Q4 2023 ON24 Inc Earnings Call
[music].
Greetings and welcome to you on 24 fourth quarter 20 twenty-three earnings conference call.
At this time all participants are in a listen only mode.
She didn't answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce J O didn't Loy Investor Relations. Thank you you may begin.
Thank you Hello, Good afternoon, everyone. Welcome to on 24 is fourth quarter and full year 2023 earnings conference call on the call with me today or Shropshire on Cofounded CEO bunch, when he sore and Steve <unk> Chief Financial officer of on 24.
Before we begin I would like to remind everyone that some information provided during this call will include forward looking statements regarding the future you mentioned financial performance, including guidance for the first quarter and full fiscal year 2024, as well as certain first quarter and full year non-GAAP projections.
These forward looking statements are subject to known and unknown risks and uncertainties.
It could adversely affect onto any forest future results and caused these forward looking statements to be inaccurate, including our ability to grow our revenue attract new customers and expansions to existing customers. The success of our new products and capabilities other statements regarding our ability to achieve our business strategies growth or others.
Future events or conditions, such as the impact of adverse economic conditions and macroeconomic deterioration including increased inflation.
I'm 24 cautions that these statements are not guarantee of future performance I'll forward looking statements made today reflect our current expectations only and we undertake no obligation to update any statements reflect the events that occur after this call.
Please refer to the company's periodic SEC filings in today's financial press release risk factors that could cause our actual results to differ materially from any forward looking statements.
We'd also like to point out that on today's call will report both gap and non-GAAP results.
We use these non-GAAP financial measures to evaluate our ongoing operations and for internal planning and forecasting purposes <unk>.
<unk> financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with gas.
To see the Reconfigurations of these non-GAAP financial measures. Please refer to today's financial press release, I will not turn the call over to <unk> <unk>.
Thank you and welcome everyone on 24, four corner and fully or 20 twenty-three financial results conference call.
We appreciate you joining us with me today is Steve <unk> Chief Financial Officer.
Our platform allows industry, leading b, two b enterprise companies to engage with their prospects and customers to a portfolio of experiences that drive engagement. It's Q.
January data driven insights and support compliance are highly regulated industries to deliver cost effective revenue growth.
We believe <unk> has fundamentally changed <unk> sales and marketing functions and moving forward that change will accelerate.
Over the past year because of our first party data you'll be able to quickly develop significant innovations, including those that are powered by <unk> with help our customers advanced in the efficiency.
Roy and results to gain from our platform.
And does that in just a few weeks ago, we launched the next generation of our platform while the on 24 intelligent engagement platform, which includes are powered analytics and content engine.
Is thousands.
Thousands of our customers and prospects in our global virtual launch event on 24 next.
This announcement built on these significant innovations.
And now our platform intelligently combines best in class digital experiences with AI, driven personalization and content to enable our customers to capture and act on connected insights and data at scale.
We will share more about this exciting milestone later in our call.
Turning the pupil results.
While we have lots of work still ahead.
Pleased to report Q for results, which includes solid top line results and that'd be delivered on our profitability targets, achieving positive non-GAAP EPS and positive adjusted EBITDA.
Revenue from our core platform, including services in Q4 of 2023 was $38.3 million in total revenue, including virtual conference was $39.3 million.
Of total revenue for the quarter.
Subscription and other platform revenue was $35.8 million and professional services revenue was $3.6 million.
The solid revenue performance for the quarter was driven by an improvement in sequential are our performance during the quarter. Despite an ongoing environment, where our customers remained cautious regarding your investments in marketing and their budgets remain under pressure.
Now turning to <unk>.
We ended Q4.
$136.2 million in Iraq related to our core platform, representing a sequential decrease from Q3 of zero point $3 million.
Proximately flat sequentially.
The sequential improvement in air our performance was driven by an improvement in in the period gross retention, which was highest it has been in the last three years, a new business acquisition, which was the highest in the last six lawyers.
Specifically looking at our installed base children and downhill trends both improve in the future.
As we look at churn specifically, we saw broadbased improvement within our customer renewal cohorts.
And the quarterly inferior churn was the best performance, we have seen in three years.
And we saw fewer reductions in contract entitlements or downfalls as a percentage of the renewal base, which was the lowest in the year and consistent with the best performance, we have seen in almost two years.
We are clearly starting to see stability in our installed base.
We also were pleased to see a sequential increase and hundred K, plus and our customers, which increased by eight customers.
And while marketing budgets are still under pressure. We also have a healthy pipeline of demand for our newly launched AI powered a solution.
And we even saw some initial orders placed at the end of December.
On the whole we saw improvements in key metrics.
At the end of 2023 recent record levels for the percentage of error and multiyear agreements and percentage of customers using two or more products.
As 20 twenty-three prove our businesses resilient.
While there is still tremendous uncertainty in the market, especially.
