Wednesday, June 12, 2024

Kaltura reports growth and positive EBITDA in Q1 2024 By Investing.com

Must read


Kaltura, Inc. (NASDAQ: KLTR), a leading video cloud platform, has announced its first quarter results for 2024, demonstrating financial resilience with a 3% increase in total revenue to $44.8 million and a 2% rise in subscription revenue to $41.2 million.

The company achieved a positive adjusted EBITDA of $0.6 million, marking its third consecutive quarter of profitability by this measure. Gross profit also experienced a year-over-year increase, with the GAAP gross profit reaching $28.6 million.

Kaltura closed several large deals, primarily through upselling to existing customers, and reported improved gross retention rates. The company anticipates a modest revenue decline in the second quarter but expects to return to growth in the latter half of the year, maintaining its full-year guidance for total revenue and positive adjusted EBITDA.

Key Takeaways

  • Total revenue increased by 3% year-over-year to $44.8 million.
  • Subscription revenue rose by 2% year-over-year to $41.2 million.
  • Positive adjusted EBITDA of $0.6 million for the third consecutive quarter.
  • Gross profit for Q1 2024 increased to $28.6 million from $27.3 million in Q1 2023.
  • Modest sequential revenue decline expected in Q2, with a return to growth in the second half of the year.
  • Full-year guidance reaffirmed, with total revenue expected between $173.7 million and $176.7 million.
  • Partnerships with big brands like Salesforce (NYSE:) and Adobe (NASDAQ:) to support AI initiatives.
  • Plans to reduce costs with the development of an in-house transcription engine.
  • Monitoring industry consolidation opportunities and regional growth trends.

Company Outlook

  • Anticipates a modest sequential decline in revenue for Q2 2024.
  • Expects to achieve sequential revenue growth in the second half of the year.
  • Reaffirmed full-year revenue guidance between $173.7 million and $176.7 million.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Bearish Highlights

  • Projected low single-digit sequential revenue decline in both subscription and total revenue for Q2 2024.
  • GAAP net loss for Q1 2024 was $11.1 million or $0.08 per diluted share.

Bullish Highlights

  • Improved gross retention rates and closed several large deals through upselling.
  • Positive growth opportunity with NVIDIA (NASDAQ:) partnership.
  • Industry tailwinds and increased product adoption expected to drive long-term revenue growth and sustained profitability.

Misses

  • Cash consumed from operations amounted to $1.1 million.

Q&A Highlights

  • Company is cautious with pricing while running proof-of-concepts with large enterprises.
  • Proof-of-concept demonstrated potential for driving pricing upon successful implementation.
  • No significant changes in the competitive landscape; able to increase pricing contractually.

Kaltura’s first quarter performance in 2024 reflects a company that is steadily improving its financial health, with a focus on customer retention and operational efficiency.

The company’s strategy to work closely with established brands on AI initiatives and to streamline costs by developing proprietary technology underpins its commitment to long-term growth and shareholder value.

Despite anticipating a slight dip in the upcoming quarter, Kaltura remains optimistic about its future prospects, supported by strong partnerships and a consistent customer base.

InvestingPro Insights

Kaltura, Inc. (NASDAQ: KLTR) has demonstrated financial resilience in its Q1 2024 results, but a deeper dive into the company’s financial metrics reveals some challenges ahead. According to InvestingPro data, Kaltura has a market capitalization of approximately $176.29 million and a negative P/E ratio of -3.84, reflecting the market’s concerns about the company’s profitability. The company’s price to book ratio stands at 7.01, which could suggest that the stock is trading at a premium relative to its book value.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

InvestingPro Tips indicate that Kaltura holds more cash than debt on its balance sheet, which is a positive sign for investors seeking financial stability in the companies they invest in. However, analysts have revised their earnings downwards for the upcoming period, which may be reflected in the stock’s performance as it is trading near its 52-week low. Additionally, the company is not expected to be profitable this year, and it has not been profitable over the last twelve months.

