Q4 2024 ON24 Inc Earnings Call
Speaker Change: The link for a make a reaction to this playlist is in the description!
Speaker Change: Greetings, welcome to ON24 fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker Change: Please refer to the company's periodic SEC filings.
Speaker Change: Today's financial press release for factors that could cause our actual results to differ materially from any forward looking statements.
Speaker Change: We'd also like to point out that on today's call. We will report both GAAP and non-GAAP results.
Speaker Change: We use these non-GAAP financial measures to evaluate our ongoing operation 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.
Speaker Change: The reconciliations of these non-GAAP financial measures. Please refer to today's financial press release.
Sharon: I will now turn the call over to Sharon.
Sharon: Thank you and welcome everyone to <unk> 20, fours fourth quarter and full year 2024 financial results Conference call.
Speaker Change: I appreciate you joining us today.
Steve: With me is Steve <unk>, our Chief Financial Officer.
Steve: Before we turn to Q4 results I want to take a moment to look back at 2024, a year in which we laid the foundation for a return to growth by diligently focusing on improving our gross retention rates.
Steve: Executing on our product innovation roadmap and delivering margin profitability and cash flow improvements.
Steve: We launched AI powered as the next generation on 24 intelligent engagement platform in January 2024, and within a year is accounted for over 40% of our growth <unk> bookings.
Steve: In Q4, the percentage of customers with two or more products reached an all time high at close to 40%.
Steve: We saw the IRR for multiyear deals increased to 51%.
Steve: Gross retention for 2024 improved to its highest level in the last three years.
Steve: Net retention for our enterprise business was 91%.
Steve: Mid single digit improvement over 2023.
Steve: As a whole new and expansion business reached their highest levels of the year in Q4.
Steve: We had the best win rates of the year and we continue to see wind back momentum with Boomerang customers in Q4, which was a continuation from the prior quarter.
Steve: Consistently met and exceeded our margin and profitability targets.
Steve: Our non-GAAP gross margin improved from 75%.
Steve: In 2023 fiscal year, 277% in 2020.
Steve: Adjusted EBITDA margin improved by almost 200 basis points in the 2020 for fiscal year compared to 2023.
Steve: And finally, our free cash flow for 2024 was positive $2 6 million compared to negative $14 $4 million in 2023, an improvement of $17 million.
Steve: Turning to Q4 results.
Steve: Q4 revenue from our core platform, including services was $36 million and total revenue, including virtual conference was $36 7 million.
Steve: Of total revenue for the quarter subscription and other platform revenue was $33 $6 million and professional services revenue was $3 1 million.
Steve: In terms of <unk>.
Steve: We ended the quarter with $127 $3 million of all platform <unk>, a decrease of $2 3 million from Q3 in line with our guidance.
Steve: Total <unk> at the end of Q4, including ear are from our virtual conference product was $149 $7 million.
Steve: Steve will elaborate more on the results, including era, but I'd like to highlight that even though Q4 is the largest renewable based on the year. Our in period gross retention in Q4 was consistent with the highest levels. We have seen in 2024 and was up by mid single digits compared with the gross retention we saw.
For the 2023 fiscal year.
Steve: As a whole new and expansion business reached the highest levels of the year in Q4.
Steve: We had our best win rates of the year and we continue to see wind back momentum with Boomerang customers in Q4, which was a continuation from the prior quarter.
Steve: And finally AI powered Ace was a key contributor.
Steve: The number of customers using and paying for power days grew each quarter of 2024, and now frost double digits as a percentage of our customer base.
Steve: And was over 20% of our growth are our bookings in Q4.
Steve: We will continue to build on this in 2025.
Steve: We recognize that there is more work to do but we're excited by the progress we have made especially as we start to see green shoots in the spending environment relative to the start of last year.
Steve: Our results in Q4, and 2024 as a whole reinforced the positive steps you've taken and transforming on 24 into a profitable cash generating business that is ready to return to growth in 2025.
Steve: We remain committed to our long term goal of generating double digit topline revenue growth and double digit EBITDA margins.
Steve: Let me elaborate on the progress we've made on executing our strategic priorities and how we are thinking about 2025.
Steve: Starting with our focus on platform innovation.
