Q4 2022 Kaltura Inc Earnings Call

Speaker 1: The.

Speaker 2: All material contained in the webcast is the sole property and copyright of Kaltura with all rights reserved. For opening remarks and introductions, I will now turn the call over to Erika Amanian at Sapphire Investor Relations. Please go ahead.

Speaker 3: Thank you and good morning. With me today from Kaltura are Ron Ucatil, Co-Founder, Chairman and Chief Executive Officer and Yaron Gamazi, Chief Financial Officer.

Speaker 3: Ron will begin with a summary of the results for the fourth quarter and a December 31, 2022, and the company's plans and expected trends for 2023.

Speaker 3: NIRM will then provide details of the financial results for the fourth quarter and full year 2022, followed by the company's outlook for the first quarter and full year of 2023.

Speaker 3: We will then open the call for questions.

Speaker 3: 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.

Speaker 3: These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here.

Speaker 3: Important factors that could cause actual results to differ from forward-looking statements can be found in the risk factors section of CalTOR's quarterly report on Form 10Q for the quarterly period ended September 30, 2022 and other periodic SEC filings including the annual report on Form 10K.

Speaker 3: for the fiscal year ended December 31, 2022 to be filed with the SEC.

Speaker 3: Any forward-looking statements made in this conference call, including responses to your questions, are based on current expectations as of today, and CalTOR assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law.

Speaker 3: Please note we will be discussing a non-GAAP financial measure adjusted to the doctor in this call.

Speaker 3: For reconciliation of this non-GAAP financial measure to the most directly comparable GAAP metric, please refer to our earnings release which is available on our website at www.investors.caltorra.com.

Speaker 3: Now, I'd like to turn the call over to Ron.

Speaker 4: Thank you, Erica, and thanks to everyone for joining us on the call this morning.

Speaker 4: Today we reported total revenue for the fourth quarter of 2022 of $44.1 million, up 3% year over year, and subscription revenue of $39.6 million, also up 3% year over year. Adjusted EBITDA for the quarter was negative $4.2 million.

Speaker 4: In our last two running calls, we made three important financial forecasts.

Speaker 4: an expected return to revenue growth in the fourth quarter of 2022.

Speaker 4: expected quarterly improvements in adjusted EBITDA towards a single digit dollar loss in 2023.

Speaker 4: and then expected significant improvement in cash flow with a forecasted single-digit aggregate cash flow from Operation Dollar Loss during the second half of 2022.

Speaker 4: Today we announced that we have achieved these goals for 2022 and that we are once again reaffirming them for 2023.

Speaker 4: Regarding revenue in the fourth quarter of 2022, we achieved record numbers for both subscription and total revenue, and this sequential quarter of a quarter revenue growth rate for both revenues, for at levels that we have not seen since the first half of 2021.

Speaker 4: It was also the first time since that same period that we grew our quarterly year-over-year subscription in total revenue growth rates.

Speaker 4: While revenues from professional services are expected to be volatile and to continue to decrease overall.

Speaker 4: We expect the quarterly year-over-year subscription revenue growth rates in 2023 to be higher than those that we posted in the last three quarters of 2022.

Speaker 4: As for adjusted EBITDA profitability, we achieved the lowest adjusted EBITDA loss of the last five quarters and despite a very turbulent year have attained our original annual guidance for 2022.

Speaker 4: We continue to take proactive action to adjust our spending levels to achieve our return to profitable growth.

Speaker 4: To that end, in early January , we announced that, due to the macroeconomic climate, we're downsizing 11% of our workforce.

Speaker 4: We are once again reaffirming today our goal to continuous quarterly improvements towards the single digit adjusted even at dollar loss in 2023 and to breaking even during 2024.

Speaker 4: And lastly, regarding cash flow, we achieved during the second half of 2022, the single digit cash flow from operations lost that we had forecasted. And we are now in the second half of 2022, the single digit cash flow from operations lost that we had forecasted.

Speaker 4: We are also reaffirming today our intent to materially reducing our annual cash burden in 2023 with most of the losses expected in the first quarter of the year due to the typical seasonality and the limited impact of our January cost reductions in this quarter.

Speaker 4: We expect the Chief Casual from operations break even during 2024 with sufficient cash reserves.

Speaker 4: The company was adjusted EBITDA and cash flow operations profitable in 2019 and in 2020, and we believe we will be there again soon.

Speaker 4: Moving around to a business topic.

Speaker 4: In the fourth quarter, we closed new business across all of our segments.

Speaker 4: We see a continuation of the trends that shape 2022 with employee and partner communication and training, customer engagement, internal and external facing events in student learning, all continuing to transform to online video-centric experiences that Kaltura's products are designed to power.

Speaker 4: Companies also increasingly value their ability to consolidate their currently fragmented video needs around KOTORU's single, flexible, tightly integrated, and engaging enterprise-grade platform.

Speaker 4: This enables them to avoid disjointed workflows and content silos and to reduce technical and operational complexities and costs.

Speaker 4: On the median telecom front, in the fourth quarter, we closed an upsell agreement with one of our largest telecom customers that uses Cotera's Cloud TV platform to power its multinational TV service in Europe .

Speaker 4: Our annual revenue from this customer based on forecasted usage is expected to grow by over $2 million in 2023 as compared to 2022.

