Q3 2022 Kaltura Inc Earnings Call

Good morning, everyone and welcome to the accounts for a third quarter 2022 earnings call. Please note that this event is being recorded all material contained in the webcast is sole property and copyright of Cal Torah with all rights reserved for opening remarks and introductions I will now.

I'll turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Thank you and good morning with me today from Cal Tour around you could tell co founder Chairman and Chief Executive Officer, and your own garage, a chief financial Officer.

Ron will begin with a summary of the results for the third quarter ended September 32022, and the trends and areas of focus that are expected to impact the remainder of 2022.

Ron will then review in greater detail the financial results for the third quarter, followed by the company's outlook for the fourth quarter and full year of 2022, 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 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.

Charlie 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 Cal tourists annual report on Form 10-K for the fiscal year ended December 31st 2021, and other periodic SEC filings, including the quarterly report on Form 10-Q for the quarterly period ended September.

30th 2022 to be filed with the SEC.

Any forward looking statements made in this conference call, including responses to your questions are based on current expectations as of today and couch, where 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.

For a reconciliation of this non-GAAP financial measures to the most directly comparable GAAP metrics. Please refer to our earnings release, which is available on our website at www dot investors Doc couch or dot com.

Now I'd like to turn the call over to Ron.

Thank you Erica and thanks to everyone for joining us on the call. This morning.

Today, we reported total revenue for the third quarter of 2022, or $41 1 million down 4% year over year subscription revenue of $37 9 million up 1% year over year.

Adjusted EBITDA for the quarter was negative $7 2 million.

In our last earnings call, we made three important financial forecast.

If I could return to revenue growth in Q4, fueling a higher year over year growth rates in 2023.

Expected gradual quarterly improvements in adjusted EBITDA towards the single digit loss next year.

And I'm expecting significant improvement in cash flow with a forecasted single digit aggregate cash flow from operations losses in the second half of this year.

Today, we are reaffirming all of these three forecasts.

Regarding revenue growth.

After a tough year that saw an initial quarterly decline in subscription and total revenues followed by close to flat revenues. We are forecasting for Q4 is sequential revenue growth rate at a level that we have not seen since the first half of last year.

Regarding profitability.

While the effects of our recent cost reduction of only partially affected this quarter.

We have already seen a reversal of the trend of our bottom line with an adjusted EBITDA loss that is lower than that of the last three quarters.

The improvement in profitability is expected to continue in the coming quarters.

We continue to execute on our plan to return to profitable growth.

And regarding cash flow we have.

A positive cash flow from operations quarter.

We expect that our aggregate cash flow from operations in the second half of this year would be a single digit losses previously forecasted.

We remain committed to rebalancing the company's cash flow as we have done in 2019 and 2020 without requiring additional funding.

And the third quarter, we closed new business across all of our segments.

Having employee and partner communication and training customer engagement internal and external facing events students learning and TV viewership.

Companies are continuing to move their work streams online and value called towards ability to cost effectively provide them with a single flexible tightly integrated and engaging enterprise grade platform that can holistically power integrated on demand live real time video experiences across multiple use cases.

These challenging economic climate highlights the importance and advantages of control solutions.

Customers seek more than before to reduced budgets and consolidate vendors.

Among this quarter's new deals were several seven digit transactions.

The South American Media company.

Asian Bank that is you go to a customer.

And with a leading U S bank that is expanding the use cases for which it is utilized and go through it.

Both banks.

Lined up now to use called tomorrow to power their events, we're seeing growing demand for our events offering across many industries beyond technology companies, which were the initial buyers, including as mentioned financial services as well as consulting services pharma manufacturing and education.

While on the topic of events I would like to remind you that on November 15th and 16th we shall be conducted our second annual virtually live events.

Or event professional marketing leaders in digital experience creators will exchange thoughts on the state of future and future, our bottomline and hybrid events.

But was interested though invested to join us and the already thousands of registrants to listen for incredible lineup of speakers, which includes leaders from Accenture Lenovo AWS, that's a deep salesforce Oracle Adobe, Microsoft Google Cisco IBM Airbnb.

Vmware and many many more.

On the product development front.

The biggest news this quarter was the anticipated launch of the new version of our Webinars offering.

Our new release includes the ability to watch many sites for each webinar with unique branding as well as advanced engagement options, coupled with rich analytics.

New version also includes advanced recording options as well as automatic publishing for webinar recording.

New webinar solution is available for self serve oil sales assisted purchased through our website.

Packages available both for personal and team licenses.

We also continue the batching, our comprehensive event offering with a user friendly orchestration and management layer easily set up and manage branded events.