Steve: In 2020 for our core focus on platform innovation was launching our next generation platform and putting AI at the center of our strategy to provide enterprises with a differentiated and intelligent platform for digital engagement.
Steve: Our AI strategy is built on the two pillars of our core strengths content and first party data.
Steve: Specifically, our customers deliver hundreds of thousands of prospect and customer facing webinar experiences on our platform.
Steve: Allowing them to leverage what they've already created and deployed global integrated campaigns based on that content and other derivative content generates massive ROI.
Steve: On top of that our innovations are built on on 24 is first party data Foundation.
Steve: To provide our customers deep insights on their prospects engagement and propensity to purchase.
Steve: After launching our indulgent engagement platform and introducing our new AI powered days offering at the beginning of 2024, we were laser focused on driving adoption across our installed base and further enhancing our competitive position.
Steve: These breakthrough advancements introduced the ability for customers to easily segment their audiences and offer segment specific hyper personalized engagement experiences tailored to demographics audience behavior and more.
Steve: Additionally, this platform innovations offer the speed and simplicity of Es generated content personalized for different audience segments, enabling rapid multi touch nurture and accelerated engaged.
Steve: In Q4, our AI powered analytics and content engine, our ace had its best quarter, yet with the highest level of new bookings.
Steve: Our AI innovations are delivering value by driving an immediate ROI for our customers.
Steve: Take for example, a leading global accounting network.
Steve: Of public accounting tax.
Steve: Consulting and business professionals.
Steve: We selected on 24, specifically for <unk> ability to create personalize and highly curated digital content experiences for their priority audiences to better move them throughout their buying journey.
Steve: This platform innovation, not only helps improve the customer's ability to deliver personalized experience at scale.
Steve: It also allows them to automate content creation.
Steve: Generally more qualified leads.
Steve: And drive measurable revenue results.
Steve: Another example, which highlights our competitive differentiation.
Steve: It was a customer win back is a global leader in testing and certification.
Steve: This boomerang customer return to 124, and a purpose built intelligent engagement platform, including Ace.
After a poor global customer service and a weak data integrations with their previous solutions provider.
Steve: Committing to a new three year agreement, we are expecting to see an immediate increase in pipeline by using on 24 is latest enhancement to create personalized and immersive customer experiences to generate an increase in first party intent data and insights from their prospects and customers.
Steve: The 2020 for adoption and revenue numbers for Ace show the impact that <unk> has had in our customer base.
Steve: Looking ahead, 2025 will bring even greater opportunities for platform innovation.
Steve: We plan to expand our roadmap with our latest innovations to be announced at <unk> 24 next our product innovation event scheduled for next month, highlighting our focus on enhanced first party data.
Steve: New performance inside capabilities.
Steve: And an increased focus on AI innovation, which will continue to be at the center of our 2025 strategy.
Steve: Our second strategic pillar in 2024 was advancing our enterprise go to market strategy with a strong emphasis on regulated industries and digital transformation use cases.
Steve: Our enterprise focused efforts reinforced the industry, leading advancements of our intelligent engagement platform, our AI powered analytics and content engine hyper personalization capability and enterprise readiness to work and some of the most highly regulated sectors.
Steve: In Q4, we saw continued strength in regulated verticals, including life Sciences and financial services.
Steve: This momentum reflects the value of our enterprise grade platform. We're supporting mission critical revenue generating go to market use cases in these industries.
Steve: To illustrate the strength of our life Sciences vertical I would like to highlight one of our customers a multibillion dollar revenue global pharmaceutical company that expanded its partnership with <unk> 24.
Steve: Now our trusted partner our platform, including Ace has been elevated as a foundational technology within their tech infrastructure, helping them advance the healthcare professional or HCP digital engagement strategy.
Steve: Through our platform, they're transforming their ability to engage and interact with hard to reach Hcp's and integrating 124 first party data with their systems of record to support both medical and commercial teams across global markets and gaming in valuable HCP insights.
Yes.
Steve: As another example, and continuing our spotlight on highly regulated industries and enterprises Global asset management group returned to 124 in Q4.
Steve: After switching to a point solution.
Steve: We recognize that without a purpose built platform for engaging experiences.
Steve: And first party actionable data and insights that the program could not be successful.