Speaker 4: This quarter we also completed delivery of Cloud TV projects for two other large telecom customers and we'll start to recognize subscription revenues for these projects.

Speaker 4: We continue to expand our business with one of the world's largest brokerage houses, who now also relies on Cotura for their outbound marketing activities. We have strong success in Farnmouth with two of the top 10 largest pharmaceutical companies in the world, one in Newcastle, and two of the Cotura to Power's internal video use cases.

Speaker 4: and another, an existing cultural customer, to now also enable its internal and external events.

Speaker 4: We also continue to expand the use cases we powered with our event platform in one of the largest global technology companies was an early adopter of our product. We continue to see growing demand for our events offering across many industries, including financial services, pharma and tech as mentioned, but also in healthcare manufacturing.

Speaker 4: Market research and education.

Speaker 4: research and education. While in the topic of event.

Speaker 4: Last November , we hosted our second annual virtually live event, where over 5,000 event professionals, marketing leaders, individual experience creators registered to hear leaders from Accenture Lenovo, AWS, SAP, Salesforce, Oracle, Adobe, Microsoft, Google, Cisco, IBM, Airbnb, VMware, and many others. The event also allowed us to showcase our event platform to a wider range of the

Speaker 4: Some simple webinars to multitrack multi-day fully branded online or hybrid events.

Speaker 4: During the quarter, we invested in more advanced user authentication and management in improving our user experience of mobile in our new virtual meeting room and shop experiences and in more advanced analytics.

Speaker 4: We also continue to advance our integration with third parties, including an updated integration with WebEx App Hub that enables customers to easily port over recording of WebEx meetings automatically to our platform as they're already able to do with Zoom and Teams recordings.

Speaker 4: Lastly, we rolled out the new version of our player and player studio which includes enhanced functionality and interface in additional third party integrations.

Speaker 4: While the products are highly modular, they're continuously demanding less and less go to our services to launch and customize. Your releases like a webinar's products are already offered fully self-serve.

Speaker 4: To help us in our efforts to expand some high-fetched sales through low-pouch and self-serve-powered product-led growth, in January , we also welcome to our Board of Directors, the UN member, the Yal Minor.

Speaker 4: Mr. Menor is the Chief Product Officer at 20O, where he is leading product and engineering for the company.

Speaker 4: Before that, he spent 14 years at Google, where he was a General Manager at Google Cloud.

Speaker 4: Part of that was Vice President of Engineering at YouTube, and before joining Google, he founded a Voice and Video SaaS streaming startup. We are fortunate to benefit from Mr. Menorice's wealth of product and business experience.

Speaker 4: As you look forward into 2023, we're excited about our broadening product offering, our expansion down market, and our strong position as a provider of a horizontal platform that addresses multiple use cases in our market.

Speaker 4: On the other hand, we're still seeing the impact of the macroeconomic climate on our customers and prospects through longer sales cycles and decreased budgets.

Speaker 4: We're also experiencing increased price pressures by our competitors.

Speaker 4: So assess future expected demand or closely monitoring leading indicators such as the number of RSC requests and number of meeting set by RSCR team.

Speaker 4: To that end, while the numbers went down in the second half of 2022, they started picking up again at the beginning of this year.

Speaker 4: For example, our fee submissions were higher than either of the last two years.

Speaker 4: While we hope this trend will continue, we're careful in programmatic, and especially required in times like these.

Speaker 4: In summary.

Speaker 4: We wrapped up a top year with a strong post-COVID currency exchange and recession in DuTEDWIN so dramatically slowed down our globe, far below our so-called road rates.

Speaker 4: Last quarter of the year showed that we turned the growth and we hope that this trend will continue this year.

Speaker 4: Well, we believe we have the right products and market positioning to support much faster growth.

Speaker 4: given the macro condition and considering last year's outcome were thoughtful with our revenue guide.

Speaker 4: Regardless of our top line growth, we remain fully committed to returning to profitability.

Speaker 4: And that means needing our single digit adjusted EBITDA forecast and reaching both adjusted EBITDA and CASL from Operations Profitability in 2024.

Speaker 4: We have attained our profitability forecast in the previous two years of the public company, despite market turmoil, and we intend to attain them in the next two years as well.

Speaker 4: So that will turn it over to your owner, see if both of us are financial results in more detail. Your room.

Speaker 5: Thank you very much and good morning everyone.

Speaker 5: As I review our fourth quarter and fully of fiscal results today, please note that I will be referring to a non-GAP metric adjusted EBITDA.

Speaker 5: A reconciliation of GAP to non- GAAP financial s is included in today's Army release, which is available on our website at www.investors.cultura.com.

Speaker 5: One other note before I go through numbers.

Speaker 5: We had previously indicated that we intended to manage our E&T and M&T segments together and report as a single segment starting in the fourth quarter of 2022.

Speaker 5: As you saw from our personalities, we have decided not to change our segment presentation at this time, and we will continue to report on two segments.

Speaker 5: So from our personalities we have decided not to change our segment representation at this time and we will continue to report on two segments. Now to the numbers.

Speaker 5: Total revenue for the fourth quarter ended December 31st, 2022 was 44.1 million up 3% of total revenue of 27 commercials hit the calendar.

