Q3 2024 ON24 Inc Earnings Call
Speaker Change: [music].
Greetings and welcome to the off 24 third quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
And the answer session will follow the formal presentation.
If anyone should require operator assistance. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce shale doesn't Loy Yang. Please go ahead.
Speaker Change: Thank you Hello, and good afternoon, everyone. Welcome to <unk> 24, as third quarter 'twenty 'twenty four earnings conference call on the call with me today are Suraj, Iran, Co founder and CEO on 24, HD Vest, Ronnie Chief Financial officer of on 24.
Speaker Change: Before we begin I would like to remind everyone that some information provided during this call will include forward looking statements regarding future events and financial performance, including guidance for the fourth quarter and full fiscal year 'twenty 'twenty, four as well as certain fourth quarter and full year non-GAAP projections.
Speaker Change: These forward looking statements are subject to known and unknown risks and uncertainties that could adversely affect on 24, its 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: But we are making steady progress in stabilizing our business and executing across our growth vectors.
on Margin Performance and Operating Expense Discipline.
Speaker Change: Gross margin improved by approximately 200 basis points year-to-date in 2024 compared to the same period in 2023.
Speaker Change: Finally, free cash flow year to date was positive $2.1 million compared to negative $12.4 million in the same period in 2023, an improvement of $14.5 million.
Speaker Change: Next, I'd like to remind you of our three strategic pillars and share with you the enhancements that we saw in each of these areas in Q3 that give us continued confidence in our strategy.
One, relentless platform innovation, including our AI solutions.
Speaker Change: Two, continuing to focus our go-to-market execution on the enterprise with an emphasis on highly regulated industries.
and three, returning to growth while hitting our profitability targets.
beginning with our AI platform innovation.
Speaker Change: We are excited to see sequential growth in the percentage of core platform ARR coming from our AI-powered ACE solution, which is only introduced at the beginning of the year.
Speaker Change: In Q3, our number of AI-powered ACE customers reached triple digits, and we are seeing a strong correlation between AI-powered ACE and overall customer health metrics.
This customer cohort tends to invest at higher levels.
for longer periods and uses multiple products in our portfolio.
Speaker Change: As a reminder, AI PowerDays includes three differentiated capabilities. One, personalization at scale to target priority audiences.
Two, AI-generated content to automate and scale content creation.
Speaker Change: Three, automated campaigns and nurtures to drive continuous engagement with prospects and customers.
Speaker Change: Each of these capabilities help offset the significant resource strain faced by B2B sales and marketing teams today by leveraging the work they're already doing and delivering better conversion rates, broader global reach, and greater pipeline results.
Speaker Change: Importantly, these capabilities directly match with B2B growth initiatives and align our platform with the AI technology budget that enterprises are prioritizing for investment.
Speaker Change: Let me share how one of our AI Powered Ace customers, a public mid-market global SaaS company, is having success with AI Powered Ace.
Speaker Change: Through AI ACE's personalization at scale capabilities, they can now precisely target and engage three unique audiences with just one campaign.
Speaker Change: combining into one experience content that was previously delivered over many weeks and required totally separate campaigns.
Speaker Change: This platform innovation not only improves their team's efficiency and saves a lot of time, it also gives them more qualified leads to convert to pipeline and has accelerated buying journeys.
Speaker Change: I'd also like to share the story of an AI-powered Ace Win with a new customer, a public mid-market provider of enterprise cloud-based tools.
Speaker Change: Their marketing leadership was looking to make AI a central part of their go-to-market teams growth strategy as part of a top-down initiative from their CEO.
Speaker Change: recognizing the time savings, pipeline growth, and ROI that they could gain from our platform's AI-powered AI solution, they decided to upgrade from a collaboration tool and will use our platform's AI capabilities to generate demand.
Speaker Change: automate content creation and deliver personalized experiences at scale to the diverse customer base that spans a 20-plus product portfolio.
Speaker Change: As these two examples illustrate, we believe that our AI platform innovations are helping us recapture budget in the technology vertical and industry segment where we recently faced the greatest amount of pressure due to budget concessions.
Speaker Change: In fact, two of our larger Q3 new business deals came from the tech sector, where AI-powered ACE was a critical factor in their buying decision.
with the overall tailwind of AI technology investment.
