ON24 INC. - Quarter Report: 2022 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _____

Commission File Number: 001-39965

ON24, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware			94-3292599
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
50 Beale Street, 8th Floor, San Francisco, CA			94105
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (415) 369-8000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

ONTF

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of August 4, 2022, the registrant had 47,483,995 shares of common stock outstanding.

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		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		2

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Loss	5
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	62

Signatures		63

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or this Report, contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in, but not limited to, the sections titled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts”, “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements include, but are not limited to, statements about:

•our ability to attract new customers and expand sales to existing customers.

•our revenue growth rate may continue to decline in future periods;

•fluctuation in our performance, our history of net losses and expected increases in our expenses;

•competition and technological development in our markets and any decline in demand for our solutions or generally in our markets;

•adverse general economic and market conditions and spending on sales and marketing technology;

•our ability to expand our sales and marketing capabilities and otherwise manage our growth;

•the impact of the COVID-19 pandemic and future variants of the virus on our customer growth rate, which has declined in recent periods and may decline in future periods compared to 2021, as the impact of COVID-19 lessens and our customers and their users consider engaging more frequently in in-person marketing activities;

•disruptions, interruptions, outages or other issues with our technology or our use of third-party services, data connectors and data centers;

•the impact of the security incident involving ransomware that we experienced or any other cybersecurity-related attack, significant data breach or disruption of the information technology systems or networks on which we rely;

•our sales cycle, our international presence and our timing of revenue recognition from our sales;

•interoperability with other devices, systems and applications;

•compliance with data privacy, import and export controls, customs, sanctions and other laws and regulations;

•intellectual property matters, including any infringements of third-party intellectual property rights by us or infringement of our intellectual property rights by third parties; and

•the market for, trading price of and other matters associated with our common stock.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in the section entitled “Risk Factors” and elsewhere in this Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Report. You should read this Report completely and with the understanding that our actual future results may be materially different from what we expect.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ON24, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)


	June 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	79,914	$	164,948
Marketable securities	264,955		217,609
Accounts receivable, net of allowances and reserves of $2,596 and $2,677 as of June 30, 2022 and December 31, 2021, respectively	39,765		46,117
Deferred contract acquisition costs, current	12,212		11,921
Prepaid expenses and other current assets	9,945		8,467
Total current assets	406,791		449,062
Property and equipment, net	8,076		8,780
Operating right-of-use assets	6,199		—
Intangible asset, net	2,250		—
Deferred contract acquisition costs, non-current	19,947		20,887
Other long-term assets	1,928		1,760
Total assets	$	445,191	$	480,489
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	3,626	$	3,123
Accrued and other current liabilities	18,798		19,011
Deferred revenue	90,774		96,225
Finance lease liabilities, current	1,755		1,768
Operating lease liabilities, current	2,563		—
Total current liabilities	117,516		120,127
Finance lease liabilities, non-current	719		1,648
Operating lease liabilities, non-current	6,024		—
Other long-term liabilities	1,555		3,624
Total liabilities	125,814		125,399
Commitments and contingencies (See Note 10)
Stockholders’ equity
Common stock, $0.0001 par value per share; 500,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 47,421,627 and 47,727,346 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	5		5
Additional paid-in capital	548,740		550,839
Accumulated deficit	(227,210)		(195,519)
Accumulated other comprehensive loss	(2,158)		(235)
Total stockholders’ equity	319,377		355,090
Total liabilities and stockholders’ equity	$	445,191	$	480,489

See accompanying notes to condensed consolidated financial statements.

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ON24, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)




	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue:
Subscription and other platform	$	43,064	$	44,377	$	86,541	$	87,287
Professional services	5,174		7,741		10,189		14,930
Total revenue	48,238		52,118		96,730		102,217
Cost of revenue:
Subscription and other platform	9,958		8,179		19,560		15,664
Professional services	3,343		3,694		6,685		6,903
Total cost of revenue	13,301		11,873		26,245		22,567
Gross profit	34,937		40,245		70,485		79,650
Operating expenses:
Sales and marketing	28,850		25,465		58,043		49,390
Research and development	10,948		8,162		21,592		16,108
General and administrative	11,158		9,100		22,035		18,868
Total operating expenses	50,956		42,727		101,670		84,366
Loss from operations	(16,019)		(2,482)		(31,185)		(4,716)
Interest expense	49		106		103		337
Other (income) expense, net	103		211		280		327
Loss before provision for (benefit from) income taxes	(16,171)		(2,799)		(31,568)		(5,380)
Provision for (benefit from) income taxes	41		(282)		123		(33)
Net loss	(16,212)		(2,517)		(31,691)		(5,347)
Cumulative preferred dividends allocated to preferred stockholders	—		—		—		(558)
Net loss attributable to common stockholders	$	(16,212)	$	(2,517)	$	(31,691)	$	(5,905)
Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.34)	$	(0.05)	$	(0.67)	$	(0.15)

Weighted-average shares used in computing net loss per share attributable to common stockholders:
Basic and diluted	47,187,586		46,570,195		47,408,479		39,664,436

See accompanying notes to condensed consolidated financial statements.

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ON24, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net loss	$	(16,212)	$	(2,517)	$	(31,691)	$	(5,347)
Other comprehensive income (loss)
Foreign currency translation adjustment, net of tax	(98)		114		(77)		108
Unrealized loss on available for sale debt securities, net of tax	(455)		(18)		(1,846)		(18)
Total other comprehensive loss	(553)		96		(1,923)		90
Total comprehensive loss	$	(16,765)	$	(2,421)	$	(33,614)	$	(5,257)

See accompanying notes to condensed consolidated financial statements.

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ON24, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(Unaudited)


	Convertible Preferred Stock			Redeemable convertible preferred stock			Common Stock			Additional paid-in capital		Accumulated Deficit		Accumulated other comprehensive income (loss)		Total stockholders' equity (deficit)
	Shares	Amount		Shares	Amount		Shares	Amount
Balance as of March 31, 2022	—	$	—	—	$	—	47,408,846	$	5	$	545,144	$	(210,998)	$	(1,605)	$	332,546
Repurchase of common stock	—	—		—	—		(566,314)	—		(7,515)		—		—		(7,515)
Issuance of common stock upon exercise of stock options	—	—		—	—		247,210	—		580		—		—		580
Issuance of common stock upon release of restricted stock units	—	—		—	—		242.684	—		—		—		—		—
Issuance of common stock under Employee Stock Purchase Plan (ESPP)	—	—		—	—		89,201	—		833		—		—		833
Stock-based compensation expense	—	—		—	—		—	—		9,698		—		—		9,698
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		(553)		(553)
Net loss	—	—		—	—		—	—		—		(16,212)		—		(16,212)
Balance as of June 30, 2022	—	$	—	—	$	—	47,421,627	$	5	$	548,740	$	(227,210)	$	(2,158)	$	319,377


	Convertible Preferred Stock			Redeemable convertible preferred stock			Common Stock			Additional paid-in capital		Accumulated Deficit		Accumulated other comprehensive income (loss)		Total stockholders' equity (deficit)
	Shares	Amount		Shares	Amount		Shares	Amount
Balance as of March 31, 2021	—	$	—	—	$	—	46,321,784	$	5	$	533,783	$	(174,093)	$	88	$	359,783
Issuance of common stock upon exercise of stock options	—	—		—	—		127,772	—		384		—		—		384
Stock-based compensation expense	—	—		—	—		—	—		4,970		—		—		4,970
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		96		96
Net loss	—	—		—	—		—	—		—		(2,517)		—		(2,517)
Balance as of June 30, 2021	—	$	—	—	$	—	46,449,556	$	5	$	539,137	$	(176,610)	$	184	$	362,716

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	Convertible Preferred Stock			Redeemable convertible preferred stock			Common Stock			Additional paid-in capital		Accumulated Deficit		Accumulated other comprehensive income (loss)		Total stockholders' equity (deficit)
	Shares	Amount		Shares	Amount		Shares	Amount
Balance as of December 31, 2021	—	$	—	—	$	—	47,727,346	$	5	$	550,839	$	(195,519)	$	(235)	$	355,090
Repurchase of common stock	—	—		—	—		(1,531,209)	—		(21,808)		—		—		(21,808)
Issuance of common stock upon exercise of stock options	—	—		—	—		663,128	—		1,427		—		—		1,427
Issuance of common stock upon release of restricted stock units	—	—		—	—		473,161	—		—		—		—		—
Issuance of common stock under ESPP	—	—		—	—		89,201	—		833		—		—		833
Payment for employee tax withholding upon net share settlement on equity awards	—	—		—	—		—	—		(1,756)		—		—		(1,756)
Stock-based compensation expense	—	—		—	—		—	—		19,205		—		—		19,205
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		(1,923)		(1,923)
Net loss	—	—		—	—		—	—		—		(31,691)		—		(31,691)
Balance as of June 30, 2022	—	$	—	—	$	—	47,421,627	$	5	$	548,740	$	(227,210)	$	(2,158)	$	319,377



	Convertible Preferred Stock			Redeemable convertible preferred stock			Common Stock			Additional paid-in capital		Accumulated Deficit		Accumulated other comprehensive income (loss)		Total stockholders' equity (deficit)
	Shares	Amount		Shares	Amount		Shares	Amount
Balance as of December 31, 2020	21,683,548	$	83,857	5,543,918	$	70,000	10,896,137	$	1	$	27,512	$	(171,263)	$	94	$	(143,656)
Conversion of convertible preferred stock and redeemable convertible preferred stock to common stock upon initial public offering	(21,683,548)	(83,857)		(5,543,918)	(70,000)		27,227,466	3		153,854		—		—		153,857
Issuance of common stock upon initial public offering, net of underwriting discounts and other offering costs	—	—		—	—		7,599,928	1		348,013		—		—		348,014
Issuance of common stock upon exercise of stock options	—	—		—	—		726,025	—		1,795		—		—		1,795
Payment for employee tax withholding upon net share settlement on equity awards	—	—		—	—		—	—		(2,001)		—		—		(2,001)
Stock-based compensation expense	—	—		—	—		—	—		9,964		—		—		9,964
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		90		90
Net loss	—	—		—	—		—	—		—		(5,347)		—		(5,347)
Balance as of June 30, 2021	—	$	—	—	$	—	46,449,556	$	5	$	539,137	$	(176,610)	$	184	$	362,716

See accompanying notes to condensed consolidated financial statements.

