KALTURA INC Q3 FY2024 earnings call

• Total revenue for the third quarter of 2024 was $44.3 million, up 2% year-over-year and record subscription revenue of $42.1 million, up 3% year-over-year. - Posted record ARR and RPO for the second consecutive quarter. - Adjusted EBITDA was $2.4 million, fifth consecutive quarter of adjusted EBITDA profitability, highest since Q2 2020. - Record cash flow from operations of $10.7 million. - New subscription bookings had year-over-year and sequential growth for second consecutive quarter, with highest level since Q4 2022, including two seven-digit deals and 22 six-digit deals. - Gross retention improved year-over-year, net dollar retention bounced back to 101% from 98% in previous three quarters. - On product front: continued boosting events and webinars, completed integration with Microsoft Teams, launched updated VPAT, enhanced content layout, etc. - Started productizing AI functionality with Kaltura Content Lab, showcased Gen AI offerings at IBC 2024. - Received two industry awards for best event management and video management platform.

For the Enterprise, Education and Technology segment, total revenue in the third quarter was $32.3 million, up 4% year-over-year. Subscription revenue was $31.5 million, up 5% year-over-year, while professional services revenue contributed $0.8 million, down 20% year-over-year. For the Media and Telecom segment, total revenue was $12 million, a decrease of 4% year-over-year. Subscription revenue was $10.6 million, down 2% year-over-year, while professional services revenue contributed $1.4 million, down 17% year-over-year.

• Increased full year revenue and adjusted EBITDA guidance. - Expect positive cash flow from operations in the fourth quarter and for the full year in 2024. - For the fourth quarter, expect subscription revenue between $41.8 million and $42.5 million and total revenue between $44 million and $44.7 million, adjusted EBITDA between $0.5 million and $1.5 million. - For full year 2024, expect subscription revenue between $166.1 million and $166.8 million, total revenue between $177.1 million and $177.8 million, adjusted EBITDA between $5.1 million and $6.1 million. - Plan to continue expanding growth margins, adjusted EBITDA margins and cash flow from operations in 2025 and beyond.

Important factors that could cause actual results to differ from forward-looking statements can be found in the risk factor section of Kaltura’s annual report on Form 10-K for the fiscal year ended December 31, 2023, and other SEC filings, including the quarterly report on Form 10-Q for the quarter ended September 30, 2024.

Q: Hi. Good morning and good evening, Ron and John. Congratulations on the quarter. This seems like some of the cleanest beat and raise results that you’ve had in a number of quarters. So, Ron, I’m hoping you can comment, is there one or two things that you would point to from a company-specific standpoint that you think are really driving incremental stability in your business now relative to all of the heavy lifting that you’ve been doing over the last, call it, four to six quarters?

A: Thank you, Gabriela, and good morning to everybody on the call today. What can I say? Luck favors the prepared. We’ve been working hard towards this and it’s showing results. I think the industry is gradually turning around. You can see a bit of it from some of the other vendors in this industry, which is good. We’ve always outperformed and we continue to outperform and continue to climb and grow, and we’re seeing increased demand and definitely continued success in being able to deliver against that demand. I’m happy to give you a bit more color around what’s happening on the business side. So, you do know that we had the highest new bookings since Q4 of 2022, and it’s both sequential and year-over-year growth now for the second quarter in a row. We did have bigger deals. So, we had two seven-digit deals this quarter compared to none last quarter and one deal in Q1. We also had 22 six-digit deals, so they’re bigger. We do see customers continue to consolidate around Kaltura, which has been our strategy. We’ve said we expect to see more and more of that, especially as times improve, because people have the time and the bandwidth to think forward and not myopically and not go for the better solution, but also one that is also financially making sense to the mid- and long-term, because we’re saving costs and not just providing better solutions. We’ve seen success across all industries, tech, financial services, automotive, professional services, healthcare, education. If I look at it per industry and give you a bit of an analysis there, we’ve seen most of the new bookings come in this last quarter from the tech companies. They also grew most year-over-year and sequentially. And after that, I’d say regulated industries, so that would be financial services, it’ll be government, it’ll be insurance, it’ll be healthcare, because of the integrated workflows that we offer connected to compliance and all these detailed things that regulated industries require. And then after that, we’re seeing folks like M&T, education, and professional and commercial services. From a geo-perspective, we mentioned back that Europe was doing well in balancing. They still did well. They still did better year-over-year in Europe compared to Q3 the year before, but in this quarter, most of the new booking came from North America and it was more on a percentage basis and an absolute basis as well compared to Q1 and Q2. So it was definitely looking well. From a per product perspective, it’s across the Board. We’ve seen most of it come from our video content management core and then followed by virtual events and the TV platform. And from a use case perspective, again, a healthy blend between CX, customer experience, and training and teaching and certification externally, but also EX around corporate communication and collaboration, and also entertainment and monetization. The other point that I’d note, we’ve said throughout the year that we were doing okay in price increases. We also had this quarter about a 3x booking from price increase compared to same quarter last year. We’re able to continue to show customers that we are a premium product and we should be paid for it. And maybe lastly, the record average ARR. We’ve mentioned ARPUs and ARR continue to climb up as it is, it’s at about 200 grand and some of the other players there are maybe a 10th of that. So it’s real true enterprise deals. And when you think about that and it’s growing significantly, I mean, grew year-over-year by more than 10%, but that is a tribute to the continued consolidation around Kaltura. So as we think into the future, not only do we see continued upsell and hopefully continued pickup in NDR and the ability to serve our customers more with more consolidation and more penetration, we’re looking forward to having more new logos. And I mean, that’s the one point that I’ve slowed down in these last few years for most because people have done limited jumps from one vendor to another. We expect to see more of that. That’s going to fuel our growth.