Speaker Change: We are continuing to invest in an aggressive AI innovation roadmap and focusing our development on advancements that will help customers get more intelligent on their prospect engagement data and improve their pipeline and revenue results.
Speaker Change: With over a billion engaging minutes per year of first-party customer data generated on our platform, we have a competitive advantage and solid foundation for ongoing AI-based innovation.
Speaker Change: For example, we've added a new AI-driven capability that surfaces key insights called Smart Tips to our customers.
Speaker Change: By delivering a continuous stream of insights, customers can apply these smart tips to their campaigns upfront to help them get even greater revenue results with the ON24 platform.
Speaker Change: This is an extremely positive indication of a downstream increase in pipeline and revenue results.
Speaker Change: We are excited about the performance gains our AI-powered ACE customers are experiencing, and we believe our future innovation can extend that uplift even further.
Speaker Change: Next, I'd like to turn to our second strategic priority, our enterprise go-to-market strategy.
Speaker Change: The percentage of ARR in monthly agreements and the percentage of customers using two or more products hit new record highs.
We are stabilizing our ARR.
and we are working to return to growth.
Speaker Change: To help improve our sales execution and return to growth, we recently up-leveled our sales leadership by hiring a new head of North America Sales.
I'm particularly excited.
Speaker Change: that we are seeing encouraging signs on customer win-backs, especially from customers who are coming back to us after failing to get results from collaboration tools and point solutions.
Speaker Change: In fact, in Q3, the percentage of new core ARR which came from boomerang customers was in the high single digits.
Speaker Change: To provide more color, I'll share a few examples of win-back deals in Q3.
Speaker Change: One boomerang deal was with a $5 billion plus global cyber security company.
Speaker Change: Facing budget pressure earlier in the year, this customer opted for a collaboration tool and within just a few months realized their mistake.
Speaker Change: They recognized that without a global, purpose-built platform for engaging experiences and first-party actionable data and insights, their pipeline was negatively impacted, and they found themselves falling short of their sales targets.
Speaker Change: In Q3, they re-engaged with us to help them refuel their global demand generation engine.
Speaker Change: They're excited about our latest innovations and have reinvested in our platform with a six-figure commitment.
Speaker Change: Another boomerang deal in Q3 was with a $1 billion plus IT services and solutions provider.
Speaker Change: Over the past year or so, the company went through a merger and resorted to a point solution.
Speaker Change: As they started to centralize and streamline their sales and marketing operations, they quickly found that their point solution could not scale enterprise-wide or integrate with their technology stack.
Speaker Change: Leveraging the breadth and depth of our capabilities, especially the addition of our AI-powered AI solution, this customer's demand generation, customer education, and field and content marketing teams are now standardized on our platform.
Speaker Change: Using ON24 as a single platform to run digital campaigns, generate customer insights, and automate their end-to-end process.
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Speaker Change: We believe that these win-backs demonstrate how differentiated our platform is when it comes to supporting mission-critical, go-to-market use cases for enterprise organizations.
Speaker Change: This is especially true when it comes to highly regulated industries like life sciences, where we have a dedicated go-to-market motion and platform roadmap.
Speaker Change: We saw low single-digit sequential core ARR growth from the life sciences vertical in Q3 and we remain excited about this customer core.
Speaker Change: To illustrate the strength of our life sciences vertical, I'd like to highlight an expansion with one of our long-term customers.
Speaker Change: a $50 billion plus American pharmaceutical company that is among the top 10 biopharma companies in the world.
Speaker Change: As a trusted partner, their team came to us to help advance their healthcare professional digital engagement strategy with a focus on HCPs that their sales teams are restricted from seeing in person.
Speaker Change: Through our platform, they will be able to engage these hard-to-reach HCPs, providing them with an always-on content hub full of educational resources.
Speaker Change: and with the behavioral data from a platform, the go-to-market teams will be able to gain invaluable HCP insights.
Finally, turning to profitability.
We continue to deliver on our targets.
Speaker Change: We achieved positive adjusted EBITDA and positive non-GAAP EPS for the sixth consecutive quarter.
Speaker Change: Pre-cash flow was positive for the third quarter in a row, and we achieved a gross margin in the high 70s.
