ON24, Inc. Price & Performance (ONTF)

Hello and good afternoon everyone. Welcome to ON24's Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. On the call with me today are Shirosh Shiran, Co Founder and CEO of ON24 and Steve Batrione, Chief Financial Officer of ON24. 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 first quarter and full fiscal year twenty twenty five, as well as certain first quarter and full year non GAAP projections. These forward looking statements are subject to known and unknown risks and uncertainties, 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, or other future events or conditions such as the impact of adverse economic conditions and macroeconomic deterioration. ON24 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. 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 Sherrod. Thank you, and welcome everyone to ON24's fourth quarter and full year 2024 financial results conference call. I appreciate you joining us today With me is Steve Batuoni, our Chief Financial Officer. Before we turn 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, executing on our product innovation roadmap and delivering margin profitability and cash flow improvements. We launched AI Power Days, the next generation ON24 intelligent engagement platform in January twenty twenty four, and within a year, accounted for over 20% of our growth ARR bookings.

In Q4, the percentage of customers with two or more products reached an all time high at close to 40%. We saw the ARR from multiyear deals increase to 51%. Gross retention for 2024 improved to its highest level in the last three years. Net retention for our enterprise business was 91% a mid single digit improvement over 2023. As a whole, new and expansion business reached their highest levels of the year in Q4. We had the best win rates of the year and we continue to see win back momentum with Boomerang customers in Q4 which was a continuation from the prior quarter. We consistently met and exceeded our margin and profitability targets. Our non GAAP gross margin improved from 75% in 2023 fiscal year to 77% in 2024. Adjusted EBITDA margin improved by almost 200 basis points in the 2024 fiscal year compared to 2023.

And finally, our free cash flow for 2024 was positive $2,600,000 compared to negative $14,400,000 in 2023, an improvement of $17,000,000 Turning to Q4 results. Q4 revenue from our core platform including services, was $36,000,000 and total revenue including virtual conference, was $36,700,000 Of total revenue for the quarter, subscription and other platform revenue was $33,600,000 and professional services revenue was $3,100,000 In terms of ARR, we ended the quarter with $127,300,000 of core platform ARR a decrease of $2,300,000 from Q3 In line Total ARR at the end of Q4 including ARR from our virtual conference product was $129,700,000 Steve will elaborate more on the results But I'd like to highlight that even though Q4 is the largest renewal base in the year, our impaired gross retention in Q4 was consistent with the highest levels we have seen in 2024 and was up by mid single digits compared to the gross retention we saw for the 2023 As a whole, new and expansion business reached the highest levels of the year Q4.

We had our best win rates of the year and we continue to see win back momentum with Boomerang customers in Q4 which was a continuation from the prior quarter. And finally, AI powered AS was a key contributor The number of customers using and paying for AI powered Ace grew each quarter of twenty twenty four and now crossed double digits as a percentage of our customer base. And was over 20% of our growth ARR bookings in Q4. We will continue to build on this in 2025. We recognize that there's more work to do but we are excited by the progress we've made especially as we start to see green shoots in the spending environment relative to the start of last year. Our results in Q4 and 2024 As a whole, reinforce the positive steps you've taken. In transforming ON24 into a profitable, cash generating business that is ready to return to growth in 2025. We remain committed to our long term goal of generating double digit top line revenue growth and double digit EBITDA margin. Let me elaborate. On the progress we made on executing our strategic priorities and how we are thinking about 2025. Starting with our focus on platform innovation.

In 2024, 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. Our AI strategies built on the two pillars of our core strengths, content and first party data. Specifically, our customers deliver hundreds of thousands of prospect and customer facing webinar experiences on our platform. Allowing them to leverage what they've already created and deploying global integrated campaigns based on that content and other derivative content generates massive ROI.

On top of that, our AI innovations are built on ON24's first party data foundation. To provide our customers deep insights on their prospects engagement and propensity to purchase. After launching our intelligent engagement platform, and introducing our new AI powered days, offering at the beginning of twenty twenty four, we were laser focused on driving adoption across our installed base and further enhancing our competitive position. 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 [indiscernible] Additionally, these platform innovations offer the speed and simplicity of AI generated content personalized for different audience segments enable a [indiscernible] multi touch nurture [indiscernible] In Q4, our AI powered analytics and content engine or ACE had its best Order yet. With the highest level of new bookings. Our AI innovations are delivering value by driving an immediate ROI for our customers. Take For example, a leading global accounting network of public accounting tax, consulting and business professionals. This selected ON24 specifically for ASUS' ability to create personalized and highly curated digital content experiences for the priority audiences to better move them throughout their buying journey.