Enterprises can leverage our platform to centrally manage large numbers of virtual and hybrid events, where marketing corporate communications learning and development.

Lupin and more.

During the quarter, we invested in simplifying about management.

Our integration with third party systems like Mercado <unk>.

More user friendly experience for F&B and more advanced analytics.

We also added Richard functionality for the management of on demand assets within events.

While we have a more robust and diverse product offering in the second half of this year.

Especially in the areas of events and Webinars, which enables us to increase our addressable market and deal size.

And naturally also exposed to the current macroeconomic headwinds and are closely monitoring them.

You all have a negative impact on the foreign exchange rates.

We are seeing more customers holding back on spending.

Being more risk averse and extending their evaluation time.

In summary.

The macro condition continues to be challenging and have contributed to a delay in our return to growth.

We are continuing to make progress in improving our bottom line and cash flow.

And are still expecting a return to revenue grew up in Q4.

We continue to believe that the growing need for advanced video solutions, coupled with a robust and expanding differentiated product offering.

It will bring us back to profitable growth.

With that I will.

Turn it over to your Rona CFO to discuss our financial results in more detail the wrong.

Thank you Ron and good morning, everyone.

You can review the first quarter results. Please note that I will be referring to non-GAAP metric adjusted EBITDA.

Conciliation of GAAP to non-GAAP financials included in today's earnings release, which is available on our website at www dot and vessels that can do that for them.

Total revenue for the first quarter ended September 30th 2022, with $41 1 million down 4% year over year.

Attrition revenue was $37 9 million up 1%.

While professional services revenue contributed $3 1 million down 41%.

These figures also embody an approximate revenue reduction was <unk> 4 million as a result of currency headwinds.

During the fourth quarter.

It means are forecasted to continue and weighs on our revenues during the fourth quarter as well.

The remaining performance obligations were 169 2 million up 4%, which we expect to recognize 65% of the revenue over the next 12 months.

Annualized recurring revenue was $152 9 million up 1% year over year.

The remaining performance obligations and annualized recurring revenue metrics also incorporate the impact of the currency headwind with the curve.

The only the third quarter.

Oh and they've done it on retention rate was 96% in the first quarter compared to 1% in Q2 2022 below gross retention rate remained in line with our long term historical event and was even higher than that of the last three quarters.

No this quarter a net dollar retention metric incorporates the full impact of the large customers.

As mentioned in our last earnings call. We do some of their business, we bought in the fourth quarter of 2021.

As customer needs are used very significant project with us and talk when we talk when you won.

In the past quarter.

They don't want retention metric also incorporate the impact of the currency headwinds that occurred during the quarter.

Well download pressure on their own retention we've seen this.

The coming quarter, we expect it to gradually improve next year.

Within our E&P segment total revenue for the third quarter was 51 million down 1% yoga is subscription.

Subscription revenue was $98 7 million up 3% over Q1 professional services revenue contributed one point for me, though down 44%.

Within our MMP segment total revenue for the first quarter was 11 million down 17% yoga.

Revenue was 19 2 million down 5%, while professional services revenue contributed one eight magellan down 38% year over year.

GAAP gross profit in the quarter. It was $26 4 million, representing a gross margin of 64% down from 65% gross margin in Q3, 2021.

We know E segment gross profit for the third quarter was $21 2 million, representing a gross margin of 71% down from 73% gross margin.

Q3, 'twenty people might be one well.

We've been our M and P segment gross bookings for the first quarter. It was $5 2 million, representing a gross margin of 47% up from 45% gross margin in Q1.

When people went to one.

R&D expenses for the third quarter were $13 9 million.

54% of revenue compared to 29% in Q3 2021.

What we mean by additional headcount and personnel related expenses.

Associated with developing our new product.

Sales and marketing expenses for the first quarter were $15 million or.

27% of revenue compared with 26% in Q3 when people might be one <unk>.

This increase was driven by additional marketing investment, including headcount and personnel related expenses to support the go to market.

Called out.

G&A expenses for the third quarter were $11 4 million.

98% compared to 23% in Q3 2021.

The increase was driven by additional net input power people related expenses related to being a public company.

GAAP net loss in the quarter was $19 4 million or one five per diluted share.

Adjusted EBITDA was a negative $7 2 million decreasing from a negative $2 3 million in Q3 'twenty 'twenty. One this will result in jewelry to our formal planning to increase our.

Spend in order to further fuel our growth.

Turning to the balance sheet and cash flow.

We ended the quarter with $94 3 million in cash and marketable securities providing us with an ample cushion to continue to invest in our business.

The current macro cycles.