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ON24, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(31,691)	$	(5,347)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	2,546		2,294
Stock-based compensation expense	19,205		9,964
Amortization of deferred contract acquisition costs	8,017		7,502
Provision for allowance for doubtful accounts and billing reserve	747		1,209
Non-cash lease expense	1,001		—
Other	330		25
Changes in operating assets and liabilities:
Accounts receivable	5,645		8,517
Deferred contract acquisition costs	(7,368)		(9,592)
Prepaid expenses and other assets	(1,577)		(7,078)
Accounts payable	314		(1,441)
Accrued liabilities	255		3,026
Deferred revenue	(5,486)		1,659

Other non-current liabilities	(1,376)		(163)
Net cash (used in) provided by operating activities	(9,438)		10,575
Cash flows from investing activities:
Purchase of property and equipment	(1,674)		(1,734)
Acquisition, net of cash acquired	(2,495)		—
Purchase of marketable securities	(111,620)		(44,481)
Proceeds from maturities and paydowns of marketable securities	62,098		3,164
Net cash used in investing activities	(53,691)		(43,051)
Cash flows from financing activities:
Proceeds from initial public offering, net of underwriting discounts	—		353,397
Proceeds from exercise of stock options	1,738		1,795
Proceeds from issuance of common stock under ESPP	833		—
Payment of tax withholding obligations related to net share settlements on equity awards	(1,756)		(2,001)

Payment for repurchase of common stock	(21,808)		—
Repayment of equipment loans and borrowings	(133)		(22,478)
Repayment of capital lease obligations	(972)		(1,384)
Payment of offering costs	—		(3,481)
Net cash (used in) provided by financing activities	(22,098)		325,848
Effect of exchange rate changes on cash, cash equivalents and restricted cash	276		108
Net increase in cash, cash equivalents and restricted cash	(84,951)		293,480
Cash, cash equivalents and restricted cash, beginning of period	165,043		58,345
Cash, cash equivalents and restricted cash, end of period	$	80,092	$	351,825
Supplemental disclosures of cash flow information:
Cash paid for taxes, net of refunds	$	278	$	142
Cash paid for interest	$	87	$	403








Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents	$	79,914	$	351,727
Restricted cash included in other assets, non-current	178		98
Total cash, cash equivalent, and restricted cash	$	80,092	$	351,825

See accompanying notes to condensed consolidated financial statements.

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ON24, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Description of Business and Significant Accounting Policies

Description of Business

ON24, Inc. and its subsidiaries (together, ON24 or the Company) provides a leading, cloud-based platform for digital engagement that enables businesses to convert customer engagement into revenue through interactive webinar experiences, virtual event experiences and multimedia content experiences. The Company’s platform offers a portfolio of interactive, personalized and content-rich digital experience products that creates and captures actionable, real-time data at scale from millions of professionals every month to provide businesses with buying signals and behavioral insights to efficiently convert prospects into customers. The Company was incorporated in the state of Delaware in January 1998 as NewsDirect, Inc. and in December 1998 changed its name to ON24, Inc. The Company is headquartered in San Francisco, California.

Initial Public Offering

On February 5, 2021, the Company closed its initial public offering (IPO) of 7,599,928 shares of its common stock at a public offering price of $50 per share for net proceeds of approximately $347.8 million, after deducting the underwriting discount of approximately $26.6 million and other offering costs of approximately $5.6 million. The shares of common stock sold in the IPO and the net proceeds from the IPO included the full exercise of the underwriters’ option to purchase additional shares.

Upon the closing of the IPO, all of the Company's outstanding shares of Class A-1 and Class A-2 convertible preferred stock and Class B and Class B-1 redeemable convertible preferred stock were automatically converted into an aggregate of 27,227,466 shares of common stock on a one-for-one basis.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Certain information and note disclosures included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2021. In the opinion of management, the condensed consolidated financial statements reflect all adjustments that are normal and recurring in nature and necessary for fair financial statement presentation. All intercompany transactions and balances have been eliminated in consolidation.

The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the operating results anticipated for the full year.

Certain prior period amounts have been reclassified on the condensed consolidated balance sheets and in Note 5 to conform to the current year's presentation. Prior to the adoption of Accounting Standard Update (ASU) No. 2016-02 Leases (Topic 842) on January 1, 2022 (as further discussed below), capital leases and equipment loans were reported together as long-term debt, current and non-current, on the condensed consolidated balance sheets. Upon the adoption of the new lease standard, capital leases are now presented separately as finance leases, current and non-current, on the condensed consolidated balance sheets. The current and non-current portion of equipment loans have been reclassified to accrued and other current liabilities and other long-term liabilities, respectively, on the condensed consolidated balance sheets.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, the estimated expected benefit period for deferred contract acquisition costs, the determination of standalone selling price for the Company’s performance obligations, the allowance for doubtful accounts and billing reserve, the useful lives of long-lived assets, the assumptions used to measure stock-based compensation, the valuation of deferred income tax assets and uncertain tax positions. Actual results could differ from those estimates.

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Significant Accounting Policies

The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021. Other than the changes to the accounting policy for leases related to the adoption of ASC 842 on January 1, 2022 discussed below, there has been no material change to the Company’s significant accounting policies during the three and six months ended June 30, 2022.

Leases

The Company determines if an arrangement is a lease at inception. Lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The interest rate used to determine the present value of the future lease payments is the Company's incremental borrowing rate because the interest rate implicit in its leases is not readily determinable. Right-of-use asset (ROU) asset is determined based on the lease liability initially established and reduced for any prepaid lease payments and any lease incentives received. The lease term to calculate the ROU asset and related lease liability may include options to extend or terminate the lease when the Company is reasonably certain that it will exercise the option.

Variable lease payments are expensed as incurred and are not included in the ROU assets and lease liabilities Leases with an initial term of 12 months or less are recognized in the condensed consolidated statements of operations on a straight-line basis over the lease term.

Lease expense is recognized on a straight-line basis over the lease term. The Company accounts for lease components and non-lease components as a single lease component for its new or modified office facility operating leases entered into on or after January 1, 2022.

Recently Adopted Accounting Standards

In October 2021, the Financial Accounting Standards Board (FASB) issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU No. 2021-08 amended Topic 805 to require an acquirer to recognize and measure contract assets and liabilities acquired in a business combination to be in accordance with Topic 606, Revenue from Contracts with Customers. The Company early adopted this ASU on April 1, 2022. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2016, FASB issued ASU No. 2016-13, Financial Instruments Topic 326: Credit Losses Measurement of Credit Losses on Financial Instruments, as amended, which requires an entity to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts utilizing a new impairment model known as the current expected credit loss (CECL) model. The new guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, ASU No. 2016-13, is effective for the annual periods in fiscal years beginning after December 15, 2019, and interim periods therein. For all other entities ASU No. 2016-13, is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal year. The Company has elected to use the extended transition period that allows the Company to delay adoption of new or revised accounting pronouncements until such pronouncements are made applicable to private companies under the Jumpstart Our Business Startups Act of 2012. The Company is currently evaluating the impact of adopting this standard and does not expect the adoption to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), as amended, to supersede existing guidance on accounting for leases in Topic 840, Leases. Topic 842 generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements.

The Company adopted the new lease standard effective January 1, 2022 on a modified retrospective basis using the effective date transition method, which applied the provisions of the new guidance at the effective date without adjusting the comparative periods presented. On the adoption date, the Company recognized on its condensed consolidated balance sheets $7.2 million of additional right-of-use assets, $9.6 million additional lease liabilities, and derecognized existing deferred rent and lease incentives totaling $2.4 million. The Company’s accounting for finance leases remained substantially unchanged.

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The Company elected a number of the practical expedients permitted under the transition guidance within the new standard. This included the election to apply the practical expedient package upon transition, which comprised the following:

•The Company did not reassess whether expired or existing contracts are or contain a lease;

•The Company did not reassess the classification of existing leases; and

•The Company did not reassess the accounting treatment for initial direct costs.

The Company also elected to apply the hindsight practical expedient which allows the Company to use hindsight in determining the lease term.

In addition, the Company elected the practical expedient related to short-term leases, which allows the Company not to recognize a ROU asset and lease liability for leases with an initial expected term of 12 months or less. The Company also elected to account for lease and non-lease components as a single lease component for operating facility leases.

Other than described above, the adoption of the new lease standard did not have any other material impacts on the Company’s consolidated financial statements. Additionally, the adoption of ASU 2016-02 has no impact on the Company’s debt-covenant compliance under its current revolving credit facility. See Note 8 for additional disclosure on leases.