Speaker 5: Subfiction revenue was 39.6 million up 3% of the revenue, like professional services revenue contributed 4.5 million up 6% of the ELAWB Heave.

Speaker 5: The remaining performance obligation were 171.7 million down 7% over a year, of which we expect to recognize 60% of the revenue over the next 12 months.

Speaker 5: Anu and Rekarin revenue was 159.2 million up 6% over a year.

Speaker 5: Our another long attention rate was 96%

Speaker 5: In the fourth quarter, the same as Q3 2022.

Speaker 5: Within our E&T segment, total revenue for the fourth quarter was $30 million down 3% of the revenue, subsequent subscription revenue was $29 million down 2% of the revenue, while professional services revenue contributed to the 1 million. The second quarter was $30 million down 3% of the revenue was $30 million down 3% of the revenue.

Speaker 5: Down 19% you go very low.

Speaker 5: Within our media and telecom segment, total revenue for the fourth quarter was 14.1 million, up 20% of the revenue, subscription revenue was 10.6 million, up 21% of the revenue, while professional services revenue contributed 3.5 million.

Speaker 5: up 16% on EOV. On January 3rd, we executed the reorganization that led to a downsizing of 11% of our workforce.

Speaker 5: We expect an annualized saving of 16 million resulting from this action and incurred a pre-tax charges of approximately $1 million, primarily severance and related costs, all of which we are, we are experienced in the first quarter of 2023.

Speaker 5: The goal of the plan was to align our spend with current market conditions to allow us to continue our path to profitability.

Speaker 5: DAPGRO's profiting recorder was 27.6 million representing a gross margin of 63% the same as Q4 2021.

Speaker 5: Within our INP segment, Gross Profit for the fourth quarter was 21.1 million, representing a gross margin of 70% down from 71% gross margin in Q4 2021.

Speaker 5: Without, within our M&T segment, Bloss Profit for the fourth quarter was 6.5 million, representing a Gloss margin of 46%, up for 39% Gloss margin in Q4 2021.

Speaker 5: Gaplet loss in the quota was 14.8 million or 0.11 per diluted chair. Adjusted EBDA for the quota was the negative of 4.2 million, improving from a negative of 7.7 million in Q4 2021.

Speaker 5: And now for our full fiscal year result. Total revenue for the year ended December 31st, 2022 was 168.8 million up to percent Eloveria. Subfiftion revenue was 152.5 million.

Speaker 5: up 5% EroVary, while professional services revenue contributed 16.3 million down 19% EroVary.

Speaker 5: Within our EUNP segment, total revenue for 2022 was 120.2 million up 1% of the overyear. Subtribution revenue was 113.6 million up 4% of the overyear, while professional services revenue contributed 6.6 million.

Speaker 5: down 34% Eroverio. Within our M&P segment, total revenue for 2022 was 48.6 million up 6% Eroverio. Subtribution revenue was 38.9 million up 8% Eroverio, while professional services revenue contributed 9.7 million down 3% Eroverio.

Speaker 5: 62% margins in 2021. Subscription gross margin was 74% up from 72% in 2021.

Speaker 5: We've been our ENT segment gross profit in 2022 was 83.8 million representing a gross margin of 70%. Down from 71% gross margin in 2021. Subtribution gross margin was 78% the same as 2021.

Speaker 5: Within our M&T segment, Gross Profit in 2022 was 23.1 million, representing the Gross margin of 48% up from 40% gross margin in 2021. Subcription Gross margin was 63% up from 56% in 2021.

Speaker 5: Gapnet loss in 2022 was 68.5 million or 0.53 per day-loaded chair.

Speaker 5: Adjusted EBITDA in 2022 was a negative of 28.3 million, decreasing from a negative of 12.2 million in 2021.

Speaker 5: Turning to the balance sheet and cash flow. We entered a quarter with 86 million in cash and marketable securities. Net cash user, operating activity, was a negative of 5.8 million in the quarter compared to a negative of 10.7 million. Net cash user, operating activities in Q4 2021. And compared to a negative of 22.5 million.

Speaker 5: and positive of 1.1 million in Q2 2022 and Q3 2022 respectively.

Speaker 5: For the full year, NetCash used in operating activities was a negative of 46.8 million compared to a negative of 22.1 million NetCash used in operating activities in 2021.

Speaker 5: I would now like to turn to our outlook for the first quarter of 2023 and the fiscal year ended December 31, 2023.

Speaker 5: In the first quarter, we expect subscription revenue to grow by 5 to 7% to between 38.9 million and 39.6 million and the total revenue to increase by 1.5% to 3.5% to between 42.3 million and 43.2 million.

Speaker 5: We expect a negative adjustity that to be between 3 million and 4 million.

Speaker 5: For the full year we expect subscription revenue to go by 4 to 6% to between 158.6 million and 161.7 million and the total revenue to go by 0 to 2% to between 168.8 million

Speaker 5: and 172.2 million, we expect for the full year a negative adjusted in bidat to be between 5 million and 8 million.

Speaker 5: In summary, in light of the macro condition, we close the match floor going here than using, but every turn to go from the last quarter and of the district will continue. Though we are thoughtful of our guidance.

Speaker 5: While revenue from professional services are expected to continue to decrease, we expected the EOVRU subscription revenue growth in 2023 to be higher than those that we posted in the last three quarters of 2022.