Q: Hey, guys. I’ll echo Gabriela’s comments. Congrats on the nice bookings quarter and nice to see that dollar-based net retention back in the triple digits. Maybe we could start there, and actually something you alluded to, Ron, in your answer to Gabriela. So the majority of bookings I think you noted in the quarter were new use cases or expansion with existing customers. What’s the pipeline for new customers look like, and how important is that to the sustainability of renewed growth from here?

A: Yeah. Thanks, DJ. I appreciate it. Let me first comment on that first part about upsells, which has been the core focus for us in NDR and taking care of our existing customers, and especially the bigger ones. We posted in the third quarter the similar kind of high quarterly gross retention that we’ve seen in the last few quarters and it’s materially improved from same quarter last year and our current gross retention forecast for the full year is at this moment expected to be even at higher levels than 2021 and 2022, not to mention 2023, which was the one single bad year that we’ve said that was to our belief an outlier and we’ve seen that in some other companies in the industry with different metrics that have also seen a dip in gross retention in 2023. So it has been a very good rebound to the tune of better than the other years. Most of the last MRR from a gross term perspective had been partial, so it’s downsells as opposed to full churn, that continues, and only a small piece of it had been associated with a certain year of product or service gap, like 15%-ish, but most of it is still budget limitations, product services that are no longer needed, et cetera. And so we did expect NDR, given the last improvements and given the rebound and bookings to continue to go up and we are glad to have seen it go up, again, north of 100%, and we expect that trend to continue into the future. To your question about new logos, obviously, we’ve had some good quarters in between and some are picking up. It’s choppy, it’s not something that you will 100% see growing in a linear way, but we expect that to continue to grow. The reason, as I said earlier, that that took a bit longer in these times is that a lot of folks were very thoughtful about the time, effort, risk budget that’s associated with moving to a different vendor altogether. And so when existing vendors were willing to provide discounts, they would rather stay with them, even if the product was cheaper, sorry, was less successful, not as good, and also, if it was more expensive to some extent, because when you move to a consolidated vendor like Kaltura, you can save more costs in the mid-term. Now, we’ve heard from many that they are interested in our better solution and more affordable solution in the mid- to long-term. That had been the case over the last few years. And they said, we’re willing -- we are waiting for the right time to execute on this. And now we’re seeing a lot of them discuss that. A lot of these are in cycle. A lot of these are active within our pipeline and are discussed to happen in the next few quarters. So we expect to see more. We expect to see a rebound. That being said, it’s a show-me market, not a tell-me market. And as you know, we as a company are very thoughtful about how we talk about things into the future and how we forecast, and let’s wait and see that this happens. But we 100% believe that that’s going to be a material growth that would be added to the company that will bring us back to what we believe is the right growth for us.

Q: Hi. Thanks. Congrats on the great results. Really nice to see this. Maybe you can unpack a couple of the customer applications that you talked about there in the strong tech vertical, Ron. Can you maybe unpack that a little bit in terms of what some of these use cases are and where your real value is in terms of either, are these renewals versus new logos, et cetera?