Especially from many of our customers working with constrained marketing budgets were controlling what we can control the position ourselves with capitalized on our large market opportunity as our customers budgets stabilize.
We are excited about our intelligence engagement platform.
A new air powered is offering.
But we also recognize that like.
Like most new products coming to market. It will take time for our platforms. Yeah powered a solution to drive meaningful are are grown.
As I look back at 2000 twenty-three restarted the year with the goal of setting the stage for long term profitable growth and we have delivered on that.
We implemented meaningful cost reduction strategies, which led to successfully achieving our profitability targets.
While driving incremental improvements in our gross margins in cash flow.
We executed on our product development roadmap with the launch of our next generation power platform and made tremendous progress in improving the stability in our customer base with improvements in customer retention.
And due to the progress we've made on these initiatives, we exited 2000 twenty-three with a business that is stabilizing and position to drive and inflection an error on growth.
While we are seeing continued macro pressure on marketing budgets I'm excited about the opportunities that are platforms are powered ace brings to ultimately drive drunk.
Let me provide more color on the progress we have made and how we're thinking about 2024.
In 2023 I laid out.
Three strategic business priorities.
First.
The launch of our next generation intelligent engagement platform, which includes our new AI powered is offering.
Second.
Continue to strengthen our enterprise go to market strategy, especially with mission critical digital transformation use cases across regulated industries.
We're continuing to deliver on our profitability targets with a focus on returning to growth.
First let me discuss the launch of our next generation intelligent engagement platform.
AI is at the center of our strategy to provide enterprises with a differentiated and intelligence platform for digital engagement.
Backbar Foundation of first party data that's been gathered across millions of experiences and hundreds of millions of BW interactions are platform intelligently combines our portfolio of best in class this'll experiences with AI, driven personalization and content to enable our customers to capture.
Act on connected data and insights at scale.
We believe that our platform Foundation, a first party data that is gathered from analyzing the engagement of hundreds of millions of business professionals gives us a competitive edge and uniquely positions on 24 the lead the market.
Innovation.
As I mentioned at the beginning of the call now.
Last month, we announced the journal availability of beyond twenty-four intelligent engagement platform, which includes airpower days are Neil airpower analytics and confident and.
Is is part of our next generation platform that brings a portfolio of digital experiences and first body data and insights together with all the innovations will develop this past year, including one.
The ability to dynamically deliver hyper personalized messaging calls to action content and more two unique audience segments through our platform.
Through.
The use of generated AI to automate content creation saving themes time, and feeding ongoing noticed dreams that keep engaging prospects and customers.
Right.
Heat map report of key moments that identifies the most engaging segments of our lives experience and automatically creating snackable video highlights to drive continuous engagement without needing more resources.
And finally ways to analyze and automatically surface intelligent analytics that enables sales and marketing teams to act on connected insights at scale increasing impact in Ottawa.
With the launch reintroduced streamline pricing and packaging, which we believe will make it more straightforward or our customers, who purchase and adopt our next generation offerings.
We are monetizing the indulgent engagement platform in two ways.
We are offering preconfigured subscription packages, which include our air powered a solution to new customers and.
And we are offering airpower in as as an upgrade solution to our existing customers.
As I shared earlier.
We're already seeing positive momentum within our installed base and getting very enthusiastic customer feedback from early adopters.
Some of the initial benefits we are hearing from our customers is time savings and creating content and videos.
Being able to more efficiently personalized experiences or unique audiences.
And having greater visibility and insights into the prospects and customers held their teams drive revenue growth.
We are especially proud that our innovation roadmap is based on customers feedback we've gathered over many years and a long term vision behind our first party data advantage.
While our current platform is already a market leader and highly differentiated rebuild.
We believe this launch will further enhance our competitive position.
And this is just the beginning.
We expect AI to fuel an entire sweep of offerings and the next generation of our platform.
Moving to our second priority or enterprise go to market.
Throughout 2023, we continue to see traction with our enterprise customers in highly regulated industries, where the early stage of undergoing digital transformation.
These use cases require an enterprise Greg solution like our platform to execute mission critical go to market use cases, while supporting compliance.
Including health care professional engagement and pharma and life Sciences.
Remember enrollment and broker enablement, and commercial and health insurance and.
And continuing professional education and certification or professional services.
In aggregate.
Digital transformation use cases drove sequential quarter over quarter and year over year era growth in the single digits this quarter, despite a difficult macro environment.
As these organizations look to adopt innovations and our earmarking budgets, we believe our enterprise credibility and track record combined with our next generation platform gives us a good market advantage.
We believe we are well positioned for adoption from vertical that are traditionally early adopters like technology companies as well as within the highly regulated industries I mentioned above.
We also believe that a new pricing in packages will help us land bigger deals.
Simplify the purchasing process and enable customers to consolidate orange solutions onto our platform.