Steve: Coming into a new four year agreement.
Steve: The return to leverage the breadth and depth of our capabilities.
Steve: Given the institutional focus our first party data was important in providing insights that they could use to deliver a high touch personalized customer experience at scale.
Steve: As we enter 2025, we are strengthening our focus and operating model around our enterprise go to market.
To enhance our go to market leadership.
Steve: Added three new senior sales leaders to our North America enterprise sales execution team, including a new head of North American sales, who joined in the latter half of 2024.
Steve: These changes have brought renewed focus and alignment to our sales teams contributing to a stronger foundation for new and expansion enterprise business.
Steve: We will continue to focus on mission critical use cases in regulated industries.
Steve: In addition, we will be extending into some other use cases and pursuing the green shoots we are seeing in the technology vertical.
Steve: You've also made targeted adjustments within our customer success organization to better support retention and expansion efforts for our growing customer base in these key industries.
Steve: These changes are helping us provide a more seamless customer experience, especially for enterprise customers with complex needs in highly regulated industries.
Steve: Finally.
Steve: We continue to be focused on building a profitable cost structure, while positioning ourselves for long term growth.
Steve: In 2024, our total non-GAAP expenses were almost $20 million lower than 2023.
Steve: Which underscores our disciplined cost management and operational efficiency.
Steve: As I mentioned earlier, we delivered positive adjusted EBITDA and positive non-GAAP EPS in Q4 for the seventh consecutive quarter, while driving margin improvements.
Steve: Furthermore, we were free cash flow positive for the fourth consecutive quarter.
Steve: The steps, we have taken to align our cost structure over the past two years have set up the business for profitable growth.
Steve: We will continue to be laser focused on maintaining our efficient approach to expense control, while prioritizing strategic investments in our key areas of focus.
Steve: We remain committed to our long term profitability target of generating double digit EBITDA margins.
Steve: As we look ahead to 2025, there are several factors that will be key and continuing the progress. We've made this last year.
Steve: First we expect the stabilization of the installed base to continue.
Steve: And anticipate more improvement in gross retention in 2025 as shown on down sales trend positive.
Steve: Secondly, we are seeing customers return to spending initiatives, which we believe will in turn drive increased adoption both in regulated use cases and in the technology vertical.
Steve: Where we are seeing green shoots.
Steve: Lastly, we are excited to see the adoption of our AI tools expand in 2025 as AI powered ace continues to be a key driver for growth.
Steve: I'm happy with the steps we took in 2024 to position the business for a return to growth in 2025.
Steve: As I look into 2025, I am confident in our ability to achieve key goals.
Steve: I expect.
Steve: We will continue to innovate with major new product introductions many of them in the first half of the year.
Steve: We will continue to grow AI powered days as a percentage of revenues.
Steve: We will return to customer growth and a 100 K customer cohort.
Steve: We will continue to reduce churn and improve gross retention.
Steve: We expect our MLR to steadily improve.
Steve: And most importantly.
Steve: I expect we will return to positive IRR.
Steve: I enter 2025 with renewed confidence in our solutions and business and look forward to achieving our goals.
Steve: With that I would like to hand, it over to Steve <unk>, our CFO to share the financial details of Q4 and full year 2024.
Steve: Thank you, Sean and good afternoon, everyone I'm going to start with our fourth quarter 2024 results and we'll then discuss our outlook for the first quarter of 2025 and full year 2025.
Steve: 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.
Steve: We view the metrics from our core platforms, such as revenue on <unk> as the best Kpis to measure our performance.
Steve: Before I get into the details I wanted to quickly outline at a high level, what we have delivered in 2024 and the progress we have made on.
On the top line, we have stabilized the business with improved <unk> performance relative to 2023 with improvements in both gross and net dollar retention on.
Steve: On profitability, we have improved both our gross and operating margins in 2024, delivering adjusted EBITA profitability or every quarter in 2024 on.
Steve: On cash flow, we delivered four consecutive quarters of positive free cash flow with a $17 million improvement in free cash flow in 2024 as compared to 2023.
Steve: And on the innovation front, we launched our AI powered based product with new bookings for that product increasing every quarter. Since we launched it in Q1 of 2024 now let me provide the details starting with revenue.