A: Yeah. Happy to do that. So, again, the beauty of Kaltura is that we have the widest array of products and we cater to the widest array of use cases in the market. So from a product perspective, what we’ve been selling are both the underlying VCMS, the video content management system to run all the content across the enterprise. And on top of which, at the enterprise level, we have our video portals that are enabling both internal and external gatherings, as well as creation of content, user-generated and otherwise. We have the events and webinar offering that originally was for very large events and has come down to power thousands of events in a highly engaging way for both marketeers and trainers. We have the virtual classroom product that enables real-time teaching and learning for partners, for customers, as well as internally for employees, specializing in these non-symmetrical places where the teacher or the trainer has these pervasive meetings that have a purpose and they prepare the room before, during and after, and this is where we shine. We also have our integration into LMSs and CMSs for both schools and organizations. And of course, we have the Media and Telecom suite. What we see generally is that people start with one and move to another. Sometimes they want to have the content management and the video portal experience internally and sometimes externally, and then they move internally and they go throughout both. And from a use case perspective, if it’s employee-related, it’s either communication and collaboration or teaching, learning and development, and we’re seeing both. So some people come in and say, look, we just want to have a unified system to record, store and manage all of our conferencing stuff or have more advanced webcasting capabilities than the classic meeting solutions offered today. That’s more in the communication and collaboration. By the way, we added in this quarter the ability to also record and manage teams together with Zoom and together with WebEx, and it’s a unified tool that does all of that together and some are just bringing it deep into L&D where they use our system in order to better train and learn and educate their employees on their lifelong learning, adaptive learning experiences. By the way, when you add our AI tools that are now coming in with this Work Genie and Class Genie, it enables each employee or each student to basically have their dynamic learning path. And based on what we know that they’re interested in based on quiz results, based on test results, based on interaction, to create in real time the video that they need from all the material that’s in the company slash from text and deliver that to them, kind of a Khan Academy on steroids, if you may, that happens in real time. The use case externally with customers, partners, is divided between, again, teaching, training, learning, educating, where we’re offering use cases that enable full certification with any -- and all analytics that comes with that and then reaching out for sales customer success and marketing for folks around events, around sales enablement. We have tools for banks that enable them to reach out, for example, to wealth management customers with the right videos for them to make a trade and in healthcare to enable the patient communications in order for them to understand what they need to take and have a better relationship with doctors. So across each one of the industries, the engagement is a bit different, but we’re integrated into all the systems that they require. And the beauty is, that sounds like a very wide array of capability. That’s exactly the power of Kaltura. We run deep and we run wide. We run deep because we’re in the mission critical workflows, which is why we’re able to be stickier and able to have much higher ARPU and to really be mission critical. But we also run wide in their ability to have a single system that powers seemingly very different use cases with a wide array of products. And as I said earlier, it saves costs, but more so, it makes sure they don’t have silos of content, because the same content that you use internally for training and learning, communication, collaboration, you should and can use externally, depending on the right permissions and rights and workflows and approvals. And we enable all of that in a highly secured environment with high compliance. And so people save money on production, they save money on finding and they increase the shelf life of their content because now it doesn’t go stale. You can actually, again, now we’ve empowered with AI, find the right content and the right context to deliver it to the right customer in the right time and the right place. So there’s just a lot. There’s a lot of things, and that’s the beauty of Kaltura and we’re doing all of this.

Q: Oh! Great. Thank you and let me add my congratulations. The RPO growth is particularly nice to see. So I have two questions. Ron, for you, it’s nice to see the seven-figure deals come in Q3. Usually you think of that as sort of an end-of-the-year phenomenon. So how does the seven-figure pipeline look going forward? Are there still things in it?

A: Yes. There are. Thank you. And yes, thank you for noting Q3 versus Q4. I mean, it varies, sometimes Q4, sometimes Q3. Our pipeline does have a bunch of seven-figure deals and we’re hoping to continue to land them in Q4 and beyond, yes.

Q: All right. Great. And then, John, for you, I noticed in your script, you made a comment about reallocating resources to, I forget how you word it, but sort of higher return opportunities. Like, I thought it’d be really interesting for investors to see some examples of what were some of the places you took resources from and where did you put them?

A: Yeah. If you look at our revenue results and kind of one of the themes that we’ve talked about is really two themes. Number one, focusing on customer profitability. So, ultimately, we have a team that works on that regularly and we use the information that comes out of that process to target the specific price increase opportunities where we have resale opportunities and we’ve been able to benefit from some of that. In addition, we’ve been very focused on, across the sales organization, it’s one thing about landing customers, we have a really deep and I think underappreciated customer profile. And ultimately, part of our success this quarter, and we saw some of it last quarter and we expect it to continue, is our ability to go deeper within existing customers and we’re very much aligned with the sales team, supporting the sales team, and certainly, that also takes a bit of a shift in focus and investment.