Q2 2024 ON24 Inc Earnings Call

Sayo Denloye: future events and financial performance, including guidance for the third quarter and full fiscal year 2024, as well as certain third quarter and full year non-GAAP projects. These forward-looking statements are subject to known and unknown risks and uncertainties that could adversely affect ON24's 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, the success of our new products and capabilities, other statements regarding our ability to achieve our business strategies, growth, or other future events or conditions, such as the impact of adverse economic conditions and macroeconomic deterioration, including increased inflation.

Including guidance for the third quarter and full fiscal year 2024, as well as certain third quarter and full year non-GAAP projections.

These forward looking statements are subject to known and unknown risks and uncertainties that could adversely affect our 24 as 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. The success of our new products and capabilities other statements regarding our ability.

To achieve our business strategies growth or other future events or conditions, such as the impact of adverse economic conditions and macroeconomic deterioration including increased inflation.

Sayo Denloye: On 24 cautions that these statements are not guarantees of future performance; all forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call. Please refer to the company's periodic SEC filings and today's financial press release for factors that could cause our actual results to differ materially from any forward-looking statement. We'd also like to point out that on today's call, we'll report both GAP and non-GAP results.

On 24 cautions that these statements are not guarantees of future performance. All forward looking statements made today reflect our current expectations only and we undertake no obligation to update any statement to reflect the events that occur after this call.

Please refer to the company's periodic SEC filings and today's financial press release for 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. We will report both GAAP and non-GAAP results.

Sayo Denloye: We use these non-GAAP financial measures to evaluate our ongoing operations and for internal planning and forecasting purposes. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. To see the reconciliations of these non-GAAP financial measures, please refer to today's financial press release. I will now turn the call over to Sharat.

We use these non-GAAP financial measures to evaluate our ongoing operations and for internal planning and forecasting purposes.

Sharat Sharan: Thank you, Sayo, and welcome to our second quarter 2024 Financial Results Conference. With me today is Steve Vattuone, our Chief Financial Officer.

Sharat Sharan: I'm excited by our results in Q2 and pleased to report another quarter of solid momentum. We delivered Q2 revenue and non-GAAP EBIT above guidance and executed on our profitability targets. Achieving positive adjusted EBITDA and positive non-GAAP EPS for the fifth quarter in a row, and also achieved positive free cash flow for the second consecutive quarter. Revenue from our core platform, including services, in Q2 of 2024 was $36.5 million. Total revenue, including virtual conference fees, was $37.3 million. Of total revenue for the quarter, subscription and other platform revenue was $34.1 million, and professional services revenue was $3.2 million.

Sharat Sharan: We remain laser focused on returning to ARR growth. We ended Q2 with $131 million of ARR related to our core platform, a decrease from Q1 of $2.2 million, just meaningfully better than the expectations we provided in our last earnings call. What really excites me are the dynamics behind these methods.

Sharat Sharan: Importantly, our focus on improving our in-period gross retention rates is bearing fruit. The changes we have made, organizationally and execution-wise, are resulting in an improvement, and for the third quarter in a row, gross retention trended much better than the average rates we've seen for each of the past three years. In fact, Q2 growth retention improved sequentially from last quarter, and we posted close to double-digit improvement from Q2 of 2023. Disaggregating gross retention into churn and down, we saw a huge improvement in churn in Q2, and, in fact, it matches the best it has been in the last three years.

Sharat Sharan: In addition, we saw meaningful reductions in down cells as a percentage of the renewal base in Q2, close to the best in the last. Finally, we were pleased that large customer renewals that came due in Q2 were better than expected, half of them resulting in growth.

Sharat Sharan: It is great to see the results of our strategic priorities beginning to pay off, and I'm really proud of the team's successful execution, especially as we have navigated through a tough macro environment over the last two years. While we are controlling what we can control and improving our execution, the macro environment remains challenged. We continue to believe that as marketing budgets normalize, customers will reinvest in revenue-generating initiatives, especially those that prioritize AI technology, such as our AI-powered A's, short for analytics and content engine. We continue to see traction with our AI-powered AI solution. AI-powered H-AIR-R growing to the high teens as a percentage of growth AIR-R during Q2.

Sharat Sharan: This rate has nearly doubled since last year. We are establishing ourselves as an AI platform for real-time, intelligent, digital engagement, and AI Power Days is helping us across three key areas: New Business Acquisition, Customer Expansion, and Improved Retention. We expect AI Power Days to continue to ramp throughout the year, giving us a tailwind to drive ARR growth in the future. As we look to the second half of the year,

Giving us a tailwind to drive ADR growth in the future.

As we look to the second half of the year.

Sharat Sharan: We are balancing our enthusiasm around the progress we have made in the first two quarters with the reality that forecasting ARR in this environment more than one quarter ahead remains challenging. We expect sequential improvement in ARR performance in Q3 with net new ARR of breakeven to negative 1% and anticipate a similar performance in Q4, although we assume there is no further deterioration in the map.

Speaker Change: We're balancing our enthusiasm.

The progress we have made in the first two quarters.

The reality that forecasting IRR in this environment more than one quarter ahead remains challenged.

We expect sequential improvement in our performance in Q3 with net new <unk> of <unk>.

Even to negative 1% and anticipate a similar performance in Q4 zoom.

Assuming there is no further deterioration in the macro.

Sharat Sharan: We believe we are turning the corner towards the achievement of positive ARR. I believe we are making progress towards reaccelerating our business, especially in the enterprise, due to the success we are seeing across our strategic growth priorities, which are one, innovating a platform with our AI-powered solution to executing our enterprise go-to-market focus, especially in highly regulated three, delivering on our profitability targets while returning to growth. Let's start with an update on our platform's AI innovation and the momentum of our AI-powered AI solution in June.

We believe we are turning the corner towards the achievement of positive era.

Speaker Change: I believe we're making progress towards re accelerating our business, especially in the enterprise due to the success, we are seeing across our strategic growth priorities, which are one.