Investors looking for more comprehensive analysis and additional InvestingPro Tips can find them at https://www.investing.com/pro/KLTR. There are currently 8 more tips available that could provide further insights into Kaltura’s financial health and stock performance. To access these valuable resources, users can utilize the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Full transcript – Kaltura (KLTR) Q1 2024:

Operator: Good morning everyone and welcome to Kaltura’s First Quarter 2024 Earnings Conference Call. [Operator Instructions] All material contained in this webcast is the sole property and copyright of Kaltura with all rights reserved. For opening remarks and introductions, I’ll now turn the call over to Erica Mannion at Sapphire Investor Relations. Thank you. Please go ahead.

Erica Mannion: Thank you, operator and good morning. I’m joined by Ron Yekutiel, Kaltura’s Co-Founder, Chairman, President and Chief Executive Officer; and John Doherty, Chief Financial Officer. Ron will begin with a summary of results for the first quarter ended March 31, 2024 and provide a business update. John will then review the financial results for the first quarter of 2024 in greater detail, followed by the company’s outlook for the second quarter and full year of 2024. We will then open the call for questions. Please note that this call will include forward-looking statements within the meaning of the federal securities laws, including but not limited to, statements regarding Kaltura’s expected future financial results and management’s expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Important factors that could cause actual results to differ from forward-looking statements can be found in the Risk Factors 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 March 31, 2024, to be filed with the SEC. Any forward-looking statements made during this conference call, including responses to questions are based on current expectations as of today and Kaltura assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. Please note, we will be discussing a non-GAAP financial measure adjusted EBITDA during this call. For a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP metrics, please refer to our earnings release which is available on our website at www.investors.kaltura.com. Now, I’m pleased to hand the call over to Ron.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Ron Yekutiel: Thank you, Erica and welcome, everyone, to our first quarter earnings call. The first quarter of 2024 marked our sixth consecutive quarter of year-over-year growth. We reported record total revenue of $44.8 million, up 3% year-over-year and record subscription revenue of $41.2 million, up 2% year-over-year. Adjusted EBITDA for the quarter was positive $0.6 million. As for our bottom line, the first quarter was our third consecutive quarter of adjusted EBITDA profitability. We consumed cash from operations during the first quarter as expected due to our typical seasonality which came in at $1.1 million, an improvement from $7.4 million in quarter 1, 2023. Moving on to the business update. Gross retention in the first quarter of 2024 continued to improve for the third quarter in a row and was the highest level in 5 quarters. This represents an annualized rate that is better than that of the last 3 fiscal years. We continue to forecast a better retention level this year compared to last. We believe this is driven by the passage of most post-COVID video usage reductions and of the budgetary constraints of the subsequent global economic downturn. As for new bookings, the first quarter was, as usual, a slower quarter and this year, even more so as we had a few large deals slip into the second quarter. In the first quarter, we closed 1 7-digit deal with a large Fortune 100 insurance company and 12 6-digit deals. Consistent with one of our key focus areas, we continue to see growth in the number and size of the opportunities for our event platform for both internal and external use. We also continue to see existing customers expand their adoption of Kaltura from their original mostly internal use cases for employee communication and learning and development to also external use cases for marketing and customer engagement. In addition, while the market remains competitive, we have been increasingly successful at raising our prices upon contract renewal. From a geographic perspective, while our bookings from outside of the U.S. continue to be negatively impacted from the macro environment, we are seeing initial signs of recovery with multiple new large EE&T and M&T deals in the sales pipeline that are coming from EMEA and APAC. On the product front, in the first quarter, we continued boosting our event platform with enhanced content management capabilities, lead management features and onsite registration for hybrid events. We enhanced our video portal search results, filters and user experience and added to our video player, ad-block detection and hotspots for Simulive entries. The real-time conferencing rooms within our event platform and virtual classrooms now also enable interludes and have more granular roles and permissions, improved dual screen layout and globally shared storyboards. On the M&T front, we continue to beef up scalability and security and analytics for both end users and quality of service as well as to simplify the experience of content curation. Our strong and growing product portfolio yielded us several recognitions and awards in the passing quarter. These included G2’s 2024 Best Software Awards in the categories of Best Design Software as a Virtual Event Platform and Best Education Software, as well as the Best Virtual Event Platform in North America Award at the 2024 Innovation in Business MarTech Awards. On the AI front, we were continuing to infuse the AI features and capabilities into our products. We completed a successful pilot with a leading tech company to repurpose video content and create snippets and snackable moments from video. The feedback has been superb and the ROI measured was very significant with savings of $1,000 to $1,500 [ph] in 3 hours to 5 hours in turnaround time per clip. We’re ramping up investment in content repurposing with the goal of further integrating it into our content management, webinars and event workflows, are expanding our AI add-on for webinars and events with capabilities to automatically generate notifications and sentiment analysis for chat and are developing our own AI-powered automatic speech recognition solution with the goal of providing improved results and extended features. In summary, we wrapped up another record revenue quarter that showed continued improvement in our gross retention rates. While the year started as usual with lower new bookings, our current pipeline indicates an expected improvement in the coming quarters and we believe we will encounter more tailwinds as companies start reaccelerating investments in digital transformation and online experiences. We expect that this will be fueled by the increasingly hybrid workplace, growth in Gen Z and Millennial video-savvy employees, the need to save cost by consolidating multiple enterprise video use cases around a single video platform and the advent of Gen AI which will bring about more creation and consumption of videos and increased ROI. Despite our revenue guidance, our performance in the first quarter, considering the lower bookings start and the still uncertain macro outlook, we need to be thoughtful and are, therefore, maintaining revenue guidance for 2024. Lastly, regardless of our top line growth, we are reaffirming our expectation of posting both a positive adjusted EBITDA and positive cash flow from operations this year. With that, I’ll turn it over to John, our CFO, to discuss our financial results in more detail. John?