Note 2. Revenue

Disaggregation of Revenue

The following table depicts the disaggregation of revenue by geographic region based on the shipping address of customers (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
United States	$	36,380	$	38,336	$	72,929	$	75,290
EMEA	7,935		9,362		16,082		18,858
Other	3,923		4,420		7,719		8,069
Total revenue	$	48,238	$	52,118	$	96,730	$	102,217

The following table summarizes the foreign countries which contributed 10% or more of the total revenue (in thousands):



	Three Months Ended June 30,			Six Months Ended June 30,
	2022	2021		2022	2021
United Kingdom	*	10	%	*	11	%


*			Represent less than 10% of total revenue

No single customer accounted for 10% or more of the total revenue during the three and six months ended June 30, 2022 and 2021. Additionally, no single customer accounted for 10% or more of accounts receivable as of June 30, 2022 and December 31, 2021.

Contract Balances

Accounts receivable: The Company records accounts receivable when the Company has a contractual right to consideration. In some arrangements, a right to consideration for the Company’s performance under the customer contract may occur before invoicing to the customer, resulting in an unbilled receivable. As of June 30, 2022 and December 31, 2021, unbilled receivables were included within accounts receivable, net of allowance for doubtful accounts and billing reserves on the condensed consolidated balance sheets and were not material.

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Contract assets: The Company records a contract asset when the Company has satisfied a performance obligation but does not yet have an unconditional right to consideration. Contract assets are included in prepaid expenses and other current assets in the condensed consolidated balance sheets and were not material as of June 30, 2022 and December 31, 2021.

Contract liabilities: The Company defers its revenue when the Company has the right to invoice in advance of performance under a customer contract. The current portion of deferred revenue balances is recognized during the following 12-month period and the remaining portion is recorded as noncurrent, which is included in other long-term liabilities on the condensed consolidated balance sheet. The amount of revenue recognized in the three and six months ended June 30, 2022 that was included in deferred revenue at the beginning of the period was $27.0 million and $67.0 million, respectively.

Remaining Performance Obligations

The terms of the Company’s subscription agreements are primarily annual and, to a lesser extent, multi-year. The Company may bill for the full term in advance or on an annual, quarterly or monthly basis, depending on the terms of the agreement. As of June 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $154.8 million, which consists of both billed consideration in the amount of $91.3 million and unbilled consideration in the amount of $63.5 million that the Company expects to recognize as revenue. As of June 30, 2022, the Company expects to recognize 78% of its remaining performance obligations as revenue over the subsequent 12 months and the remainder thereafter.

Costs to Obtain a Contract

The Company capitalizes sales commissions and associated payroll taxes paid to internal sales personnel and third-party referral fees that are incremental costs resulting from obtaining a contract with a customer. These costs are recorded as deferred contract acquisition costs on the condensed consolidated balance sheets. The Company determines whether costs should be deferred based on its sales compensation plans and if the commissions are incremental and would not have occurred absent the customer contract.

Sales commissions paid upon the initial acquisition of a customer contract are amortized over an estimated period of benefit of five years as the Company specifically anticipates renewals of customer contracts and commissions paid on renewal contracts are not commensurate with commissions paid on new customer contracts. Sales commissions paid upon renewal of customer contracts are amortized over the contractual renewal term. Amortization is recognized on a straight-line basis commensurate with the pattern of revenue recognition. Sales commissions paid related to professional services are amortized over the expected service period. The Company determines the period of benefit for commissions paid for the acquisition of the initial customer contract by taking into consideration the initial estimated customer life and the technological life of its platform and related significant features. Amortization of deferred contract acquisition costs was $3.9 million and $8.0 million or the three and six months ended June 30, 2022, respectively, and $3.8 million and $7.5 million for the three and six months ended June 30, 2021, respectively. Amortization of deferred contract acquisition costs is included in sales and marketing expense in the condensed consolidated statements of operations.

The Company periodically reviews these deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. The Company had no impairment losses relating to deferred contract acquisition costs during the periods presented.

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Note 3. Marketable Securities

Marketable securities consisted of the following as of the periods presented (in thousands):



	June 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marketable Securities
U.S. Treasury securities	$	207,869	$	—	$	(1,942)	$	205,927
Certificates of deposit	17,716		—		(74)		17,642
Corporate debt securities	27,801		—		(262)		27,539
Commercial paper	13,524		—		(80)		13,444
Asset-backed securities	404		—		(1)		403
Total marketable securities	$	267,314	$	—	$	(2,359)	$	264,955


	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marketable Securities
U.S. Treasury securities	$	157,681	$	—	$	(404)	$	157,277
Certificates of deposit	6,495		—		(5)		6,490
Corporate debt securities	36,422		—		(95)		36,327
Commercial paper	11,624		2		(6)		11,620
Asset-backed securities	5,901		1		(7)		5,895
Total marketable securities	$	218,123	$	3	$	(517)	$	217,609

The Company’s marketable securities have been classified as available for sale. All available for sale debt securities are available for use in current operations. Accordingly, they have been classified as current.

Marketable securities in an unrealized loss position for less than 12 months consisted of the following as of the periods presented (in thousands):


	June 30, 2022				December 31, 2021
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
U.S. Treasury securities	$	205,927	$	(1,942)	$	143,590	$	(404)
Certificates of deposit	15,139		(74)		6,490		(5)
Corporate debt securities	27,539		(262)		36,327		(95)
Commercial paper	13,444		(80)		6,984		(6)
Asset-backed securities	403		(1)		4,967		(7)
Total	$	262,452	$	(2,359)	$	198,358	$	(517)

As of June 30, 2022 and December 31, 2021, the Company had no marketable securities in a continuous loss position for 12 months or more.

The Company reviews the individual securities that have unrealized losses on a regular basis to evaluate whether any security has experienced other-than-temporary decline in fair value below amortized cost. The Company evaluates, among other factors, whether the Company has the intention to sell any of these marketable securities and whether it is more likely than not that the Company will be required to sell any securities before recovery of the amortized cost basis. Since the Company has the ability to hold its investments until maturity, and the decline in fair value was not due to any credit-related factor, no decline was deemed to be other-than-temporary.

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The Company had no realized gains or losses from marketable securities that were reclassified out of accumulated other comprehensive income for the three and six months ended June 30, 2022 and 2021.

The following summarizes the remaining contractual maturities of the Company’s marketable securities as of June 30, 2022 (in thousands):


	Fair Value
One year or less	$	259,168
Over one year through five years	5,787
Total marketable securities	$	264,955

Note 4. Fair Value Measurement

The following tables summarize the Company’s financial instruments recorded at fair value on a recurring basis by level within the fair value hierarchy as of the periods presented (in thousands):


	June 30, 2022
	Level 1		Level 2		Level 3		Total
Cash and cash equivalent
Cash equivalents	$	76,915	$	—	$	—	$	76,915
Marketable Securities
U.S. Treasury securities	—		205,927		—		205,927
Certificates of deposit	—		17,642		—		17,642
Corporate debt securities	—		27,539		—		27,539
Commercial paper	—		13,444		—		13,444
Asset-backed securities	—		403		—		403
Total cash equivalents and marketable securities	$	76,915	$	264,955	$	—	$	341,870


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Cash and cash equivalent
Cash equivalents	$	151,079	$	—	$	—	$	151,079
Marketable Securities
U.S. Treasury securities	—		157,277		—		157,277
Certificates of deposit	—		6,490		—		6,490
Corporate debt securities	—		36,327		—		36,327
Commercial paper	—		11,620		—		11,620
Asset-backed securities	—		5,895		—		5,895
Total cash equivalents and marketable securities	$	151,079	$	217,609	$	—	$	368,688

As of June 30, 2022 and December 31, 2021, the Company classified its cash equivalents consisting primarily of highly liquid money market mutual funds within level 1 of the fair value hierarchy. The Company classified its U.S. Treasury securities, certificates of deposit, corporate debt securities, commercial paper and asset-backed securities within level 2 of the fair value hierarchy because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security, which may not be actively traded.

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Note 5. Balance Sheets Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following as of the periods presented (in thousands):




	June 30, 2022		December 31, 2021
Prepaid expenses	$	7,540	$	5,617
Other receivables	2,236		2,786
Other	169		64
Prepaid expenses and other current assets	$	9,945	$	8,467

Property and Equipment, Net

Property and equipment, net consisted of the following as of the periods presented (in thousands):


	June 30, 2022		December 31, 2021
Computer, equipment and software(1)	$	29,804	$	28,227
Furniture and fixtures	1,072		1,118
Leasehold improvements	3,597		3,776
Property and equipment, gross	34,473		33,121
Less: Accumulated depreciation and amortization(2)	(26,397)		(24,341)
Property and equipment, net	$	8,076	$	8,780


(1)			Includes assets recorded under finance leases of $5.3 million as of June 30, 2022 and December 31, 2021.


(2)			Includes amount for assets recorded under finance leases of $3.1 million and $2.2 million as of June 30, 2022 and December 31, 2021, respectively.

Depreciation and amortization expense for property and equipment was $1.2 million and $2.4 million for the three and six months ended June 30, 2022, respectively, and $1.1 million and $2.3 million for the three and six months ended June 30, 2021, respectively.

The following table presents the property and equipment, net of depreciation and amortization, by geographic region as of the periods presented (in thousands):


	June 30, 2022		December 31, 2021
United States	$	7,217	$	7,899
EMEA	810		816
Other	49		65
Total property and equipment, net	$	8,076	$	8,780

Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following as of the periods presented (in thousands):


	June 30, 2022		December 31, 2021
Accrued compensation and benefits	$	6,327	$	6,339
Accrued bonus and commissions	5,589		6,555
Other	6,882		6,117
Accrued and other current liabilities	$	18,798	$	19,011

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Other Long-term Liabilities

Other long-term liabilities consisted of the following as of the periods presented (in thousands):


	June 30, 2022		December 31, 2021
Deferred rent liabilities	$	—	$	1,988
Deferred revenue	510		937
Other	1,045		699
Other long-term liabilities	$	1,555	$	3,624

Note 6. Business Combination

In April 2022, the Company acquired Vibbio AS (Vibbio), a privately-held cloud video software company in Norway, for approximately $3.0 million in cash. The integration of Vibbio’s video capabilities across the ON24 platform is intended to allow customers to produce video content that creates more engagement, generates first-party data, and drives further personalization.