Speaker Change: Innovating our platform with our AI powered a solution.

Speaker Change: Sure.

Speaker Change: Executing our enterprise go to market focus, especially in highly regulated industries.

Speaker Change: And three delivering on our profitability targets, while returning to growth.

Speaker Change: Let's start with an update on our platforms AI innovation and the momentum of our AI powered solutions.

Speaker Change: In June we.

Sharat Sharan: We hosted our annual user conference on 24Xperience, where we brought together thousands of our customers and prospects across, including half of our enterprise customer base with industry leaders like Grant Thorpe, a provider of Audit and Assurance, Tax, and Advisory Services. Guardian, the modern mutual insurance company.

Speaker Change: Most of our annual user conference beyond 'twenty for experience with.

Speaker Change: Where we gather thousands of our customers and prospects across the globe, including half of our enterprise customer base with industry leaders like Grand Tour.

Sharat Sharan: SAP, a multinational software company, and Sun Life US, one of the largest providers of employee and government benefits and more, who shared the exceptional customer experience and significant revenue impact they're delivering through our platform. We are extremely excited by the positive feedback on the platform roadmap and the customer success stories being shared by our early adopters of AI-powered systems. One of our customers, a multinational $5 billion software company, shared how they can now target and personalize for different countries.

Sharat Sharan: Just one experience, promoting the different products that are available and applicable to different markets and even translating them into a number of different languages, providing significant time savings to the field market. Another customer, an IT services and consulting company with over 1000 employees, spoke about how AI Power Days has tripled their reach and engagement year over year and helps them create content four times faster. Similar result was shared by one of the nation's top accounting firms, who said AI Power Days helps them speed up their entire content process, get campaigns to market much more quickly, and tailor their certified professional education programs for different verticals, differentiate from the Let me explain further the power of AI on data.

Sharat Sharan: PIAs helps uniquely solve some of the biggest challenges that enterprise sales and marketing teams face today, as of Q2. The percentage of our install base that has used or tried our AI capabilities is in the high. First on this list is the need to personalize.

Sharat Sharan: Nearly every CMO I talked to has a goal to deliver a more personalized, intelligent, and differentiated digital experience to their customers and prospects, yet most currently lack the resources, the data, and the technology to do so. Our AI-powered A solution gives an immediate and simple way for their team to target and engage at scale their business's highest priority audience, such as top accounts. Important Channel Partners, and Executive Decisions Our ability to meet the imperative of personalization, giving us a way to further differentiate a platform, mission-critical go-to-market use cases like Demand Generation, Customer Marketing, Professional Certification, and Training. Partner Enablement and Compliance Driven Digital Transformation Use Kit.

Sharat Sharan: For example, one of our biggest expansions in Q2 was with a multi-billion dollar global telecom provider. After standardizing their marketing teams on a platform last, their partner enablement team came to us to help them personalize the way they educate their network of resellers and channel partners, a specific part of helping to strengthen a critical revenue stream for their business. By upgrading to our AI-powered ACE solution, their team can dynamically personalize content experiences based on partner tier and type.

Sharat Sharan: Their adoption of AI-powered ACE has increased their investment with us by more than 25% while saving them hundreds of thousands of dollars in agency man hours and consolidating point solutions in their tech stack onto our platform, whether it's enabling investors and financial advisors or delivering medical education to healthcare professionals in the life sciences sector. Content is the lifeblood for B2B sales and marketing, to AI-generated content and video preferred to acquiring that new technology and the ability to use generative AI from an already approved platform, resulting in over 20% expansion.

Speaker Change: Existing compliance process helped to further accelerate their decision upgrade to ace.

Speaker Change: Given the faster and easier path towards adoption.

Speaker Change: They are among the poorest technologies chosen for the company's cross functional roadmap, resulting in over 20% expansion.

Speaker Change: The third main benefit of airpower days is driving continuous prospect and customer engagement automated content mergers.

Speaker Change: Successfully win and keep customers companies need to manage a mix of many digital channels.

Speaker Change: Just having a website and sending one off emails won't cut it anymore.

Speaker Change: Using multiple digital channels makes a lot of effort and cost.

Speaker Change: Hands on maintenance.

Sharat Sharan: Our platform helps alleviate that resource drain by quickly populating, building, and delivering streams of digital content and video. Because our enterprise-grade platform supports stringent compliance standards, with an ideal product market fit for these verdicts, address their specific, As an example, one of our strategic customer relationships is with one of the world's top five pharmaceutical companies, where we power their digital healthcare professional engagement. Our breadth of capabilities and depth of pharma expertise also puts us in a strong position for new business acquisition, being brought on an over $10 billion animal health care and pharmaceutical company who needed to centralize the global healthcare professional engagement strategy onto one platform, purpose built for the while gaining. We expect to be adjusted EBITDA positive for 2024, exceeding our breakeven target.

Speaker Change: Our platform helps Olivia that resource drain that quickly populating.

Speaker Change: Building and delivering streams of digital content and videos and dynamically personalizing the experience for audiences.

Speaker Change: Moving to our second strategic priority.

Speaker Change: Our enterprise go to market.

Speaker Change: When it comes to our enterprise go to market strategy.

Speaker Change: We need to focus on mission critical use cases in regulated industries, including life Sciences and financial services.

Speaker Change: Because our enterprise grade platform supports stringent compliance standards.

Speaker Change: We believe we have a differentiator solution.

Speaker Change: With an ideal product market fit for these verticals.

Speaker Change: And our results are validating our strategy as we saw sequential and year over year or AOR growth on the life Sciences and financial services verticals in Q2.

Speaker Change: I'm, especially excited about the momentum we are seeing with life Sciences. So let me give you some more color.

Speaker Change: There's been a massive acceleration of digital transformation.

Speaker Change: In this category, especially in Pharmaceuticals, and we believe this trend has been and will continue to be a growth vector for our business.