This platform innovation not only helps improve the customer's ability to deliver personalized experience At scale, It also allows them to automate content creation, generate more qualified leads, and drive measurable revenue results. Another example, which highlights our competitive differentiation and was a customer win back is a global leader in testing and certification. This Boomerang customer returned to ON24 and a purpose built intelligent engagement platform including ACE. After poor global customer service, and a week data integrations with their previous solutions provider. Committing to a new three year agreement they are expecting to see an immediate increase in pipeline by using ON24's latest AI enhancement to create personalized immersive customer experiences to generate an increase in first party intent data and insights, from their prospects and customers. The 2024 adoption and revenue numbers for ACE show the impact that ACE has had in our customer base. Looking ahead, 2020 greater opportunities. Platform innovation. We plan to expand our roadmap with our latest innovations to be announced at ON24Next, our product innovation event scheduled for next month. Highlighting a focus on enhanced first party data new performance insight capabilities, and an increased focus on AI innovation which will continue to be at the center of our 2025 strategy.

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. Our enterprise focused efforts reinforce the industry leading advancements of our intelligent engagement platform our AI powered analytics and content engine, hyper personalization capability and enterprise readiness to work in some of the most highly regulated set In Q4, we saw continued strength in regulated verticals, including life sciences and financial services. This momentum reflects the value of our enterprise grade platform for supporting mission critical revenue generating go to market use cases in these industries. 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 ON24. Now a trusted partner our platform including ACE, has been elevated as a foundational technology within their tech infrastructure helping them advance the healthcare professional or HCT digital engagement strategy.

Through our platform, are transforming their ability to engage and interact with hard to reach HCPs and integrating ON24 first party data with their systems of record to support both medical and commercial teams across global markets in gaining invaluable HCP insights. As another example, and continuing our spotlight, on highly regulated industries, and enterprise global asset management group returned to ON24 in Q4.

After switching to a point solution, they recognize that without a purpose built platform for engaging experiences, and first party actionable data and insights, that the program could not be successful coming to a new four year agreement they returned to leverage the breadth and depth of our capabilities. 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. 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, we've added three new senior sales leaders to our North America enterprise sales execution team including the new Head of North America Sales, who joined in the latter half, of 2024. These changes have brought renewed focus and alignment towards sales teams, contributing to a stronger foundation new and expansion enterprise business. We will continue to focus on mission critical use cases in regulated industry. In addition, we will be extending into some other use cases and pursuing the green shoots We are seeing in the technology vertical. [indiscernible] targeted adjustments within our customer success organization to better support retention and expansion efforts for a growing customer base in these key industries.

These changes are helping us provide a more seamless customer experience especially for enterprise customers with complex needs and highly regulated industries. Finally, we continue to be focused on building a profitable cost [indiscernible] while positioning ourselves for long term growth. In 2024, our total non GAAP expenses were almost $20,000,000 lower than 2023 which underscores our disciplined cost management and operational efficiency. As I mentioned earlier, we delivered positive adjusted EBITDA and positive non GAAP EPS Furthermore, we were free cash flow positive for the fourth consecutive quarter. The steps we've taken to align our cost structure over the past few years have set up the business for profitable growth. 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. We remain committed to our long term profitability target generating double digit EBITDA [indiscernible] As we look ahead to 2025, there are several factors that will be key in continuing the progress we made this last year. First, we expect the stabilization of the installed base to continue and anticipate more improvement in gross retention in 2025 as shown in down sales trend positive.

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. Where we are seeing green shoots. 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 I'm happy with the steps we took in 2024 to position the business for a return to growth in 2025. As I look into 2025, I'm confident in our ability to achieve key goals I expect we will continue to innovate with major new product introductions many of them in the first half of the year. We will continue to grow AI powered days as a percentage of revenues. We will return to customer growth in a 100 ks customer cohort. We will continue to reduce churn and improve gross retention. We expect our NRR to steadily improve and most importantly, I expect we will return to positive ARR. I enter 2025 with renewed confidence in our solutions, and business and look forward to achieving our goals. With that, I would like to hand it over to Steve Batsuoni, our CFO to share the financial details of Q4 and full year 2024.