The purchase consideration was primarily allocated to developed technology intangible asset with an estimated fair value of $2.7 million at the acquisition date, which was valued using the cost to recreate method. The fair value of the remaining acquired tangible net assets was immaterial. The goodwill that was recorded represents the excess of the purchase consideration over the assets acquired and liabilities assumed relating to the acquisition and is immaterial.

The Company has not separately presented pro forma results reflecting the acquisition of Vibbio as the impacts were not material to the condensed consolidated financial statements.

Note 7. Intangible Assets

The Company’s acquired intangible asset subjects to amortization was as follows (in thousands):


	June 30, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Developed technology	$	2,700	$	(137)	$	2,563
Effect of foreign currency translation	(313)		—		(313)
	$	2,387	$	(137)	$	2,250

As of December 31, 2021, the Company had no intangible assets.

The intangible asset is amortized on a straight-line basis over its useful life of 4 years. As of June 30, 2022, the intangible asset had a remaining amortization period of 3.8 years.

The amortization expense for the three and six months ended June 30, 2022 was $0.1 million and was included in research and development in the condensed consolidated statements of operations as the acquired technology will be used to enhance our existing product capabilities.

The estimated future amortization expense for the intangible asset is as follows (in thousands):


Remainder of 2022	$	301
2023	596
2024	598
2025	596
2026	159
Total	$	2,250

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Note 8. Leases

The Company entered into operating leases primarily for office facilities and finance leases primarily for computer and network equipment purchases. These leases have terms generally ranging from 3 years to 12 years. The Company’s lease agreements generally do not contain any material variable lease payments, residual value guarantees or restrictive covenants.

The balance sheet classification of the Company’s right-of-use assets and lease liabilities as of the period presented was as follows (in thousands):

Leases

Classification

June 30, 2022

Non-Current Assets

Finance lease assets

Property, plant and equipment, net

2,184

Operating lease assets

Operating right-of-use asset

6,199

Total leased assets

8,383

Current Liabilities

Finance

Finance lease liabilities, current

1,755

Operating

Operating lease liabilities, current

2,563

Non-Current Liabilities

Finance

Finance lease liabilities

719

Operating

Operating lease liabilities

6,024

Total leased liabilities

11,061

The components of lease cost were as follows (in thousands):


Lease Cost	Classification	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
Finance lease cost
Amortization of right-of-use assets	Depreciation and amortization	$	438	$	876
Interest on finance lease liabilities	Interest expense	23		68

Operating lease cost	Selling, general and administrative expenses	566		1,171
Variable lease cost	Selling, general and administrative expenses	102		180
Total lease cost		$	1,129	$	2,295

The undiscounted future lease payments under the lease liabilities as of June 30, 2022 were as follows (in thousands):


Maturity of Lease Liabilities	Finance Lease		Operating Lease
Remainder of 2022	$	876	$	1,402
2023	1,607		2,802
2024	80		2,746
2025	—		2,158
Total lease payments	2,563		9,108
Less imputed interest	(89)		(521)
Present value of lease liabilities	$	2,474	$	8,587

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The undiscounted future lease payments as of December 31, 2021 prior to the Company’s adoption of the new lease standard were as follows (in thousands):


	Finance Lease		Operating Lease
2022	$	1,888	$	2,633
2023	1,607		2,844
2024	80		2,789
2025	—		2,272
Total payments	3,575		10,538
Less: Amount representing interest	(159)		—
Total payments, net of interest	$	3,416	$	10,538

Under ASC 840, the previous lease standard, rent expense, including common area maintenance charges, related to operating leases was $2.9 million, $2.8 million and $3.0 million, for 2021, 2020 and 2019, respectively.

The weighted-average lease term and discount rate as of June 30, 2022 were as follows:


	Finance Lease		Operating Lease
Weighted-average remaining lease term	1.4 years		3.3 years
Weighted-average discount rate	4.59	%	3.77	%

Supplemental cash flow information was as follows (in thousands):


	Six Months Ended June 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used by operating leases	$	1,092
Financing cash used by finance leases	972
Right of use assets obtained in exchange for new lease liabilities:
Operating leases - adoption	7,246
Operating leases - six months ended June 30, 2022	—
Finance leases	—

Note 9. Credit Facility

In September 2021, the Company amended its revolving line of credit with a financial institution effective August 2021, which increased the Company's borrowing capacity to a maximum of $50.0 million with a letter of credit sublimit of $4.0 million and a credit card sublimit of $1.0 million. The amendment allows the Company to borrow up to $50.0 million if the Company maintains at least $100.0 million on deposit at the institution. If such deposit is less than $100.0 million, the Company may borrow up to the lesser of $50.0 million or an amount determined by the Company's trailing five months of recurring revenue, annualized renewal rate and annualized monthly churn rate, as defined by the agreement. As of June 30, 2022, the Company did not draw down on its line of credit and has a borrowing capacity of $50.0 million. The terms of the agreement permit voluntary prepayment without premium or penalty. The revolving credit facility matures in August 2024 and is secured by substantially all of the Company’s assets. The outstanding principal balance on the revolving line of credit, if any, is due at maturity. The Company is required to pay quarterly in arrears a commitment fee of 0.15% per annum on the undrawn portion available under the revolving line of credit. As of June 30, 2022, the Company had an outstanding standby letter of credit of $1.2 million as a guarantee for a leased space.

Interest on the revolving credit facility is payable monthly in arrears at a rate equal to the lender’s prime referenced rate as defined in the agreement. Prior to this amendment, interest on the revolving line of credit was the prime rate, as published by the Wall Street Journal (Prime Rate), plus 0.75% effective July 31, 2020, and Prime Rate plus 0.50% prior to July 31, 2020. The prime referenced rate was 4.75% as of June 30, 2022 and 3.25% as of June 30, 2021.

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The revolving credit facility is subject to certain restrictions and financial covenants, including the requirement of maintaining a minimum debt to EBITDA ratio when the Company’s current portion of the total borrowing exceeds $5.0 million and the Company fails to maintain $100.0 million in deposits. In addition, the revolving line of credit agreement restricts the Company from paying dividends without prior approval from the financing institution. The Company was not subject to the financial covenants as of June 30, 2022.

Note 10. Commitment and Contingencies

Purchase Obligations

The Company has non-cancelable purchase commitments of $4.6 million as of June 30, 2022, primarily related to software license fees and co-location facilities and services, of which $2.1 million is expected to be paid in remainder of 2022, $2.4 million in 2023 and $0.1 million in 2024.

Contingencies

The Company has agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurance coverage that may enable the Company to recover a portion of any future amounts paid.

FASB ASC 450-20, Contingencies, sets forth the rules for accounting for uncertain tax positions for taxes not based on income. When a loss contingency exists, the likelihood of the incurrence of the liability can range from probable to remote. The Company believes it is reasonably possible that a loss will result from the sales and use tax assessments in the range of zero to $0.4 million. The Company has not recorded an accrual as of June 30, 2022 and 2021.

Legal Proceedings

The Company, its Chief Executive Officer, its Chief Financial Officer, certain and former members of its Board of Directors and the underwriters that participated in the Company’s IPO are named as defendants in a consolidated putative class action, captioned In re ON24, Inc. Securities Litigation, 4:21-cv-08578-YGR (filed in November 2021), that is currently pending in the United States District Court for the Northern District of California. The consolidated complaint purports to assert claims under Sections 11 and 15 of the Securities Act of 1933 on behalf of all persons and entities that purchased, or otherwise acquired, the Company’s common stock issued in connection with the Company’s IPO. The complaint alleges that the Company’s registration statement and prospectus contained untrue statements of material fact and/or omitted material facts about ON24’s growth and customer base. Plaintiff seeks, among other things, an award of damages and attorneys’ fees and costs. Defendants filed a motion to dismiss the complaint in May 2022, which is scheduled to be heard in August 2022. The Company believes the allegations in the consolidated complaint are without merit. The Company is unable to reasonably estimate a possible loss or range of possible loss, if any, arising from this matter at this early stage. Accordingly, no accrued litigation expense has been recorded in the accompanying condensed consolidated financial statements.

In June 2022, a shareholder derivative complaint, captioned Banks v. Sharan, et al., Case No. 3:22-cv-03861, was filed by a purported shareholder in the United States District Court for the Northern District of California. The complaint names as defendants the Company’s Chief Executive Officer, the Company’s Chief Financial Officer, and certain current and former members of the Company’s board of directors, and names the Company as a nominal defendant. The complaint purports to assert claims on the Company’s behalf against the individual defendants for breach of fiduciary duty and alleged violations of Sections 10(b) and 21D of the Securities Exchange Act of 1934. The complaint is based on allegations that are substantially similar to those in the putative class action filed in the United States District Court for the Northern District of California, described above. The complaint seeks, among other things, an award of damages on behalf of the Company, corporate governance reforms, and attorneys’ fees and costs. The Company has not yet filed a responsive pleading in this action. The Company is unable to reasonably estimate a possible loss or range of possible loss, if any, arising from this matter at this early stage. Accordingly, no accrued litigation expense has been recorded in the accompanying condensed consolidated financial statements.