Speaker Change: We expect to exit 2024 with positive adjusted EBITDA and positive EPS.
Speaker Change: In 2025, we expect to be profitable for the year as a whole across both of these metrics while we maintain our focus on returning to growth.
Speaker Change: We remain committed to our long-term profitability target of generating double-digit EBITDA margins.
Speaker Change: To conclude, we are controlling what we can control despite the macro challenges.
Gartner reported that in 2019, the year preceding the pandemic,
average marketing budgets were approximately 11% of overall revenue.
And in the four years since, they've dropped to 8.2%.
Speaker Change: Despite the headwinds of ongoing macro uncertainty and softness in marketing budgets, our third quarter results underscored stabilization in our business performance.
and our ability to consistently achieve our profitability targets.
Speaker Change: We have improved year-to-date performance across our key metrics as compared to 2023.
and entered Q4 with positive momentum.
Speaker Change: We have more work to do with the strength of our AI solution, our focus on mission-critical use cases in regulated industries.
Speaker Change: and recent customer win-back momentum are very encouraging signs as we look to return to growth.
Speaker Change: We expect a sequential improvement in new business acquisitions as we exit 2024.
coupled with improving stabilization and our install base.
Speaker Change: We have confidence in our ability to return to ARR growth in 2025.
With that...
Speaker Change: I'd like to hand it over to Steve Vattuone, our CFO.
Steve Vattuone: Thank you, Sharat, and good afternoon, everyone. I'm going to start with our third quarter 2024 results, and we'll then discuss our outlook for the fourth quarter 2024 and full year 2024.
Speaker Change: Before I get into the numbers, I want 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 product.
Speaker Change: We view the metrics from our core platforms such as revenue and ARR as the best KPIs to measure our performance.
Speaker Change: Revenue from our core platform, including services in Q3 of 2024, was $35.6 million, representing a decrease of 7% year-over-year.
Speaker Change: Total revenue for the third quarter, which includes revenue from our virtual conference product, was $36.3 million.
Total subscription and other platform revenue was $33.9 million.
Overages represented approximately 1% of total revenue in Q3.
Speaker Change: Total professional services revenue was $2.5 million, a decrease of 12% year over year, representing approximately 7% of total revenue, the same as in the year ago period.
Speaker Change: Moving on to ARR. ARR represents the annualized value of all subscription contracts at the end of the period and excludes professional services and overages.
Speaker Change: Ending ARR related to our core platform totaled $129.7 million, a decrease of approximately $1.37 million compared to Q2 of 2024.
Speaker Change: While we still have work to do in this area, AR performance has improved sequentially each quarter this year.
Speaker Change: In fact, in Q3, the percentage of new core ARR, which came from previous customers who returned to us after failing to get results from collaboration and point solutions, was in the high single digits.
Speaker Change: Total ARR, including the contribution from our virtual conference product, was $132.2 million at the end of Q3 2024.
Turning to Customer Metrics.
Speaker Change: 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.
311 customers contributed more than $100,000 in total ARR.
Speaker Change: Enterprise customers continue to be our focus and we have seen these customers commit to longer-term contracts.
Speaker Change: The percentage of our ARR and multi-year contracts increased sequentially from Q2 and now stands at the highest ever with over 50% of our ARR and multi-year agreements.
Speaker Change: The number of customers with two or more products was also at an all-time record.
Speaker Change: In Q3, the average courier hour per customer was consistent with last quarter at approximately $78,000 per customer.
Speaker Change: Before turning to expense items and profitability, I would like to point out that I will be discussing non-GAAP results going forward.
Speaker Change: 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.
Speaker Change: Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results, can be found within our earnings release.
Speaker Change: Our gross margin in Q3 was 77%, consistent with the past several quarters and up 100 basis points from Q3 of last year.
Speaker Change: On a year-to-date basis, Gross Margin is up 200 basis points from the same period a year ago. It reflects the cost reduction actions we have taken to streamline our operations.
Now turning to operating expenses.
Speaker Change: Sales and marketing expense in Q3 was $15.9 million compared to $17.6 million in Q3 last year.
Speaker Change: This represents 44% of total revenue compared to 45% in the same period last year and 42% last quarter.