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

John Doherty: Thanks, Ron and hello to everyone on the call today. With 3 months behind me, I want to open up with a few of my thoughts on Kaltura overall. Kaltura has been operating in a very challenging environment over the past 2 years. There have been industry headwinds from budgetary constraints, competitive pressure and elongated sales cycles due to the economic environment which impacted the company more in Europe than in the U.S. during this period. Kaltura has made the necessary and difficult adjustments, including improving its operating efficiency, focusing on further monetizing the existing customer base and reallocating resources towards higher ROI opportunities and markets. Based on these actions and with the continued steady execution, the company is well positioned to benefit from emerging tailwinds of spend consolidation to a single vendor, digital transformation and the hybrid workplace that is continuing to drive demand for video-based offerings. With that, let me move on to our results. Results exceeded expectations for revenue and adjusted EBITDA for the quarter. Total revenue for the quarter ended March 31, 2024, was $44.8 million, up 3% year-over-year. Subscription revenue was $41.2 million, up 2% year-over-year. Total revenue and subscription revenue were also up 1% sequentially. Professional services revenue contributed $3.6 million, up 25% year-over-year. The remaining performance obligations were $165.2 million, down 1% year-over-year, of which we expect to recognize 57% as revenue over the next 12 months. With the anticipated increase in bookings as we move to the second half of the year, we expect RPO to trend upward as well. Annualized recurring revenue was $162.7 million, up 2% year-over-year. We slightly modified our net dollar retention calculation and the results that I will reference reflect that adjustment for all periods which were to the tune of up to plus or minus 1%. Our net dollar retention rate for the quarter was 98%, incidentally, both before and after the modification. This reflects no change from where we were in the fourth quarter but down from 103% in Q1 2023. This result was expected due to lower net bookings last year. NDR is a lagging indicator for gross retention and upsell booking. We expect it to further decrease in the second quarter and then rebound in the second half of 2024 given the sequential improvement in gross retention that we have demonstrated over the last 3 quarters and our upcoming forecasted sequential pickup in booking following the traditional slower beginning of the year. Within our EE&T segment, total revenue for the first quarter was $32.4 million, up 4% year-over-year. Subscription revenue was $30.7 million, up 3% year-over-year, while professional services revenue contributed $1.8 million, up 23% year-over-year. Within our M&T segment, total revenue for the first quarter was $12.3 million, representing 3% year-over-year growth. Subscription revenue was $10.5 million which was flat year-over-year, while professional services revenue contributed $1.8 million, up 28% year-over-year. GAAP gross profit in first quarter 2024 was $28.6 million compared to $27.3 million in first quarter 2023, resulting in a gross margin of 64% for the quarter, up from 63% in Q1 2023. Within our EE&T segment, gross profit for the quarter was $23.6 million, representing a gross margin of 73% which is consistent with where we were in Q1 2023. Subscription gross margin was 79%, up from 78% in Q1 2023. Within our M&T segment, gross profit for the quarter was $5.1 million, representing a gross margin of 41%, up from 38% in Q1 2023. Subscription gross margin was 53%, down from 56% in Q1 2023. Total operating expenses in the quarter were $35.9 million compared to $39.2 million in the first quarter of 2023, an improvement of 9% year-over-year and indicative of our goal of improving our operating efficiency. GAAP net loss in the quarter was $11.1 million or $0.08 per diluted share. Adjusted EBITDA for the quarter was $0.6 million, increasing by $3.3 million from negative $2.7 million in Q1 2023. Turning to the balance sheet and cash flow. We ended the quarter with $73.8 million in cash and marketable securities. We consumed $1.1 million in cash from operations during the quarter as expected due to our typical seasonality. This reflects a significant improvement compared with $7.4 million in Q1 2023. I would like now to turn to our outlook for the second quarter of 2024 and for the fiscal year ending December 31, 2024. In 2023, we experienced a year-over-year decline in gross retention and new bookings which impacted our revenue. And while gross retention sequentially improved in recent quarters, new booking was still low in the first quarter for reasons mentioned. In the last 2 quarters, we had guided towards sequential total revenue declines but ultimately, our revenue grew. We believe that the downward pressure that had accumulated in prior quarters will catch up to us this quarter and therefore, we are forecasting a modest low single-digit sequential revenue decline in both subscription and total revenue in the second quarter. As a result, we expect subscription revenue in the second quarter to be between $39.6 million and $40.3 million and total revenue to be between $42.7 million and $43.5 million. We expect adjusted EBITDA in the second quarter to be between negative $0.6 million and positive $0.4 million. As we look towards the second half of the year, we expect to return to sequential revenue growth driven by our improved gross retention rate and our forecasted growth in new bookings. For the full year, we are reaffirming our guidance. We continue to expect total revenue to be between $173.7 million and $176.7 million and subscription revenue to be between $161.2 million and $164.2 million. We also continue to expect adjusted EBITDA for the year to be positive with a high end of $1 million which compares to negative $2.5 million in 2023. We also continue to forecast a positive cash flow from operations for the full year. Now I’d like to share some closing thoughts as we look out over the balance of 2024 and into 2025. We are aiming to achieve both revenue growth and sustained and improving profitability over the long-term. We believe we are on the right path to achieve this objective and to drive consistent returns to our shareholders. We are encouraged by the increased adoption of our products, the continued improvement in our gross retention rate, the large deals in our pipeline that we expect will yield growing bookings and by what we believe will be growing industry tailwinds in the second half of the year and in 2025. With that, we’ll open it up for questions. Operator?