Net cash provided by operating activities was $1 1 million in the quarter compared with negative five 7 million net cash used in operating activities in Q3 when people at two one and compared to a negative $19 6 million and negative $22 5 million in Q1 2022 in Q2.

2022 respectively.

The improvement was driven by seasonality as some momentum in accounts receivable collection and the initial impact of about close to adoption.

We are still expecting an aggregate single digit net cash flows from operation in the thinking about for 2022.

I would now like to turn out.

For the fourth quarter 2022, and for the fiscal year ended.

Ending December 31st 2022.

In the fourth quarter, we're expecting revenue to grow by zero to 3%.

We had $38.

Hi, Julien.

And $39 5 million in total revenue increased by one 3% between 43 million and 44 million.

We expect a negative adjusted EBITDA to be between $6 5 million and $5 5 million.

Well the fully we expect subscription revenue to grow by two 5% to between 151 4 million.

$52 4 million.

And the total revenue to grow by two good thing could be great.

$67 7 million and $168 70.

We expect the full year magazines are definitely be that could be between 35 million.

$9 5 million.

In summary, as Owen mentioned, we continue to forecast a return to growth this quarter in.

In line with our original forecast of acceleration during the second vessel this year I'll be softer and delayed within the second half because of this is macro circumstances.

Cost reduction and the reorganization that we have conducted is helping us to bring back to our customer base grows and our cash flow is improving.

We continue to forecast an aggregate single digit cash flow from operation loss in the second out of D. C.

With that we will open the call for questions operator.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Yeah.

Your first question comes from Gabriela Borges with Goldman Sachs. Please go ahead.

Hi, This is Jake titled Man on for Gabriela.

Ron You know you mentioned that Q4 will grow sequentially at a level that we haven't seen since the first half of 2020. One are you assuming that the macro environment improves to achieve that level of growth in Q4 or do you currently have enough visibility into revenue to be confident in that guide.

Hey, Jay. Thank you for your question no. We're not assuming that we have enough confidence to support the guide are we.

We've long stated that the second half of the year would show acceleration. We said earlier that we were hoping for it to be Q3, and it got pushed into Q4, and indeed Q4, we already have the numbers in pockets that support that.

Got it and then for my follow up you know last quarter, you talked about how bookings rebounded to the highest level. Since I think Q3 of last year. How did Q3 of this year compared to Q2 and ended trends improve or worsen on a monthly basis going through the quarter.

Yeah. Thanks, Todd for that let me give you some color on the quarter. So first your question.

Q3 bookings were somewhat below Q2, but there was still better than Q1, and Q4 of last year. The singles with Salesforce productivity on average and that was conducted on more or less a similar amount of ramp salespeople out in the quarter before maybe a bit more color as we look at the trends.

Most of the booking was as usual from enterprise been followed by E D with them and to you at the same level, but enterprise was by far the strongest pool.

Same split between up selling you've seen G O same channels and a bit less services in line with recent trends over the year in which it's more and more low touch and less and less services.

There were some good tailwind there.

Continued forward first is kind of the overall underlying shifting work streams online digital transformation, but now even more as you get into this economic situations saving money by reducing travel costs. So that's good we are.

We're seeing customers that are looking to improve budget efficiency and consolidate vendors and culture is one of the only vendors that can really support any type of event plus internal use case et cetera.

We're seeing more opportunities open up for events and by that I don't need the large conferences events, but any event of any size internal external and the percent of the event deals from our total bookings continued to grow.

We are seeing that expand beyond tech into multiple verticals initially attack and now we have banking and business services and pharma and education manufacturing.

In General financial services continues to be really strong for us either you. We've seen very strong win rates continue we're seeing our event platform enter that market. We're seeing increased work with K 12 and increased success in Europe .

And then M and T. We're seeing mainly expansion of existing customers now touching on some of the headwinds that are affecting our behaviors and one we're still seeing of course is the devaluation of the euro.

And that continues to affect us because we also show a bit of our revenue coming from the euro and that's affecting our financials in Q3, and also Q4 and earlier.

We haven't seen it in the second quarter, but we are seeing customers starting to hold back on their spending and talking about them being more risk averse. A we are seeing budgetary constraints affecting some demand dropping prices by competitors, albeit that we're still holding again the win rates that we have against these.

Batteries, but we are seeing that behavior in place.

We're seeing are rfps that are coming lower than before we're seeing the number of deals that are converted from top of the funnel into actual meetings come down compared to the first half of the year and compared to last year, we're seeing organic usage come down a bit and even north America, which seems a bit softer in them and people, we're seeing less new deals.

So the difference I guess from Q2 to Q3, it's still better than Q1, and Q4 and were still in still having all these directional pushes with everything we're doing but we do see some more about macro impact land in Q3 behavior does that address your question Jake.