Speaker Change: Our sales and marketing expenses have decreased in absolute dollars year over year, largely due to the cost savings measures we have implemented over the past quarters to improve efficiency in our go-to-market organization.
Speaker Change: This represents 18% of total revenue, compared to 18% in the same period last year and last quarter.
Speaker Change: While our R&D expenses have decreased in absolute dollars over the past year, we have continued to invest in product innovation related to AI, including our AI-powered ACE platform.
Speaker Change: G&A expense in Q3 was $6.2 million, compared to $6.3 million in Q3 last year. This represents 17% of total revenue, up slightly from 16% in the same period last year and consistent with last quarter.
Speaker Change: 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.
Speaker Change: Moving on to our bottom line performance, I am pleased to report that we exceeded the profitability targets that we provided in the prior earnings call. In Q3, we achieved positive adjusted EBITDA and non-GAAP EPS profitability for the sixth consecutive quarter.
Speaker Change: Operating loss for Q3 was $0.8 million or a negative 2% operating margin compared to an operating loss of $1.1 million and a negative 3% operating margin in the same period last year.
Speaker Change: Net income in Q3 was $1.1 million, or $0.02 per share, based on approximately 45.6 million diluted shares outstanding.
Speaker Change: This compares to net income of $1.5 million, or 3 cents per share, in Q3 last year, using approximately 48.3 million diluted shares outstanding.
Speaker Change: Turning to the balance sheet and cash flow, we enter the quarter with 188.8 million dollars in cash, cash equivalents, and marketable securities.
Speaker Change: In March of this year, we announced a new $25 million share purchase program, which runs for one year until March 2025.
Speaker Change: This new share repurchase program follows the completion of two earlier capital return programs, which collectively returned $166 million to shareholders.
Speaker Change: Under the new $25 million dollar share purchase program, we have utilized $16.2 million dollars to date with approximately $5 million dollars utilized in Q2, $8.3 million dollars utilized in Q3, and approximately $2.9 million dollars utilized thus far in Q4.
Speaker Change: Our balance sheet continues to remain strong, with almost $189 million of cash and investments at the end of Q3.
Speaker Change: Turning to our cash flow metrics for Q3. Cash provided by operations in Q3 was 0.3 million dollars compared to cash used in operations of 2.9 million dollars in Q3 of last year.
Speaker Change: Pre-cash flow was positive $0.1 million in Q3 compared to negative $3.2 million in Q3 last year.
Speaker Change: This is our third quarter in a row of positive free cash flow.
Speaker Change: Our cash flow in Q3 includes cash outflows related to our structuring efforts, which totaled $0.7 million in Q3.
Speaker Change: Before I move on to guidance, I want to provide our outlook on Q4 ARR. We are encouraged by the continued stabilization in our install base with gross retention up meaningfully compared to prior year levels and our net dollar retention rate increasing by mid-signal digits compared to year-end 2023 levels.
Speaker Change: Our AR-powered ACE platform continues to gain traction, reaching new ARR record levels in Q3.
Speaker Change: Looking at Q4, it's our largest renewal cohort of the year by dollar value and from a linear perspective, it is back end loaded.
Speaker Change: To Echo what Sean said earlier, we have confidence in our ability to return to <unk> growth in 2025.
Speaker Change: Turning to Q4 guidance.
Speaker Change: We expect Q4 platform revenue, including services and a range of $34 7 million to $35 7 million in total revenue, which includes our virtual conference product in the range of $35 4 million to $36 4 million.
Speaker Change: Professional services is expected to represent approximately 9% of total revenue.
Speaker Change: We expect gross margins to be in the mid to high seventies and Q4.
Speaker Change: We expect a non-GAAP operating loss in the range of $1 $3 million to zero point $3 million and non-GAAP net income per share of one to two <unk> per share using approximately $45 7 million diluted shares outstanding.
Speaker Change: We expect a restructuring charge of zero point $4 million zero point $7 million in Q4 related to our ongoing cost reduction efforts, which is excluded from the non-GAAP amounts provided above lastly, we expect Q4 to deliver the seventh quarter in a row of positive adjust.
Speaker Change: And EBITA.
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 $143 6 million.
Speaker Change: To $144 $6 million, we expect total revenue to be in the range of $146 8 million.
