Q3 2023 ON24 Inc Earnings Call
Speaker 1: and will fuel the next generation of ON24.
Speaker 1: Ace builds on our strength as an enterprise-grade platform, which combined with hyperpersonalization.
Speaker 1: segmentation, deep insights, AI-driven content creation, key moments and nurture sequences, add substantial customer value, enabling greater efficiency, ROI, and revenue growth for our clients.
Speaker 1: We believe our platform's first-party data advantage, along with our relentless focus on AI innovation, uniquely positions R24 to redefine the future of digital engagement.
Speaker 1: Stay tuned for more information as ACE moves from beta to production.
Speaker 1: Moving to our second priority, our enterprise go-to-market.
Speaker 1: As we shared on our Q2 call, we are focusing our enterprise go-to-market execution on customers in highly regulated industries that are undergoing digital transformation.
Speaker 1: Customers in these verticals require an enterprise-grade solution like our platform to execute mission-critical, go-to-market use cases while supporting compliance.
Speaker 1: The use cases that are far from uniquely supports include engaging healthcare professionals in pharma and life sciences.
Speaker 1: Enrolling members and enabling agents and brokers in commercial and health insurance, and delivering continuing professional education and certifications for professional services organizations.
Speaker 1: In aggregate, these digital transformation use cases drove year-over-year ARR growth in the highest single digits this quarter.
Speaker 1: Compliance is paramount for customers in these highly regulated industries.
Speaker 1: and we are differentiating our capabilities as an enterprise-grade secure platform.
Speaker 1: In Q3, we achieved ISO certifications in security and privacy.
Speaker 1: which demonstrates a continued commitment to our platform's information security and privacy protection.
Speaker 2: And finally,
Speaker 1: and update on our focus on profitability.
Speaker 1: As we near the end of 2023, I'm proud of the progress we've made towards achieving our profitability targets this year.
Speaker 1: In Q3, we achieved both positive non-gap EPS and breakeven-adjusted EBITDA for the second quarter in a row.
Speaker 1: We expect to exit the year at breakeven adjusted EBITDA and with positive non-GAAP EPS.
Speaker 1: Our goal, as we look to 2024 and beyond, is long-term profitable growth.
Speaker 1: Before handing it over to Steve, I want to highlight a few new logo and expansion deals in regular industries that are undergoing digital transformation.
Speaker 1: On the new logo front.
Speaker 1: We landed a new pharmaceutical plant, a multinational, multi-billion dollar biotechnology leader with nearly 4,000 employees who are rapidly bringing the company's portfolio of innovative products to market.
Speaker 1: With an imperative to quickly grow its healthcare professional engagement and accelerate therapy adoption in a competitive environment, this organization needed a proven, trusted platform that they could roll out across the globe and deliver high-value education to physicians while also capturing insights.national unconvincing
Speaker 1: Importantly, privacy and compliance were paramount considerations in choosing on 24.
Speaker 1: A second new business win I'll highlight is with an insurance and retirement services company that has over a thousand employees.
Speaker 1: As their sales and marketing team scaled their additional strategy, they advanced past their point solution provider and needed an enterprise-grade platform like ours that could provide their audience of index partners, agents, advisors, and professionals.
Speaker 1: a frictionless and immersive experience.
Speaker 3: that capture audience insights.
Speaker 1: By moving to 124, their team saves time and gains insight into their unique audience types and allows them to deliver more personalized and better performing content while staying compliant.
Speaker 3: On the expansion front, in Q3, our life sizes momentum continue with our install base as we added another department from a multi-billion dollar multi-national pharmaceutical and biotech company with more than 90,000 employees.
Speaker 3: After seeing the differentiated brand experience, other teams of the company were delivering to healthcare professionals, and the insights they were generating, the organization decided to switch from a legacy-point solution to our platform.
Speaker 3: Now they are powering healthcare professional speaker programs across several of the brands in their portfolio as a centralized service center of excellence.
Speaker 1: After landing this customer in 2020, we've expanded to four times our initial footprint.
Speaker 3: Taking a step back.
Speaker 3: at the start of 2023.
Speaker 3: We set a goal to deliver sustainable profitability while positioning the company to return to growth.
Speaker 1: Looking back at the year to date,
Speaker 3: I'm proud of the progress we made on these fronts in 2023.
Speaker 3: We right side the business.
Speaker 1: and made strategic changes to our go-to-market strategy.