Speaker Change: We've put a specific focus on our go to market execution in life Sciences, and pharma and a dedicated some of our product development.

Speaker Change: Address their specific needs as.

Speaker Change: As a result, our.

Speaker Change: Our life Sciences segment is one of the highest performing parts of our business.

Speaker Change: As an example, one of our strategic customer relationships.

Speaker Change: One of the world's top five pharmaceutical companies, where we power the digital health care professional engagement strategy.

Speaker Change: Give me a sense of the scale, we are driving for them.

Speaker Change: Last year, they engaged hundreds of thousands of health care professionals and more than 10 languages across 50 countries through our plan.

Speaker Change: Our breadth of capabilities and depth of pharma expertise also puts us in a strong position for new business acquisition.

Speaker Change: In Q2.

Speaker Change: We brought on and over $10 billion animal healthcare and pharmaceutical company.

Speaker Change: Who needed to centralize the global health care professional engagement strategy onto one platform that is purpose built for the enterprise.

Speaker Change: Because they are legacy systems lack the deep engagement and first party data, we provide and did not integrate with their CRM system. They were spending weeks and weeks trying to manually analyze and manage customer engagement there.

Speaker Change: Moving onto our platform.

Speaker Change: It will be able to scale their program efficiently.

Speaker Change: And with our engagement data and integrations.

Speaker Change: We will be able to automate their marketing and sales processes, while gaining insights they can get.

Speaker Change: In other digital channels.

Speaker Change: Outside of regulated industries, we continue to provide a differentiated solution that drives value for our customers.

Speaker Change: One of our largest new deals in Q2 comes from nearly $700 million.

Speaker Change: Dollar Global Technology company that provides marketing automation to e-commerce.

Speaker Change: After a period of rapid growth and our team was looking to advance the marketing majority when enterprise grade led.

Speaker Change: We're investing in a full platform suite because of its ability to help them deliver consistent.

Speaker Change: Data, driven and personalized experience across the entire customer journey.

Speaker Change: We will utilize our platform to power with global demand generation customer marketing and partner marketing teams, which is especially important as the organization moves upmarket and focuses on sales led growth.

Speaker Change: Next I'll turn to profitability.

Speaker Change: As I mentioned at the start of my remarks, we are pleased to achieve our Q2 profitability targets again, delivering positive adjusted EBITDA and positive non-GAAP EPS for the fifth consecutive quarter.

Speaker Change: We expect to be adjusted EBITDA positive for 2024 exceeding our breakeven target.

Speaker Change: We remain committed to our long term profitability target of generating double digit EBITDA margins coming off our Q2 performance I believe we are making progress towards re accelerating our business, especially in the enterprise.

Sharat Sharan: Coming up for Q2 performance, I believe we are making progress toward reaccelerating our business, especially at the end. Q2 marked performance gains for our enterprise. Average score ARR per customer in Q2 was consistent with the high watermark we reached last year. We expect continued improvement into 2020. Longer term, we believe we are attacking a massive market opportunity. We believe the strength of our platform and the continued execution of our strategic growth priority will pave the way for success and enable us to ultimately reach our long-term targets. But after that, I'd like to turn the call over to the state.

Speaker Change: Adoption is a business imperative and our AI powered ace is a differentiated solution that has a strong product market fit due to its enterprise grade capabilities and its ability to improve efficiency and increase revenue results.

Speaker Change: Q2 marked performance gains for our enterprise business.

Speaker Change: The average core <unk> per customer in Q2.

Speaker Change: It was consistent with the high watermark, we reached last quarter.

Speaker Change: In addition, our percentage of IRR and multiyear agreements the percentage of customers using two or more products remained at record levels.

Speaker Change: I'll conclude.

Speaker Change: By reiterating my enthusiasm for our performance in the quarter and the progress we have made in the first half of this year.

Speaker Change: We are encouraged by another quarter of improvement in the stability of our installed base with gross retention improving sequentially from last quarter and trending much better.

Speaker Change: Average rates, we've seen each of the past three years.

Speaker Change: We are seeing traction around our AI powered <unk> solution.

Speaker Change: The percentage of growth here are in Q2 from airpower days nearly doubling from Q1 on the operational front. We are successfully executing our strategy to focus on digital transformation use cases, while making these achievements with the streamline organization is meeting our profitability targets.

Speaker Change: As we look.

Speaker Change: And the second half of the year.

Speaker Change: We will build on the progress we've made in the first two quarters.

Speaker Change: We believe we are at the beginning of a turning point.

Speaker Change: We are laser focused on execution and moving back to positive era.

Speaker Change: We expect continued improvement into 2025.

Speaker Change: Longer term, we believe we are attacking a massive market opportunity by enabling VW companies leverage on 24 digital engagement platform to more efficiently grow revenue and engage and understand their customers and prospects.

Speaker Change: We believe the strength of our platform and the continued execution of our strategic growth priorities will pave the way for success and enable us to ultimately reach our long term targets of double digit revenue growth and double digit EBITDA margins.

Speaker Change: With that I'd like.

Speaker Change: Like to turn the call over to Steve.

Steve: Thank you Sharon and good afternoon, everyone.

Steve: I'm going to start with our second quarter 2024 results and we'll then discuss our outlook for the third quarter of 2024 and full year of 2024.

Steven Vattuone: Before I get into the numbers, I wanted to remind everyone that our focus, as it was in the prior quarters, will be on the core platform business, as we have de-emphasized the virtual conference. We view the metrics from our core platform, such as revenue and ARR, as the best KPIs to measure our performance. Revenue from our core platform, including services, in Q2 of 2024 was $36.5 million, representing a decrease of 10% year over year.

Steve: Before I get into the numbers I wanted to remind everyone that our focus as it was in the prior quarters will be on the core platform business as we have deemphasize the virtual conference product.

Steve: We view the metrics from our core platform, such as revenue and <unk> as the best Kpis to measure our performance.