Thank you, Shrod, and good afternoon, everyone. I'm going to start with our fourth quarter twenty twenty four results and will then discuss our outlook for the first quarter of twenty twenty five and full year 2025. Before I get into the numbers, I want to remind everyone that our focus as it was in the prior quarters, we'll be on the core platform business as we have deemphasized the virtual conference product We view the metrics from our core platforms such as revenue and ARR as the best KPIs to measure our 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 the top line, we have stabilized the business with improved ARR performance relative to 2023, with improvements in both gross and net dollar retention. On profitability, we have improved both our gross and operating margin in 2024 delivering adjusted EBITDA profitability for every quarter in 2024. On cash flow, we delivered four consecutive quarters of positive free cash flow with a $17,000,000 improvement in free cash flow in 2024 as compared to 2023. And on the innovation front, we launched our AI powered base 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.

Revenue from our core platform including services in Q4 of twenty twenty four was $36,000,000 representing a decrease of 6% year over year.

Total revenue for the fourth quarter which includes revenue from our virtual conference product was $36,700,000 Total subscription and other platform revenue was $33,600,000 Overages represented approximately 1% of total revenue in Q4. Total professional services revenue was $3,100,000 a decrease of 13% year over year representing approximately 8% of total revenue compared to 9% in the year ago period. 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. In 2024, MAARR related to our core platform totaled $127,300,000 a decrease of approximately $2,300,000 compared to Q3 of twenty twenty four and in line with the guidance range we provided last quarter. Total ARR was $129,700,000 Looking at ARR performance on a year over year basis, while still negative for the year, ARR performance made an 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 I believe we have laid the groundwork to return to positive ARR growth in 2025. Specifically, it is important to note the fourth quarter would have shown even clear evidence of our progress if we had not had two significant down sells.

Both of these customers see the core value of our product and made 7 figure commitments but did adjust the scope of their work with us for business reasons. I see a lot less of these large renewals that concern me in 2025. And I'm confident that our underlying improvement will be much more evident in upcoming quarters.

Let me break down what we saw in ARR a little more. Starting with new business and expansion bookings in Q4. New business and expansion ARR were both the highest of the year in Q4.

As Shrod mentioned, AR PowerEdge product continues to show positive momentum contributing over 20% of our growth AR bookings in Q4 and representing the higher dollar amount of bookings to date this product. Moving on to retention. Even with the two larger customer down sells, 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 a one time disclosure, in 2024, our gross retention was in the low 80s which was up mid single digits from 2023 The dollar based net retention or NRR for our core platform enterprise customer was 91% an improvement of mid single digits from 2023.

These are customers with over 1,000 employees and make up close to 80% of our core ARR. And the primary focus of our business. Core platform NRR for the whole business was a couple of points lower at 89% at the end of twenty twenty four. Turning to customer metrics. 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. 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, In a year when marketing conditions were challenging and some customers lowered their spend with us due to budgetary constraints, we ended the year with three zero five customers to contributing more than $100,000 in total ARR. The majority of our ARR is from enterprise customers and we continue to see these customers commit to longer term contracts. The percentage of our ARR in multiyear contracts at the end of twenty twenty four was 51% This metric has improved over 20 points since the end of twenty nineteen it was 29%. 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 twenty twenty four, an all time high. This metric has also steadily increased increasing sequentially every year for the last five years from 17% at the end of twenty nineteen to 39% at the end of twenty twenty four. In Q4, the average core ARR per customer was up slightly from 2023 year end levels. Total customer count at the end of Q4 was sixteen forty five, 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 results along with a reconciliation between GAAP and non GAAP results can be found within our earnings release. In 2024, we focused on controlling our operating expenses in 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. Our gross margin in Q4 was 77%, consistent with the past several quarters and with Q4 of last year.

For the 2024 year as a whole, our gross margin was 77% up from 75% in 2023. Reflecting the cost reduction actions we have taken to streamline our operations. Now moving on to operating expenses. Sales and marketing expense in Q4 was $16,000,000 compared to $16,700,000 in Q4 last year. This represents 44% of total revenue compared to 42% in the same period last year and consistent with last quarter. Our sales and marketing expenses have decreased in absolute dollars year over year largely due to the cost savings measures we have implemented over past quarters to improve efficiency and our go to market organization. R and D expense in Q4 was $6,500,000 compared to $6,700,000 in Q4 last year. This represents 18% of total revenue compared to 17% in the same period last year and consistent with last quarter. While R and D expenses have decreased in app we have continued to invest in product innovation for our platform including AI enabled features such as AI powered ACE. G and A expense in Q4 was $5,900,000 compared to $6,600,000 in Q4 last year. 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 and A spending and streamline G and A functions and as a result, our G and A expenses and absolute dollars have decreased compared to the prior quarter and prior year. Moving on to our bottom line performance. We've seen an improvement of almost 200 basis points in our adjusted EBITDA for 2024 as compared to 2023, And I'm pleased to report that we exceeded the profitability targets we provided in the prior earnings call. The operational enhancements we made to reduce our cost structure have been effective. For 2024, our total expenses were almost $20,000,000 less in 2023 the result of our efforts to contain our costs and streamline our operations In Q4, we achieved positive adjusted EBITDA and non GAAP EPS for the seventh consecutive quarter. Operating loss for Q4 was $400,000 or a negative 1% operating margin compared to operating income of $200,000 and a positive 1% operating margin in the same period last year. Net income in Q4 was $2,500,000 or $0.06 per share based on approximately 45,300,000.0 diluted shares outstanding. This compares to net income of $2,600,000 or $0.06 per share in Q4 last year using approximately 46,000,000 diluted shares outstanding.