Speaker Change: To $147 8 million.
Speaker Change: <unk> services is expected to represent approximately 8% of total revenue.
Speaker Change: We expect a non-GAAP operating loss in the range of $3 $3 million to $2 3 million and non-GAAP net income per share of <unk> <unk> per share to <unk> 10 per share using approximately $45 8 million diluted shares outstanding.
Speaker Change: We expect gross margins for the year to be approximately 200 basis points higher than 2023, gross margins, which were 75%.
Speaker Change: We expect to have positive adjusted EBITA for 2024.
Speaker Change: Restructuring charges and amortization of acquired intangibles and certain other items are excluded from the full year non-GAAP amounts provided above.
Speaker Change: This guidance reflects a balanced approach between maintaining cost discipline and delivering positive adjusted EBITA for the year and.
Speaker Change: And positioning the company for a return to growth to.
Speaker Change: To summarize we have accomplished thus far in 2024, we are stabilizing the business with turning down sells improving significantly we have continued to make progress and growth vectors, including momentum in AI powered ace and in regulated industries like life Sciences and financial services.
Speaker Change: In addition, we have started to see increasing win backs from Boomerang customers, who left us for cheaper, but less effective solutions and have since returned.
Speaker Change: On gross margins EBITA profitability and cash flow, we have made significant improvements in performance, thus far in 2024 as compared to the prior year.
Speaker Change: While we know we still have work to do our progress in 2024. It gives me confidence about our business heading into 2025.
Speaker Change: While we are not providing 2025 guidance on the call today. Our goal is to maintain adjusted EBITA and EPS profitability for the year as a whole in 2025 with a focus on returning to AOR growth.
Speaker Change: Additionally for modeling purposes, I want to remind everyone that Q1 is typically a seasonally softer quarter for us with fewer days in the quarter to deliver platform revenue and it is seasonally softer for services.
Speaker Change: As such we would expect quarterly revenue to increase in 2025 from seasonally soft Q1 levels.
Speaker Change: In summary, we are pleased that we exceeded both our revenue and profitability targets in Q3 and have raised our 2024 annual guidance for both of these metrics.
Speaker Change: With increased stability across our installed base and notable progress across our three strategic pillars, we are well positioned to return to growth in 2025, while maintaining adjusted EBITA in EPS profitability.
Speaker Change: Lastly, we remain committed to our long term goal of generating double digit topline revenue growth and double digit EBITA margins with that shot and I will open the call up for questions.
Speaker Change: Okay.
Speaker Change: A question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two.
Speaker Change: So from Q for participants using speaker equipment, it may be necessary to pick up the handset before pressing the snarky.
Speaker Change: First question comes from Rob Oliver with Baird. Please go ahead.
Rob Oliver: Great. Thank you good evening, thanks for taking my question.
Rob Oliver: Encouraging.
Rob Oliver: To hear about some of the win backs from.
Rob Oliver: Customers, who may be went to other.
Rob Oliver: Competitors less less functional or.
Speaker Change: Not as strong as you guys would love to hear a little bit more color on that sure.
Speaker Change: You guys have obviously done a ton to enhance the platform. During this tougher period for marketing spend with AIA would love to hear what those conversations are like and then any commentary you can give us relative to what youre seeing in the kind of general spending macro relative to marketing spend and trends would be great. Thanks very much.
Speaker Change: Hey, Rob.
Speaker Change: Now let me let me take the the wind back question first.
Speaker Change: I'm, particularly excited that we are seeing encouraging signs on these customer win backs, especially customers who are coming back to us after failing to get results from collaboration tools and point solutions up you talked about this in Q3, the percentage of new core <unk>, which came from what we're calling boomerang customers wasn't.
Speaker Change: The high single digits, and let me share a windbag deal from Q3, one was with a large global cyber security company. They were facing budget pressures early in the year and this customer up there for a collaboration tool and within just a few months realized their mistake they recognize that without a purpose built platform.
Speaker Change: For engaging experiences and first party actionable data and insights their pipeline was negatively impacted and in Q3, but it almost with after a quarter. They are very engaged with us to help them refuel their global demand generation engine and have reinvested in our platform with a six figure commitment.