In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes or claims. Although the Company cannot predict with assurance the outcome of any litigation, the Company does not believe there are currently any actions, other than those described in the prior paragraph, that if resolved unfavorably, would have a material impact on its financial condition, results of operations or cash flows.

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Note 11. Stockholders’ Equity (Deficit) and Equity Incentive Plan

Preferred Stock

The Company’s amended and restated certificate of incorporation authorized the issuance of 10,000,000 shares of undesignated preferred stock with a par value of $0.0001 per share. The Company’s board of directors is authorized to designate the rights, preferences, privileges and restrictions of the preferred stock from time to time.

Common Stock

The Company’s amended and restated certificate of incorporation authorized the issuance of 500,000,000 shares of common stock, $0.0001 par value per share. Holders of common stock are entitled to one vote per share.

Common Stock Reserved for Future Issuance

As of June 30, 2022, the Company had the following shares of common stock reserved for future issuance under its equity incentive plan and employee share purchase plan:


Stock options outstanding			8,352,183
Restricted stock units outstanding			3,992,506
Remaining shares available for future grant under 2021 Equity Incentive Plan(1)			6,734,418
Remaining shares available for future issuance under ESPP(2)			1,613,045
Total shares of common stock reserved as of June 30, 2022			20,692,152

(1)Includes the automatic annual increase of 2,386,367 additional shares under 2021 Equity Incentive Plan on January 1, 2022.

(2)Includes the automatic annual increase of 477,273 additional shares under ESPP on January 1, 2021.

Grant Activities

Stock Options

A summary of stock option activity under the Company’s equity incentive plans and related information is as follows:



	Options Outstanding
	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Balance as of December 31, 2021	9,341,242	$	6.83
Granted	—	—
Exercised	(792,458)	2.42			$	9,641
Cancelled and forfeited	(196,601)	15.05
Balance as of June 30, 2022	8,352,183	$	7.05	6.26	$	42,572
Vested and exercisable	5,821,156	$	4.71	5.45	$	35,775

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Restricted Stock Units

A summary of RSU activity under the Company’s equity incentive plans and related information is as follows:



	RSUs Outstanding
	Number of Shares	Weighted-Average Grant Date Fair Value
Unvested balance as of December 31, 2021	3,737,565	$	20.01
Granted	1,045,932	13.76
Vested	(474,506)	22.64
Cancelled and forfeited	(316,485)	19.84
Unvested balance as of June 30, 2022	3,992,506	$	18.07

The total fair value of RSUs vested in the three and six months ended June 30, 2022 was $5.2 million and $10.7 million, respectively. Other than the 187,500 performance-based RSU that were vested during the first quarter of 2021, there were no RSUs vested in the three and six months ended June 30, 2021.

Stock-Based Compensation

The stock-based compensation expense by line item in the accompanying condensed consolidated statements of operations is summarized as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Cost of revenue
Subscription and other platform	$	823	$	346	$	1,691	$	583
Professional services	166		77		340		139
Total cost of revenue	989		423		2,031		722
Sales and marketing	3,697		1,571		7,389		3,263
Research and development	1,925		862		3,906		1,644
General and administrative	3,087		2,114		5,879		4,335
Total stock-based compensation expense	$	9,698	$	4,970	$	19,205	$	9,964

As of June 30, 2022, unrecognized stock-based compensation expense by award type and their weighted-average recognition periods are as follows (in thousands, except years):


	Stock Option		RSU		ESPP
Unrecognized stock-based compensation expense	$	33,748	$	66,015	$	239
Weighted-average amortization period	2.40 years		2.96 years		0.38 years

Repurchase of Common Stock

In December 2021, the Company’s Board of Directors authorized a $50.0 million share repurchase program. The timing and number of shares repurchased under the program will depend on a variety of factors, including stock price, trading volume, and general business and market conditions. The share repurchase program may be modified, suspended or discontinued at any time at the Company’s discretion.

When the Company has repurchased shares under the program, it reduced the common stock component of stockholder’s equity by the par value of the repurchased shares. The excess of the repurchase price over par value of the shares was charged to additional paid in capital as the Company is in an accumulated deficit position. All repurchased shares were retired and became authorized and unissued shares.

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As of June 30, 2022, the Company had $21.0 million available for future share buybacks under the repurchase program. The following table presents certain information regarding shares repurchased under the program during the periods presented:


	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
Number of shares repurchased	566,314		1,531,209
Average price per share (including commissions)	$	13.27	$	14.24
Total repurchase costs (in millions)	$	7.5	$	21.8

Note 12. Income Taxes

The Company’s provision for (benefit from) income taxes were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Provision for (benefit from) income taxes	$	41	$	(282)	$	123	$	(33)

The Company’s provision for (benefit from) income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any. The Company updates its estimate of the annual effective tax rate and makes a year-to-date adjustment to the provision quarterly. Provision for (benefit from) income taxes for the three and six months ended June 30, 2022 decreased $0.3 million and $0.2 million, respectively, compared to the three and six months ended June 30, 2021. The change in provision for (benefit from) income taxes was primarily driven by the tax shortfalls associated with stock-based compensation benefit in a foreign jurisdiction.

The Company regularly performs an assessment of the likelihood of realizing benefits of its deferred tax assets. As of June 30, 2022, the Company recorded a valuation allowance against its U.S. deferred tax assets based on available evidence. However, if there are favorable changes to actual operating results or to projections of future income, the Company may determine that it is more likely than not that such deferred tax assets may be realizable.

Utilization of net operating loss carryforwards, tax credits and other attributes may be subject to future annual limitations due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions.

Note 13. Net Loss Per Share Attributable to Common Stockholders

The following tables set forth the computation of basic and diluted net loss per share attributable to common stockholders for the periods presented (in thousands, except share and per share data):



	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net loss	$	(16,212)	$	(2,517)	$	(31,691)	$	(5,347)
Cumulative preferred dividends allocated to preferred stockholders	—		—		—		(558)
Net loss attributable to common stockholders	(16,212)		(2,517)		(31,691)		(5,905)
Net loss per share of common stock, basic and diluted	$	(0.34)	$	(0.05)	$	(0.67)	$	(0.15)
Weighted-average common stock outstanding, basic and diluted	47,187,586		46,570,195		47,408,479		39,664,436

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The following table sets forth the potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:


	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Stock options	8,352,183	11,460,506	8,352,183	11,460,506
Restricted stock units	3,992,506	428,550	3,992,506	428,550
ESPP purchase rights	117,496	88,284	117,496	88,284
Total antidilutive securities	12,462,185	11,977,340	12,462,185	11,977,340

Note 14. Related Party Transactions

The Company incurred engineering and quality assurance costs from a third-party vendor in the three and six months ended June 30, 2022 and 2021. The chief executive officer of the third-party vendor is considered an immediate family member of the Company’s chief technology officer. The Company recorded $0.7 million and $1.4 million in the three and six months ended June 30, 2022, respectively, and $0.6 and $1.1 million in the three and six months ended June 30, 2021, respectively, in research and development expense relating to this third-party vendor on the condensed consolidated statements of operations. The Company recorded $0.5 million in accounts payable and accrued liabilities as of June 30, 2022 and $0.3 million in accounts payable as of December 31, 2021 on the condensed consolidated balance sheets for the amount owed to this third-party vendor.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes included elsewhere in this Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled “Risk Factors” and in other parts of this Report on Form 10-Q.

Overview

We provide a leading, cloud-based platform for digital engagement that delivers insights for revenue growth through interactive webinar experiences, virtual event experiences and multimedia content experiences. Our platform’s portfolio of interactive, personalized and content-rich digital experience products creates and captures actionable, real-time data at scale from millions of professionals every month to provide businesses with buying signals and behavioral insights to efficiently convert prospects into customers.

Similar to what has taken place in the business-to-consumer (B2C) market, our platform for digital engagement empowers business-to-business (B2B) companies with insights to better personalize their engagement. Large social media platforms have been successful at leveraging experiences and insights of consumers on their platforms to enable B2C companies to effectively understand their potential consumers. While these have been effective in the B2C market, B2B companies often lack deep insights about prospective customers to effectively understand and engage them.

Businesses today primarily use automated solutions, such as digital advertising and email, for marketing. While these automated solutions reach large numbers of prospective customers, they have generally failed to deepen customer engagement because they were designed with the simple purpose of pushing marketing messages in one direction—from the business to the prospective customer. For businesses to succeed, we believe their sales and marketing strategies must evolve from the era of automation to the era of engagement. Our platform provides an innovative way both to scale digital marketing and deepen prospective customer engagement. We believe our opportunity to help businesses convert digital engagement into revenue will continue to grow as industries modernize their sales and marketing processes.

We sell subscriptions to our platform’s experience products that are backed by analytics and our ecosystem of third-party integrations. Before 2013, we offered services and licensed software for managing webinars and virtual events primarily on a per event basis. In 2013, we transitioned to be a software-as-a-service company with the release of ON24 Elite and ON24 Virtual Conference as cloud-based subscription products. Substantially all of our customers subscribe to ON24 Elite, which enables customers to seamlessly broadcast video-based content and drive real-time interactivity in a single immersive experience. Our customers can host multiple tracks of their webinar experiences as a large-scale virtual event experience using ON24 Virtual Conference.

In 2018, we launched two complementary experience products, ON24 Engagement Hub and ON24 Target, to provide our customers with a system for digital engagement, offering customers the ability to curate and disseminate rich, multimedia content experiences. In addition to our products, we also provide professional services such as experience management, monitoring and premium support services, which provide the opportunity for recurring revenue, as well as implementation and other services.