Definitely alright, thanks for the for all the color I appreciate it good luck.

Thank you Jay.

Next question comes from Matt nickname with Deutsche Bank. Please go ahead.

Hey, guys. Thank you for taking the questions.

Two if I could just first on adjusted EBITDA. So I just want to make sure I understand this correctly, if you're exiting the year at an implied 6 million EBITDA loss. Your own I think you mentioned next year. The anticipation is still a sort of single digit million EBITDA loss for 'twenty three so I'm just.

If you can maybe help us think through the roadmap to achieving that level and then secondly on the net dollar retention rate I. Appreciate the color you gave maybe if you can just help us unpack, what where you're seeing some more outsized pressure I think you had mentioned there was an expectation that remains pressured and for Q before reversing next year.

And any sort of specific segments or verticals, where you're maybe seeing a little bit more pressure there. Thanks.

Yeah.

Thank you very much for the question. So regarding the first question on the adjusted EBITDA Youre right. If you just take the Q4 adjusted EBITDAX multi play before you do not get to the previous targets that we gave that we do believe that next year is going to be a one digit loss to adjusted EBITDA.

And obviously you need to take also the growth that's going to happen from the top line. Even if you take just the current run rate of the revenue for this quarter and take it with no additional bookings net bookings.

And you'll get two very similar growth rate for next year, but we believe that the number will be IL, which will help us to balance the expense base at the same time I can tell you that the there were some one time expenses that were incurred in Q3, and Q4, which are not going to impact.

The next deal based on our current plan and the first line items is that we didn't materialize all the savings that we planned for this year.

Meaning some of the cuts if we did it because its notice periods et cetera will impact mostly Q1 numbers.

So the full impact is not yet embedded in the numbers, we still believe and we are planning the company in a very thoughtful way about the P&L.

To achieve the adjusted EBITDA. One did you suggested it would be negative adjusted EBITDA for the next deal.

And we do believe that we have a time to do it by the way even if by the end of the day, we wouldn't see that top line is not behaving as we plan that it's going to be right. Now. So we still have room to play and the plan is still the same thing.

Net dollar retention rate one thing that I can tell you which is very encouraging.

The net dollar retention rates, which obviously went down this quarter.

The one reason that he's not impact than a dollar retention rate is the gross churn actually the gross churn for this quarter was a bit better than previous quarter. So we don't see a significant yeah.

Great show coming from current customers.

They're definitely not specific customers, we are taking into.

The full impact right now with the major customer that with your suburban and we lost last year and now we are comparing a full quarter of it was last year to a con call does that take into account the reduction of these specific customer.

And by the way the customer is always deal in your own business and hopefully its going to increase in the coming few quarters, it's still a very significant customer.

And yes, we did have some impact coming from the currency exchange, which impact most of the topline Kpis and also the the yeah and this quarter. We do believe that there will be some additional pressure going into next quarter this quarter into Q.

For so maybe it can go down by one or two point, but we definitely see the situation down there now around especially that we would stop compare quarter, which I'll post COVID-19 two quarter that of course book plus coffee.

So in our forecast for the beginning of the deal we do see the numbers getting closer to where it was before the last.

Few quarters.

Does it answer your question.

It does it does thank you very much.

And just two more points not on your questions for myself Ron.

One on the adjusted EBITDA and you've heard there is tough and pocket, that's gonna probably hopefully bring us better than currently guided but beyond that we'll continue to do better next year, but I just want to note again that we were profitable in 2019, we were profitable in 2020, I remember that that was the single most asked questions. When we build the company and why do we do that and we said we fundamentally believe in that and we.

We worked hard to get there. So we know how to get back there we've proven that in the past and we're proving that time will continue to the second on N D. R and Ya Rona dressed our gross retention that indeed has always been good and continued and is even better this past quarter and that there is a gap and the impact between that because MTR looks trailing 12 months looks at historical.

Our gross retention, but also looks out the comp here being a tough year with Covid and also looks out FX one data point I'll throw out there if you take into consideration both the single customer reduction that we had mentioned the large one that is coming back and growing and already turning around to be a growing on a sequential.

Basis, and if you take off the FX impact we would've been at about 100% plus so it's obviously not enough you'd like it to be higher and getting back into the comp here. So we're looking at but it is a few points higher if you do if you would've taken these factors, though thank you Matt.

Yeah.

Next question comes from D. J Hynes with Canaccord Genuity. Please go ahead.

Hey, good morning, guys. So Ron I'm on double click on some of the corrective actions that you've taken internally I think than I would've expected to see a little bit more EBITDA margin improvement in Q4, I think I understand based on kind of your explanations that this is still a work in progress so.