Speaker 5: Above all, notwithstanding the top-line growth, we are firmly committed to returning to profitability. And that means...

Speaker 5: Meeting this year's single-digit adjusted EBDA loss forecast and materially reducing our annual cash burn in 2023 with most of the losses in the first quarter of the year.

Speaker 5: We expect to achieve a cash flow from operation break even during 2024 with sufficient cash reserves.

Speaker 5: With that we will open the call for questions, operator.

Speaker 2: 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 that your line is in the question queue.

Speaker 2: You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker 2: One moment please, Oli Poe, for a question.

Speaker 2: Our first question comes from George Ioneck with Oppenheimer. Please proceed with your question.

Speaker 6: Thank you for taking my questions. Ron, maybe starting with the macro environment, can you give us a bit more color on what you're seeing both from a new customer activity perspective in guidance, as well as your assumptions on NDR?

Speaker 4: Sure, George. Thanks for the question and good day to everybody. So first, in the part of the trends that we've seen last quarter that are affecting us, bookings in Q4 is a little lower than Q3, similar to last Q4. From a split perspective, it was like always mostly enterprise and EDU than MNT.

Speaker 4: Mainly upsells compared to new logos from a geospelate as usual. E&T was majority from North America, then in the year the next day. Channel business was a bit higher than usual but still within that kind of low double digit area and percent of services continue to go down a bit but it's still in the high teams for E&T. It's over 50% for M&T.

Speaker 4: but the general trend is that they go down. From a tailwind perspective and things that we've continued to be supported by, the classic usual reason to bike ultra transformation of customer engagement, employee training, rescaling, student learning, video-based experiences, they've become a part of reality now.

Speaker 4: Even if there's other stuff around post-COVID that has attenuated, this is something that people still want. There's still continued shift to work streams online, but also this year it's a way to save money and we see a lot of folks that are talking to us about reducing travel costs and find our offering to be relevant for them. To that end, customers are also looking to improve budget efficiency and consolidate.

Speaker 4: It's a...

Speaker 4: Coming into many new verticals, initially where we're mainly in tech, as you know, and now it's been extended more into areas like banking and business services and market research and bar mine, EDU and retail. And if we speak about financial services, that's continuing to be a very strong market for us. We've recently discussed how we've launched.

Speaker 4: solutions for wealth management and one of the major major banks. In the EDI we're adding our VEM platform and we're increasing our work with K12 and in Europe particularly we're seeing growth from consortiums. And M&T we continue to see growth in our existing base of pay-to-be customers that's driven by

Speaker 4: both subscriber and price increases actually that were managed to have put and we've also launched a bunch of new projects. So that's some of the good stuff that's happening. Part two, some of the macro headwinds. We are seeing customers holding back on their spending, being a bit more risk of worse and taking more in the valuation time.

Speaker 4: from a budgetary constraint perspective. It's affecting demand and a lot of our competitors are dropping prices. And they're trying to keep on their customers because we are generally positioned as a better product. And so to avoid people from switching, they're trying to reduce costs. We spoke about the number of qualified leads and.

Speaker 4: RFP's last time, they started bumping back up. So the beginning of the year showed an improvement. If you look at Q4, it was lower than earlier in the year. So in general, the second half of last year, how to decrease in the SDR meeting set of about 30% compared to the first half of the year.

Speaker 4: but that rebounded in January and now beginning of February . So it's hard to tell how it's going to go this year. We're monitoring it closely in so far as organic usage and enterprise and education that slowed down a bit. And in M&T, there's not a lot of new deals that still taking time. So kind of a balanced situation between headwinds and tailwinds.

Speaker 4: Insofar as how that's affecting NDR for your question, I mean we've seen a flat NDR this quarter compared to the previous quarter and we remain in the belief that NDR will start picking up at the beginning of the year. It's still early for us to say how high it would go and in general we're cautious about any...

Speaker 5: for their looking forecast into 2023. But we do believe it will be better than the current situation in Q4. We already want to add to that. Yeah, one important comment to add on the NDR, as Ron mentioned, it was flat compared to Q3 and we see a situation that it's starting to ramp up, going into Q1.

Speaker 5: But the most important point is that the gross chair numbers were very low to this quarter and actually the lowest number we saw since Q3 2021.

Speaker 5: So we are still optimistic that it's starting to turn around, but obviously we need to be cautious looking into this view.

Speaker 4: Yeah, another pertains to grocery attention and, and, and sure, and which has always been a good number and we've always highlighted the fact that unlike some of the other video vendors that have sold to the SMB arena, we were more in large enterprise and also due to the virtue of the tight integrations that we offer, we're a stickier offering.

Speaker 4: That has always been the case with the Cook-Dura U of the Year, and we continue to maintain very strong retention rates on a gross retention rate basis.

Speaker 1: My have.

Speaker 6: And maybe just following up on the pipeline with the number of customers engaging with the platform going up a bit. Are you seeing your conversion rates stay relatively stable and pulling the new customer activity a bit up?

Speaker 4: Yep, wind rates have not come down, and conversion rates have not come down. You know, we're seeing on M&T from a, you know, additional pipeline that's looking forward additional deals that are coming up and from an E&T perspective, we have one of the largest aerospace and defense conglomerates in advance discussion.

Speaker 4: said but it's definitely an active market out there for Bindtl-Dura.