Steve: Revenue from our core platform, including services in Q2 of 2024 was $36 $5 million.

Steve: Representing a decrease of 10% year over year.

Steven Vattuone: Total revenue for the second quarter, which includes revenue from our virtual conference product, was $37.3 million. Total subscription and other platform revenue was $34.1 million. Overages represented approximately 1% of total revenue in Q2. Total professional services revenue was $3.2 million, a decrease of 15% year-over-year, representing approximately 9% of total revenue, the same as in the year-ago period. Moving on to ARR.

Steve: Total revenue for the second quarter, which includes revenue from our virtual conference product was $37 $3 million.

Steve: Total subscription and other platform revenue was $34 $1 million.

Steve: Overages represented approximately 1% of total revenue in Q2.

Steve: Total professional services revenue was $3 2 million a decrease of 15% year over year, representing approximately 9% of total revenue.

Steve: The same as in the year ago period.

Steven Vattuone: ARR represents the annualized value of all subscription contracts at the end of the period and excludes professional services and overdue. Pending ARR related to our core platform was $131 million, a decrease of $2.2 million compared to Q1 of 2024, which is meaningfully better than the expectations we provided on our last earnings call and was driven by the continued trend of increased stabilization in our install base over the past several quarters. As Sharat discussed, in-period gross retention in Q2 improved by close to double digits as compared to Q2 of last year and also improved sequentially from Q1. While customers are still cautious about making new purchasing commitments, we are encouraged by the signs of stabilization that we are seeing in our business.

Steve: Moving on to <unk>.

Speaker Change: Ah represents a annualized value of all subscription contracts at the end of the period and excludes professional services and Overages.

Steve: Pending <unk> related to our core platform totaled $131 million, a decrease of $2 2 million compared to Q1 of 2024, which is meaningfully better than the expectations. We provided on our last earnings call and was driven by the continued trend of increased stabilization and are installed.

Steve: Base over the past several quarters.

Steve: As Sean discussed in period gross retention in Q2 improved by close to double digits as compared to Q2 of last year and also improved sequentially from Q1.

Steve: While customers are still being cautious about making new purchasing commitments.

Speaker Change: We are encouraged by the signs of stabilization that we are seeing in our business.

Steven Vattuone: Total ARR, including the contribution from our virtual conference product, was $133.7 million at the end of Q2 2024. Turning 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 continued strength of our largest enterprise customers and their commitment to our platform. The number of customers contributing more than $100,000 in total ARR was 319,000.

Steve: Total <unk>, including the contribution from our virtual conference product was $133 7 million at the end of Q2 2024.

Steve: Turning to customer metrics.

Steve: <unk> contribution from the $100000 plus customer cohort continues to represent approximately two thirds of our total IRR, which is consistent with the prior quarter and demonstrates the continued strength of our largest enterprise customers and our commitment to our platform.

Steve: The number of customers contributing more than $100000 in total <unk> was 319.

Steven Vattuone: As we have discussed on prior calls, enterprise customers continue to be our focus, and we have seen these customers continue to make longer-term commitments to our platform. The percentage of RAR in multi-year contracts increased sequentially from Q1 and is now at record levels with over 50% of RAR in multi-year agreements. In Q2, the average core ARR per customer was consistent with the last quarter at approximately $78,000 per customer. The total customer count at the end of Q2 was 1,682.

Steve: As we have discussed on prior calls enterprise customers continue to be our focus.

Steve: And we have seen these customers continue to make longer term commitments to our platform.

Steve: The percentage of our IRR and multiyear contracts increased sequentially from Q1 and is now at record levels with over 50% of our IRR and multiyear agreements in.

Steve: In Q2, the average core <unk> per customer was consistent with last quarter at approximately $78000 per customer.

Steve: Total customer count at the end of Q2 was 1682.

Steven Vattuone: 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-GAAP 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.

Steve: Before turning to expense items and profitability I would like to point out that I will be discussing non-GAAP results going forward.

Steve: Our non-GAAP results exclude stock based compensation restructuring charges impairment charges for real estate amortization of acquired intangibles shareholder activism related cost as well as certain other items.

Steve: Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results can be found within our earnings release.

Steven Vattuone: Our gross margin in Q2 was 77%, consistent with the past two quarters and up 200 basis points from Q2 of last year. Our gross margins reflect the cost reduction actions we have taken to streamline our operations. Now turning to operating expense. Sales and marketing expense in Q2 were $15.8 million, compared to $18.3 million in Q2 last year. This represents 42% of total revenue compared to 43% in the same period last year and 43% last quarter.

Steve: Our gross margin in Q2 was 77% consistent with the past two quarters and up 200 basis points from Q2 of last year.

Steve: Our gross margins reflect the cost reduction actions, we have taken to streamline our operations.

Steve: Now turning to operating expenses.

Steve: Sales and marketing expense in Q2 was $15 8 million.

Steve: Compared to $18 3 million in Q2 last year.

Steve: This represents 42% of total revenue compared to 43% in the same period last year and 43% last quarter.

Steven Vattuone: Our sales and marketing expenses decreased in absolute dollars, both sequentially and year-over-year, largely due to the cost-savings measures we have implemented, resulting in a more efficient go-to-market organization as we continue to focus on driving improved sales efficiency.

Steve: 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 resulting in a more efficient go to market organization as we continue to focus on driving improved sales efficiency.

Steven Vattuone: R&D expense in Q2 was $6.7 million, compared to $7.6 million in Q2 last year. This represents 18% of total revenue, compared to 18% in the same period last year and last quarter. While our R&D expenses have decreased in absolute dollars over the past year, we continue to invest in product innovation to drive the next generation of our platform, which includes AI-powered ACE, which we launched earlier this year.

Steve: R&D expense in Q2 was $6 7 million compared to $7 $6 million in Q2 last year.

Steve: This represents 18% of total revenue compared to 18% in the same period last year and last quarter.