In addition, we also expect our next generation platform packages and air powered a solutions to further strengthen our expand motion within our installed base.
With the initial orders for Aif hour days, we also saw a modest quarter over quarter uptick in customers with two plus products, which was at the highest level of the year in Q4.
And finally.
An update on our profitability.
Throughout 2000 twenty-three, we consistently achieved our profitability targets by driving gross margin improvements and by taking a disciplined approach to our cost reduction initiatives.
We maintain a healthy balance sheet, while also returning $166 million of capital to our shareholders over approximately two years.
The implementation of these effective cost reduction strategies allowed us to achieve positive non-GAAP EPS and positive adjusted EBITDA and Q2.
Q3 and Q4.
We are committed to achieving adjusted EBITDA breakeven and positive non-GAAP EPS in 2024.
The balance between growth and profitability is always a focus and at this juncture.
While we are maintaining a disciplined approach to our cost structure.
We're also investing in growth as we look to capitalize on the launch of our next generation intelligent engagement platform.
We believe on twenty-four is well positioned on long term profitable wrong.
Before handing it over to Steve I want to highlight a few new logo and expansion bills in queue for <unk>.
Especially those resulting from initial orders of our intelligence engagement platform and AI powered is premium offerings.
On the new logo front, we landed one of the largest wireless carriers in the United States.
As they move their focus upmarket in advance would be to be marketing arm. This organization needed a trusted partner to provide a platform that could scale to support each of the different teams and provide realtime Forrest party data and customer insights to help them deliver against the pipe.
Line and revenue goes.
This company Preordered, our air powered a solution to provide personalized experiences to their customers and prospects.
Another Q for new business deal was or the multinational law firm with over 2000 employees and over $2.5 billion in revenue.
Their business development team was looking to move off their legacy <expletive> solution, because it's lack the ability to scale and meet the needs of their continuing professional education use case.
With our purpose built platform this organization as the breadth and depth needed to automate the lives certification process support compliance and provide detailed insights above their audience saving time and improving their team's ability to retain an acquired clients.
The first expansion will I will highlight is with one of the world's largest asset management and financial services organizations that is trillions of assets under management and over 50000 employees.
I'll wrap up our queue for installed this momentum by sharing a preorder for our air powered a solution that came from a global medical device and pharmaceutical company with over 9 billion in revenue in more than 24000 employees.
With multiple types of health care providers, who educated.
We will use our platforms capabilities to personalise experiences that scale provide content unique to different products and treatments and understand the behavior of these.
Different types of Hcp's by segment.
Because our platform was already proven and flustered by their team they felt confident adopting our new AI innovations.
Ladies and gentlemen, as we look ahead.
We will continue to focus on improving retention.
Increasing new customer acquisition and.
In achieving our 2024 profitability targets.
We are excited.
But bringing our airpower next generation intelligent engagement platform to market earlier, this quarter, which we believe will help us better address our camp and continue to strengthen our competitive mode.
Generative AI and our business will be a monumental shift in the market and AI is at the center of our strategy to provide enterprises with a differentiated and intelligence platform for digital engagement.
We believe that our platforms Forest party data advantage.
Legally positions on 24.
Find the future official engagement or prospects and customers ultimately, providing a tailwind to ground.
Against the macroeconomic environment that has brought uncertainty and a contraction of customer demand in 2023.
We believe we entered blended twenty-four in a much stronger position with a profitable business and a more stable customer base.
Although we are seeing stabilization in our business.
He has yet to see macro uncertainty Ah baked.
And we have not yet seen signs that our customers and prospects marketing budgets are improving.
In the interim.
We will continue to focus on what we can control.
Leaving the industry and innovation.
Especially around here.
Improving our go to market strategy, especially unregulated industries and.
And delivering on our profitability targets.
I remain optimistic that we will see a return to sequential era growth in the second half of 2024.
Richard continue into 2025 <unk>.
And we remain committed to our long term goal of generating double digit top plan growth with double digit EBITDA margins.
With that.
I'd like to turn the call over to Steve.
Thank you shot and good afternoon, everyone are going to start with our fourth quarter of 2023 results and will then discuss our outlook for the first quarter of 2024, and a four year of 2024.
Four I got into the numbers.
I wanted to remind everyone that our focus will be on the core platform business as it was on the prior quarter's as we have deemphasize the virtual conference product.
We view the metrics from our core platform such as revenue in a R. R. As the best Kpis to measure our performance.
Revenue from our core platform, including services in Q4 of 2023 was $38.3 million, representing a decrease of 13% year over year.
Total revenue for the fourth quarter, which includes revenue from our virtual conference product was $39.3 billion.
Total subscription and other platform revenue was $35.8 million.
Overages represented approximately 1% of total revenue in Q4.
Total professional services revenue was $3.6 million, a decrease of 21% year over year, representing approximately 9% of total revenue compared to 10% in the year ago period.