Turning to the balance sheet and cash flow. We ended the quarter with $182,700,000 in cash, cash equivalents, marketable securities. In March of twenty twenty four, we announced a new $25,000,000 share repurchase program which runs for one year until March 2025. This new share repurchase program follows the completion of two earlier capital return programs which collectively returned $166,000,000 to shareholders. Under the new $25,000,000 share repurchase program, we have utilized $23,600,000 to date with approximately $20,500,000 utilized in 2024, and approximately $3,100,000 utilized thus far in Q1 twenty twenty five. Our balance sheet continues to remain strong with almost $183,000,000 of cash and investments at the end of twenty twenty. Turning to our cash flow metrics for Q4. And for 2024 as a whole. Cash provided by operations in Q4 was $1,000,000 compared to cash used in operations of $900,000 in Q4 of last Free cash flow was positive $400,000 in Q4 compared to negative $2,000,000 in Q4 last year. This is our fourth quarter in a row of positive free cash flow. Our cash flow in Q4 and for 2024 includes cash outflows related to our restructuring efforts which totaled $400,000 in Q4 and $2,600,000 for 2024.

Our free cash flow for all 2024 was positive $2,600,000 compared to negative $14,400,000 in 2023 an improvement of $17,000,000 in one year. Before I talk about how we're thinking about ARR in 2025, I wanted to expand on what Shratz said regarding how we believe our strategy heading into 2025 can help drive a return to ARR growth. Starting with product innovation, we have seen meaningful progress with our AI powered ACE product and we believe our AI enabled content generation and personalization capabilities will further differentiate us from the competition. We are not stopping there. And we'll be launching more exciting product innovations take advantage of our treasure trove of first party data to deliver increased ROI to our customers. Our focus on highly regulated customer use cases particularly 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. We expect the meaningful changes 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 our return Our execution strategy in 2025 is focused on driving ARR growth, while maintaining EBITDA profitability.

We believe this will position us for sustained growth in 2026 and beyond. Now before I move on to guidance, I want to provide our outlook on 2025 ARR and our framework for top and bottom line guidance. In 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. And in 2025, we expect to make more progress on all of these metrics. We are 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 ARR growth. For 2025, given the momentum I just referenced, we do expect to return ARR growth during the year with ending 2025 core ARR expecting to be higher than ending 2024 levels. Our revenue guidance assumes ending 2025 core ARR increases year over year by 1% to 2%. As 2025 progresses, we expect to improve our ARR performance. For Q1, our revenue guidance assumes core ARR will be breakeven to down 1% compared to 2024 year end levels.

For our virtual conference product, expect Q1 ARR to decline approximately $01,000,000 in Q1 and in Q1 at $2,200,000 We expect AR from that product to continue to decrease slowly during 2025 and in 2025 at approximately $1,900,000 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. Our bottom line guidance reflects the seasonality and we do not expect to be adjusted EBITDA positive in Q1 but do expect to be EBITDA positive for the following three quarters. For the year, we are focused on getting back to ARR growth making strategic investments, including an AI innovation, and maintaining a consistent level of expense discipline. We are committed to our long term target of double digit operating margin. Now turning to our annual guidance for 2025. For the full year, we expect core platform revenue including services to be in the range of $136,300,000 to $139,300,000 We expect total revenue to be in the range of $138,600,000 to $141,600,000 Professional services is expected to represent approximately 8% of total revenue. We expect a non GAAP operating loss in the range of $5,500,000 to $3,500,000 and non GAAP net income per share of $0.02 per share to $0.05 per share using approximately 47,500,000.0 diluted shares outstanding.