Steve: While our R&D expenses have decreased in absolute dollars over the past year, we continue to invest in product innovation to drive the next generation of our platform, which includes AI powered ace, which we launched earlier this year.

Steven Vattuone: G&A expense in Q2 was $6.5 million, compared to $6.7 million in Q2 last year. This represents 17% of total revenue, up slightly from 16% in the same period last year and down from 18% last quarter. We have taken actions to streamline our G&A functions and reduce our G&A costs, and as a result, our G&A expenses and absolute dollars have decreased as compared to the prior quarter and prior year. Moving on to our bottom line performance,

Steve: G&A expense in Q2 was $6 5 million compared to $6 7 million in Q2 last year.

Steve: This represents 17% of total revenue up slightly from 16% in the same period last year and down from 18% last quarter.

Steve: We have taken actions to streamline our G&A functions and reduce our G&A costs and as a result, our G&A expenses in absolute dollars have decreased as compared to the prior quarter and prior year.

Steve: Moving on to our bottom line performance I.

Steven Vattuone: I'm pleased to report that we exceeded the profitability targets that we provided in the prior earnings call. We achieved positive adjusted EBITDA and non-GAAP EPS profitability in Q2. This marks the fifth consecutive quarter of positive adjusted EBITDA and on-gap EPS profitability. As we enter the latter part of 2024 and head into 2025, we do so with a more efficient and streamlined cost structure, which will provide operating leverage to our business heading into 2025.

Steve: I am pleased to report that we exceeded the profitability targets that we provided in the prior earnings call.

Steve: We achieved positive adjusted EBITA and non-GAAP EPS profitability in Q2.

Steve: This marks the fifth consecutive quarter of positive adjusted EBIDTA and non-GAAP EPS profitability.

Steve: As we enter the latter part of 2024 and head into 2025, we do so with a more efficient and streamline cost structure, which will provide operating leverage to our business heading into 2025.

Steven Vattuone: Operating loss for Q2 was $0.3 million or a negative 1% operating margin compared to an operating loss of $0.9 million and a negative 2% operating margin in the same period last year. Net income for Q2 was $1.5 million or 3 cents per share based on approximately 45.8 million diluted shares outstanding. This compares to net income of $2.1 million, or $0.04 per share in Q2 last year, using approximately 50.7 million diluted shares

Steve: Operating loss for Q2 was zero point $3 million or a negative 1% operating margin compared to an operating loss of zero point $9 million and a negative 2% operating margin.

Speaker Change: Same period last year.

Steve: Net income in Q2 was $1 5 million or.

Steve: Our <unk> per share based on approximately $45 8 million diluted shares outstanding.

Steve: This comparison net income of $2 1 million or <unk> <unk> per share in Q2 last year using approximately $50 7 million diluted shares outstanding.

Steven Vattuone: Turning to the balance sheet and cash flow. We ended the quarter with $193.8 million in cash, cash equivalents, and marketable security. In March of this year, we announced a new $25 million share repurchase program, which runs for one year until March 2025. Turning to our cash flow metrics for Q2, cash provided by operations in Q2 was $1.4 million compared to cash used in operations of $4.3 million in Q2 of last year.

Steve: Turning to the balance sheet and cash flow.

Steve: We ended the quarter with $193 $8 million in cash cash equivalents and marketable securities.

Steve: In March of this year, we announced a new $25 million share repurchase program, which runs for one year until March 2025.

Steve: This new share repurchase program follows the completion of two early our capital return programs, which collectively returned $166 million to shareholders between December 2021, and February 2023.

Steve: Under the new $25 million share repurchase program, we have utilized $8 3 million to date with approximately $5 million utilized in Q2 of 2024 and approximately $3 $3 million utilized thus far in Q3.

Steve: With almost $194 million of cash and investments at the end of Q2, our balance sheet remains strong.

Steve: Turning to our cash flow metrics for Q2 cash provided by operations in Q2 was $1 4 million compared to cash used in operations of $4 3 million in Q2 of last year.

Steve: Free cash flow was positive zero point $9 million in Q2 compared to negative $4 $9 million in Q2 last year.

Steve: This is our second quarter in a row of positive free cash flow.

Steve: As a reminder, our cash flow in Q2 includes <unk> $8 million related to our restructuring efforts.

Scott: Before moving to guidance I wanted to emphasize that as short and I have discussed we continue to see improved stability in our install base with improvements in gross retention and momentum from our AI powered solutions, which drove improved our performance in Q2 as compared to Q1.

Steve: We expect to see further sequential improvement in our performance in Q3 as well.

Steve: While we continue to see improved stability in the business and we did make progress on new business performance. In Q2. We also continued to operate in an environment, where customers are deliberate about making new purchase commitments as marketing budgets continue to face pressure.

Steve: This macro economic uncertainty continues to make it challenging to forecast.

Steve: More than one quarter out.

Steve: Taking these factors into consideration, we anticipate net new <unk> of breakeven to negative 1% in Q3 and anticipate similar performance in Q4, assuming there is no further deterioration in the macro environment.

Steve: <unk> from our deemphasize virtual conference product is expected to reduce by approximately zero point $2 million in Q3 compared to Q2 and is expected to be $2 5 million at the end of Q3.

Steve: Turning to Q3 guidance.

Steven Vattuone: We expect Q3 core platform revenue, including services, in the range of $34.2 million to $35.2 million and total revenue, which includes our virtual conference product, in the range of $35 million to $36 million, and non-GAAP net income per share of five cents per share to eight cents per share using 45.5 million diluted shares outstanding. We are committed to achieving positive adjusted EBITDA for 2024.

Steve: We expect Q3 core platform revenue, including services in the range of $34 2 million to $35 2 million and total revenue, which includes our virtual conference product in the range of $35 million to $36 million.

Steve: Professional services is expected to represent approximately 7% of total revenue.

Steve: We expect gross margins to be in the mid Seventy's in Q3.