Speaker 7: Thank you.

Speaker 2: Our next question comes from Gabriela Borges, Goldman Sachs. Please proceed with your question.

Speaker 8: This is Jake on for Gabriella. Thanks for taking our question. I guess based on the actions that you guys took in January , why not pull forward the profitability and break even goals rather than just reiterate what you've said over the last couple of quarters.

Speaker 5: Yeah, you're wrong, go ahead. Yeah, obviously we took this action early this year, some of it will see the impact going mostly into the second part of the year.

Speaker 5: But you also saw the numbers that we deliver for this quarter was better than the guidance in terms of profitability also by the way in terms of cash flow.

Speaker 5: So we will work out to expedite and we believe that the result will be good but most of the impact we see in the second half of the year and in terms of the cash flow, Q1 is always, always seasonality, a lower quarter.

Speaker 5: But as we mentioned in our script, we believe that this plan will turn around completely in the next three quarters of the video.

Speaker 4: Yeah, I want to stress again the difference between the annual results and the quarterly results and Q1 is a significant loss for the full year compared to the total numbers that we're expecting for this year. So I think by the time we get to the second, third, fourth quarter of the business is going to look.

Speaker 4: pretty solid. And so once again we're very thoughtful about numbers for the year. You know we've looked at last year and obviously we've hit our even original adjusted EBITDA numbers so that we're managed to have done. But there were quite a lot of surprises last year and we want to enter this one with the right set of expectations.

Speaker 4: and then hopefully be able to over-deliver and not over-promise.

Speaker 8: That's helpful. And then for my follow up, Ron, I guess a longer term question here. You know, you've obviously mentioned momentum with the self-serve offerings. Just curious to get an update since those features are now fully launched. What are the next product cycles that customers are asking for and that investors should be paying attention to?

Speaker 4: Yep, so as you recall last quarter, we did announce the addition of our webinars product, which is a full self-serve product. It's added to the whole low touch move. Our Zen Platform, I mentioned already, sales and pipeline is picking up and is becoming a big percentage.

Speaker 4: of our offering and while that one specifically is not a full self-serve, but a low touch call itself operated that does not require event services. It is part of the general direction that we're going through. And so far as webinars, which was just the very first launch and we've started closing initial deals and optimizing it.

Speaker 4: It's offering a single session event as opposed to the multi-track event of our EP. And it's going to continue to improve in the quarters ahead. We expected to start moving the needle this year, but to be gradually so, it's upside from our own internal forecasting perspective, not because we don't believe it. It's just a new product and a new entry into the market.

Speaker 4: To be clear, the focus there is not SMBs, rather SMEs, in which we go into the medium size enterprises, departmental sales, easier selling into the larger companies with a product-led growth approach, which we'd like people to start playing with our products prior to having advanced discussion.

Speaker 4: additional authentication and user management so we're going strong on that. I think it's fair to say that if you don't look at it on a quarter by quarter basis but a year of a year basis, that will become a significant driver or a growth for a quarter in the next few years.

Speaker 5: But the important point is one mentioned we try to be very conservative in the way that we are Focusing it in our guidance for this year

Speaker 2: Our next question comes from DJ Heinz with Canacorg. Please proceed with your question.

Speaker 6: Hey, good morning, guys. So Ron, with the events platform, where are you seeing traction? Are these first-time events tech buyers or are they swapping out incumbent technology? And I guess if it's the latter, what's most often being replaced and what's the reason?

Speaker 4: Yeah, thanks DJ. We have both. So we've started off a reminder with the very large flagship events with a lot of services at the time of COVID that were this immediate need for a very large event, historically physical events that had turned virtual.

Speaker 4: But very quickly we started developing our event platform, which is supportive of many intermediate and small size events That could be used by many many people in the corporations for their digital gatherings And that EP product, an impact from product that does not require event services

Speaker 4: self-operated and gradually becoming more and more self-serve was launched in the second half of last year. As it pertains to the folks that are using it, I'd say that it's about 50-50 between swap in first time. A lot of folks are now understanding that they'd like to have these type of activities.

Speaker 4: online, whether it is for learning or whether it is for marketing. We do support both in a single platform, internal and external use cases within organizations. That's part of the benefit that people can take one platform and address both and by the way connected to their content management. In others, our swapping is either with earlier webinar products.

Speaker 4: or earlier event products. Usually the biggest value that they find in Coutura is the strength of the experienced layer that we offer, the interactivity, the branding that could be offered by the organization. It's kind of a Netflix great experience if you may.

Speaker 4: instead of the rather clunky initial products that did not really feel that you could interact and have a personalized experience and have a very high quality experience when you have these gatherings together. So the intuitiveness and the degree of engagement that we offer is extremely significant. Part of what we're catching up and adding more and more capabilities are more of the back end element of these events.

Speaker 4: around the content management and registration elements and things around payments and stuff like that They're adding more more capabilities as we advance kind of the the back in elements not the front end But the front end are a very very strong Defrentiator for the company. Yeah, yeah, that's super hubble color

Speaker 6: And the follow-up you're on for you, how should we be thinking about gross margins in 23? I mean, it seems like at this point, most of your growth is coming from the lower margin M and T segment. So just curious how that impacts your view of 23.