Speaker 1: and we were laser focused in improving our business model.
Speaker 1: Due to this focus, gross margins improved over the year, and we achieved positive non-GAAP EPS and breakeven adjusted EBITDA.
Speaker 3: Our renewed focus on customer verticals is helping to stabilize our renewable base.
Speaker 1: and retention rates are starting to improve.
Speaker 1: On the product front, we are embracing Generative Air.
Speaker 1: As we look to the future, Team On24 is focused on continuing to improve retention.
Speaker 3: increasing new customer acquisition, and achieving our profitability targets.
Speaker 1: We are excited about bringing new products to market to help our customers do their jobs more effectively, such as the upcoming launch of our AI-powered ACE offering.
Speaker 1: against the choppy, magic economic backdrop of the past year, we have controlled what we could control.
Speaker 1: And I am confident we have positioned the company to capture the opportunity to achieve growth in 2024 and beyond.
Speaker 3: with a longer-term goal of generating double-digit top-line growth with double-digit EBITDA margins.
Speaker 3: with that
Speaker 1: I'd like to turn the call over to Steve.
Speaker 4: Thank you, Sharat, and good afternoon, everyone. I'm going to start with our third quarter of 2023 results, and we'll then discuss our outlook for the fourth quarter of 2023 and full year 2023.
Speaker 4: Before I get into the numbers, I wanted to remind everyone that our focus will be on the core platform business as it was in the prior quarters, as we have de-emphasized the virtual conference product.
Speaker 4: We view the metrics from our core platform, such as revenue and ARR, as the best KPIs to measure our performance.
Speaker 4: Revenue from our core platform, including services in Q3 of 2023, was $38.1 million, representing a decrease of 14% year over year.
Speaker 4: Total revenue for the third quarter, which includes revenue from our virtual conference product, was $39.2 million.
Speaker 4: Total subscription and other platform revenue was $36.4 million.
Speaker 4: Overages represented approximately 1% of total revenue in Q3.
Speaker 4: Total professional services revenue was $2.8 million, a decrease of 35% year over year, representing approximately 7% of total revenue compared to 9% in the year ago period.
Speaker 4: Moving on to ARR.
Speaker 4: ARR represents the annualized value of all subscription contracts at the end of the period.
Speaker 4: and excludes professional services and overtures.
Speaker 4: Any ARR related to our core platform was $136.5 million, a decrease of $4.1 million from Q2 2020-3, which was better than he had anticipated and was a sequential improvement compared to the Q2 decrease. The Q2 decrease was $136.5 million from Q2 2020-3, which was better than he had anticipated and was a decrease of $3.1 million from Q2 2020-3.
Speaker 4: As Shrott noted, we saw improvement in gross retention and we are starting to see signs of stabilization in the renewal base.
Speaker 4: Will we continue to see pressure in our installed base in both expansion business and or in contract renewals? We did see quarter of a quarter of improvements into three within each of our renewal cohorts by error or size that we track. And we're having more productive renewal discussions with customers when contracts are up for renewal. We're having more productive renewal discussions with customers when contracts are up for renewal.
Speaker 4: ARR for our virtual conference product was $3.7 million at the end of Q3 2023, down from $4.2 million at the end of Q2 2023. $3.3 million at the end of Q3 2023.
Speaker 4: Total ARR was $140.2 million at the end of Q3 2023 as compared to $144.8 million at the end of Q2 2023.
Speaker 4: Turn it to customer metrics.
The ARR contribution from the $100,000 plus customer cohort continues to represent approximately two-thirds of our total ARR, which is consistent with the prior quarter and demonstrates the strength of our larger enterprise customers and our continued commitment to our platform.
The number of customers contributing more than $100,000 in total ARR totaled 317, down from 323 last quarter.
This declined primarily resulted from some customers reducing their spend under the $100,000 threshold, due to budget pressures in their marketing departments.
Rather than load with shine.
We continue to see our customers making longer term commitments to our platform.
Multi-error contracts, which comprise 41% of our ARR at the end of 2022, increase sequentially as a percentage of our ARR in Q3 to the highest ever, and currently stands in the mid to high 40s as a percentage of our total ARR.
Total customer count was 1,804 customers compared to 1,826 in the prior quarter.
Consistent with the prior quarter, our smallest customers, those with less than 250 employees, we're the largest contributor to customer churn in Q3.
Before turning to expense items and profitability, I would like to point out that I will be discussing non-GAAP results going forward.