Steve: We expect a non-GAAP operating loss in the range of $2 $3 million to $1 3 million and non-GAAP net loss per share of <unk> <unk> per share to non-GAAP net income of <unk> <unk> per share using 42 million basic and diluted shares outstanding and 46.

Steve: 6 million diluted shares outstanding respectively, We expect.

Steve: A restructuring charge of <unk> 4 million to zero point $7 million in Q3 related to our ongoing cost reduction efforts, which is excluded from the non-GAAP amounts provided above.

Speaker Change: Now, let me turn to our annual guidance.

Speaker Change: For the full year, we expect core platform revenue, including services to be in the range of $141 $7 million.

Speaker Change: $144 5 million.

Steve: We expect total revenue to be in the range of $145 million to $147 $8 million.

Steve: Professional services is expected to represent approximately 8% of total revenue.

Steve: We expect a non-GAAP operating loss in the range of $4 5 million to $3 million.

Steve: And non-GAAP net income per share of <unk> <unk> per share to <unk> <unk> per share using $45 5 million diluted shares outstanding.

Steve: We expect gross margins for the year to be marginally better than 2023 gross margins, which were 75%.

Steve: We are committed to achieving positive adjusted EBITA for 2024.

Steve: Regarding the second half, we expect EBITA will be modestly negative in Q3, but that it will be positive in Q4, and FY 2024 overall.

Steve: Restructuring charges and amortization of inquired intangibles and certain other items are excluded from the full year non-GAAP amounts provided above.

Steve: This guidance reflects a balanced approach between maintaining cost discipline, while also allowing us to invest to return to growth.

Steve: In summary, we are pleased with the results for the quarter and the progress we have made driving improvements in our installed base performance metrics and with the momentum of our AI powered a solution.

Steve: We have a strong customer base and differentiated products and we are well positioned to achieve our long term goal of generating double digit topline growth.

Steve: And double digit EBITA margins with that.

Speaker Change: <unk> and I will open the call up for questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: Thank you we will now be conducting a question and answer session if.

Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Steve: You May press Star two if you like to remove your question from the queue.

Speaker Change: So confusing speaker equipment and may be necessary to pick up your handset before pressing with Barclays.

Speaker Change: First question comes from Arjun Bhatia with William Blair. Please go ahead.

Speaker Change: Hey, guys.

Arjun Bhatia: Thanks for taking the questions here sure.

Speaker Change: Sure I think you mentioned in your prepared remarks that.

Speaker Change: It was about half of the customers that came up for renewal in the quarter resulted in growth.

Speaker Change: I don't know when when the last time it was that.

Speaker Change: That was the case, but can you just give a little bit more color on what are customers buying when they are expanding is it.

Speaker Change: The core platform is at <unk>, where do you see most of that upside all expansion coming from.

Speaker Change: Yes.

Speaker Change: My first clarify I think what we talked about.

Speaker Change: Last quarter, we had given guidance that we had some large renewals coming up.

Speaker Change: And we said the expectations appropriately.

Speaker Change: So the comment that I made about half of the customers that'd be got growth.

Speaker Change: As for the large customer renewals that were coming up these were seven figure deals that were coming up for the.

Speaker Change: The quarter that being said.

Speaker Change: The clarification, let me give you a sense of what people are doing on the platform to expand because one of the things that we have talked about that our gross retention.

Speaker Change: Improved.

Speaker Change: <unk> sales were probably the best as a percentage of renewal cohort.

Speaker Change: Close to the best in the last three years and when people are buying there are three different dynamics of buying one is as you've heard sometimes if youre growing in technology.

Speaker Change: Demand generation to customer marketing to partner enablement, So we're buying people buying different licenses.

Sharat Sharan: The other is related to our expansion and getting other additional product use cases, whether it is Engagement Hub and Target for the always-on and on-demand engagement use cases, or whether it is things like Go Live, which is for the event management use cases. So, one platform for intelligent digital engagement. And then the third layer that we add on top of that is the AI-powered ACE platform now.

Speaker Change: The other is related to our expansion and getting additional product use cases, whether it is engagement hub and target for the always on an on demand engagement use cases or whether they are things like go live which is for the event management use cases to one platform for intelligent digital engagement and then the third layer that we add.

Speaker Change: On top of that is the AI powered <unk> platform now.

Speaker Change: Which allows them to do high <unk> at scale and then the second area is allows them to do automated content creation.

Speaker Change: And nurture so and on that AI powered A's.

Speaker Change: From a total growth here are both new and expansion reached close to <unk>.

Speaker Change: Up.

Speaker Change: High teens of total growth here also we were very encouraged by that it almost doubled compared to the first quarter. So hopefully that hopefully that helps so overall you know.

Speaker Change: <unk> in better shape than we were before close to the best and continuing to see traction on expansion and AI powered days and in our other metrics without like expansion to still be more yes, but.

Speaker Change: The current environment I'll take it.

Speaker Change: Okay and have you own your time off on those you know conversations with customers have.

Speaker Change: Have you made any changes to how you're approaching pricing dynamics.

Speaker Change: And I think if I remember back.

Speaker Change: You had kind of always mute yourself.

Speaker Change: Premium solution in the market with the marketing budgets the way they are now and the general kind of macroeconomic uncertainty how are you approaching pricing.

Unknown Executive: Yeah, I think there are two or three things that we are doing at a strategic level. So first of all, when things do come up for renewal, and somebody wants to

Speaker Change: Yes, I think there are two or three things that we're doing it at a strategic level supported the fall event when things do come up for AV for renewal and somebody wants.

Speaker Change: Or down sell it first thing that we would basically do is we bring the other products and growth in other parts of that organization.

Speaker Change: With the engagement hub product the target product or the Golar products. So we're trying to basically expand the use cases bring others domestically.

Speaker Change: They get out of the down sell and also powered is helps in that also because you are basically giving them additional use cases. The other thing that we're also doing it we are confronted with a down. So that's also where we are going to customers and saying. Okay. You had you had a and we will deal with US now we will we will look at this but we need a three year.