Have you talked about like where you are in terms of implementing some of these changes and then more interestingly to me like what are the biggest risks you're keeping an eye on from an operational standpoint, as you consolidate business units inside of Qatar and lean out the organization.

So did you. Thanks for the question so first of all.

To remind us when we made the cuts there was a 10% reduction from both are fully ramped up to full time employees as well as consultants and otherwise so on both accounts both for the part time and full time folks are we did that swiftly and effectively by the way employee morale have capped if you're asking about one.

Important thing to keep an eye on total had been a voluntary departure rates they've been kept and actually receive in less voluntary departure as it recently I think it's not just the economy and what's happening around us. It's all the very concrete plans that we've had and the clarity in the company of about what we're trying to achieve and the overall engagement rates of employees in the company is.

Please.

A majority of the cost savings Hasnt impacted yet Q3, most of it is going to come into Q4. It to give you a feel the impact in Q3 was $1 7 million a quarter. The impact on Q4 is going to be two points up with millions more bringing it close to the full 4.6 impact. So there's more impact that's coming in Q4 than it was in Q3 materially in that.

Gonna help us when adjusted EBITDA.

And I will note again that we're trying to be thoughtful about the numbers. There's also some onetime stuff in Q4. So the various reasons mentioned, we're hoping to do better than boys definitely continuing.

Do you expect to do better later on so that's a bit about the changes now and so far is that we are gonna be we discussed that last time that there were various things will be streamlined we moved to have it one marketing team instead of marketing being split between the business units. The one professional services team that's addressing all of it one support team again.

There's some internal.

Divisions within it but more efficiency for the scale that we're operating in and for the type of behavior of the different divisions that were behaving with because historically there was a bigger split them behavior and now given the complexities of somebody in tea and stuff that are getting closer to entity and you'll see the gross margins, even getting closer although it makes sense and so far enough to say that the biggest risk was to make sure.

But this works that people are able to come in not just stay in the company, but work effectively.

The move across all the different departments is working and so far it is.

Absolutely working so from a rewards perspective.

I think we're good from a overall profitability goals into the future for the earlier question, we need to continue to monitor the macro behavior and we will continue to adjust as required in order to achieve our profitability and cash flow goals as mentioned we've done it in the past we know what to do theres more areas. If we need to apply levers that we can apply these leavers.

But right now renouncing fourth salad dressing Patterson P. J, yeah, no that's super helpful color and.

Maybe a follow up it looks like we're hearing from others in the virtual event space, that's pretty tough out there and we've seen kind of this pretty significant shift back towards in person activity.

You're highlighting virtual events.

A bright spot for a couch or like what are you seeing that that others aren't in and why is why do you think that's playing out.

That's a great question. So a few things so first when we discussed this earlier this year, we've been less focused on catering to large flagship events are the ones that come with a lot of services and also known as kind of a tier one event.

And instead launched this year and have been beefing up our event classroom offering which is self operated at power small medium sized events are these are the type of events are putting together tens or hundreds of people at times that could also be thousands also known as tier two and tier three as opposed to just tier one.

So we're not really talking about barring virtual conferences, if you hear about some of the folks out there they're talking about.

The huge events that are online are now becoming a hybrid moving more physical that's the big big events, but.

But we do runs the gamut from internal to external from marketing to customer education, sometimes even full blown conferences, but it's more training executive communications small digital gatherings.

So it's not just the large stuff.

The unique element about us is that we are the one product that addresses all of these use cases, so while the COVID-19 effect has come down and companies are still seeking to engage ways to bring together their employees partners customers online actually into these macroeconomic environment. The argument is that Oh my gatherings are even more so important because of travel savings and improve.

Efficiencies and also obviously given the distributed workforce and work from home. So I don't think anybody expects that suddenly everybody's going to work in the office and everybody's going to fly all over the place. It's just that the Mega conferences are not 100% remote that's not what we have been focused on so like I said, we're continuing to sell a bunch of them.

Other things, but the percentage of our event related to getting up multi national conferences, but event related activity has gone up it's now more than 50% of our E D booking.

And a material part of our total company bookings our pipeline is growing and includes seven digit deals I mentioned earlier that it's not just in tech it's grown in various areas.

And we're quite unique in our ability to offer one global stop for all things by the way content management and this now the other point I would just note is worth speaking holistically about events. It does also include the concept of webinar webinar is basically a twofer events, but it's just a single session event as opposed to a multi session multitracking them.

And now we brought the power of our development events into the realm of Webinars this quarter, so the improvements that.