Our non-GAP results exclude stock-based compensation, restructuring charges, impairment charges for real estate, amortization of acquired intangibles, shareholder activism related costs, as well as certain other items.
Our GAAP financial results along with a reconciliation between GAAP and non-GAAP results can be found within our earnings release.
Gross margin in Q3 was 76%, which is an increase from 75% last quarter.
The sequential increase in our gross margin in Q3 reflects the cost reduction actions we have taken this year.
Now, turning to operating expenses.
Sales and marketing expense in Q3 was $17.6 million compared to $22.4 million in Q3 last year.
This represents 45% of total revenue compared to 47% in the same period last year and 43% last quarter.
Our sales and marketing expenses have decreased in absolute dollars both sequentially and year over year, largely due to the cost savings measures we have implemented.
R&D expense in Q3 with $7 million compared to $9.1 million in Q3 last year.
This represents 18% of total revenue, which is down from 19% in the same period last year and consistent with 18% last quarter.
We are thoughtfully investing in product innovation with a focus on the most impactful projects, including our investments in generative AI capabilities and our new AI-powered ACE product offering.
G&A expense in Q3 was $6.3 million, compared to $7.9 million in Q3 last year.
This represents 16% of total revenue, down from 17% in the same period last year and consistent with 16% last quarter.
We have taken actions as part of our cost containment measures to reduce our G&A costs. As a result, our G&A expenses at absolute dollars have decreased as compared to the prior year and prior quarter.
As I move on to our bottom line performance, I am pleased to report that we beat the profitability targets that we provided in the prior earnings call. We achieved non-GAP EPS profitability in Q3, as well as achieving break even adjusted Eboton Q3 for the second consecutive quarter.
As Shrott mentioned, the continued improvements in our operational efficiency have paid off, and we plan exit 2023 with break even adjusted EVA TAUC and positive non-GAP EPS and Q4.
We achieved these results by executing our cost reduction program, which I will cover in more detail shortly.
We will share a profitability outlook for 2024 on our next earnings call.
Operating loss for Q3 was $1.1 million, or a negative 3% operating margin, compared to an operating loss of $3.6 million and a negative 8% operating margin in the same period last year.
That income in Q3 was $1.5 million, or $3 cents per share, based on approximately $48.3 million that we did shares outstanding.
This compares to a net loss of $3.3 million or $0.07 per share in Q3 last year, using approximately 47.6 million basic and diluted shares outstanding.
Turn it into the balance sheet in Cashflow.
We ended the quarter with $213.7 million in cash, cash equivalents, and marketable securities.
I want to update everyone on the progress of the $125 million capital return program we announced in March, which consisted of a special dividend of approximately $50 million, which was paid in Q2, and a $75 million share repurchase program.
Under the $75 million share of purchase program, we utilize $6 million in Q1, $23.5 million in Q2, and $25 million in Q3, for a total of $54.5 million in the first nine months of this year.
Thus far in Q4, we have utilized $7.8 million for a total of $62.3 million to date in 2023 under the share repurchase program.
Combined, with the $50 million special dividend paid in Q2, we have returned approximately $112 million to shareholders under this capital return program to date.
Under our prior re-purchase program,
We return $41 million through February 2023.
With these two programs, we will be returning approximately $166 million to shareholders by the end of Q1 2024.
After the completion of this capital return to our shareholders, our balance sheet will remain strong and provide us with the ability to invest in our strategic priorities.
Turning to our use of cash in the quarter.
Cash used in operations in Q3 was $2.9 million.
compared to cash used in operations of $3.5 million in Q3 last year.
Pre-cash flow was negative $3.2 million in Q3 compared to negative $4.2 million in Q3 last year.
As a reminder, our cash flow in Q3 includes costs related to our structuring efforts.
Before turning the guidance, I want you to provide an update on profitability.
The construction plans we have initiated over the past quarters have allowed us to reach non-GAP EPS profitability and adjust to drink even e-meta.
For comparison, our run rate annual total cost structure was approximately $56 million lower in Q3 than it was five quarters earlier in Q2 of 2022.
We will enter 2024 with a more efficient cost structure and significant operating leverage in the business.
Through these efforts, we are setting ourselves up for durable profitability in the future.
We look forward to providing our detailed outlook for fiscal 2024 during our Q4 earnings call.
Moving to guidance.