Moving onto a R R.
Are are represents the annualized value of all subscription contracts at the end of the period and excludes professional services and Overages.
Ending are are related to our core platform totaled $136.2 million and net.
New era was approximately flat compared to Q3.
Our performance was better than we had anticipated and represents a meaningful improvement from net new air our performance in Q3.
The improvement in Q4 was primarily driven by stabilization and our installed base with gross retention improving significantly from Q3 to the highest levels. We have seen in the last three years.
We also saw less pressure from customer down cells compared to prior quarters, and we saw a broad based improvements and churn across our renewal cohorts.
New business activity in queue for it was the strongest and six quarters <unk>.
Expansions continue to be challenging, but we did see improvements compared to earlier quarters.
Total a R R, including the contribution from our virtual conference product was $139.7 million at the end of Q4 2023 compared to $142 million at the end of Q3 2023.
Turning to customer metrics.
The air our contribution from the $100000 plus customer cohort continues to represent approximately two thirds of our total are are which is consistent with the prior quarter and demonstrates the continued strength of our largest enterprise customers and their commitment to our platform.
The number of customers contributing more than $100000. In total error are increased to 325 up from 317 last quarter the.
This increase was due to new logo wells in queue for as well as certain customers increasing their spend with us above the $100000 threshold in Q4.
Throughout 2023, we have continued to see our customers make longer term commitments to our platform.
Multiyear contracts increase to 49% of our <unk> at the end of 2023, which was the highest level ever and notably up versus 41% of our IRR at the end of 2022.
In addition, the percentage of our customers with two or more products ended the year at 37%.
Up slightly from 2022 year and levels. We were pleased to see this metric increase in 2023 during a year when many of our customers were dealing with tighter marketing budgets and spending constraints.
Total customer count was 1784 customers.
Our dollar based net retention or N. R. R. In 2023 was 84% for our core platform.
As a reminder, and R. R. As a lagging indicator and reflects the impact of elevated downstairs, we experienced earlier in 2023 as many of our customers reduce their marketing budgets in a difficult macro environment.
Given the stabilization and retention metrics that we are seeing in our customer base. We believe at our our will trend upwards in 2024.
Before turning to expense items and profitability I would like to point out that I won't be discussing non-GAAP results going forward.
Or non-GAAP results exclude stock based compensation restructuring charges impairment charges for real estate amortization of inquired of tangibles shareholder activism related costs as well as certain other items.
Our gas financial results along with a reconciliation between gap in non-GAAP results can be found within our earnings release.
Gross margin increased in Q4 to 77% from 76% last quarter the.
The sequential increase in our gross margin in queue for reflects the cost reduction actions we took in 2023.
Now turning the operating expenses sales and marketing expense in Q4 was $16.7 million compared to $21.1 million in queue for last year.
This represents 42% of total revenue compared to 45% in the same period last year and 45% 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 as we focus on driving improved sales efficiency.
R&D expense in Q4 was $6.7 million compared to $9 million in queue for last year.
This represents 17% of total revenue compared to 19% in the same period last year and 18% last quarter.
While we made adjustments to our spending levels in 2023.
We continued to invest in product innovation as we have discussed we are excited about our new AI powered a solution, which we launched in early 2024, along with the next generation of our platform on 24 intelligent engagement platform.
G&A expense in Q4 or $6.6 million compared to $7.7 million in queue for last year.
This represents 17% of total revenue, which is consistent with the same period last year.
End up slightly from 16% last quarter.
We took actions in 2023 to reduce our G&A costs and as a result are G&A expenses absolute dollars have decreased as compared to the prior year.
Moving onto our bottom line performance I'm pleased to report that we exceeded the profitability targets that we provided in the prior earnings call.
We achieved positive non-GAAP operating income positive adjusted EBITA at EPS profitability in queue for the continued improvements in our operational efficiency that we made throughout 2023 have paid off and position us with a more streamlined and efficient cost structure or 2024.
Operating income for Q4 was zero point $2 million or a 1% operating margin compared to an operating loss of $3.5 million in a negative 7% operating margin in the same period last year.
Net income in queue for it was $2.6 million or six cents per share based on approximately 46 million diluted shares outstanding.
This compares to a net loss of $2 million or four cents per share in queue for last year, using approximately $48 million basic and diluted shares outstanding.
Turning to the balance sheet and cash flow.
We ended the quarter with $198.7 million in cash cash equivalents and marketable securities.
I want to provide an update on the progress of the $125 million capital returned program that we announced in March 2023, which comprised a special dividend of approximately $50 million paid to shareholders and Q2 of 2023 and.
And a $75 million share repurchase program.
Under the share repurchase program, we utilized $54.5 million in the first nine months of 2023, and an additional $15.3 million in Q4 of 2023 for a total of approximately $70 million during 2023.
