola acquisition was a little challenging, but we focus a lot of energy onto 100, K plus are our customers with that being said our core are are poor customer was the highest ever at $71000 per customer.
And for the 100, K plus customers that cohort is still two thirds of our era are consistent with previous scores.
Okay.
So in regards to your question on churn churn and gross retention in Q1, we're both in line with our expectations and the guidance. We provided on the last call. We did expect to see higher down cells in this market environment. That's.
How it played out.
Q too for existing customers, who are seen marketing budgets being with you just get the lay offs and budget reductions of this impacts many renewable discussions now we're able to work through some of them by providing additional products, but this is continuing to.
Pressure down cells or annual guidance as soon as we continue to see an elevated level down south for the remainder of the year that being said the renewal cohort dynamics are better in the second half with more a on.
Multiyear agreements, which means lots up for renewal, which should improve grocery attention.
You know your question on hand, or we don't have any of our forward looking guidance per se and just as a reminder.
A bit of a lagging indicator that reflects some of the.
Elevated down South we experienced in the latter part of 2022 and 2023 is a lot of companies tighten their marketing budgets.
We don't disclose that quarterly, but I will say in Q1 O R was consistent with your end levels, which.
Core platform was at 90% and the enterprise.
How about four points higher than that.
Excellent. Thank you and then just one one more quick one how much the Silicon Valley Bank impact your bookings in Q1.
And do you expect these the clothes and cute too.
And maybe any color on a C V expectations they've been lowered for this cohort.
Yeah, let me take that up.
I think.
Get up before the Silicon Valley Bank thing or.
<unk>.
From a vertical performance.
We were mainly getting impacted by the tech and manufacturing verticals, which are about 50 per cent of our total.
What we saw after after March is financial services, which which was also an important vertical got impacted and and frankly.
Almost all are vertical other than life sciences.
Are seeing the marketing budgets being being pressure.
We are not seeing an improvement in their demand environment right now.
From Q1.
And again, we've talked about it so I won't repeat it which is really creating a lot of pressure on the downside and others. Yes. There were some deals that were pushed from.
From <unk>.
Two one Q2.
To some deals also.
Also went away because his customers lost their budgets and they got tighter on the financial services sites, but for the most part we look there we are seeing the largest pressure is in the down cells and Soviet incorporating that we are not expecting that the second half gets better are are the score it gets better and that's what the the corporate in our guidance.
Great. Thanks, so much guys.
Thank you there are no further questions at this time I'd like to have a flirt back over to <unk> for any closing comments.
Well. Thank you everyone. Thank you for joining us all today.
I appreciate it.
This concludes today's conference disconnect your lines at this time, thank you for your participation.