Speaker 5: Yeah, I would say that at this point we should probably see the same level of margins from 2023. If we want to be able to be cautious, you arise that most of the improvement is coming from the M&T, and we believe that it will continue this way. So, going into the second part of the year and definitely to 2024.

Speaker 5: Also because of some of the cuts that we did or the downsizing, we believe that we will see continuing improvement.

Speaker 5: So to make a long story short probably you should save the same level that we have right now But we believe that it's will continue to pick up to the I-60s going into next year

Speaker 4: Okay, sounds good. I want to highlight just there in the answer is that

Speaker 4: The subscription growth rates for next year are going to be probably similar for both businesses, so you're not going to expect the significant pull-ups from the top-line growth between M&T and E&T. And probably also the professional services reduction on a year-of-year basis will be equal for both.

Speaker 4: And when you add both of these, it's probably that E&T will, because it has less professional services, will end up growing faster. Then M&T is the way we're looking at it right now. So the fact that this quarter, there was a bit of a pull-up by M&T, does not mean that our expectation into 2023.

Speaker 4: means that the bigger pull will come from them in peace. On the top line basis, the piece of the business that will grow on a year of year basis probably faster is a piece that has a higher blend of roast margin, which would be contributing to a better overall roast margin. It doesn't take away from the comments that you wrote and said, which is...

Speaker 4: that on a per division basis kind of an M&T versus E&T, the per unit improvements have been, and we'll continue to be more so on the media side. And we could expect a better unit economic improvements as that gross margin continues to pull up. And we've showed that over the last...

Speaker 4: two years that it's been improving and improving. So all in all we're optimistic about continued growth in growth margin but as said and that's kind of is the general direction for this year we're being thoughtful and we don't want to set the bar too high you know even if we assume it's a similar growth margin that's okay but we hope that we'll continue to pick up.

Speaker 6: Yeah, very clear. Thank you guys.

Speaker 6: very clear. Thank you guys. Thank you.

Speaker 2: Our next question comes from Michael Toren with Wells Fargo. Please proceed with your question.

Speaker 9: Hey guys, this is Austin Wines on for Michael Turn. Thanks for taking a question. I wanted to talk to the recent restructuring and just how it's progressing and any impact that you call out as it relates to sales productivity or efficiency as well as sales coverage.

Speaker 4: Often, right? I mean, it just wasn't clear.

Speaker 4: Yeah, awesome for my thanks for the question. So yeah, we did go through another restructuring round at the beginning of the year as I noticed everybody was 11% of our headcount at about 16 million of savings. As always, these things are prepared a bit earlier and we're looking at things.

Speaker 4: Towards the end of the year we were hit like most companies by a couple of waves the first wave was the post-COVID wave You know many folks were considering whether the year is gonna be better than a 2019 or worse than a 2019 And then when the post-COVID kind of wave hit people are looking more like a pre-COVID behavior I think the second wave that had everybody is the question of oh my god. Is this a recession looming?

Speaker 4: Part of what played well for us and so far is our ability to cut is that we have achieved kind of a quantum leap, this electron jump around things that we have developed over the past three years around events and move into RTC real-time conferencing. So by the time we ended 2022.

Speaker 4: We could have reduced some of the efforts there without impacting the products because they were already launched. They were already out there and obviously we want to continue to develop fast. But if we need to slow down a bit, it doesn't take away the fact that we've already landed. And we're now in this new market that we could afford to spend a bit less around engineering. And then from a good market perspective, we've increased materially the amount of people in recent years.

Speaker 4: So we have enough people to come out to address the growth that we're expecting, is in there to support a 30, 40, 50% of course not. But for where the business is currently growing and where the world is right now, and the degree of demand that's out there, I think we're in a good place, and we're seeing the people well utilized.

Speaker 4: Moral is high. We've not seen any voluntary departure that's significant. In fact, it's lesser than earlier periods And I could say that people in the company feel very good about what we've done and the fact that we're taking good care of the company People inside and outside the company are well aware that we were profitable in 2019 and 2020

Speaker 4: When the number one question at the time was, why are you profitable? Why aren't you growing faster? And we said, Sue, us for believing a business needs to be profitable before it comes into a new cycle of investment. So we're still there. We're trying to manage things in a careful way. We have the right amount of salespeople to address current demand. And we feel we're well balanced.

Speaker 9: Yeah, that's helpful. I just want to follow up. Just on your approach towards guidance and it looks like there's a pretty significant reduction in professional services revenue that's here. Just your conservatism that you're embedding in the guide. I guess for your outloads, does that include any improvement or deterioration in the macro or do?

Speaker 4: that this will be the degree of reduction. And it is continuing to go down, but we're going to need a way to see. But no, there's no optimism baked into that. But there's also no fundamental belief that something catastrophic will happen. We're just saying we're looking at the last year. We're seeing how so many people have spent less on professional services. And we've made this shift towards recurring.

Speaker 4: and we'd like to set the bar lower so that we're not running after every dollar out there, rather looking into building a healthy business. That's a SaaS business and we're mainly keeping our eyes on the subscription recurring revenue of the business, which is a sticky part. Obviously, the fact that we can customize and enable

Speaker 4: companies to tightly integrate our offering into the work flows is a huge plus. And one shouldn't mistake the fact that we are reducing the revenue from professional services to the fact that our customers could actually integrate, customize, and do a lot of things. They just don't necessarily need to pay us to do so.