Q1 of this year, we utilized the remaining approximately $5 million under the program completing the entire 75 million dollar share repurchase program.
Combined with the $50 million special dividend paid in Q2 of 2023, we have returned approximately $125 million to shareholders under this capital return program.
As a reminder, under our prior share repurchase program. We started in late 2021, we returned $41 million through February 2023.
With the completion of these two programs we have now returned approximately $166 million to shareholders with.
With almost $200 million in cash and investments at the end of 2023, our balance sheet continues to remain strong.
Turning to our use of cash in the quarter cash.
Cash used in operations in queue for it was zero point $9 million compared to cash used in operations of $7.6 million in queue for last year.
Free cash flow was negative $2 million in Q4 compared to negative $8.9 million in queue for last year.
As a reminder, or cash flow in queue for includes cost related to our restructuring efforts.
Before turning to guidance I want to provide an update on our cost reduction efforts the.
The cost reduction players we have initiated over the past quarters have allowed us to achieve positive adjusted EBITA and positive non-GAAP EPS for the past three quarters.
Ah run rate annual total cost structure was approximately $61 million lower in queue for that it was six quarters earlier and Q2 of 2022.
We will continue to remain disciplined on costs across the business as we focus on driving profitable growth.
Moving the guidance.
We are pleased to see the stabilization and our installed base and improvement in net new business during Q4.
We are still operating in a choppy environment, where many customers continued to face constrained marketing budgets.
As such we are taking a prudent approach to our top line financial modeling for 2024.
Turning to Q1 guidance.
We expect Q1 core platform revenue, including services in the range of $35 $6 million to $36.6 million in total revenue, which includes our virtual conference product in the range of $36.5 million to $37.5 million per.
Special services, which is typically seasonally soffer for us in Q1 is expected to represent approximately 7.5% of total revenue.
We expect gross margins to be in the mid seventies in Q1.
We expect a non-GAAP operating loss in the range of $2.7 million to $1.7 million.
Or non-GAAP earnings per share, we expect a net loss per share of two cents per share to net income of zero cents per share or breakeven EPS based on 41.2 million basic and diluted shares outstanding and $45.7 million diluted shares out.
Standing respectively.
Q on top and bottom line guidance reflects the historical seasonality and our business include.
Including certain costs, such as employer payroll taxes and.
And annual audit costs, which are seasonally higher in Q1.
We expect a restructuring charge a zero point $6 million two zero point $9 million in Q1 related to our ongoing cost reduction efforts, which is excluded from the non-GAAP amounts provided above.
Before we move to 2024 guidance I want to provide some color on how we were thinking about <unk>.
Our expectations for IRR take into account the historical seasonality in Q1 for new an expansion business, coupled with our assumption for a constrained demand environment for marketing software in the first half of the year.
Even this backdrop, we expect our core platform are are to decline by 2% to 2.5% sequentially in Q1 as compared to Q4 2023.
In addition, <unk> from our T emphasize virtual conference product would reduce sequentially in Q1 by approximately zero point $5 million.
Our current view is that we will return to sequential are our growth in the second half of 2024, assuming there is no deterioration in the macro environment.
Now, let me turn to our 2024 annual guidance.
For the full year, we expect core platform revenue, including services to be in the range of $139.5 million to $143.5 million.
We expect total revenue to be in the range of $143 million to $147 million.
Professional services is expected to represent approximately 8% of total revenue.
We expect a non-GAAP operating loss in the range of $5 $5 million to $3.5 million and.
And non-GAAP net income per share of two cents per share to five cents per share.
Using 47 $6 million diluted shares outstanding.
Our estimate of shares outstanding takes into account the impact of our capital return program.
We expect gross margins to be consistent with 2023, which was 75%.
Restructuring charges and amortization of acquired intangibles are excluded from the full year non-GAAP melts provided above.
While we are not providing specific quarterly guidance beyond Q1 R.
Our annual bottom line guidance assumes we achieve adjusted EBITA breakeven and Q2 with sequential improvement in Q3, and Q4, resulting in breakeven adjusted EBITA for the full year of 2024.
This guidance reflects a balanced approach that recognizes the importance of fiscal discipline will also investing in growth.
In summary, we are seeing encouraging signs of stabilization across our business and are optimistic that we will return to air our growth by the second half of 2024.
On the profitability front, we made significant cost reductions over the past six quarters and will remain fiscally disciplined even as we invest in our key AI products to drive growth.
We are excited by the strong customer feedback for our new products and expect pipeline to build throughout the year with that <unk>.
<unk> and I will open the call up for questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
If you'd like to ask a question you May press star one on your telephone keypad.
A confirmation total indicate your long isn't the question.
You May press Star too if you would like to remove your question from the <unk>.
Four participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Azan Bhatia with William Blair. Please proceed with your question.
Alright I.
<unk>.
Appreciate you telling the questions.