We expect gross margins for the year to be approximately 76%. We expect to be adjusted EBITDA positive for 2025 given the seasonality of a soft Q1 we expect to deliver positive EBITDA in each quarter of twenty twenty five starting in Q2. Restructuring charges and amortization of acquired intangibles and certain other items are excluded from the full year non GAAP amounts provided above. Now turning to Q1 guidance. We expect Q1 core platform revenue including services, the range of $33,400,000 to $33,900,000 total revenue, which includes our virtual conference product, in the range of $34,000,000 to $34,500,000 Professional services expected to represent approximately 7% of total revenue. We expect our gross margin to be 76% in Q1. We expect a non GAAP operating loss in the range of $3,300,000 to $2,300,000 and non GAAP loss per share of $0.03 per share to $0.01 per share using approximately 42,000,000 basic and diluted shares outstanding. We expect a restructuring charge of $800,000 to $1,000,000 in Q1 related to our ongoing cost reduction efforts which is excluded I would like to remind everyone that Q1 is typically a seasonally softer quarter for us with fewer days in the quarter deliver platform revenue and it is seasonally softer for services.

As such, we would expect quarterly revenue, and bottom line performance to increase in 2025 from seasonally soft Q1 levels. In summary, in 2024, we executed against our strategic growth pillars made operational enhancements and demonstrated operational discipline by improving margins and retention rates. We are confident in our ability to return to AR growth in 2025, while maintaining adjusted EBITDA profitability and positive cash flow generation, and we remain committed to our long term goal of generating double digit top line revenue growth and double digit EBITDA margins. With that, Shrod and I will open the call up for questions. Thank you.

Our first question is from Noah Herman with JPMorgan. Please proceed. Hey, Shailesh. Hey, Steve. Thanks for taking our questions. Can you maybe just provide a little bit of an overview of what you're [indiscernible] in the marketing budget environment. You 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.

Yes, Noah. Let me take that. As we look at I think to provide the context on this Noah, 2024 was a very difficult [indiscernible] For marketing budgets. I mean, the last six years, it's 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, but based on our customer conversations and winbacks 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. Customers are investing in AIA as it is providing immediate ROI So we expect NRR also to improve from 2024 levels. And we're also focused on enhancing our new business execution including enhancements that we made to our sales leadership and more vertical focus on regulated industries. And you were talking about that you mentioned the technology vertical. Or what we are seeing there. If I look at them, some of the winbacks and the investments in AI powered days are really coming from the technology side.

So we are seeing some green shoots there. And finally, we are seeing stabilization, but we are not factoring any major improvement in the macro. If it does improve, it will only help us. Look, These win backs are really guide, we expect them to start investing. In revenue generating products in 2025. So we are cautiously optimistic. Got it.

That's really helpful. And then maybe just quickly on the guidance. It does imply operating margins on a non GAAP basis to contract a little bit, but I And that's given some of the positive signals you're seeing in the demand environment. So you be able to maybe provide a little bit more of an overview of the OpEx line items we should be thinking about sales and marketing, R and D, Thank you. Noah, let me go ahead and take that. So first, we're always prioritizing to return to growth and balancing profitability with that. The key is now a balanced approach for us with a focus on returning to top line growth in 2025 and given the strong progress we've made on profitability over the last couple of years, we're focused on returning the growth. Now on the top line, we are seeing positive trends in the business and we do expect to return to AR growth in 2025 as we discussed in the prepared remarks. Now in terms of the expense structure, we have gross margins in the mid to high 70s and are exiting 2024 with positive adjusted EBITDA for the fourth in Q4 and for the year.

And we expect to be continue to be adjusted EBITDA and EPS profitable for 2025 as a whole, with Q1 being the trough for profitability and then positive EBITDA after that. Now we will of course continue to monitor the cost structure based on what seeing on the top line. And to transition back to top line growth this year, we are going to make some selected invest in things like product innovation, especially around AI enabled capabilities like AI powered ACE, which we launched early in 2024, and also some selected go to market investments for regulated industries like financial services and life sciences as we've done this past year. So we believe we can make key investments in the business, get back to ARR growth in 2025 and also maintain profitability without increasing the cost structure. In terms of the macro, if that improves, as Sharath discussed, that will, of course, be a net positive for us as well. Our next question is from Ian Black with Needham and Company. Please [indiscernible] Hi, this is Ian Black on for Scott Berg.

Should we expect free cash flow positive again in 2025?

Let me go ahead and take that. So we are guiding to EPS profitability in 2025. So I would expect to be free cash flow positive as well. And 2025, up possibly excluding any one time or restructuring [indiscernible] Thank you.

There are no further questions at this time. This will conclude today's conference.

You may disconnect your lines at this time and thank you for your participation.