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Operator: [Operator Instructions] Today’s first question is coming from Matt Niknam of Deutsche Bank.

Matthew Niknam: Just two, if I could. First, on the demand backdrop, I think Ron, you spoke to maybe a little bit softer bookings. It sounded like that may have been more seasonal in the first quarter. But just generally wondering if you can speak to what you’re seeing and hearing from customers as they entered the new year in terms of budgets and the willingness to spend on video and how that’s evolved relative to 2023? And then secondarily, on the deal slippage, maybe just a follow-on to that. If you can talk to what drove some of those larger deals slipping from 1Q to 2Q? Are we seeing lengthening sales cycles again and have these ended up ultimately closing by where we sit today?

Ron Yekutiel: Yes. Matt, thank you and thanks everybody for joining today. Let’s start with the demand and a bit of kind of background around where we start. Yes, Q1 is always a drop to Q4. The numbers are generally not very high for Q1 compared to the year. So difference is if — even if we come a bit softer, do not necessarily say much about the rest of the year. It’s just the nature of our business being a larger enterprise company. We are seeing Q2 already in a better spot and expecting to continue to pick up throughout the rest of the year. To your point about the slippage of these deals, yes, they seem strong coming into Q2. I can’t foreclose exactly what happened and what have closed since but we feel pretty good about this being a better quarter than Q1 from a booking perspective. Most of the new bookings were upsells from North America. I mentioned the amount of deals that we had closed. We did mention that there is a strengthening of the pipeline across EMEA and APAC which is interesting for us. There’s also some high-flying deals that are being looked at, that might make a very big difference to our numbers. But it’s early to talk about these things and they could take a while but we are excited about these things. The type of demand we’re seeing out there continues to be similar in the sense of consolidating around Kaltura for internal and external use cases. We are seeing more EP sales, event platform sales, both opportunities and usage. By the way, we just came out of the first Kaltura customer event for the year, Kaltura Connect in New York. We will be discussing it in the subsequent call given the timing of it but we also have our San Francisco coming tomorrow and our London coming later this month. And we had great turnout and very, very excited people about the type of stuff they could do with us and more thoughts about what they could do in the future. These are big brands. So there’s no softening in the business from that perspective on the contrary. We are able to command higher prices in times that we had also talked about which is great upon contract renewal, just inserting that automatically in regardless of additional services that we offer. We are seeing some growth in the top of the sales model with year-over-year growth in QBMs. That’s good. So we are expecting companies to start accelerating their demand in the second half of the year. We are strong on the belief that digital transformation, online experiences, hybrid workplace, the Gen Z savvy video folks are going to need and want to do this. It does come up in conversations we have, including in the last couple of days, as mentioned with customers. Gen AI is pushing us forward which is really exciting and deals that we do close are across all industries, that’s excited and across multiple use cases. So all in all, we’re feeling good. And again, we talk more about retention. It’s also a good sign. But we’re feeling good. But that said, the year did start slow as it generally does. It was a bit slower and we got to be thoughtful and cautious and it’s too early to celebrate. We left numbers as are for the year. So let’s see where things move.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Matthew Niknam: If I can just follow up also just one question for John. I know it’s still relatively early but just being in the seat a couple of months now, you talked about longer-term sustained revenue growth as well as profitability. What’s the path, I guess, to more sustained profitability and cash flow generation? Is it improving gross margins? Is it more work to be done on the OpEx space? I just want to maybe get a little higher level sense of what the path is as you think about later ’24 into ’25?