Sure I can start with with a seminary near platform can you talk about a little bit about whether the new capabilities allow customers to be more open from the date of perspective because.
We didn't know and once you start talking about <unk>.
There's quite a bit of fragmentation on the space and the more you can consolidate the better it is both from.
Thanks for US all my all perspective, but I'm curious what what what you're.
You're doing on that class with a seven inch when you're talking about adoption is there an uplift that comes with it for our existing customers or is this going to be a like for like migration what happens.
Okay.
Let me take the second question for Us.
I think as we go to the market.
All we are.
We are doing two things on the new business side, we have created a premium of three packages two of them and <unk> and those are premium offerings.
But they are pre configured subscription packages.
The expansion from what we're doing is we're offering our customers.
Art is upgrade that they can add their existing offering. So there. It is clearly monetized on top of that and we expect a half hour days to help an expansion new business and also for on their attention.
So that's on on on the adoption site.
Multiple first party data perspective.
If you if you ask me to the customer whether it's a technology company or others. We are one of the largest source of the forest party data for them.
Already severe.
What is what we are doing is with airpower days, what we're doing is we're helping them build on that momentum so now.
One of the capabilities in a says how do you help help you hyper personalized segment you could have passed emerging prospect and could have the same webinar, but he could have different experiences that allows you to provide different things and get different data points to add to what you already head on the other side, it's beyond the webinar once once a webinar as long.
Based on how people have interacted with that based on what are the most important things we allow it we will we allow you are the more chair where audiences prospects and others with some of the key moments, allowing is going to get more data. So essentially what we are doing has been a lot of our customers to build more data and insights.
Their customers and prospects and then provide them through the integration that we have with them already in there see Ottoman marketing automation, so become becoming even more important to them.
In their stack from afar spotty data perspective.
And <unk> will allow us to do that.
Okay. That's that's helpful. Thanks, and just one were thinking it was encouraging to hear some of the downtown.
Downtown churn metrics getting more favorable.
One of your thinking.
You know we've been talking about multiyear renewals for some time now, but when you're thinking of some of those cohort veterinarian for the first time or saw a multiyear contracts are we through most of that at this point or new plans that might be at a trial.
We have talked about when we fought for some time, so the pre COVID-19 cohorts.
Pretty much all stabilize they won't be until maybe one or two levels of normalization what has been impacting us has been the <unk> the macro environment, that's been shopping for marketing budgets.
I am encouraged with where we are as we see our our business stabilising.
We've talked about that and cleared grocery attention was in queue for the highest in three years as we move on May 2024, we continue to expect that our our grocery attention is going to continue to stabilize and having.
Close to 50% off or a R. R and multiyear agreements helps it was 41% last year. It's 49% now. So you know we I feel quite optimistic that now we have exciting new products, which are getting good reaction. We are seeing stability in our installed base, we are a better profit.
Mid seventies gross margins I believe the company is now positioned.
With some assessed to generate double digit top line growth and double digit EBITDA margins down the line.
And just this last one for me maybe first name now that the repurchase is done with 75 million is.
This complaint you still have $200 million on the balance sheet can.
Can you just talk a little bit about your capital.
Allocation philosophy from here.
Yes, we just finished this month.
Capital return program of $125 million, which we started a year earlier.
And with the $41 million and returned NMB prior share repurchase program.
$166 to shareholders in approximately two years now.
Now a balance sheet remains strong and that will allow us to invest in our strategic priorities.
Have any future plans onboard always evaluates our capital structure.
Balance sheet with the <unk>.
Maximizing shareholder value.
Alright, thanks for taking the questions.
Our next question comes from the line of Patrick Shoals with Robert W. <unk>. Please proceed with your question.
Hey, I appreciate guys sign. This afternoon. So you mentioned some of the earliest etc, Timothy offering and I. Appreciate all the caller, they're just curious where the spin is coming from out of your customers budgets are you seeing early signs of platform consolidation onto eighth or has this been going to be incremental for customer says any different color around feedback with pricing of bashing would be helpful.
Okay, Yeah, let's let me.
I think right now we are seeing.
And then when you when you look at our customers. Let me let me back on you look at our customers they've got their spent.
Brian to consolidate those fence, but our customers are also spending incremental dollars in terms of AI based investments. Okay that help them drive revenue growth are are cost optimization. So when we share with them that airpower days can help them of course drive more revenue, but at the same time allows them to.
Do more with less for example, the ability to kind of create more derivative content like E books.
And P D F and takeaways, which earlier took them a lot of <unk> you can do that very simply using airpower days, they can do more with less so.
They are finding more dollars within within the current spend across the organization because it allows them to do more with less also there. They are looking at adding more AI kind of budgets.
Data prolonged Maria I budgets, because they want to drug use AIG drive more revenue while at the same time, reducing their costs. So some is coming from existing budgets Thomas coming from they're AI allocations that they're focused on.