You know we have done there on the web and our tool that we have historically, it's not having a tool that's really simplifying creation managing webinars a much more engaging experience for employees. So we now have a very very strong. So we think the combination of both of these that are focused not on the mega events, but on activities that people need to do online is realm.

Now it's relevant next year and for sure it's going to be continuously relevant into the future does that address your question P. J.

It sure does I appreciate all the color. Thanks Ryan.

Thank you D J.

Next question, Michael <unk> with Wells Fargo. Please go ahead.

Hey, guys. This is off the Williams on for Michael turn them I just wanted to follow up on T. J S question and touch on competitive positioning in the fracking side of things, but I think you mentioned that there was some pricing compression from other vendors that are in their response to a previous question.

So I guess just can you provide an update on how the competitive landscape is evolving and just if you're seeing any pricing compression on your side is as a result.

Yeah happy to do so I mean.

You've heard some of the other earning calls and you've seen that most of the other folks out there all of them are talking about headwinds there, they're showing sequential decreases are there they're talking about a reboot a vessel of growth somewhere around the middle of next year.

They're providing and not providing guidance for Q4, but it is looking like a sequential decline and I'm happy that in our case. There is some degree of earlier turnaround given the nature of what we're doing you also heard from some of them, but they're talking about the power of the enterprise sale, which is what we have always been doing large enterprise, although we're not doing us them being one thing to clarify when we are getting even into web.

Ours is more product led growth type initiatives and aimed at the SMB market small medium enterprise not small medium business definitely not consumer so it's more departmental sale and the ability to just quickly and you're in a more easier fashion get into the enterprise. So I think we're very much aligned with what is working out there I think we'd all be there.

Very strong offering given the financial situation of people looking for one solution to address multiple use cases, which we have more than others. So.

Statistics doesn't show that we have any issue compared to other competitors, our close rates or win rates are maintained a very high and on the flip side, we're showing I believe financial recovery at a level that is faster than some of the other guys offer mentioned for reasons mentioned.

Yeah.

Next question comes from Ryan.

<unk> company. Please go ahead.

Mark I was hoping you could walk me through.

Progress in the self service model and what's your kind of updated thinking is there it sounds like you're moving toward a lower touch model and maybe it's just sort of walk us through some of the nuances there between self service and our low touch on what you've learned since you've launched some of your newer products.

Oh.

Yeah. Thanks, Ron So you know in general and I just mentioned that we are we came from a content management world, where it was CIO type sale long sell cycle as large enterprise very sticky. It takes a long time to deploy and to sell and we are as we've expanded not replacement expanded also into CMO use cases with additional.

Products that were launched over the last couple of years, including the virtual classroom webinar and events in all of the platform.

We started getting into areas, which could cater to a smaller enterprises, but also to faster deployment cycles, which is important for us. So the very first product. There was more of the E. P product, even apart from product, which is low touch in the sense that people could immediately get events going they don't need to have a lot of professional services and up.

Part of our revenue that's come down, but we've built our products to better support that to require less professional services.

So that was the first part and we've established our commercial sales team that's increasingly selling against these lower touch opportunities as opposed to the outside sales team.

What we've done now with this release of Webinars, which is for the very first time, a very formidable offering for complete self serve is to really enable more around complete online sales and like I said earlier, it's more for.

The purpose of product like growth still catering to Smes and departmental sales and so I mentioned earlier that we add improvements around simplifying the creation and management of Webinars for the organizers and that we've also made the experience more engaging for Huntington DS just a few quick examples we have automatically generated landing pages.

Now that users can have their logos and images at shots and automatically generate a beautiful landing page for registration we have.

Many sites that are easy to operate where the brand in many sites in virtual room includes the organisers information topic and everything else. We have automatic recording using the same you're well we have a lot more engaging.

Tools like Poles, and announcements and opening up shop for audience and crowd reaction in a bunch of other things around scalability and analytics. So it's it's for the first time, it's a serious offering and the webinar space that's differentiated.

It's connected between Vod in real time and live against anything that's out there. We believe that can do extremely well that usher is the opportunity to go further down market to more self serve type sales, but also very clearly not to smbs only to Smes and product led growth to enable the cycles to run quicker so yeah.

This trend has happened this year I expect the revenues from EPS started to affect this year.

So some of the deals that have closed around events are round or E. P. As it pertains to webinar, where just you know we just launched the products available on our website, we're going to be starting to market. It now in Q4, but the impact is going to be more in next year as opposed to this year.

Got it Super helpful. Thanks, Rob.

Thanks Ryan.

Next question James Cory with Bank of America. Please go ahead.

Yes, how are you doing this is James chorion for micro pump.