In 2021, we launched ON24 Breakouts, which expanded the functionality and interactivity of webinars built with ON24 Elite. For example, breakouts enable attendees and presenters to network with each other face-to-face, sales teams to connect immediately with prospects and subject matter experts to offer two-way communication to support customer education and training.

In 2021, we also launched ON24 Go Live, which provides a new self-service virtual event solution for companies to stand up live-streaming video events faster and easier. Organizations can build a complete end-to-end external or internal event ranging from roadshows, customer conferences, virtual pop-ups, town halls, and company meetings, using pre-built templates and an easy-to-use and engaging interface.

We recently launched ON24 Forums that joins our portfolio of experience products and unifies engagement and data. ON24 Forums provides a new way to moderate interactive discussions and drive immediate action with audiences. For example, it enables audiences to participate in face-to-face, two-way video discussions.

In April 2022, we acquired Vibbio AS (Vibbio), a video software company in Norway. The integration of Vibbio’s video capabilities across the ON24 platform is intended to allow customers to produce video content that creates more engagement, generates first-party data, and drives further personalization.

We deliver our platform products as cloud-based subscriptions that are easy to use and purpose-built for sales and marketing professionals. As of June 30, 2022, we had 2,101 customers.

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Prior to developing our current cloud-based subscription model, we generated revenue from our Legacy offering, which primarily consisted of fully managed events and associated services. In connection with shifting to our current data-driven, cloud-based subscription model, we stopped selling our Legacy offering to new customers in 2018 and stopped selling it to all customers in 2020.

Our revenue was $48.2 million and $96.7 million for the second quarter and first half of 2022, respectively, compared to $52.1 million and $102.2 million for the same periods of 2021, representing a period-over-period decrease of 7% and 5%. We had a net loss of $16.2 million and $31.7 million for the second quarter and first half of 2022, respectively, compared to $2.5 million and $5.3 million for the same periods of 2021.

COVID-19 Update

During the COVID-19 pandemic, digital became the primary way for people to connect, work, learn and be entertained, and for businesses to engage with customers. The imperative to optimize digital sales and marketing investments to drive revenue conversion has become increasingly important as businesses have accelerated digital transformation initiatives in response to the COVID-19 pandemic, resulting in increased usage of our subscription and other platforms, especially during the height of the COVID-19 pandemic in 2020 and early 2021.

There is no assurance that we will experience in future periods the same level of accelerated growth we experienced in 2020, and to a lesser extent in 2021. For example, our revenue recently decreased by 7% and 5% in the second quarter and first half of 2022, respectively, compared to the same periods in 2021. Our revenue growth rate also declined in 2021 compared to 2020. We may continue to face declines in our revenue in future periods as the impact of COVID-19 continues to lessen. If the effects of the COVID-19 pandemic continue to subside, our customers and their users may increasingly resume in-person marketing activities in a way that decreases usage of our platform. The extent of the impact of COVID-19 on our business and financial performance may be influenced by a number of factors, many of which we cannot control, including the emergence of recent and any future variants of the virus, future spikes of COVID-19 infections resulting in additional preventative and mitigative measures, the severity of the economic decline attributable to or influenced by the COVID-19 pandemic, the timing and nature of a potential economic recovery, the impact on our customers and our sales cycles, and our ability to generate new business leads. For additional details, see the section titled “Risk Factors.”

Key Factors Affecting Our Performance

Acquiring New Customers

We are focused on continuing to grow the number of customers that use our platform. We define a customer as a unique organization, including its subsidiaries and affiliates, that has entered into an agreement for paid access to our platform. A single customer may have multiple agreements with us for separate divisions, subsidiaries or affiliates. Our operating results and growth prospects will depend in part on our ability to attract new customers. While we believe we have a significant market opportunity that our platform addresses, it is difficult to predict customer adoption rates or the future growth rate and size of the market for our platform. We will need to continue to invest in our sales and marketing functions in order to address this opportunity by hiring, developing and retaining talented sales personnel who are able to achieve desired productivity levels in a reasonable period of time.

We believe our market is still relatively underpenetrated and, as a result, we see significant opportunity to market our solutions globally. We intend to pursue new customers through specialized and aligned sales teams focused on Enterprise customers, which includes companies with more than 2,000 employees, and Commercial customers, which includes companies with less than 2,000 employees, which we further divide into Mid-Market companies with 200-1,999 employees, and small and midsize, or SMB, companies with 1-199 employees.

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Retention and Expansion of ON24 Across Existing Customers

We believe we can achieve significant growth by retaining and further penetrating our existing customer base with the addition of new users and new products, and through upsell and cross sell. Our multi-dimensional land and expand model drives onboarding and allows us to acquire customers via free trials, live demos and continuous engagement with an efficient sales and marketing investment. As we continue to drive more actionable revenue generating marketing insights, we believe that we have a significant opportunity to further increase sales among existing customers across different functional and geographic departments within each respective organization. Our ability to pursue this opportunity will require us to continue to retain our customers, scale our sales and marketing organization and otherwise increase our operating expenses, and we may not be successful on the timetable we anticipate, or at all, for any number of reasons, which may cause our results to vary from period to period.

Innovation and Expansion of Our Platform

We plan to continually develop new products that enhance the functionality of our platform, improve our user experiences and drive customer engagement in order to further capitalize on new opportunities. We intend to sell these new solutions to both existing and new customers, to drive an increase in revenue as the breadth and depth of our solutions and use cases expands. We also intend to continue investing in our platform and related infrastructure to improve capacity, security and scalability. These development efforts will require significant investments, some of which may be episodic or otherwise cause our expenses to vary from period to period.

International Expansion

We believe the expansion of real-time, revenue-generating marketing intelligence in international markets is a significant opportunity. For the second quarter and first half of 2022, approximately 25% of our revenue came from outside the United States, compared to 26% for the same periods of 2021. We believe there is a compelling opportunity to expand our solutions internationally, both in countries where we currently operate and countries where we do not yet sell subscriptions to our solutions. Continuing to expand our international operations will require considerable management attention and other resources and may present challenges associated with complying with local expectations, customs, laws and regulations, and geopolitical disputes (including the Ukraine-Russia war), which may impact our ability to sell subscriptions to our solutions and otherwise cause our results to vary from period to period.

Key Business Metrics

We review the following key business metrics to measure our performance, identify trends, formulate financial projections and make strategic decisions. Our methods for calculating these metrics may differ from similarly titled metrics at other companies, which may hinder comparability with other companies. The following table sets forth our number of customers, our annual recurring revenue (ARR) and our customers contributing at least $100,000 in ARR ($100k Customers) as of the dates indicated:


	June 30, 2022		March 31, 2022		December 31, 2021		June 30, 2021		March 31, 2021
Customers	2,101		2,145		2,122		2,078		2,062
ARR (in thousands)	$	167,832	$	167,657	$	171,384	$	164,130	$	163,051

$100k Customers	349		367		366		345		325

Number of Customers

Increasing awareness of our platform and its broad range of capabilities has enabled us to substantially expand our customer base. We define a customer as a unique organization, including its subsidiaries and affiliates, that has entered into an agreement for paid access to our platform. We serve customers of all sizes, ranging from small businesses to global Fortune 100 organizations across a diverse set of industries, including technology, financial services, healthcare, industrial and manufacturing, professional services and B2B information services companies. Our diverse customer base has grown from 760 customers as of December 31, 2015 to 2,101 customers as of June 30, 2022. Our net customers decreased by 44 in the second quarter of 2022 compared to the first quarter of 2022 primarily due to less commercial customer acquisition and higher churn among our small and midsize customers. Our platform is designed with a long-term view toward our customer relationships and to grow with customers as their needs expand.

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Annual Recurring Revenue

We believe that ARR is a key metric to measure our business because it is driven by our ability to acquire new subscription customers and to maintain and expand our relationship with existing subscription customers. ARR is calculated as the sum of the annualized value of our subscription contracts as of the measurement date, including existing customers with expired contracts that we expect to be renewed. Our ARR amounts exclude professional services, overages from subscription customers and Legacy revenue. Our ARR as of June 30, 2022, December 31, 2021 and June 30, 2021 was $167.8 million, $171.4 million and $164.1 million, respectively. The decrease in ARR from December 31, 2021 was primarily driven by customer churn and downsell, partially offset by new ARR and contract expansions from new and existing customers during the period.

Customers Contributing $100,000 or More to ARR

We track the number of $100K Customers, many of whom are larger organizations using our platform. As of June 30, 2022, December 31, 2021 and June 30, 2021, we had 349, 366 and 345 $100k Customers, respectively, demonstrating our penetration of larger organizations. The ARR contribution from the $100K customers in the second quarter of 2022 was consistent with the first quarter of 2022.

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Results of Operations

We manage and operate as one reportable segment. The discussion below summarizes our results of operations for the periods presented, which we derived from the condensed consolidated financial statements included elsewhere in this Report.