While we are seeing signs of stabilization in our installed base, we are still operating in a period of macrohead winds on certainty.
with many of our customers facing budget challenges for the remainder of this year.
Despite those challenges, we saw a significant improvement in ARR performance in Q3 relative to Q2, and we expect to again see improved sequential ARR performance in Q4.
For Q4, we've specced our core platform, ARR, to decline.
by two to three percent sequentially in Q4 as compared to Q3.
For our virtual conference product, which we have de-emphasized, we expect ARR to decline by approximately half a million dollars sequentially in Q4.
This would result in total ARR declining sequentially in Q4 by approximately 2.3 to 3.3 percent.
Moving to revenue.
We expect Q4 core platform revenue, including services in the range of $35.8 million to $36.8 million in total revenue, which includes our virtual conference product in the range of $36.8 million to $37.8 million.
Professional services is expected to represent approximately 7% of total revenue.
We expect gross margins to be in the mid-70s and Q4.
We expect a non-gap operating loss in the range of $1.4 million.
to $0.8 million and non-GAAP earnings per share.
to be one cent per share to two cents per share based on 45.8 million diluted shares outstanding.
We expect a restructuring charge of $0.4 million to $0.8 million to Q4 related to our ongoing cost reduction efforts.
which is excluded from the non-GAAP amounts provided above.
Now let me turn to our annual guidance.
For the full year, we expect core platform revenue, including services, to be in the range of $155.6 million to $156.6 million.
We expect total revenue to be in the range of $161.2 million to $162.2 million.
Professional services is expected to represent approximately 8% of total revenue.
We expect a non-GAAP operating loss in the range of $7.5 million to $6.9 million, and non-GAAP net income per share of $0.04 per share to $0.06 per share, using 49.2 million diluted shares outstanding.
restructuring charges, impairment charges on real estate.
Amortization of acquired intangibles and activism-related charges are excluded from the full year non-GAAP amounts provided above.
Our annual guidance assumes we achieve breakeven-adjusted EBITON Q4.
Our estimate of shares outstanding takes into account the impact of our capital return program.
In summary, while the macro environment is still challenging and impacting many purchasing and renewal discussions, we are seeing signs of stabilization evidence in the improvement in sequential AR performance in Q3, and we expect AR performance to further improve in Q4.
We have exceeded our profitability targets for Q3, achieving positive non-GAAP EPS and breakeven-adjusted EBITDA.
We delivered a sequential increase in gross margins in Q3 and expect to be on track to achieve our profitability target for Q4 to exit the year at breakeven-adjusted EBITDA.
We are encouraged by the positive momentum and progress we have made and we remain focused on the path to return to positive ARR growth, especially as the macro improves.
In closing, we are positioning ourselves to leverage a more cost-efficient business model to deliver profitable growth in the future.
With that, Shraat and I will open the call up for questions.
Thank you.
Ladies and gentlemen, at this time, we will now conduct our question and answer session.
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One moment please while we pull for questions.
I.
I.
Our first question comes from Rob Oliver with Beard, please state your question.
Great. Good afternoon. Thanks for taking my question, guys. I had two questions. The first was obviously very encouraging to hear the signs of stabilization that you're seeing in that you guys are potentially here positioned for a return to growth in 24. I was wondering if you could just provide a little bit more color on, you know, what you're seeing there. I mean, I know macro, Steve, you just commented, you know, there's still headwinds. It's still challenging out there. So maybe if you can provide a little color on, you know, what exactly is delivering that stabilization improved execution, customers starting to maybe add more at the margin. Any color there would be helpful and then I had one follow up.
Good to hear from you. This is Sharad. Let me take that. You're welcome.
I think just from an overall install base point of view, we are seeing less frenetic behavior from our customers. Our solutions are mission critical to our customers' growth agenda. And we saw churn improve sequentially in all ARR cohorts that we track in Q3.
The enterprise install based business is still under pressure. The expansions and the downsells, those are still impacted and elevated by our customers continuing to cut costs.
But overall on the churn and overall retention, we are seeing improvement. We are also seeing improved conversations related to new business.
both in the enterprise and commercial segments. New business in Q3 which is seasonally softer was better than it was in Q2, and we expect that to be better in Q4. And as we are launching our new AI powered ACE offering, we are seeing a lot of customer excitement as we provide them a heads up. I'm personally doing many of these meetings, and one of my meetings with one of the largest global farmers in Europe , there was a lot of interest in leveraging AI powered ACE, especially the segmentation and hyper-personalization capabilities.