John Doherty: Yes, sure. I mean, basically, it’s all of the above. I mean I mentioned some of it in my prepared comments in terms of the hard work that the company did over the last couple of years to improve the overall operating expense foundation. I certainly think there’s additional work that can be done there. But the largest driver, I anticipate would be coming from top line given what we’re seeing and kind of what I said about what we see for the second half of this year and into 2025.

Operator: The next question is coming from Ryan Koontz of Needham & Co.

Ryan Koontz: Great. Ron, how do you think about pricing for AI? Are there some features there that are definitely really kind of the shiny objects to attract customers to the platform? And are there other features that come with a higher COGS perspective element that you’ve got to accommodate higher price points for? How do you generally think at this point about AI as a feature set in pricing?

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Ron Yekutiel: Yes. Thanks for that good question. As you know, we’re very excited about AI. We think that it represents a material shift and change in the world at large, obviously but also in the world of video. I think that video is the most engaging data type out there and organization is going to want to have a lot more immersive experiences. And if they’re AI-infused immersive experiences, it could drive results. The beauty in Kaltura is that we are tightly integrated into workflows and that we have all the content federated across the enterprise given the breadth of use cases and being the system of record and then we’re also the engagement layer. So if you consider kind of a sandwich at the bottom of which are the integration into the workflows, then the data, then the AI and on top of that, the system of engagement, then you could create solutions with Kaltura’s [ph] kind of cycle that enables to provide the right contextualized hyper-relevant content for interaction with individuals like kind of a Khan Academy on steroids for all the schools that we’re in, plus corporate training that would enable people to learn. And we could go up to the content realm and not just the system platform, providing the right information for people to learn and rescale. And that could increase ARPU by an order of magnitude when we’re not just kind of the pipes but we’re helping the water come. The thing goes to marketing and the stuff that we’re doing now with big, big brands where it’s supporting Salesforce and Adobe and so many others right now and they are looking into inserting whether they’re AI or RAI. So we’re excited about that. To your question about pricing, I think we as much as in the same as all the other folks in the industry are taking it slower because we’re running POCs. We’re starting to insert things. These are large enterprises. They do require a certain degree of caution as you introduce AI into their world. We did state in our prepared remarks that there was a very successful POC that demonstrated a very clear ROI and that could translate into pricing. We had not — we’ve been very careful to date not to mention how that’s going to drive revenue but we believe it will. It would be probably a combination of, in certain places, increasing prices for things that will be offered by AI but even more so by orders of magnitude, it will be driving the amount of content that’s created and the amount of content that’s consumed. And by doing so in a roundabout way will drive ARPU and would drive stickiness and would drive all these great things in the KPIs of the company. And we’re seeing the beginning of a lot of exciting things. So I don’t want to set the stage to say, here’s how much revenue is going to come up over the next months in line with what I’ve been saying over recent quarters but we absolutely think it’s a very important element of the future of this company.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Ryan Koontz: Makes great sense. And it sounds like…