The following tables set forth selected condensed consolidated statements of operations data for each of the periods presented:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(in thousands)
Revenue:
Subscription and other platform	$	43,064	$	44,377	$	86,541	$	87,287
Professional services	5,174		7,741		10,189		14,930
Total revenue	48,238		52,118		96,730		102,217
Cost of revenue:
Subscription and other platform (1)	9,958		8,179		19,560		15,664
Professional services (1)	3,343		3,694		6,685		6,903
Total cost of revenue	13,301		11,873		26,245		22,567
Gross profit	34,937		40,245		70,485		79,650
Operating expenses:
Sales and marketing (1)	28,850		25,465		58,043		49,390
Research and development (1)(2)	10,948		8,162		21,592		16,108
General and administrative (1)	11,158		9,100		22,035		18,868
Total operating expenses	50,956		42,727		101,670		84,366
Loss from operations	(16,019)		(2,482)		(31,185)		(4,716)
Interest expense	49		106		103		337
Other (income) expense, net	103		211		280		327
Loss before provision for (benefit from) income taxes	(16,171)		(2,799)		(31,568)		(5,380)
Provision for (benefit from) income taxes	41		(282)		123		(33)
Net loss	$	(16,212)	$	(2,517)	$	(31,691)	$	(5,347)

(1)Includes stock-based compensation as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(in thousands)
Cost of revenue
Subscription and other platform	$	823	$	346	$	1,691	$	583
Professional services	166		77		340		139
Total cost of revenue	989		423		2,031		722
Sales and marketing	3,697		1,571		7,389		3,263
Research and development	1,925		862		3,906		1,644
General and administrative	3,087		2,114		5,879		4,335
Total stock-based compensation expense	$	9,698	$	4,970	$	19,205	$	9,964

(2)Includes amortization of acquired intangible asset of $137 for the three and six months ended June 30, 2022.

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Comparison of the Three and Six Months Ended June 30, 2022 and 2021

Revenue



	Three Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Subscription and other platform	$	43,064	89%	$	44,377	85%	$	(1,313)	(3)%
Professional services	5,174		11%	7,741		15%	(2,567)		(33)%
Total revenue	$	48,238	100%	$	52,118	100%	$	(3,880)	(7)%



	Six Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Subscription and other platform	$	86,541	89%	$	87,287	85%	$	(746)	(1)%
Professional services	10,189		11%	14,930		15%	(4,741)		(32)%
Total revenue	$	96,730	100%	$	102,217	100%	$	(5,487)	(5)%

Total revenue decreased $3.9 million, or 7% for the second quarter of 2022 and decreased $5.5 million, or 5% for the first half of 2022, compared to the same periods of 2021. Subscription and other platform revenue decreased $1.3 million for the second quarter of 2022 and $0.7 million for the first half of 2022, compared to the same periods of 2021, primarily due to customer churn and downsell from existing customers, offset in part by new customer contracts and contract expansions from existing customers during the quarter.

The decrease in professional services revenue of $2.6 million for the second quarter of 2022 and $4.7 million for the first half of 2022, compared to the same periods of 2022, primarily reflected a higher demand for our implementation and deployment services in 2020 that continued into the first quarter of 2021. The decline in professional services revenue as a percentage of total revenue was primarily due to more of our customers electing to be “self-service” and not utilize our professional service offerings.

Cost of Revenue and Gross Margin


	Three Months Ended June 30,
	2022			As a % of Total Revenue	2021			As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Subscription and other platform	$	9,958		21%	$	8,179		16%	$	1,779	22%
Professional services	3,343			7%	3,694			7%	(351)		(10)%
Total cost of revenue	$	13,301		28%	$	11,873		23%	$	1,428	12%
Gross profit	$	34,937		72%	$	40,245		77%	$	(5,308)	(13)%
Gross margin	72		%		77		%

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	Six Months Ended June 30,
	2022			As a % of Total Revenue	2021			As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Subscription and other platform	$	19,560		20%	$	15,664		15%	$	3,896	25%
Professional services	6,685			7%	6,903			7%	(218)		(3)%
Total cost of revenue	$	26,245		27%	$	22,567		22%	$	3,678	16%
Gross profit	$	70,485		73%	$	79,650		78%	$	(9,165)	(12)%
Gross margin	73		%		78		%

Cost of Revenue

Cost of revenue for the second quarter and first half of 2022 increased $1.4 million, or 12%, and $3.7 million, or 16%, compared to the same periods of 2021. The increase in each respective period was primarily attributable to the increase in subscription and other platform cost of revenue of $1.8 and $3.9 million, due primarily to an increase in personnel-related expenses of $1.2 million and $2.9 million driven by both increased headcount to support our platform and increased stock-based compensation expense of $0.5 and $1.1 million. The increase in cost of revenue in the first half of 2022 also reflects an increase of $0.8 million in bandwidth and software cost.

Gross Margin

Gross margin for the second quarter of 2022 was 72% compared to 77% for the same period of 2021. Gross margin for the first half of 2022 was 73% compared to 78% for the same period of 2021. The decrease in each respective period was primarily attributable to an increase in total cost of revenue, which increased 12% and 16%, compared to total revenue, which decreased 7% and 5%. We are investing in our cloud infrastructure capabilities to enable future growth and have grown our customer success teams to drive improved retention.

We expect gross margin to decrease in 2022 as we have invested in our infrastructure and we continue to increase our utilization of the public cloud for our newer product offerings while we actively manage costs given the current macro-economic environment.

Operating Expenses

Sales and Marketing


	Three Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Sales and marketing	$	28,850	60%	$	25,465	49%	$	3,385	13%


	Six Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Sales and marketing	$	58,043	60%	$	49,390	48%	$	8,653	18%

Sales and marketing expense increased $3.4 million, or 13%, for the second quarter of 2022 and $8.7 million, or 18% for the first half of 2022, compared to the same periods of 2021. The increase in each respective period was primarily attributable to an increase in personnel-related expenses of $3.0 million and $7.6 million driven by both increased headcount to support the growth in our sales force and increased stock-based compensation expense of $2.1 million and $4.1 million. The increase in sales and marketing expense as a percentage of total revenue was primarily driven by our targeted investments in our go-to-market strategy including sales enablement, partner ecosystem and selective sales hires.

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We expect our sales and marketing expense to fluctuate in absolute dollars in the remainder of 2022 as we continue to support demand for our digital experiences while tightening our sales and marketing spend given the current macro-economic environment

Research and Development


	Three Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Research and development	$	10,948	23%	$	8,162	16%	$	2,786	34%


	Six Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Research and development	$	21,592	22%	$	16,108	16%	$	5,484	34%

Research and development expense increased $2.8 million, or 34%, for the second quarter of 2022 and $5.5 million, or 34% for the first half of 2022, compared to the same periods of 2021. The increase in each respective period was primarily attributable to an increase of $1.7 million and $3.5 million in personnel-related expenses, which was driven by both increased headcount for the development of our solutions and increased stock-based compensation expense of $1.1 million and $2.3 million. The increase in research and development expense in each respective period also reflects increases of $0.5 million and $1.1 million in contractor costs for development activities. The remainder of the increase in the second quarter and the first half of 2022 was driven by the increase in other expenses. We have been ramping our investment in research and development as we expand our platform and bring new products to the market.

We expect our research and development expense to increase moderately in absolute dollars in the remainder of 2022 as we focus on further developing our platform and infrastructure while we actively manage costs given the current macro-economic environment.

General and Administrative


	Three Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
General and administrative	$	11,158	23%	$	9,100	17%	$	2,058	23%


	Six Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
General and administrative	$	22,035	23%	$	18,868	18%	$	3,167	17%

General and administrative expense increased $2.1 million, or 23%, for the second quarter of 2022 and $3.2 million, or 17%, for the first half of 2022, compared to the same periods of 2021. The increase in each respective period was primarily attributable to an increase of $1.4 million and $2.6 million in personnel-related expenses driven by both increased headcount and increased stock-based compensation expense of $0.9 million and $1.5 million. The increase in the general and administrative expense in the second quarter was also driven by an increase of $0.7 million in legal and accounting fees.

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We expect our general and administrative expense to fluctuate in absolute dollars in the remainder of 2022 as we enhance our general and administrative function to support the needs of a public company while we actively manage costs given the current macro-economic environment.

Interest Expense


	Three Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Interest expense	$	49	—%	$	106	—%	$	(57)	(54%)


	Six Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Interest expense	$	103	—%	$	337	—%	$	(234)	(69%)

Interest expense for the second quarter of 2022 remained relatively flat in absolute dollars compared to the same period of 2021. Interest expense for the first half of 2022 decreased $0.2 million compared to the same period of 2021. We repaid in full in the first quarter of 2021 the $22.4 million aggregate then outstanding principal balance of our line of credit under the revolving credit facility.

Other (Income) Expense, Net


	Three Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Other (income) expense, net	$	103	—%	$	211	—%	$	(108)	(51)%


	Six Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Other (income) expense, net	$	280	—%	$	327	—%	$	(47)	(14%)

Other (income) expense, net for the second quarter and first half of 2022 remained relatively flat in absolute dollars compared to the same periods of 2021.

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Provision for (Benefit from) Income Taxes


	Three Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Provision for (benefit from) income taxes	$	41	—%	$	(282)	(1)%	$	323	115%


	Six Months Ended June 30,
	2022		As a % of Total Revenue	2021		As a % of Total Revenue	$ Change		% Change

	(in thousands, except percentages)
Provision for (benefit from) income taxes	$	123	—%	$	(33)	—%	$	156	473%

The change in provision for income taxes for the second quarter and first half of 2022 compared to the same periods of 2021 was primarily driven by the tax impacts associated with stock-based compensation in a foreign jurisdiction.

Liquidity and Capital Resources

As of June 30, 2022, we had cash, cash equivalents and marketable securities of $344.9 million. Our investments generally consist of money market mutual funds, certificates of deposit, U.S. Treasury securities and debt securities, all of which are available for use in our current operations. Our liquidity requirements arise primarily from our working capital needs, capital expenditures and debt service requirements. We have historically funded our liquidity requirements through sales of convertible preferred stock, cash generated from our operations, borrowings and availability under our revolving credit facility, and most recently through our IPO in February 2021.