Okay, No I appreciate I, probably they're very helpful and <unk>.
Maybe this one on the margins too I mean outside of the natural flow through that comes with any potential upside to revenue what are some of the biggest margin drivers at your disposal for this year is it possible that the eighth offering or a future project for our map to step up and you're already in that sense and then maybe any comments on current headcount levels in hiring plans for their thanks guys.
Yeah, Let me go ahead and take that they're like a couple of questions. I was telling me start with the margins gross margins, where 75 per cent for the year.
2023, with Q quite a bit higher 77, Hannah coupon margins also reflects on the seasonal strength, we typically season and see and coupon revenue.
Which helps margins as long as our cost reduction efforts, we've taken throughout 2023.
For 2024, we did say we expect our gross margins to continue to be in the mid seventies <unk>.
2023, gross margins, which were 75 per cent, we do expect to see gross margin improvement over time and a target models to have those at 78 and.
80% now you asked about public investment levels.
In terms of an expense structure. It's currently where we want it to be for now, but you know of course won't just that I just need I don't investments going forward is going to be based on the top line and will continue to evaluate that.
Optimizing to return the top line the growth and also bouncing profitability.
In terms of some of the investments were looking at.
<unk> bring it to market and continuing to develop that.
We are making progress of regulated use cases apartment financial services. So we've made investments Errancy progress Sarah.
And we are focused on making <unk> protect investments in certain categories also being disciplined on costs.
And sales investment says, they're going to be driven by the productivity that we're staying there.
Thank you I appreciate the call.
Our next question comes from the line of Noah Herman with J P. Morgan. Please proceed with your question.
Okay got it. Thank you so much for taking the questions.
<unk> with respect for linearity in the quarter can you provide some color just unprofitable, calling the man and and convergence install a quarter and <unk> your date as well.
No. This is <unk> how are you talking about linearity in Q4.
Yeah exactly.
Yeah, I I think that let me, let me tell me take that up.
At.
We saw a very strong December.
Compared to October and November and the quarter.
I think it'd be fair to say that more than 50% or it may be even closer to 60% of the business Ah closed in December.
And so that's kind of that's kind of what we saw in in queue for now as it pertains to that's about the new and expansion business, especially on the newer side, but if you look at the retention profile of the business. The installed base. We saw V saw stability throughout the.
And we expect that to continue within 2024 now there is some <unk>.
Some <unk> or logical or some corners are smaller than that that's that's a variability but that gives you a call or how we saw Q4.
From the linearity perspective.
Yeah, that's super helpful. And then maybe just on the guidance.
To see the stabilization <unk>, it's gonna be retention matrix.
Totally understand given the the marketing budgets are still under scrutiny.
Being prudent with the guidance.
Just curious are you learning in an.
An extra layer of conservatism with respect to the guidance and has that approach change you know.
Compared to last year around this time.
Yeah.
Let me start that I I think when you say when you asked about compared to last year at this time.
I think what the difference between last year and this time and now is one of the key things are installed base. We feel is stabilising. So we have a strong foundation to build on we don't have the pre COVID-19 contracts and there was some strugglers last last.
From a renewal point of view and that what we are now we I believe we are kind of at the tail end of this macrocycle, that's what I believe because it's eight quarters in some of the macro <unk> uncertainty began so we do feel a lot more confident and comfortable at the end of this.
At the end of Q4 with where our installed base is now we of course, we expect you asked a question about guidance. So let me give you a little more there.
Yeah, no all key metrics in queue for improved.
<unk> and.
Incredibly excited about that but we are in a choppy macroenvironment for marketing budgets as you talked about so we have to temper our enthusiasm for 2024 based on that.
We are not factoring significant update to the macro.
Especially for marketing budgets, if it comes back stronger it'll be good for us.
I'm excited about the launch of the $124 an engagement platform and a half hour days.
It's the most important product we've had in the last five years, but it is still early days as it has just launched.
And as we have outlined in our last earnings call to we expect a R. R to turn positive in second half of the year.
Okay.
Now the place where we have the temporary enthusiasm and expectations is on the new an expansion business. That's based on the marketing budget and that's keeping that in mind, we are taking a prudent approach towards guidance.
Great. Thanks, so much for the color.
Our next question comes from the line of D. J Heinz with Canaccord. Please proceed with your question.
Hey, this is Luke on for D. J. Thanks for taking the question so encouraging to see your new 100, K customer account they'll positive again.
I'm wondering if you see that as a signal that perhaps maybe the worst of of large customer down solids behind us.
And do you foresee that metric staying positive going forward.
So <unk>.
[noise] excited though that the 100, K plus error customer inquiries by a by a high single digits. It was the best performance in 2023. So we are pleased with that and we are all also because some of that was based on new customer when some of that was based on.