Ron Yekutiel: And one additional comment because you did ask about COGS. This is actually an opportunity for reducing COGS in various areas. Let me give you one example. We announced and mentioned in our prepared remarks that we are creating our own ASR. So the transcription engine that we’ve used from a third-party is not going to be based on Whisper, an open-source library that is AI-driven, not only increasing and improving quality but also reducing COGS. And so if used smartly, the opportunity here is to actually generate something that’s improving our margins. We are not in the business of creating from scratch new LLMs. We’re not crunching endless amount of data, like I mentioned earlier in the sandwich metaphor. We’re riding on existing integrations into workflows with existing data and are prompting the LLMs. I will say that the opportunity that we have and we’re talking about major banks and financial institutions and insurance companies and just about every industry is that they have vertical solutions based on their improved LLMs for their specific vertical case but that does not require crunching of an endless amount of data that is extremely expensive. So I don’t foresee a worsening in our margins. I potentially foresee an improvement.

Ryan Koontz: Interesting. Super helpful. A follow-up, if I could. Any comments around kind of industry structure out there in terms of larger players, smaller players, how you see this evolving? Right now, we just seem to be kind of a stall in terms of growth and potential consolidation still. Any comments — any updated comments on that area?

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Ron Yekutiel: Yes, that’s a good question. No major change. I mean, we are seeing the beginning of the reports for the quarter and glad to see that where we’re coming and again, with the caution forward are above or we’re not below any forward-looking kind of year-over-year growth directions of other companies which is not surprising. But again, it’s the beginning of the year and there could be many surprises as we advance. Insofar as consolidation, yes, we are keeping an eye on opportunities out there to create further value for shareholders. We do believe that this industry had been under quite significant pressure over the last couple of years. We do believe things are going to turn around what’s coming out of COVID on one hand and coming into the financial crisis of the other. And when there’s blood in the street, there is the opportunity. I think we’ve proven that we could be the consolidator of this industry by way of the depth of integration into workflows as well as the breadth of products and use cases and industries. And so that introduces opportunities to partner with other technologies that we’ve done successfully to integrate them into our APIs quite easily as well as to potentially consolidate a market and cater to a larger set of customers which could introduce economies of scale and more operational leverage. So nothing specific to state, obviously, on this call but the fact that we also have John together with us and he’s done great things of that nature in the past is indicative as we’ve said to us looking on seizing the opportunity around this market to actually become a stronger leading player and because of the amazing technology positioning and customer set that we have. I’m going to let John comment on this if he has anything to add [ph].

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

John Doherty: I think Ron covered it all. I mean I would expect over the course of time, there could be strategic activity in the space, just given kind of what’s happening in the space and you mentioned it upfront. Our goal is to make sure we continue to build a tremendous business here, a business that shows off revenue growth and positions — and puts the company in a great position for revenue growth as well as increasing profitability. And we do that. We feel other things take care of themselves.

Operator: The next question is coming from George Iwanyc of Oppenheimer & Co.

George Iwanyc: Ron, given the comments you made for EMEA and APAC, can you kind of expand on the regional trends you’re seeing at this point?