In December 2021, our board of directors authorized a share repurchase program allowing us to periodically repurchase up to $50.0 million of our common stock over an 18-month period in the open market or in privately negotiated transactions. The program may be modified, suspended, or discontinued at any time. In the second quarter and first half of 2022, we spent $7.5 million and $21.8 million, respectively, on share repurchases. As of June 30, 2022, we had $21.0 million remaining for future share buyback under the repurchase program.

In April 2022, we acquired Vibbio for approximately $3.0 million in cash.

Our principal uses of cash in recent periods have been to fund our operations, invest in research and development, purchase investments, and repurchase shares of our common stock.

We believe our existing cash, cash equivalents and marketable securities will be sufficient to meet our needs for at least the next 12 months. Our future capital requirements will depend on many factors including our revenue growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support further sales and marketing and research and development efforts and the timing and extent of additional capital expenditures to invest in existing and new office spaces. We may in the future enter into arrangements to acquire or invest in complementary businesses, products, services and technologies, and we may need to seek additional equity or debt financing. In the event that additional financing is needed from outside sources, we may not be able to raise the necessary capital or raise the capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition could be materially and adversely affected.

The following table summarizes our cash flows for the periods presented (in thousands):


	Six Months Ended June 30,
	2022		2021
Net cash (used in) provided by operating activities	$	(9,438)	$	10,575
Net cash used in investing activities	$	(53,691)	$	(43,051)
Net cash (used in) provided by financing activities	$	(22,098)	$	325,848

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Operating Activities

Our largest source of operating cash is cash collections from our customers for subscriptions to use our platform. Our primary uses of cash from operating activities are from personnel-related expenditures, costs related to hosting our platform and marketing expenses. Our cash flow from operating activities will continue to be influenced principally by the extent to which we increase spending on our business and our working capital requirements.

Net cash (used in) provided by operating activities is primarily impacted by our net loss adjusted for certain non-cash items such as stock-based compensation, depreciation and amortization, amortization of deferred contract acquisition costs, as well as the effect of changes in operating assets and liabilities. Our cash flows from operating activities used net cash of $9.4 million for the six months ended June 30, 2022 compared to provided cash of $10.6 million for the same period of 2021, resulting in a decrease of cash inflow of $20.0 million. The decrease was primarily attributable to the $26.3 million increase in net loss and $4.5 million unfavorable changes in operating assets and liabilities between the periods, partially reduced by an increase in non-cash expenses of $10.8 million.

The total non-cash adjustments for the six months ended June 30, 2022 was $31.8 million compared to $21.0 million for the same period of 2021. The $10.8 million favorable change of non-cash adjustment was primarily driven by an increase in stock-based compensation expense of $9.2 million.

Working capital used cash of $9.6 million for the six months ended June 30, 2022 compared to provided cash of $5.1 million for the same period of 2021, an increase of cash outflow of $4.5 million. The unfavorable change in working capital in the comparative periods were impacted by, among other items, the timing of vendor payments and prepayments, timing of cash receipts from customers, and increased business activities due to company growth.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2022 was $53.7 million compared to $43.1 million for the same period of 2021. The increase was primarily driven by an increase in purchases of marketable securities of $67.1 million and the cash consideration, net of cash acquired, on our Vibbio acquisition of $2.5 million, partially offset by an increase in proceeds from maturities and paydowns of marketable securities of $58.9 million.

Our most significant capital expenditures have been investments in our equipment to support ongoing operations. We expect our capital investment to continue in the future.

Financing Activities

Net cash used in (provided by) financing activities for the six months ended June 30, 2022 was $22.1 million compared to provided cash of $325.8 million for the same period in 2021. The decrease in cash inflow was primarily driven by the $21.8 million spending on our share repurchases in the first half of 2022 and the proceeds of $349.9 million, net of underwriting discounts and offering costs, we received from our IPO last year, offset in part by a decrease in principal repayments of $22.3 million on our line of credit.

Debt Obligations

Revolving Credit Facility

In September 2021, we amended our revolving credit facility with Comerica Bank with an effective date of August 31, 2021, which increases our borrowing capacity to a maximum of $50.0 million with a letter of credit sublimit of $4.0 million and a credit card sublimit of $1.0 million. The amendment allows us to borrow up to $50.0 million if we maintain at least $100.0 million on deposit with Comerica Bank. If such deposit is less than $100.0 million, we may borrow up to the lesser of $50.0 million or an amount determined by our trailing five months of recurring revenue, annualized renewal rate and annualized monthly churn rate. The terms of the agreement permit voluntary prepayment without premium or penalty. The revolving credit facility matures in August 2024 and is secured by substantially all of our assets. We are required to pay a quarterly commitment fee of 0.15% per annum on the undrawn portion available under the revolving line of credit.

Outstanding principal amounts on the revolving credit facility incur interest at a rate equal to Comerica Bank’s prime referenced rate, as defined in the loan agreement. Prior to August 31, 2021, interest on the revolving line of credit was the prime rate, as published by the Wall Street Journal, plus 0.75% effective July 31, 2020. The referenced prime rate was 4.75% as of June 30, 2022 and 3.25% as of June 30, 2021.

As of June 30, 2022, we had not drawn down on our line of credit under the revolving credit facility.

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Commitments and Contractual Obligations

The following table summarizes our non-cancelable contractual obligations as of June 30, 2022 (in thousands):


	Payments Due By Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating lease obligations	$	9,108	$	1,402	$	5,548	$	2,158	$	—
Finance lease obligations	2,563		876		1,687		—		—
Equipment loans	445		138		307		—		—
Other (1)	4,588		2,132		2,353		103		—
Total	$	16,704	$	4,548	$	9,895	$	2,261	$	—

(1)Amounts primarily represent our commitment under various software license and co-location facilities and services agreements. See Note 10 to condensed consolidated financial statements for additional information.

Critical Accounting Policies and Estimates

There has been no significant change during this quarter to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There has been no material change in our exposure to market risks from that discussed in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021.

Interest Rate Risk

Our exposure to changes in interest rates relates primarily to our investment portfolio. Changes in U.S. interest rates affect the interest earned on our cash, cash equivalents and investments and the fair value of those investments.

Our cash equivalents primarily consist of money market mutual funds, which are not significantly exposed to interest rate risk. Our marketable securities are subject to interest rate risk because these securities primarily include a fixed interest rate. As a result, the market values of these securities are affected by changes in prevailing interest rates. We attempt to limit our exposure to interest rate risk and credit risk by investing our investment portfolio in instruments that meet the minimum credit quality, liquidity, diversification and other requirements of our investment policy. Our marketable securities consist of liquid, investment-grade securities. We do not enter into investments for trading or speculative purposes.

The following table presents the hypothetical fair values of our marketable securities assuming immediate parallel shifts in the yield curve of 50 basis points (BPS), 100 BPS and 150 BPS as of June 30, 2022 (in thousands):


	(150 BPS)		(100 BPS)		(50 BPS)		Fair Value as of June 30, 2022		50 BPS		100 BPS		150 BPS
Marketable securities	$	266,785	$	266,177	$	265,567	$	264,955	$	264,345	$	263,734	$	263,123

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of June 30, 2022. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2022, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three months ended June 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 3. Legal Proceedings.

We, our Chief Executive Officer, our Chief Financial Officer, certain and former members of our board of directors, and the underwriters that participated in our IPO are named as defendants in a consolidated putative class action, captioned In re ON24, Inc. Securities Litigation, 4:21-cv-08578-YGR (filed in November 2021), that is currently pending in the United States District Court for the Northern District of California. The consolidated complaint purports to assert claims under Sections 11 and 15 of the Securities Act of 1933 on behalf of all persons and entities that purchased, or otherwise acquired, our common stock issued in connection with our IPO. The complaint alleges that our registration statement and prospectus contained untrue statements of material fact and/or omitted material facts about ON24’s growth and customer base. Plaintiff seeks, among other things, an award of damages and attorneys’ fees and costs. Defendants filed a motion to dismiss the complaint in May 2022, which is scheduled to be heard in August 2022. We believe that the allegations in the consolidated complaint are without merit.

In June 2022, a shareholder derivative complaint, captioned Banks v. Sharan, et al., Case No. 3:22-cv-03861, was filed by a purported shareholder in the United States District Court for the Northern District of California. The complaint names as defendants our Chief Executive Officer, our Chief Financial Officer, and certain current and former members of our board of directors, and names ON24 as a nominal defendant. The complaint purports to assert claims on ON24’s behalf against the individual defendants for breach of fiduciary duty and alleged violations of Sections 10(b) and 21D of the Securities Exchange Act of 1934. The complaint is based on allegations that are substantially similar to those in the putative class action filed in the United States District Court for the Northern District of California, described above. The complaint seeks, among other things, an award of damages on behalf of ON24, corporate governance reforms, and attorneys’ fees and costs. We have not yet filed a responsive pleading in this action.

From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Except as set forth in the prior paragraph, we are not presently a party to any legal proceedings that we believe, if determined adversely to us, would have a material adverse effect on our business, financial condition, operating results, or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

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Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this report, including our condensed consolidated financial statements and related notes, as well as in our other filings with the SEC, in evaluating our business and before investing in our common stock. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations, and growth prospects. In such an event, the market price of our common stock could decline, and our stockholders may lose all or part of their investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

Summary of Risk Factors

Our business is subject to a number of risks and uncertainties, including those risks discussed at-length below. You should read these risks before you invest in our common stock. If any of these risks actually occur, our business, financial condition or results of operations would likely be materially and adversely affected. These risks include, but are not limited to, risks relating to:

•our ability to attract new customers and expand sales to existing customers;