Great.
Thanks, Sharat, for that. And then my follow-up is on the focus on regulated industries. It's something, an opportunity, I think. You've identified here for a while, and you guys have the ISO certification now, which is great. Congratulations. You just mentioned pharma. Just was wondering if you can maybe pinpoint a few industries for us where we might expect to see that impact first.
you know, are you fully resourced to go after those opportunities? And, you know, could we expect that they will contribute in part to growth in 24? I realize there's three parts to that. Thanks very much, guys. Appreciate it. Yeah, thanks, Rob. So, Rob. Solid
As you said, we are continuing to gain traction with customers and highly regulated industries that are undergoing digital transformation. Just from a vertical point of view, I mean tech and manufacturing which is…
a little less than 50% of our ARR is still challenged. Life Sciences actually which is part of the regulated industry stood out with year-over-year growth. Additionally, as we look at our business we generally see…
two different categories of use cases. One I talked about is the demand generation and partner enablement which is currently under pressure. Now the second are the highly regulated industries. We are a compliant digital transformation solution that drives revenue or growth is important. Now these are healthcare professional engagement for life sciences, that vertical. These are professional certification. These are generally professional services, also financial services as part of those industries. And these are member enrollment and broker enablement kind of industries. These are more commercial and healthcare insurance categories.
I think in these the largest category that we are really attacking is the pharma category. And we have put together a specialized team based on that. For others, it's part of our regular execution. And we continue to based on sales productivity, are going to continue to make decisions on the resources. Now as we have executed in these regulated industries, these are low single digits as a percentage of our total ARR, and we expect these to continue to grow. And at some stage, when demand generation and partner enablement, and we have a little more assist from the macro, that will lift all the boats. So that's what we are focused on.
Great, really helpful, appreciate all that color, thanks very much.
Thank you. And our next question comes from Arjun Bhatia with William Blair. Please state your question.
Great. This is Chris on Perarge and I can grab some of the quarter. Two for me. The first one I just wanted to touch on. So as we're coming up on the anniversary of when your focus and attention started shifting towards being more efficient, where do you see the biggest incremental opportunities to continue to drive operating leverage going forward?
This is Steve. Let me go ahead and take that one. So first off, we've achieved adjusted EBITDA breakeven for the past two quarters and expect to exit 2023 in the same place with Q4 having breakeven adjusted.
You know, our cost reduction efforts have spanned all areas of the company. We aligned our go-to-market.
resources accordingly and that was more than half of the cost reductions that we've made. We lowered our annual cost run rate as I mentioned in the prepared remarks 56.
million dollars from Q2 of 2022, which was the high water mark.
You know, as we enter 2024, we've got a streamlined cost structure and operating leverage in the business. We've got to sustain even top profitability.
We are not giving any specific guidance on 2024 until our next earnings call. So I can't put a timeline on 2024 profitability targets at this point. But I can say the goal is to get back to profitable growth as soon as we can, and the steps we've taken have put us on the road to do that. Now proof top-line performance would of course be helpful if we are moving in the right direction there, but we are committing to getting there in a variety of top-line scenarios in the future. For more information, visit www.fema.gov
Just to add to what Steve just said, to drive...
top line growth, I mean the three core things that we are focused on is one is.
the retention profile, we expect to do better.
sequential improvements in gross retention, so that's important. Second is our progress on go-to-market for regulated industries, which I talked about, which in aggregate grew high single digits.
from an ARR point of view, year over year in Q3.
and the launch of our next generation of our AI-powered ACE platform.
which includes segmentation and hyper-personalization, automated content creation, and key moments and nurture sequences. So top line growth will also help us improve our profitability, and that's our focus.
Great. That's all really helpful feedback. And then kind of segues actually pretty nicely into the other question I had. I just wanted to circle back on the AI suite. Last quarter you talked about 200 initial customers in the beta program to that. Has that cohort grown at all? I was curious to hear some of the feedback you might be getting from customers that are in the program and if there are any specific verticals or use cases where you've seen good traction early on. Thanks.
Yeah, let me take that.
So we talked about it. In Q1 we had launched the Smart Text and AI Copywriting Assistant tool. In Q2 we launched the ability to turn live webinar experiences into AI generated written content like transcripts, summary, and e-books. And since our last earnings call, we have doubled our customer adoption of these capabilities. And we have learned a lot. And based on the learnings from the customer adoption Chris, we are now including these features as part of the larger AI powered ACE platform. And just to kind of give you a little more perspective on that.