Speaker Change: Deal and even there we have a price increase on an annual basis, but thats, how our multiyear goal.

Speaker Change: Multiyear.

Speaker Change: <unk> is is the highest that it's there.

Speaker Change: That has ever been and north of 50%. So those are the two or three different.

Speaker Change: The dynamics that we play in overall very encouraged that in addition to churn but are down solid performance as a percentage of.

Speaker Change: Renewal.

Speaker Change: Our.

Speaker Change: Was close to the best in the last three years.

Speaker Change: Alright, and last one maybe for Steve.

Unknown Analyst: Just as I'm looking at the margin trajectory, you know, it seems like certainly you're making a little bit of progress here. But when I look at the sales and marketing line and what your spend is there, it still looks like a little bit, it's a little elevated compared to some of your peers.

Speaker Change: Just looking I'm looking at the margin trajectory.

Speaker Change: It seems like certainly you're making a little bit of.

Speaker Change: Progress here, but when I look at the sales and marketing.

Speaker Change: And what your spend is there it still looks like.

Speaker Change: A little it's a little elevated compared to some of your peers with similar growth rates. So when you think about sales and marketing spend.

Speaker Change: How long do you think that takes to kind of.

Speaker Change: Get to maybe 30% of revenue.

Speaker Change: When youre thinking about your long term targets do you need to get the business to Baxter was certain growth rates to be able to hit your long term profitability targets or.

Speaker Change: Cannot happen.

Speaker Change: Sort of flattish maybe revenue.

Speaker Change: Well first off we're always prioritizing to return to growth and balancing profitability with that now.

Speaker Change: On the top line.

Speaker Change: Scott we are seeing positive trends in the business with Arab performance, improving sequentially and we expect further improvements in the second half as well.

Speaker Change: Discussed in the prepared remarks.

Speaker Change: We are expecting these positive trends in our business to continue into next year, we should start seeing these trends impact the top line in a positive manner now in terms of the expense structure, we have that when we want it for the second half of the year with gross margins in the.

Speaker Change: We guided to that until the mid seventies, we're exiting 2024 with positive we expect to exit with positive adjusted EBITDA in Q4.

Unknown Executive: and for the year. Now, we will continue to monitor the cost structure based on what we're seeing in the top line, and the go-to-market investments are part of that. In terms of the macro, we obviously can't control that. But our guidance for 2024 assumes no improvement in the macro. And if it gets better, that will, of course, be a net positive for us.

Speaker Change: And for the year now we will continue to monitor the cost structure based on what we're seeing in the topline and the go to market investments are part of that.

Speaker Change: We will continue to make select investments in things like product innovation, including airpower days, which we launched earlier this year.

Speaker Change: And we are making go to market investments regulated industries like financial services and life Sciences, Sean discussed the success, we're seeing there.

Sean: We believe we can make investments in the business get back to positive growth and shall improve bottom line performance over time without significantly increasing the top the <unk>.

Speaker Change: Cost structure in terms of the macro we obviously can't control that but our guidance for 2024 assumes no improvement in the macro.

Speaker Change: And if it gets better and that will of course be a net positive for us.

Speaker Change: Alright, perfect I appreciate it thank you guys.

Speaker Change: Next question Noah Herman with Jpmorgan. Please go ahead.

Speaker Change: Okay.

Noah Herman: Hey, guys. Thanks for taking the questions I'm, just coming back to macro a little bit last quarter, you sort of were done in an incremental prudence within the guide and understandably with some of the larger renewals coming up in the quarter, but now that we're sort of through that.

Speaker Change: How are you sort of thinking about the prudence that you or Larry to the sort of the guide at this point, considering all else equal, but the macro or are you starting to see some normalization.

Speaker Change: We're starting to see customers reinvest in some of the revenue generating initiatives and then I have a quick follow up.

Speaker Change: Yes.

Speaker Change: I'll take that one of the things is.

Speaker Change: For starters, we've been able to diversify our business over the last few years with an increased emphasis on industries that are still in the early stages of digital transformation.

Speaker Change: Primarily life Sciences and financial services.

Speaker Change: <unk> asset management and insurance in fact, these verticals have grown to 20 from 20%.

Speaker Change: So almost a third of our Korea are in just over four years. So we fundamentally have made broadband improvements to our business now.

Speaker Change: Marketing budgets are still tight.

Speaker Change: We talked about Q2, we had some large renewals coming up Marvin marketing budgets are still tight and we are not factoring any improvements of that in the second half that being said.

Speaker Change: If you looked at sales and marketing teams.

Speaker Change: They are confronting the issues are how can we do more with less how can we consolidate point technology is how can we address multiple go to market use cases, how can I prioritize first party data, especially in the age of AI. So all these things help us.

Speaker Change: And we are seeing that in the gross retention improvement in AI powered <unk> adoption. So as I look going forward in the second half.

Speaker Change: We are not factoring in a macro improvement would we expect sequential improvement in <unk> performance in Q3 with net new air ought to be between breakeven to negative 1%.

Speaker Change: Of <unk>.

Speaker Change: And it's the improvement that we're making on the gross retention on the <unk>.

Speaker Change: Contribution from AI powered days of our go to market focus on on.

Speaker Change: On the digital transformation use cases in financial services life Sciences that is allowing us to make.

Speaker Change: Those estimates.

Speaker Change: Got it and then maybe just quickly on the <unk> guide for the second half is there any way to quantify how much of that hinges on the AI powered base offerings. Thank.

Speaker Change: Thank you.

Unknown Executive: I think at this stage, you know, we are not providing that guidance, but as I said to repeat, we expect sequential improvement in ARR performance in Q3, with net new ARR to be breakeven to negative 1% of Q2 ARR. And that it is tough to forecast ARR more than one quarter ahead in this environment. You know, no, I can give you gross retention within the range. But you know, growth ARR is difficult, especially with a business focused on enterprise business, about 70% of which our business is. So at this stage, we expect Q4 ARR to be between break even and negative 1%, similar to Q3.