Speaker Change: Another example, and other examples where companies have found they may have gone to the point solutions that they are not scaling enterprise why they don't have the first party data capabilities all the AI capabilities those that match on 24.
Speaker Change: Now the next thing that you talked about any change about the marketing budgets and how I am seeing that.
Rob Oliver: So yes, Rob.
Speaker Change: Rob.
Speaker Change: It's been the last two or three years have been tough.
Speaker Change: That being said.
Speaker Change: If you ask Gartner they would say hey.
Speaker Change: The marketing spend in 2024 was about 280 basis points compared to 2019, so that's a significant reduction.
Speaker Change: So there have been some headwinds, but at the same time I am.
Speaker Change: Im very encouraged because we are seeing increased stabilization and based on our customer conversation, especially as win backs. We are seeing there are some green shoots are customers are still committed to our platform theyre seeing value in our platform or <unk>.
Speaker Change: <unk> per customer is over $78000.
Speaker Change: Number of customers in multi year contracts and significantly the largest we've had so look.
Speaker Change: Companies are focused on reducing that martech and tech stacks for two to three years now they have got real deep.
Speaker Change: The win backs are any guide.
Speaker Change: We see we see that as a sign of stabilization and we expect these companies to start investing in revenue generating products in 2025, we are cautiously optimistic.
Speaker Change: Great. Thanks for all that color sure I really appreciate it thanks guys.
Speaker Change: Question, Arjun Bhatia with William Blair. Please go ahead.
Speaker Change: Hey, guys. This is all under Li on for <unk>. Thanks for taking my question, Sean what does that look like right now and what percentage of that pour expected to went back from here on forward.
Speaker Change: So.
Speaker Change: Overall, we do expect as well as the market stabilizes that the percentage of companies of the number of companies that are going to.
Speaker Change: Come back to 124, and really focus on driving revenue and demand generation and other various things we will continue to accelerate its at this point, it's hard for me to give you a number on that particular thing, but we are also running a system.
But seeing the stability and seeing that as we go into next year, our customers are probably going to be more focused on revenue generating activities.
Speaker Change: As an execution team from a sales and marketing point of view. We are also aggressively focused on that so if you were to ask me as we go into 2025, we do expect continued momentum on win backs and other thing I will point out is we've talked about how life Sciences and financial services has become a third of our <unk> and the <unk>.
Greg: Last four years as compared to 20% in 2019, so that's Greg the other thing that we're seeing is we're seeing these went back so a lot of them coming from the technology sector. So we're also seeing green shoots in the technology vertical there with increased win backs and momentum with AI powered days. So that's a good thing we feel that our business is now more.
Greg: More diversified and well positioned to drive broad based growth once investments in front end software return next year.
Speaker Change: Got it very helpful and what this down sell and churn look like from here.
Speaker Change: So let me let me go ahead.
Speaker Change: Yes, you go ahead and take that.
Speaker Change: You're asking me I think about parts of attention. So let me start with that and period gross retention in Q3 compared to the same period last year.
Speaker Change: By high single digits, and I'm, especially encouraged by the positive trends.
Speaker Change: Slide the gross retention for the fourth quarter in a row, we've seen a period gross retention trending much better than the average annual rates that we've seen each of the past three years, and we saw meaningful improvement and down South in fact close to the best performance in the last.
Speaker Change: Three years, and we started seeing more significant win backs as Sean discussed.
Speaker Change: At the high single digits as a percentage of our growth that.
Speaker Change: Several customers, who laptops for cheaper tools came back and it tells me that customers are beginning to think about revenue growth again as Sean said.
Speaker Change: And in addition, we have more multiyear contracts in fact, it was the highest ever at the end of Q3 2024 has approached tonnage.
Speaker Change: Image.
Speaker Change: Of our <unk>. So we feel that we've stabilized the business and if I look at 2025, we expect to improve our gross retention in both churn and down sell performance.
Speaker Change: Got it thank you.
Speaker Change: Once again, if he would like to ask a question. Please press star one on your telephone Keypad next question comes from Noah Herman with J P. Morgan. Please go ahead.
Speaker Change: Hey, guys. Thanks for taking the questions.