Steve: Revenue from our core platform, including services in Q4 of 2024 was $36 zero million dollars, representing a decrease of 6% year over year.
Steve: Total revenue for the fourth quarter, which includes revenue from our virtual conference product was $36 7 million.
Steve: Total subscription and other platform revenue was $33 6 million.
Steve: <unk> represented approximately 1% of total revenue in Q4.
Steve: Total professional services revenue was $3 1 million a decrease of 13% year over year, representing approximately 8% of total revenue compared to 9% in the year ago period.
Steve: Moving onto IRR.
Steve: <unk> represents the annualized value of all subscription contracts at the end of the period and excludes professional services and Overages.
Steve: In 2024, ending IRR related to our core platform totaled $127 3 million a.
Steve: A decrease of approximately $2 3 million compared to Q3 of 2024 and in line with the guidance range, we provided last quarter.
Steve: Total <unk> was $129 $7 million.
Steve: Looking at our performance on a year over year basis, while still negative for the year. Our performance made it almost five point improvement from a year over year reduction of 11% in 2023 to a year over year reduction of 6% in 2024, and a tough macro environment for marketing budgets.
Steve: I believe we have laid the groundwork to return to positive growth in 2025.
Steve: Specifically it is important to note the fourth quarter would have shown even clear evidence of our progress.
Steve: If we had not had two significant down sells both of these customers see the core value of our products and made seven figure commitments, but did adjust the scope of their work with us for business reasons.
Steve: See a lot less of these large renewals that concern me in 2025, and I am confident that our underlying improvement will be much more evident in upcoming quarters.
Steve: Let me break down we saw a little more starting with new business and expansion bookings in Q4.
Rob: New business and expansion were both the highest of the year in Q4 as Rob mentioned, our AI powered <unk> product continues to show positive momentum contributing over 20% of our growth our bookings in Q4, representing the highest dollar amount of bookings to date for this product.
Steve: Moving onto retention.
Steve: Even with the two larger customer down cells in periods gross retention in Q4 was consistent with the highest levels. We saw in 2024 and up by mid single digits from gross retention for the 2023 fiscal year as the one time disclosure in 2024, our gross retention was in the low <unk>, which was up mid single digits.
Steve: From 2023.
The dollar based net retention or NR for our core platform enterprise customers was 91% an improvement of mid single digits from 2023.
Steve: These are customers with over 1000 employees and make up close to 80% of our core <unk> and the primary focus of our business.
Steve: Core platform NR for the whole business was a couple of points lower at 89% at the end of 2024.
Steve: Turning to customer metrics.
Steve: Our enterprise customers continue to show a commitment to our platform as we continue to strengthen our focus around our enterprise go to market strategy.
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.
Steve: In a year when marketing conditions were challenging in some customers lower their spend with us due to budgetary constraints. We ended the year with 305 customers contributing more than $100000 in total AOR.
Steve: The majority of our IRR is from enterprise customers and we continue to see these customers commit to longer term contracts.
Steve: The percentage of our IRR and multiyear contracts at the end of 2024 it was 51%.
Steve: This metric has improved over 20 points. So at the end of 2019, when it was 29%.
Steve: We're also encouraged with the multi product adoption, we are continuing to see in our customer base. The number of customers using two or more products increased to 39% at the end of 2024, an all time high.
Steve: This metric has also steadily increased increasing sequentially every year for the last five years from 17% at the end of 2019% to 39% at the end of 2024.
Steve: In Q4, the average core <unk>.
Steve: Customer was approximately $77000 up slightly from 2023 year end levels.
Steve: Total customer count at the end of Q4 was 1645.
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 costs as well as certain other items, our GAAP results along with a reconciliation between GAAP and non-GAAP results can be found within our earnings release.
Steve: In 2024, we focused on controlling our operating expenses and continuing to streamline our operations to improve our operational efficiency, which resulted in improvements to both our gross margins and our bottom line performance. Let me provide the details starting with our gross margin.
Steve: Our gross margin in Q4 was 77% consistent with the past several quarters and with Q4 of last year for the 2024 years of Hall, our gross margin was 77% up from 75% in 2023.
Steve: <unk> the cost reduction actions, we have taken to streamline our operations.