Speaker Change: I think at this stage.

Speaker Change: You know we are not providing that guidance.

Speaker Change: But as I as I said to abate.

Speaker Change: We expect sequential improvement in air outperformance in Q3.

Speaker Change: With net new air ought to be breakeven to negative 1% of <unk>.

Speaker Change: As we look at the second half we are balancing our enthusiasm around the progress we have made this year.

Speaker Change: With the reality of a tough macro environment for front end software.

Speaker Change: And that it is tough to forecast error out of more than one quarter ahead in this environment.

Speaker Change: Oh I can I can give you gross retention within the range, but you know growth here are as difficult, especially where the business focused on enterprise business about 70% of our business is that so at this stage, we expect Q4 MLR to be between breakeven and negative 1% similar to Q3.

Speaker Change: And we expect continued improvement in our stabilization.

Speaker Change: And gross retention both from a churn in downhole perspective.

Speaker Change: I think AI powered <unk> is going to continue to ramp in the second half and be provide tailwind into 2025, and we expect to continue to improve on the financial services and life Sciences as a driver of our business. We believe we have turned the corner.

Speaker Change: And and remain laser focused on execution.

Speaker Change: Once again, if you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Next question comes from Scott Berg with Needham <unk> Company. Please go ahead.

Scott Berg: Hi, everyone. Thanks for taking my questions.

Scott Berg: I guess I have to Shrontz is in your guidance you've mentioned a couple of times you're assuming.

Speaker Change: There are in Q3, and Q4 will be breakeven to maybe down 1%.

Speaker Change: Sequentially each quarter, but as you look back over the last maybe couple of three quarters I know, you're hoping to be back to AOR growth here at the end of this year I guess, what's been the difference between your expectation a couple quarters ago, and where the business as it is today is a bit more on the net new side or has it been on some of the retention.

Speaker Change: Thanks.

Unknown Executive: I think it's probably more on the net new side that we need to see more work. Like Scott, just to kind of give you a sense, I mean, when you talk about the last two, three quarters, I mean, we have seen improvement in our gross retention in those two, three quarters. Like I said, Q2, churn, if you just look at dollar churn, it was the best we had in the last three years.

Speaker Change: I think it's probably more on the net new side that are that we need we need to see more work.

Speaker Change: Scott just kind of give you a sense I mean.

Scott: When you're talking about the last two three quarters I mean, we have seen in those two or three quarters, we've seen improvement in our gross retention.

Scott: Like I said, you'll do.

Scott Berg: Churn if you just look at dollar churn. It was the best we had in the last three years, if you look at down cells.

Unknown Executive: If you look at, you know, down sells, those were close to the best, and we expect those trends to continue. Yeah, you know, small up and down is fine, but we expect those trends to continue. I expect AI power days to continue to ramp up, and that will help new and expansion and retention. I continue to expect that our focus on life sciences and financial services, the digital transformation use cases, will help. But the challenge is that it is tough to forecast ARR more than one quarter ahead in this environment.

Speaker Change: Those were close to the best and we expect those trends to continue.

Speaker Change: And up small up and down is fine, but we expect those trend to continue I expect AI powered as to continue to ramp and that will help new and expansion and retention I continue to expect that our focus on life Sciences and financial services. The digital transformation use cases will help but the challenge that it is tough to forecast error or more than one.

Speaker Change: Quarter ahead in this environment, you know how the enterprise businesses.

Operator: Thank you, or

Speaker Change: Or.

Speaker Change: Two thirds of close to 70% of our business is focused on enterprise really depend among the last month of the quarter unlocked. So so I'm encouraged I'm encouraged by the progress that we're making but it is hard for me to forecast more than one quarter ahead, and that's why we have provided the guidance that we have.

Speaker Change: Got it helpful. And then for my follow up you talked about the.

Speaker Change: Customer conference that you held in June I guess, what are your kind of key one or two takeaways from the conference in terms of what you're hearing from customers. There is what should we maybe you can kind of look forward to over the next couple of quarters from a business perspective that you were able to come out maybe enthusiastic from the from the conference.

Speaker Change: I think there are two or three things that we basically learned.

Speaker Change: Number one was the enthusiasm of our the customers and getting their hands on our AI tools and I was surprised that we just launched the product in January half hour days and when we did this conference in June.

Speaker Change: I think early June we already had customers with a lot of use cases, if you look at the people who joined the call on larger companies with a lot of use cases something out on the personalization side, some basically living on the automated content.

Speaker Change: So on and so forth and what that also allowed us to do we also run something before the conference call. Some of the Golar Master class for a day. We also were able to learn exactly what their feedback was what part of the product was not working where do they want us to see improvement so on and so forth. So that was very helpful and having other customers Scott here.

Speaker Change: The people who've already implemented AI powered data and the results. They are getting on ROI. The results that they're getting on cost savings and some of that I've talked about in our prepared remarks was very helpful because customers like to learn.

Speaker Change: From customers there.

Unknown Executive: There's one other area of improvement that we learned. We learned that our AI-powered AI platform is very powerful.

Speaker Change: One other area of improvement that we learn we learned that our AI powered platform is very powerful.

Speaker Change: But it has a lot of there's a lot of capability. So people, who are basically saying, hey, if you want faster adoption or do we really need personalization tied to the automated content creation and nurture. So we took that feedback and we are looking at hey should we decoupled the product more for faster adoption in our.

Speaker Change: In our platform. So we are looking at those capabilities, because sometimes customers wanted a personalization, sometimes I wonder do automated content creation. So we're trying to basically make those adjustments to get faster adoption of off the product. So those are some of the key takeaways that we got it.

Unknown Analyst: Very helpful. Congratulations again on the quarter.

Speaker Change: Very helpful. Congrats again on the quarter.

Speaker Change: Thank you.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Speaker Change: [music].