Business Overview

ON24, Inc. (NYSE:ONTF) is a leading provider of a cloud-based intelligent engagement platform that enables sales and marketing organizations to capture and act on connected insights at scale. The company was founded in 1998 and has since grown to serve a diverse customer base across various industries, including technology, financial services, healthcare, and professional services.

ON24's platform offers a portfolio of interactive and hyper-personalized digital experience products that create and capture actionable, real-time data from millions of professionals. This data provides businesses with buying signals and behavioral insights to efficiently convert prospects into customers. The company's solutions are designed to help organizations modernize their sales and marketing processes, leveraging digital engagement to drive revenue growth.

ON24's platform includes a range of products, such as ON24 Elite, its flagship self-service cloud-based subscription product, as well as complementary experience products like ON24 Engagement Hub, ON24 Target, and the recently launched ON24 Forums. In 2022, the company also acquired Vibbio, a video software company, to further enhance its platform's video capabilities.

In January 2024, ON24 launched its next-generation intelligent engagement platform, which includes the new AI-powered Analytics and Content Engine (ACE). This solution enables hyper-personalization at scale, uses generative AI to automatically create content and videos, and provides advanced analytics to customers.

Financial Performance

For the full year 2023, ON24 reported annual revenue of $163,708,000 and a net loss of $51,786,000. The company's annual operating cash flow was -$12,202,000, and its annual free cash flow was -$14,385,000.

In the first quarter of 2024, ON24 reported total revenue of $37,727,000, a decrease of 12% compared to the same period in 2023. Subscription and other platform revenue was $34,829,000, while professional services revenue was $2,898,000. The company's Core Platform revenue, which excludes the Virtual Conference product, was $36,815,000, representing a decrease of 11% year-over-year.

Annualized Recurring Revenue (ARR) for the Core Platform was $133,265,000 at the end of the first quarter of 2024, a decrease of $2,890,000 compared to the fourth quarter of 2023. The company's total ARR, including the Virtual Conference product, was $136,480,000 at the end of the first quarter.

Profitability and Cost Management

ON24 has made significant progress in improving its profitability and cost structure. In the first quarter of 2024, the company achieved positive adjusted EBITDA and non-GAAP earnings per share for the fourth consecutive quarter. This was driven by the company's focus on cost reduction measures, including headcount reductions and other operational efficiencies.

Gross margin in the first quarter of 2024 was 74%, up from 69% in the same period of 2023. The company expects gross margins to remain in the mid-70s for the full year 2024, consistent with 2023 levels. ON24 is also guiding for EBITDA break-even for the full year 2024.

Geographic and Vertical Diversification

ON24 generates revenue from customers in the United States as well as internationally. In the first quarter of 2024, approximately 23% of the company's revenue came from outside the United States, with the EMEA region contributing 17% and other geographies accounting for the remaining 6%.

The company has also diversified its business across various industry verticals, with a focus on regulated industries such as life sciences and financial services. These verticals, which include large pharma companies, professional services organizations, and asset management and insurance firms, now account for nearly a third of ON24's total Core ARR, up from 20% a few years ago.

Strategic Priorities and Outlook

ON24 has outlined three key strategic priorities for 2024 and beyond:

1. Rollout of the next-generation intelligent engagement platform, including the AI-powered ACE solution. 2. Continued strengthening of the company's enterprise go-to-market strategy, particularly in mission-critical digital transformation use cases. 3. Returning to growth while maintaining profitability targets.

For the second quarter of 2024, the company expects Core Platform revenue, including services, to be in the range of $35 million to $36 million, and total revenue, including the Virtual Conference product, to be between $35.8 million and $36.8 million. ON24 also expects to be EBITDA break-even in the second quarter.

For the full year 2024, the company expects Core Platform revenue, including services, to be in the range of $139.8 million to $143.8 million, and total revenue to be between $143 million and $147 million. ON24 is guiding for a non-GAAP operating loss in the range of $5.5 million to $3.5 million and non-GAAP net income per share of $0.03 to $0.07, using approximately 47.2 million diluted shares outstanding.

Risks and Challenges

ON24 operates in a competitive market, facing competition from a variety of web-based meeting, webinar, and marketing software products. The company's success is also dependent on its ability to attract and retain customers, as well as its ability to continue innovating and enhancing its platform to meet the evolving needs of its customers.

Additionally, the company's performance can be impacted by macroeconomic conditions, such as changes in marketing budgets and spending on sales and marketing technology. The ongoing uncertainty surrounding the COVID-19 pandemic and its impact on customer behavior and demand for the company's solutions also presents a risk.

Conclusion

ON24 has navigated a challenging macroeconomic environment in recent quarters, but the company has demonstrated its ability to improve profitability and cost efficiency while continuing to invest in product innovation. The launch of the AI-powered ACE solution and the company's focus on enterprise customers in regulated industries provide promising avenues for future growth.

Despite the near-term uncertainty, ON24's long-term market opportunity remains significant as businesses continue to modernize their sales and marketing processes and leverage digital engagement to drive revenue growth. The company's diversified customer base, improved financial performance, and strategic priorities position it well to weather the current environment and capitalize on future opportunities.