Speaker Change: Maybe if you could just double click on some of the go to market changes that you're implementing I know you're bringing in some new leadership, especially in the Americas region. Just curious if theres anything changing fundamentally on the go to market side, and then I have a quick follow up.
Speaker Change: Yes.
Speaker Change: I think.
Speaker Change: You know when me, but if you look at our Arab performance no up.
Speaker Change: There are five therefore things you've talked about stabilizing our business we've talked about the win backs Yep holidays has become a strong growth vector for us the regulated industries financial services and life Sciences is a third of our business are becoming an important growth vector. The one area for improvement that we're focused on is that new business execution.
Speaker Change: And we have hired a new sales leader for our North America business.
Speaker Change: Now we must make our execution has to be more business outcome oriented and we need to do a better job and orienting our solutions to solving business challenges in creating these measurable outcomes by the various verticals and used cases.
Speaker Change: Especially at a time when we believe that the marketplace is stabilizing.
Speaker Change: And there's going to be more appetite for revenue generating things. So one our focus has been is bringing in the right talent from a leadership point of view and a sales and other part but the other thing is to really optimize our execution.
Speaker Change: Even more benefit solution oriented by the various verticals and use cases that we focus on and I believe that this will allow us to drive growth and better profitability and cash flow for our shareholders. So that's that's a very important thing that we are doing and like look.
Speaker Change: We've learned to operate in this tough environment with some headwinds.
Speaker Change: Like I said before this cannot continue we are seeing increased stability with the win backs would be enhancements in the go to market.
After two years of deep cuts companies would have to start investing in these revenue growth opportunities revenue growth solutions, which will help us and we are beginning to see that.
Speaker Change: Great. Thank you and then maybe just on 2025 you provided some helpful commentary around Q1, but with more customers now under multi year agreements just anything to call out in terms of seasonality as we think about next year. Thank you.
Speaker Change: Yeah.
Speaker Change: Let me, yes, so I'll take that one.
Speaker Change: Okay.
Speaker Change: No. Please.
Speaker Change: Thank you.
Speaker Change: So we're not giving 2025 guidance today I will be doing that on our earnings call next quarter, but we do expect to return the AOR growth during 2025, and our goal is to get <unk>.
Speaker Change: Positive.
Speaker Change: Next year.
Speaker Change: Q1 revenue that is typically a seasonally softer quarter for us.
Speaker Change: I mentioned in the prepared remarks are fewer days in Q1 their service business is also seasonally soft so we would expect that.
Speaker Change: Q1 would be the trough for revenue in 2025, and we would expect revenue to <unk>.
Speaker Change: Kris from there.
Speaker Change: The bottom line, we have shown that we can be disciplined on costs in a tough backdrop for marketing dollars that we've taken $69 million of that.
Speaker Change: Annual run rate cost out of the business since Q2 of 2022, which is a reduction of over 30% and that's resulted in margin improvement and positive cash flow for the year.
Speaker Change: On the bottom line, we will continue to balance returning to growth with profitability and we expect to maintain adjusted EBITA and EPS profitability for 2025.
Speaker Change: As a whole in terms of our thoughts.
Speaker Change: I'll, let Sean go ahead and provide some color on that.
Sean: Yeah, Let me add let me add.
Speaker Change: To what Steve said.
Speaker Change: Look I recognize that we have not delivered here our growth this year.
Speaker Change: So far but we have accomplished a reasonable amount this year in a tough environment.
Speaker Change: While we still have work to do in this area. We have limited the decline in Iraq, and Iran performance has improved sequentially each quarter this year and I've talked about.
Speaker Change: Four things stabilization win backs empower days regular industries and that we are focused on improving our new business execution better so based on the progress this year.
Speaker Change: It makes.
Speaker Change: It makes me encouraged about 2025 the market is stabilizing and we are seeing that in the win backs. We believe we are at the cusp of Starling era are positive and I expect Aaron.
Speaker Change: Positive during the year and our goal is to have positive <unk> for the year and if you add back to the disciplined that Steve talked about in margin profitability and cash flow performance.
Speaker Change: <unk> us well for 2025.
Speaker Change: That's a real helpful. Thanks, guys.
Speaker Change: Thank you this does conclude today's teleconference.
Speaker Change: We thank you for your participation you may now disconnect your lines.
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