Last quarter, you guys talked about you know churn levels being in line with historic levels and I guess, they were you know a little bit lower this quarter, but can you talk a little bit about where you expect those levels to be heading into 'twenty three, especially you know at the macro we're seeing and you know a follow up to that would be what additional levers can you guys pull if the macro is worse and to ensure you eat.

Your EBITDA targets.

So I'll take the first one and let your own address the other one I mean, yes gross retention remains strong and it is that it was the actually the best one that we've had in the past year since Q3, 2021 again, they're all best practice for large enterprise type sales and I'll tell you. It's a single digit annual run rate for our gross retention.

Annualized Oh I'm sure on it over the quarters. So it's great.

It was a good number by the way for both M. T M E T. Both of them are.

Doing very well what do we expect next year I mean, we don't see a reversal of this trend could there be some more downward pressure on this because of our reduced pricing from existing customers that could push pricing that could be to be clear. When we talk about retention rates, obviously, it's inclusive of full churns as well as any price.

Reduction that's baked into that number so there might be a bit more pressure given the financial situation, but again, we're not seeing indication right now as we look into Q4, we are looking into a similar maybe even better hopefully, but not a deteriorating situation for Q4 compared to what we used to have right. Now. So we'll keep you abreast as we finished.

Quarter and as we continue to look forward, but let your own talk about leavers for just to give you. The go ahead, yeah. So yeah.

Obviously D C based on the guidance that we provided and we feel very comfortable with the guidance, we will embed with negative adjusted EBITDA was around 30 million Golar, which the second part of that is definitely going the right direction and this trend is going to continue going into Q1.

The actions that have already been taken.

So what we are doing right now obviously, we're not just waiting for to see market. So the macroeconomics can go to their own place. We are continuing a very thoughtful way too seemed to consider some other options, which we still have in our pocket.

We can implement beginning of the year, if and when we decide to do it in order to meet our targets, we feel comfortable that we will be able to achieve than one digit and negative adjusted EBITDA for next year, which will create a situation that by 'twenty 'twenty four will be also positive indications.

Meaning we will be able to.

Continue to run the company and still show a very nice growth numbers right.

Basically eliminating the loss that we have them adjusted EBITDA base.

One one small clarification I just want to make sure because I just noticed that when I was referring to gross retention I said single digit obviously it was the opposite which is the gross churn. So what I meant is that it's above 90% gross retention if it were to be a single digit unless some.

Strong gross retention.

Got you okay. Thank you for that.

Thank you.

Once again, if you would like to ask a question. Please press star one on your telephone keypad.

Your next question comes from Tom Blakey with Keybanc capital markets. Please go ahead.

Thank you Erica.

Thanks, guys for all the color here, a lot's been discussed already in terms of.

What I would characterize as continuing to be a relatively difficult environment that you guys are managing your way through well as we look out to.

You know calendar 'twenty, three I'm not asking for guidance, but just like a framework around how incremental I think a couple of other questions have asked about the macro is we've talked about past pandemic headwinds and.

Customer.

<unk> churn Ron I mean, you know now we're kind of it seems like we're adding extra pressure here you know <unk> flattened out in the quarter is there any incremental color you can talk about in terms of the pipe. The strong bookings you talked about and and you.

I have a follow up for Rob I'll just leave it at that.

Most of your words and I'll pass it over to you run. So so first thing about era of flattening or not let's just be clear that the way. We count. There are is based on the actual subscription revenue any ways just cannot cleans.

Cleans up for ASC, 606 type issues and for perpetual licenses and stuff like that but its really its not looking into the future. It's not a run rate of bookings. It's the effective subscription revenue for the quarter and so since we know that Q4 is going up if one would have us kind of a C O R or an end of quarter and there are obviously would've been grow.

And I'm, putting aside the exchange rate impact so it isn't a crime because Q4 like it to be an up quarter and we have that in pockets again, it's not a function of Q4 bookings because Q4 bookings will affect the future not Q4.

So just to be clear that we are continuing to grow and in fact like I said I think in our industry and the only company.

C N, they're gonna there might be some out there, but the ones that have looked at that are showing that behavior. As soon as Q4, this year and so far as growth.

And by the way if you look at the numbers that are look there given the guidance range at which point it kind of turns it into a record quarter in the sense of revenue because at the beginning of the year, we had a down because of the single customer and then flat because of the behavior. This year. Some downs in class, depending if you look at subscription in total now it's coming up and guided to be acts.

<unk>.

Top record revenue quarter compared to Q3, the year before which was the last record.