Speaker 4: And so it's still a very big differentiator and one that keeps our gross retention numbers high as is said earlier, but we are reducing the expectation of how much money we're going to recoup and hopefully surprise for the better.

Speaker 10: Thank you.

Speaker 10: Thank you.

Speaker 2: Our next question comes from Michael Funk with Bank of America. Please proceed with your question.

Speaker 9: Yeah, thank you for the questions this morning. First, during the prepared remarks you mentioned increased pricing pressure in the market. One of them is you quantify that for me, whether it's 5%, 10% pricing pressure. And then, you know, second part to that question.

Speaker 9: Are you seeing existing customers ask you for reduction in pricing and are you offering that to maintain a very strong GR?

Speaker 4: Yeah, thanks for the question, Michael. From the quantification, it's obviously hard because we're not in a business of, you know, hundreds or thousands of small, medium customers. We're in the larger business and such. There's not a trillion deals on any given point that are being discussed. You know, they're vast, vast.

Speaker 4: You know, the 5% is something that could always happen. That's not even an example of anything macro happening, but we are seeing things that are happening that are north of 10 sometimes at a competitive nature. And so far as how do we react to it? Again, generally we're seen as the premium product in the market and people appreciate the additional value.

Speaker 4: Mostly in the past and in the present as well, we wouldn't deal though we are more expensive because we have greater value to offer. And so what quite often happens when people are in that situation that they're seeing lesser prices by competitors is that we're able to recoup that with additional value and not necessarily with lower cost.

Speaker 4: or lower price. So that, you know, we have quite a lot of products. As you know, the staff that most of our customers use three plus products from Kultura, we've launched new ones. And then we could come and say, look, it's more for the same or more for a bit more as opposed to the same for less. And we're able to provide additional value. But again, it's a case by case. It's not everywhere.

Speaker 4: Do we have existing customers that have requested certain reductions here and there? It's not something that's happening everywhere, not at all. But there are cases of this, and we are, as I mentioned earlier, discussing with them, should that be re-could-by-way value, or should that be by-way reduction? And if so, what type of service should we reduce accordingly?

Speaker 4: So that it doesn't impact our margins and it's a fear situation. And in some cases we're able to find whether they need something less of something in order to be less of. But that's not the majority again. You can look at the gross retention numbers. The numbers that you wrote on the chair earlier and we had the lowest.

Speaker 4: growth turn number on a quarterly basis for five quarters for the last quarter. These numbers are inclusive of any form of loss recurring revenue, whether it is through full turn or any form of reduced number. And so if we're at a lowest turn that we've asked for five quarters, that's an answer that we haven't had any material reduction that goes across our customer base.

Speaker 5: And also Michael, as we mentioned before, when we look on the trends around the NDR, first of all last quarter we say that maybe it will go down by one or two points. It stabilizes on the same number right now. And as we mentioned, we see the trend turn around.

Speaker 5: and we believe that it will start to pick up starting Q1 2023.

Speaker 9: Yeah, I spent that out there would be a nice trend and you know, certainly better than expected in 4Q and you know

Speaker 9: The same line of thinking on your comment about premium product. How should we think about required investment in R&D to maintain that differentiation or premium product status percentage or revenue? What's the right level of R&D to maintain that positioning?

Speaker 4: As I mentioned, we have made this kind of a quantum leap that is brought us to where we are now. At this point, we feel that we don't need to increase our R&D spend in order to achieve the growth numbers that we're planning and then some. We have more than enough to be able to flow forward and to be able to deliver a much greater growth.

Speaker 4: Are we in a position now to continue to further cut back in R&D and reduce the numbers? That's not our plan. We don't think we need to. Definitely the numbers suggest that to arrive at profitability we don't need to. We definitely believe that growth numbers will come back. We are now at historical lows for growth numbers compared to what this company has always done pre-COVID. We believe that in the macro shifts.

Speaker 4: the company could grow faster, but could the percentages continue to come down materially? The answer is yes. Again, in the last three years we've made a very audacious jump from the world of content management into the world of events in real time. It was, as I mentioned in the past, a seven-level jump.

Speaker 4: starting with a new set of technology with real time, moving into a new set of products with events webinars and virtual classroom, moving into a new set of buyers, to the CMOs and use cases with marketing, a new form of selling with more low touch and self-serve and even more so sales for channels because of that. That's a lot of change and we've gradually moved across into our company to have accommodated for that.

Speaker 11: before.

Speaker 9: Thank you for the question and all the comments.

Speaker 10: Thank you.

Speaker 10: Thank you.

Speaker 2: Our next question comes from Ryan Koens with Needham and Company. Please proceed with your question.

Speaker 6: Thanks for the question. I wanted to circle back to the transition to self-service. You've been talking about me the earlier question. Maybe I want to ask it a little different way if I could. I certainly understand the drivers there around. You're driving down customer costs and reducing friction on the onboarding. Where do you feel like?

Speaker 6: The product set is today in terms of where you want it to be. Number one and number two, you know, how are you seeing the business trends on the self-service side avidat in your bookings? What recently? Thanks.