Customers that moved moved above the threshold up from less than 100, K a R. R up as we said our downfall performance in Q4 was probably the best we've seen in the last six quarters up so just from an overall sense from from the cohorts Stabilising. We do believe we've seen the worst.
Of the Downfalls, it's still shopping.
So.
It's still charging me, but I think the worst of the Downfalls that'd be <unk> and even Q1 last year I think we are past that there may be some episodic issues as we move forward, but overall, we feel that our cohorts are stabilizing now regarding hundred K plus rug I will have more confidence about saying we.
Expect that to be consistent once we have a little better sense of the macro environment marketing budgets. So I just need to be a little more.
<unk> about that.
Got it that makes sense and then maybe one more from me as we think about yourself focus on regulated industries that thank you said.
Those are low single digit percentages of a R. R. Today, but where do you think that can go over time with you lean into sort of that motion and are you seeing better sales efficiency, yeah. As you reorient your sales strategy towards that's.
I want to make one clarification and I'll answer the sales productivity question.
D. The regulated industries, we talked about health care professional engagement.
Professional certification and remember enrollment and broker enablement bulls or about a quarter of our total error. Okay. What we talked about that we talked about that the growth on a year to year basis, an aggregate of that era cohort was in the single digits. So I just wanted to <unk> to make that and yes that has been.
That has been a part of our focus ought.
To control, what we can control and the environment, where companies like technology and manufacturing companies have been under under pressure and vehicles with our focus we expect that to continue to improve not related to the question of our sales productivity.
Across the board with our focus on the regulated industries Salesforce.
Improved and the second half of 2023.
Actually in queue for it was the best in the year and was broad based across all go to market segments.
Still not as hot as I would like to be but is spending in the right direction.
And as I mentioned, we have reallocated sales resources and adjusted the style size of our sales teams, especially as it relates to put in wanting people in the direction of those highly recommended industrials.
Thank you.
Our next question comes from the line of Tom Boykie with Keybanc. Please proceed with your question.
Hi, Thanks for taking my question. So I was just wondering.
But the improvement I think I think it would have been asked me to do a couple of times I would just try it another way the improvements you're seeing exiting the year. It sounds really positive what are the maybe top one or two maybe it's by vertical maybe there's some big contracts coming due maybe stragglers in the beginning of 24, what what what are the top one or two items that are.
Alright.
Maybe a little bit overly prudent here with this with this guy in terms of your negative 15 per cent exit right here in <unk> improving metrics and.
Secondly, when you talk with the the initial C suite folks that you are talking to you about <unk>, what what are the top you know maybe one or two use cases that are different from the typical insights that your large customers were already gleaning from your platform with all the first part of a data between collecting for years anyway, that'd be very <unk>.
<unk>. Thank you so much.
Mmm.
Yeah, I think the your first question about <unk> and why are you being you.
Overly program and working what what you were saying.
As I just talked about I think one of the things that we saw from the linearity point of view. That's December is a very strong.
But October and November were Okay. We saw visa pipeline bill, especially pipeline for AI powered S is built but December was stronger than we had expected.
As we can and we have come into Q1, we are still seeing a choppy environment for marketing budgets.
We are beginning to ramp up or the building of our pipeline.
S Q.
Q1 is generally tends to be a little more seasonally software.
And we have just launched airpower day, it's only a month back so we.
We had two or three months behind us we'd be able to kind of give a little better sense, but that is what is making is being put in for the year as as we move forward and if the if the there's an uptick in the macro the marketing budgets improve come back swallowed it would be very good for our business. So.
So that's the thing on the on how we are thinking about the business, but we are as we looked at 124 are factoring in an improvement in the installed base from from the point of view of your attention and improvement insurance and down south for the year, we expect that to improve as we move forward.
Got you a specific question about <unk> that is different let me give you just took two examples Howard a different within the same webinar experience now you can do.
Two different things you can have different content for.
And you can you can target your customers separately from your prospect you can have different call to action you may have different kinds of surveys you can have different things for people to add L. So you are spending less money, but getting more signals and within the same webinar experience. That's the high poor personalization and segmentation that's one part the other.
Art is going beyond the webinar, it's not just an event, which is for 60 minutes, you're gonna be able to figure it out too.
Three different clips out of that that are the key highlights and you can send them to people, who did not Jordan and say Hey, John here are the key highlights is most people engage with those bite size amount of content. There's more data that they will basically brain and those can be monetize so just to give you a sense going beyond the webinar and a lot of people.
Able to do more with less with things like segmentation and personalization. Those are some of the additional that we are doing and we're going to keep adding there uhm, you're gonna keep adding there and a half hour days to make it more valuable for our customers.
And he was sitting on top of a lot of data that's great well. Thank you for your health insurance.
Good evening gentlemen, this does conclude our question and answer session.
It's also does conclude our conference. Thank you all for your participation.
May disconnect your lines at this time and have a wonderful day.
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