So we're coming back to be finally to higher revenue. The question still remains will that continue into next year and what's the graph looking like it's early to say its early to provide guidance. We're looking at the tail wins, we're looking at the headwinds we've said theres. Both we are armed with great products and additional things that we've done this year that are building a strong.

The pipeline and you just mentioned that the majority of our E. N. T cells are added through the types of events that we were referring to as events and they're growing and the pipeline is growing.

And I think that to some extent, we're recession proof and some elements around being able to replace multiple vendors around addressing multiple use cases around being in places like education and immediate telecom not just in enterprise.

So I'm, hoping things are going to do well I'm also encouraged that gross retention is holding up and so while there's a short term pressure on India given the comp here. It is expected to turn around but it's too early for us and we're not jumping to conclusion and were also not overly happy ecstatic, it's been a very tough year and the results we have right now or not.

<unk> of the results that we're hoping planning and expecting to have in the future, but we're taking it one day and the time and the other thing we're doing is making sure that we are balancing the company balancing profitability and balancing cash flows go ahead you run.

Yeah, I think that in terms of looking to next year are the encouraging part as Juan mentioned is the fact that the gross retention is still strong and we have that we don't see too.

Too much pressure on this line item.

And also I'm not sure what's going to happen with the currency exchange that for the last three or four quarters, and then negative impact on us due to the fact that with.

Pretty significant part of our revenue coming, especially by doing by the way in media and telecom coming from Europe .

Europe started the 116 the year now we'd sit round one by the way it's closed the quarter much below so at least going into Q4, we see some improvement.

The big question, because obviously the growth that we're seeing in Q4 the sequential growth.

Hopefully it will continue into next to it.

It's going to stay flat basically it's going to be is something like if similar either in terms of the grocery. So can we assume that bookings will not generate additional revenue for next year.

It's a conservative assumption that maybe it's going to happen by the end of the day.

But at the same time.

Any additional booking will start pushing the numbers above where we close the sale.

And we have to see what's going to happen with the currency exchange and obviously with gross retention, which has stayed strong.

So it's it's a mixed bag situation, but we do feel.

The conservative.

So not always what we see right now, but what but obviously it will be soon we will be very thoughtful in the game steep we are going to manage all the bottom line.

To meet our targets.

Yeah, that's a perfect segue to your own in terms of my follow up you you're very clear in terms of your guide for the single digit loss of EBITDA and to for Q 'twenty three.

And then you just added to it there in terms of your prudence on the topline.

That's loud and clear and strong relatively how does gross margin looking at you know we haven't had an update I think on this call about.

We talked about in prior calls mix shifts.

Scale M T.

Obviously, I don't know, how new self service offerings would impact the gross margin.

Should we expect gross margin to trend.

Into into next year as we look ahead. Thank you yeah. So so obviously are you. So that are in E&P basically was flat gross margin in this quarter.

By the way despite the fact that we have pressure on top line, which by doing our case gross margin impact, mostly the top line and currency exchange impact, mostly the top line and therefore it has some negative impact on gross margin in M. D. We saw some pressure on gross margin some of it came.

The fact that we have the one time drop in revenue in the M. N D, which is looking into Q4, it's going to balance it sets and actually going to turn around so the same level of expenses, but we have this short term decline in media and telecom, which by the way related to the fact that.

Some of the revenue recognition late night, I mean media and Telecom is project based and we had some catch up in Q2. It went a little bit down in Q3, and we already see the situations that it's coming back also most of the impact from the currency exchange easing media and telecom and therefore, you'll see the pressure.

On top line, which create the pressure on gross margin, but looking on on next year.

And going into the future a we started the year.

And on the last.

Last deal with 60 low Sixty's now we seem to meet peak season, it's almost the same on a quarterly basis.

We do believe that we will still see some improvement coming mostly from media and telecom.

For two main reasons first of all as we mentioned before it's going to be less less and professional services and you already can see that as a percentage of revenue when we do see a declining.

Question on services compared to the overall revenue. So this is the losing line item in terms of gross margin and it's going to be much much smaller.

And also the efficiency that we are implementing in media and telecom will continue to push the number I look into next year, we definitely see a continuing improvement in gross margin, which will come mostly mostly for media and telecom.

I don't see a significant improvement at this point in the.

Okay.

Yeah.

We said all along that for the long term, we do believe that it meets the we started as a private as a public company for six low sixties.

We say that it to be at the end of day, we bring it to mid sixties.

And for the long term, we always say that we would believe we'd be able to take it all the way through the seventies.

Yeah.

I've come to the end of our Q&A session I will now turn the call over to Ron for closing remarks.

Well. Thank you all for making time and for your great questions are looking forward to a strong quarter ahead of us be well and stay healthy take care bye.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Mhm.

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