Speaker 4: Yeah, thanks Ryan. It's early days right and we've set that expectation from the beginning that when you're coming into so many new things from a revenue perspective everything that was expected to come is complete upside. And so from a usage, you know, we started operating this machine, putting it out there, starting to work with the first customers to make sure that they get what they want. We're getting...

Speaker 4: later into a significant revenue. Right now we've also adjusted our cost basis from a good market to be very limited. So we have not put significant spend on marketing or significant spend on resources around insight sales or commercial sales to be able to work around this file. Because from our point of view, we wanna make sure from a product market fit in the initial users that this is working exactly like this.

Speaker 4: I've folded forward myself served, but I'd say that again throughout 2023, they'll start picking up and it'll definitely be a major contributor to 2024 and beyond on the gross side.

Speaker 4: That's great, Ron. Thanks so much. All right. No, thank you.

Speaker 2: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from Pam Milwaukee with KeyBang Capital Markets. Please proceed with your question.

Speaker 12: Thanks guys, that's Tom Blakey with Keybank. My question or a couple questions here is first and foremost about this guide, and I think a lot of my peers have dug in here, but just maybe trying to ask it a different way in terms of visibility, if I may. Trying to reconcile the moving pieces, right? Where?

Speaker 12: I think we're all on the call here and about the good AR number this quarter, but then like the second half seems to have slowed down in terms of RFPs and some cautious guidance there. Just want to maybe just circle back on the visibility of the 23 died, especially even in the last two answers ago, you seem pretty confident about it. Let me follow up for you, Ron. Yeah, again, it's a balance what you're looking at.

Speaker 4: the lengths of the cell cycles and insofar as the amount of meetings that are set, they're now improving, but it is still a lower budget year for many, many companies. So we're coming at it in a cautious way, in a conservative way, in a thoughtful way. As we look into the year, we have strong visibility as expected into Q1.

Speaker 4: and you may see that the numbers there versus earlier expectations are trending well. But as you look into the rest of the year, albeit that we're expecting for the growth rates on a year of a year basis on recurring to be higher than the last recorders as we've noted, we're not baking it into the current guidance, a significant pull-up.

Speaker 4: We are trying to be cautious because we just don't know what's behind the curtain in Q2, Q3, Q4. It's early. The cycles are not cycles that will give us enough visibility into much later in the year. And so we're just taking one day at a time and we're...

Speaker 4: laying a very clear foundation for the first quarter based on what we know and we're laying a cautious middle of the road You know good and bad view into what could happen later for my point of view

Speaker 5: You're on. Yeah. One thing that is important obviously last quarter we say that in Q4 we see a very nice pickup and sequential bass and we deliver it even better than what we say. And as Ron mentioned we do have a very strong visibility into Q1 and therefore we guided this way for Q1.

Speaker 5: but going into the second part of the year based on everything that's happening around us we are trying to be very careful and to do it a quarter by quarter

Speaker 12: That's helpful. And then you're on maybe just continuing on with you about the break even guidance into 24 and the single digit numbers that you got into in terms of bottom lines in 23. We've talked about a lot of different companies through this period of post-pandemic cuts and slowdowns and macro pressures.

Speaker 5: confident. Even the numbers that we deliver for Q4 as you can see it's better than what we guided before I think we have a very good control on it and we are doing it in a very thoughtful way. I believe that the actions that have been taken at DC and early late last year.

Speaker 5: And the way that we manage our budget right now, we feel that in terms of profitability stability is less just a little bit in case low.

Speaker 5: We have a very good visibility and control on the numbers and we will eat the numbers Even in a scenario that it will go a little bit even south-fair which we do not expect at this point The short answer is I feel very comfortable with the bottom and a cash flow numbers Hopefully we'll be able to over achieve even

Speaker 4: So Tom, I made the point in this script that, you know, for the last couple of years, the public company, but that's been the case also, the private company we've hit the numbers at the bottom line. And notwithstanding surprises on the top line, and we all know last year was not a good year for us, for the industry, for the world. And so we're able to move around and do what's needed to be done.

Speaker 4: You know, we're not necessarily going for the most populous resolutions. The last year we didn't slash everything way at the beginning of the year because back into that seven degree change that we did, we'd be cutting ourselves short after a multi-year effort if we didn't stick to landing and complete. The type of products that we wanted to enter into this new market that are sure is a lot more growth options for us.

Speaker 4: And so we made sure we completed that and then unwinded what we needed to have unwinded. And I think that was the smart, wise, cautious thing to have done. So now we're entering this phase with additional assets in our hand. And we're able to have reduced our costs and still maintain the right amount of cash and to be able to balance the company back.

So that's what we're looking at. We feel very confident our ability to manage cash and to be able to address and deliver on bottom line and at the same time to have a true option to continue to grow this company or in short come back to profitable growth, which is what we promised.

Yeah, so good adjustments here and look forward to 23. Good luck guys. Thank you for the question and answers. Good luck. Appreciate it.

There are no further questions at this time. I would now like to turn the floor back over to Ron for closing comments. Yeah I'd like to thank you all for your continued support and great questions with wishing all of us a very healthy 2023. It's been an interesting year for the world in 2022.

We at Coutura are a company that really believes in open and flexibility and collaboration or a great promoters of pluralism. And we're hoping this year would be a pluralistic year for the world of large and a successful one for industry and specifically for Coutura. Thank you so much for your time today. Have a beautiful day.

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

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