Ron Yekutiel: And again, it’s early in the year. We got to be careful but a few things that we’re seeing. So one, we have the majority of our EE&T business coming from North America but we have a fair bit significant revenue for M&T coming from Rest of World, kind of immediately connected to the fact that the very large companies in the U.S. have bought or built their own technologies. We consider the large streamers or the very, very large telcos or media companies in North America which is very different otherwise. So that’s historically been the case. The growth we’re seeing around the world is a function of 2 things. Number one, a certain regrowth of the M&T opportunity. And I want to be very clear, these are long cycles and they are also long to convert into revenue and profitability. So not to say that it closes a [ph] deal within a second or that it impacts revenue or profitability within a second but we are cooking some stuff and looking at various opportunities. And it seems as if some folks that have taken a pause, given COVID or given following some financial and geopolitical unrest, et cetera, are considering to improve where they are and what they’re doing. And to remind you, we are a premium technology there and these are quite significant large deals. And so that’s one thing. But it’s not just that. We are seeing also in EE&T. And to remind you again, we’re a large enterprise, not SMB. But some of the folks out there that have been extremely cautious over the course of the last couple of years given where things are, are understanding that they can’t sit on their hands forever, especially that the decision to move to a Kaltura is not just a decision to improve the functionality and to have less complexity and less silos but it is also a cost reducer because there’s economy of scale associated with having a single platform as opposed to multiple vendors. And so what might not work well for a given year could very much be smart for a company as they look forward into the next 2 years, 3 years, 4 years. And I think companies now are more open to consider the mid- to long term than they were a couple of years back. But again, let’s wait and see. We’re just giving what we see at the pipeline. When it converts to more deals, we’re going to report on it.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

George Iwanyc: And given the seasonal start to the year and maybe the — a little bit softer trends that you’re seeing, can you maybe update us on your hiring expectations, especially from a sales force perspective? And when you talk about sales force, maybe give us some update on your down market focus?

Ron Yekutiel: Sure. So we did say when we were prepping for the year and giving the year guidance that last year, we reduced sales force by about 25% and indicative with that, booking have come down by about the same amount, meaning that the sales efficiency was kind of flat year-over-year. And that this year, unlike before, we expect to not reduce but gradually increase to the tune of 10 people. But that was going to be more so on the second half of the year and that it’s not going to make a huge difference for this year but it will start building up towards the following year by way of revenue. That’s still the case. We haven’t changed our thesis. Again, it’s just a small minor changes at the beginning of the year. But we’re keeping an eye and we’re going to continue to keep an eye. And at the end, what we’re here to do is to be effective, efficient. If we’re seeing that there’s enough breakthrough capacity to move forward and put more people out there to generate growth and we’re going to do that. If we think we need to weight it up a bit and so that focus more on bottom line than top line growth, we’re going to do that as well. We’re agile and we’ll see where things go. But at this point, there’s no change in our philosophy. The same goes to going down market. We have continued to show some interesting deals as we go down to SME and departmental and where our plans have not changed to continue to go down that track. I had mentioned for the prior call that we are less looking into going full on self-serve but more the low touch mid-market, again, aligned with needing to pick your battles in the years that we have seen. And we’re still very much aligned with that. We want to be thoughtful. We don’t want to shoot to all directions. There’s a lot of upside for the company but we’ve got to choose our battles and we — the battles haven’t changed. It’s been a good start for the year and we’re waiting to see where things continue and we’re continuing forward with the same strategy and the same execution.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Operator: [Operator Instructions] The next question is coming from Michael Turrin of Wells Fargo.

Ronit Shah: This is Ronit Shah filling in for Michael. I wanted to ask on the retention rates. What levers do you guys kind of have to pull to bring these back to where they were about a year ago?