AI-powered ACE is currently in beta. We are currently working on a pricing and packaging plan that we will share in our next earnings call. We are giving early access to select existing customers this quarter, and it will be available for new customers in Q1. And for now we are confident that ACE will be a tailwind to ARR growth as it will pave the way for greater expansion with our install base and fuel new business acquisitions.
That's all really helpful and thank you very much for taking the questions.
Thank you.
Our next question comes from Noah Herman with JP Morgan. Please state your question.
Hey guys, congrats on the solid quarter. Thanks for taking the questions. I know maybe last quarter you talked about simplifying some of the pricing and packaging, gearing that towards more specific use cases, helping to reduce go to market costs and streamline internal efficiency. So I'm curious to get an update on that and what has the feedback been maybe from customers and I just have a quick follow-up.
No, that is exactly right. I think one of the things on the regulated industries in the go to market.
We are.
In the process of finalizing our packages and screenlining those packages, and AI-powered ACE is a key part of that. So that with that, we'll be able to talk to you more about that in the next earnings call. What we have done so far is in certain categories, like especially in the bottom-end life sciences, where we have pretty much created a separate unit. We have created better packages that are more aligned to that particular segment, but a little more on pricing and packaging in the next earnings call, because that will also include pricing about AI-powered ACE and market feedback from our customers.
Got it. And from my second question, I noticed that the total customer, the Delta, this quarter prepared a last, it did down tick, but it sharply, improved relative to last quarter, I think down about 22 versus last quarter down about 90. Just curious, is he kind of get a sense of what you're maybe you're seeing now that it's almost been no number through the quarter and just how to kind of think about some of the the customer acquisition dynamics going forward. That would be really helpful. Thanks.
Yes, one, we had better new logo performance in Q3 compared to Q2, and even though Q3 is seasonally softer quarter, and as we have talked about previously, our main focus is 100K plus ARR customers, which decreased by six as some customers renewed at lower dollar thresholds.
Now this was the best performance over this year.
we did experience a sequential decrease in customer count of 22. This was also the best performance over this year. And I'm not happy with that, and I'm focused on getting these numbers positive.
And our smallest customers, as before, were the largest contributor to MogoCharm. So I think as we look into Q4,
We are seeing that the team is doing a better job in terms of churn.
I think the area where we see a little larger churn has been in the lower segment, the lower ARR segment. And again, we are very…
much focused on reducing that in that particular segment too. But on the larger segment, it's generally more of a downsell at the time of renewal that we are dealing with. So I'm encouraged and happy that our Q3 performance was the best, but still not happy that it is negative and we are working on it.
Thank you. And a reminder to ask a question press star 1 on your screen.
touchtone phone. Our next question comes from Michael Rackers with Needham & Company. Please state your question.
Hi everyone, this is Michael on for Scott today. Thanks for taking my question. I appreciate it. Um, I was just curious about kind of the normalized growth environment. Um, you know, you mentioned getting back to a double digit top line growth number once again. Um, could you kind of talk about the ramp to get there? Um, and maybe what the mix looks like in terms of new logo acquisition, um, you know, AI adoption, um, and then cross selling additional products to existing customers. Thanks.
Yes.
Michael, while we're not providing 2024 guidance at this time, we are encouraged by the positive momentum and the progress we have made.
We are optimistic about the trajectory for 2024, but continue to be mindful that the macro is choppy and the marketing budgets still remain uncertain. And it's hard to sell into sales and marketing budgets still. So moving forward, we expect to deliver sequential improvement in ARR going into 2024.
and expect to flatten the declines and turn positive into 24. Now I am confident that we will get to positive ARR no later than second half, but I am driving the company to get there as soon as possible.
Obviously, we get there if the macro improves. Now, there are three core areas that we are focused on to get there. First of all is the retention base.
I mean the reason why we are saying Q4 feels better a lot is based on we are seeing improved sequential retention.
On top of that is our focus on progress on our go-to-market for regulated industries, where we are focused on mission critical digital transformation use cases, as I mentioned earlier, those grew in aggregate high single digits year over year in Q3.
And on top of that we are launching the next generation of our platform which includes AI powered A's where we are adding all the capabilities that we have talked about before. So those are the 3 things. On top of that is new business.