Steve: Now moving on to operating expenses sales and marketing expense in Q4 was $16 million compared to $16 7 million in Q4 last year.
Steve: This represents 44% of total revenue compared to 42% in the same period last year and consistent with last quarter.
Steve: 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.
Steve: R&D expense in Q4 was $6 5 million compared to $6 7 million in Q4 last year.
Steve: This represents 18% of total revenue compared to 17% in the same period last year and consistent with last quarter.
Steve: While R&D expenses have decreased in absolute dollars over the past year. We have continued to invest in product innovation of our platform, including AI enabled features such as AI powered base.
Steve: G&A expense in Q4 was $5 9 million compared.
Steve: Compared to $6 6 million in Q4 last year.
Steve: This represents 16% of total revenue compared to 17% in the same period last year and last quarter, we have taken actions to reduce our G&A spending and streamline our G&A functions and as a result, our G&A expenses in absolute dollars have decreased as compared to the prior quarter and prior year move.
Steve: Moving on to our bottom line performance.
We have seen an improvement of almost 200 basis points and our adjusted EBITA for 2024 as compared to 2023 and I am pleased to report that we exceeded the profitability targets that we provided in the prior earnings call.
Steve: The operational enhancements, we made to reduce our cost structure has been effective.
Steve: Our 2024, our total expenses were almost $20 million less in 2023. The result of our efforts to contain our costs and streamline our operations.
Steve: In Q4, we achieved positive adjusted EBITDA and non-GAAP EPS profitability for the seventh consecutive quarter.
Steve: Operating loss for Q4 was zero point $4 million or a negative 1% operating margin compared to operating income of zero point $2 million and a positive 1% operating margin in the same period last year.
Steve: Net income in Q4 was $2 5 million.
Steve: Or <unk> <unk> per share based on approximately $45 3 million diluted shares outstanding.
Steve: This compares to net income of $2 6 million or <unk> <unk> per share in Q4 last year, using approximately 46 million diluted shares outstanding.
Steve: Turning to the balance sheet and cash flow.
Steve: We ended the quarter with $182 $7 million in cash cash equivalents and marketable securities.
Steve: In March of 2024, we announced a new $25 million share repurchase program, which runs for one year until March 2025.
Steve: This new share repurchase program. Following the completion of two earlier capital return programs, which collectively returned $166 million to shareholders under.
Steve: Under the new $25 million share repurchase program, we have utilized $23 6 million to date with approximately $25 million utilized in 2024, and approximately $3 $1 million utilized thus far in Q1 2025.
Steve: Our balance sheet continues to remain strong with almost $183 million of cash and investments at the end of 2024.
Steve: Turning to our cash flow metrics for Q4 and for 2024 as a whole has.
Cash provided by operations in Q4 was $1 million compared to cash used in operations of zero point $9 million in Q4 of last year.
Steve: Free cash flow was positive zero point $4 million in Q4 compared to negative $2 $8 million in Q4 last year.
Steve: This is our fourth quarter in a row of positive free cash flow.
Steve: Our cash flow in Q4 and for 2024 includes cash outflows related to our restructuring efforts, which totaled <unk> $4 million in Q4, and $2 6 million for 2024.
Steve: Our free cash flow for all of 2024 was positive $2 6 million compared to negative $14 4 million in 2023, an improvement of $17 million in one year.
Before I talk about how we're thinking about <unk> in 2025, I wanted to expand on what <unk> said regarding how we believe our strategy heading into 2025 can help drive a return to growth.
Starting with product innovation, we have seen meaningful progress with our AI powered <unk> product.
Steve: We believe our AI enabled content generation and personalization capabilities will further differentiate us from the competition.
Steve: We are not stopping there and we'll be launching more exciting product innovations to take advantage of our treasure trove of first party data.
Steve: Oliver increased ROI to our customers.
Steve: Our focused on highly regulated customer use cases, particularly in the life Sciences and financial verticals will continue with a solutions based approach tailored to these verticals. We expect these verticals will continue to be growth vectors for us.
Steve: We expect the meaningful changes, we made to our go to market team, including bringing in new senior leaders will enable us to better execute on our strategic goals and drive a return to AOR growth.
Steve: Our execution strategy in 2025 is focused on driving <unk> growth, while maintaining EBITA profitability.
Steve: We believe this will position us for sustained growth in 2026 and beyond.
Steve: Now before I move onto guidance I want to provide our outlook on 2025, IRR and our framework for top and bottom line guidance.
Steve: 2024, we made meaningful progress in stabilizing our business with our enterprise and total net dollar retention rate as well as our gross retention all improving by mid single digits in 2024.
Steve: And in 2025, we expect to make more progress on all of these metrics.
Steve: We're encouraged by the positive signs in new and expansion business heading into 2025 compared to last year and we are confident that the momentum from AI powered base will continue to be a tailwind to AOR growth.
Steve: For 2025, given the momentum I just referenced we do expect to return to our growth during the year with ending 2025 core are expecting to be higher that ending 2024 levels.
Steve: Our revenue guidance assumes ending 2025 core IRR increases year over year by 1% to 2%.
Steve: As 2025 progresses, we expect to improve <unk> performance.
Steve: For Q1, our revenue guidance assumes core <unk> will be breakeven to down 1% compared to 2024 year end levels.
Steve: For a virtual conference product, we expect Q1 to decline approximately zero $1 million in Q1, and then Q1 at $2 2 million.
Steve: We expect from that product to continue to decrease slowly during 2025 and in 2025 at approximately $1 9 million.
Steve: Our revenue guidance takes into account Q1, being a seasonally softer quarter for new business and we expect that Q1 will be the low point for revenue and revenue will improve over the course of 2025.
Steve: Our bottom line guidance reflects the seasonality and we do not expect to be adjusted EBITDA positive in Q1, but do expect to the EBITA positive for the following three quarters.
Steve: For the year, we are focused on getting back to a growth, making strategic investments, including an AI innovation and maintaining a consistent level of expense discipline.
Steve: We are committed to our long term target of double digit operating margin.
Steve: Now turning to our annual guidance for 2025.
Steve: For the full year, we expect core platform revenue, including services to be in the range of $136 3 million.
Steve: $139 3 million.
Steve: We expect total revenue to be in the range of $138 six.
Steve: $6 million to $141 6 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 $5 5 million to $3 5 million and non-GAAP net income per share of <unk> <unk> per share to <unk> <unk> per share using approximately 47 5 million diluted shares outstanding.
Steve: We expect gross margins for the year to be approximately 76%.
Steve: We expect to be adjusted EBITA positive or 2025, given the seasonality of a soft Q1, we expect to deliver positive EBITA in each quarter of 2025, starting in Q2.
Steve: Restructuring charges and amortization of acquired intangibles and certain other items are excluded from the full year non-GAAP amounts for back of the above.
Steve: Now turning to Q1 guidance we.
Steve: We expect Q1 core platform revenue, including services in the range of $33 4 million to $33 9 million and total revenue, which includes our virtual conference product in the range of $34 million to $34 $5 million.
Steve: Professional services is expected to represent approximately 7% total revenue.
We expect our gross margin to be 76% Q1.
Steve: We expect a non-GAAP operating loss in the range of $3 3 million to $2 3 million and non-GAAP loss per share of <unk> <unk> per share to <unk> <unk> per share using approximately 42 million basic and diluted shares outstanding.
Steve: We expect a restructuring charge of <unk> 8 million.
Steve: Two 1 million in Q1 related to our ongoing cost reduction efforts, which is excluded from the non-GAAP amounts provided above.
Steve: I would like 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.
Steve: Such we would expect quarterly revenue and Bottomline performance to increase in 2025 from seasonally soft Q1 levels.
Steve: In summary in 2024, we executed against our strategic growth pillars.
Steve: Operational enhancements and demonstrated operational discipline by improving margins and retention rates. We are confident in our ability to return to a growth in 2025, while maintaining adjusted EBITA profitability and positive cash flow generation and we remain committed to our long term goal.
Steve: Generating double digit topline revenue growth and double digit EBITA margins with that <unk>.
Steve: We'll open the call up for questions.
Steve: Thank you if you would like to ask a question. Please press star one on your telephone keypad.
Steve: Information tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys. Once again that is star one on your telephone keypad.
Operator: Our first question is from Noah Herman with J P. Morgan. Please proceed.
Steve: Yes.
Noah Herman: Hey, thanks for taking our questions.
Noah Herman: Can you maybe just provide a little bit of an overview of what youre seeing in the marketing budget environment.
Noah Herman: Mentioned in your prepared remarks that you're seeing some green shoots specifically in the technology vertical so that would be really helpful and I have a follow up as well.
Speaker Change: Yes, let me take that.
Noah Herman: Up.
And as we look at I think to provide the context on this.
Noah Herman: <unk>.
Noah Herman: 194 was a very difficult year.
Noah Herman: For marketing budgets.
Noah Herman: Last six years it was probably one of the toughest years, it was close to 8% compared to close to 11% in 2019. According to Gartner that being said as we look at 2025, while the market is still tight.
Noah Herman: Based on our customer conversations and win backs from Boomerang customers that we've been seeing there are some green shoots we are also seeing customers reinvest in growth initiatives.
Our business has stabilized now with gross retention being the best in the last three years and I expect this will continue to improve in 2025.
Noah Herman: Customers are investing in <unk> as it is providing immediate ROI. So we expect and I'll also be improved from 2024 levels.
Speaker Change: And we're also focused on enhancing our new business execution, including enhancements that we've made to our sales leadership and more vertical focus on regulated industries and yet you were talking about you mentioned the <unk>.
Noah Herman: Technology vertical or what we are seeing there.
Noah Herman: If I look at them some of the win backs and some and the investments in AI powered days are really coming from the technology side. So we are seeing some green shoots there and finally.
Noah Herman: What we are seeing.
Noah Herman: Seeing stabilization, but we're not factoring any major improvement in the macro if it does improve it will only help us look.
Noah Herman: We have been focused on reducing their martech stack for the best two or three years the real deep.
Noah Herman: These wind back so any guide we expect them to start investing in revenue generating products in 2025. So we are cautiously optimistic.
Speaker Change: That's really helpful. And then maybe just quickly on the guidance.
Noah Herman: It doesn't imply.
Operating margins on a non-GAAP basis to contract a little bit, but I assume that given some of the positive signals you're seeing in the demand environment. So would you be able to maybe provide a little bit more of an overview of the opex line items, how we should be thinking about sales and marketing R&D. Thank you.
Noah Herman: No. Let me go ahead and take that so first we're always prioritizing to return to growth and balancing profitability.
Noah Herman: With that the key is now a balanced approach for us with a focus on returning to topline growth in 2025 and given the strong progress we've made on <unk>.
Noah Herman: Profitability over the last couple of years, we're focused on returning to growth now on the top line. We are seeing positive trends in the business and we do expect to return to our growth in 2025 as we discussed in the prepared remarks now I'll turn some of the expense structure. We have gross margins in the mid to high seventies and are exiting 2024 with.
Noah Herman: Positive adjusted EBITA for the fourth.
Noah Herman: Q4, and for the year and we expect to be continued to be adjusted EBITA and EPS profitable for 2025 as a whole.
Noah Herman: With Q1 being the trough for profitability and then positive EBITA. After that now we will of course continue to monitor the cost structure based on what we're seeing on the top line.
Noah Herman: And she transitioned back to top line growth. This year, we are going to make some selected investments in things like product innovation, especially around AI enabled capabilities.
Noah Herman: Capabilities like AI powered Ace, which launched early in 2024 and also some selected go to market investments for regulated industries like financial services Life Sciences as we've done this past year. So we believe we can make key investments in the business get back to our growth in 2025 and also maintain profitability without.
Speaker Change: Increasing that cost structure in terms of the macro up that improves as Sean discussed that will of course be a net positive for us as well.
Speaker Change: Our next question is from Ian Black with Needham <unk> Company. Please proceed.
Speaker Change: Hi, This is Ian <unk> on for Scott Berg should we expect free cash flow positive again in 2025.
Speaker Change: Let me go ahead and take that so.
Speaker Change: So we are guiding to EPS profitability in 2025, so I would expect to be free cash flow positive as well in 2025.
Speaker Change: Possibly excluding any one time or restructuring charges.
Speaker Change: Thank you.
Speaker Change: Yeah.
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Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Uh huh.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.