Ron Yekutiel: Yes. Thank you for asking on retention. It was a good progress. And I’m going to repeat some of what I said earlier. This was the third consecutive quarter of improvement to remind you that we had the lowest gross churn in Q4 and now it was even lower than that, meaning better gross retention. It’s actually the best that we’ve seen since the last quarter of 2022. And I also mentioned in the prepared remarks that it represents an annual retention rate that’s better than the last 3 years on a quarterly basis. So meaning if you multiply that by 4, you’re getting to better results in the last 3 years. So I would say that where we are now actually, if this were theoretically to continue, we’re definitely back to where we were even better, not to say that it would be copy paste and that’s what’s going to continue. But when we look at the year and that we said in advance, we believe that the year would be a year that is aligned with the prior results of the company prior to last year which was a tick up and we remain in that belief that we’re in the right direction. I’ll also add on retention that a smaller piece was a full churn, let’s say, to the tune of 25% of our churn was full churn. The majority of it was down sales, call it, 75% of the churn. And that’s the case in both EE&T and M&T and that we continue to see a very small piece, call it, less than 10% of our gross churn associated with either product or service gaps. So the rest are either budget limitations, product services that are no longer needed. These are things that are aligned with what we’ve recently seen. I’ll just say as this touches NDR, we’ve mentioned how we fared in Q1, not a surprise for us, given last year’s churn, it is a lagging indicator. And we also — as we look forward into the future, we did say kind of cautiously in the prepared remarks that there may be a bit of a decrease into the next quarter. We’re not seeing anything significant. So let’s wait and see where it goes. If it is, it might be a small decrease. And then hopefully, as the continued improvement around gross retention and the bookings that we expect will start climbing, then we expect to gradually start showing better results there. So that’s it. I don’t know if you have any other questions on that. John, anything you want to say on this?

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

John Doherty: No, I think you covered it.

Ron Yekutiel: Okay.

Ronit Shah: Yes. Yes. Great. Just one more, if you don’t mind, on the competitive landscape and who you’re running into with deals and comments on pricing trends, things like that?

Ron Yekutiel: Yes. We’re not seeing anything new. No fiercer [ph] competition nor new players come in. And on the pricing, I did mention that we are — we were able to have increased contractually more so than in the past and that was by way of strategy which I had stated prior that we intend to do so as well this year. So we’re not seeing additional pressures come in.

Operator: The next question is coming from Pat Walravens of Citizens JMP.

Oliver Crookenden: This is Oliver Crookenden on for Pat. Going back to competition a little bit, with the 7-figure and 6-figure deals that you closed this quarter, can you talk a bit about the extent to which these deals you were involved in were part of competitive bake-offs?

Ron Yekutiel: Most of them were not. Like I said, most of the bookings this quarter was more so on upsells rather than new logos which is indicative. It’s kind of aligned for the industry in recent quarters, given where things are. People are sticking to their existing vendors more so than in the past because it’s just too risky to start making moves. This hasn’t changed. But in most of these cases, people — they love us to bid and they want to stay with us and they’re not considering a change and it’s also a sticky offering and especially for Kaltura because unlike the other folks that are quite often offering just kind of a low-touch self-serve product or without a lot of APIs, not necessarily mission-critical, more so an app, that’s easy to replace. In our case, quite often what we’re offering is something with a lot of API integrations and harder switch [ph]. Again, to remind you when we spoke about even higher churn rates or lower retention rates, it was more often than not down sales because people needed to use less stuff, not because they want them to disconnect or were interested to switch. What we’re seeing, again, in line with your question is that things are maintaining with Kaltura. There’s mainly upsells and people are not considering significantly doing it with somebody else. It’s just a question of how much money they have in order to do, what they wanted to do now versus wait a bit longer.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Oliver Crookenden: Great. That’s helpful. And I guess a little bit of a follow-up. I know you powered some of the functionalities of the GTC conference than you have in the past. So has the growth of that ecosystem helped at all in terms of upsells?

Ron Yekutiel: So NVIDIA is a great partner and customer, obviously a phenomenal company. We’re privileged to do some work with them. And in fact, we’re doing a bit more work with them and hopeful that, that trend will continue. If they were to mimic historical contracts and we were able to have come and expanded quite significantly, then we’re hoping that, that will continue to be the story with this amazing company as well.

Operator: Thank you. At this time, I would like to turn it back over to Mr. Yekutiel for closing comments.

Ron Yekutiel: Yes, I want to thank you all for your good questions. It’s a good beginning for a year. Like I said, optimistic trends around retention which we promised and are currently delivering on. We’re excited and we’re going to share in the next call how our company conference, the Kaltura Connect is taking place for those of you who still want to join. San Francisco is happening tomorrow and London is going to happen later this month. Please do come and you could find it on our website. By the way, we’re going to be sharing the recording from that event, so you’ll be able to have a look at them. I think they’re quite telling the breadth and depth of what it is that we offer. Thank you all for joining the call and have a wonderful day.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Operator: Ladies and gentlemen, thank you for your participation. This concludes today’s event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.



More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest article