Kaltura Inc. Q1 2023 Earnings Call

Yes.

[music].

Good morning, everyone and welcome to the Cal for a first quarter 2023 earnings call all material contained in the webcast is a sole property.

And copyright of <unk> with all rights reserved for.

For opening remarks, and introductions I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Thank you and good morning, with me today from Couch or Iran, Uchitel co founder Chairman and Chief Executive Officer.

When you Ron Kubacki, Chief Financial Officer.

Ron will begin with a summary of the results for the first quarter ended March 31, 2023, and provide a business update.

Ron will then review in greater detail the financial results for the first quarter of 2023, followed by the company's outlook for the second quarter and full year of 2023.

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 <unk> expected future financial results and management's expectations and plans for the business.

These statements are neither promises or guarantees and involve risks and uncertainties that may cause actual results to differ materially.

From those discussed here.

Important factors that could cause actual results to differ from forward looking statements can be found in the risk factors section of <unk> annual report on Form 10-K for the fiscal year ended December 31, 2022, and other SEC filings, including the quarterly report on Form 10-Q for the quarter ended.

March 31, 2023 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 counts where it assumes no obligation to update or revise them, whether as a result of new developments or otherwise except as required by law.

Please note, we will be discussing a non-GAAP financial measure adjusted EBITDA during this call.

For a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP metric. Please refer to our earnings release, which is available on our website at www dot investors Dot <unk> dot com.

Now I would 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 first quarter of 2023, or $43 3 million up 4% year over year and subscription revenue of $40 4 million up nine.

A 9% year over year.

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

This quarter, we posted record subscription revenue and our year over year total and subscription revenue growth rates were the highest since the first quarter of 2021.

Subscription revenue represented a record 93% of total revenue up from 89% in quarter. One 2022 as our revenues from professional services continued to decrease due to our increased code activation and evolution towards low touch products.

We're also encouraged to see our net dollar retention improve as predicted.

While we do not provide a formal forecast where this kpis.

It may still fluctuate we believe it will continue to do better than what it was in the second half of last year.

We continue to focus on our plan to return to profitable growth and achieved the lowest adjusted EBITDA loss of the last six quarters.

Once again, we reaffirm our goal of achieving a single digit adjusted EBITDA dollar loss in 2023.

A positive adjusted EBITDA in 2024.

Regarding cash flow, we materially reduced our cash consumption from operations in this quarter to $7 4 million compared with $19 6 million in quarter one 2022.

As we discussed on our last call. We believe the majority of our expected cash consumption from operations for the year occurred in the first quarter due to typical seasonality of the partial impact of our January budget cuts.

We expect a significant improvement in our cash flow in the next three quarters and to achieve cash flow from operations breakeven during 2024 with sufficient cash reserves.

As stated before we were adjusted EBITDA cash flow from operations profitable in 2019 and in 2020.

And are committed to the goal of getting there again soon independent of our topline growth.

Moving on to a business update.

We continue to benefit from the secular trends shifting business processes from physical to online and personal interactions from in person to remote.

This is leading to the full digital transformation of companies and industries with video increasingly playing mission critical roles.

This new world with video at its center requires new engagement models with customers, a new skill sets where employees.

For example, this quarter one of the largest banks in the U S launched a remote both advisory service based on <unk> platform.

I mean part of the bank's financial consultants.

To connect in a more meaningful digital way, where their prospects and customers, enabling them to improve their reach and effectiveness.

Easily producing approving and sharing videos and incorporating them into events and seminars.

We also continued to see new and existing customers consolidate around culture, a single flexible platform that uniquely caters to all video needs, including internal and external use cases, and all types of video delivery on demand live in real time.

Many companies with different platforms and vendors to power for example, their video content management and portals internal events training in town halls, and external events and Webinars.

Recent Forrester webinar stated that 60% of organizations or even using multiple providers to just power their events some of as many as seven different providers.

Companies increasingly appreciate the great value consolidating around a single vendor.

This unnecessary complexities streamlines workflows eliminates content silos and is far more economical and therefore, especially appealing in today's challenging financial environment.

So the first quarter is typically our softest for new <unk> bookings and we expect this year to be no different bookings grew compared to the same quarter last year.

Spite, having fewer ramp quota carrying salespeople.

This translates to a meaningful sales productivity improvements.

This also marks our second consecutive quarter with higher new bookings compared to a year ago.

Following five earlier quarters of year over year <unk> bookings to clients.

The biggest contributor to new business. This quarter continued to be the enterprise segment, and which half of our <unk> bookings came from new customers, which is more than recent quarters.

Greece was not just to new customers, but also in our average deal size, mostly thanks to the broadening of our product portfolio in both our E&P and MLP.

To that end this quarter, we closed five seven digit contracts with insurance banking Tech and media companies for them new customers.

Our sales pipeline for the rest of the year is growing with great opportunities across all sectors.

Leading indicators of support and expected continued growth in new bookings, including growth in the number of sales meetings set by our <unk> and in the number of RFP submissions compared to the numbers in the second half of 2022.

We're also boosting our marketing activities. This June with the relaunch of our physical industry events for the first time since 2020 pre COVID-19.

This time, we decided to get closer than ever to the market with the.

Series, a five events that will take place in New York, San Francisco, Atlanta, London and Berlin.

<unk> connect on the road 2023, we will discuss how to achieve greater engagement improved learning training their collaboration and increased leads adoption and retention with fewer resources using advanced video experiences.

Attendees, including marketing training learning it professionals that event technologists, we will hear from top industry speakers and participate in workshops geared towards creating action plans for increasing return on investment through meaningful engaging digital interactions.

Lastly on the product development front during the first quarter, we continued to evolve our events platform, our webinars product at our Apis and developer tools.

We introduced a set of advanced capabilities that make complex events easier to launch and operate.

Further reducing the need for services. These include single sign on templates customary data supports an automated certification workflows for continued professional education.

We also expanded usage and session analytics and enhance our integrations with marketing automation systems.

We also launched several capabilities that increase the benefit of consolidating rankled throughout to power all video types of needs on demand live in real time video types for internal and external needs Greg.

For example, with <unk>.

What's the ability to aggregate user data across all go through our products, including events Webinars and video portals, which now enables customers to collect presents and gather user profiling.

Sites across all products to further increase personalization interactivity engagement and return on investment.

Whereas another example, we launched a new showcase page, where all customer events and Webinars passed an upcoming are visible.

Allows customers to share their full event schedule and consolidate all the relevant content in a single easy to find location that can be embedded anywhere.

Immediate telecom front, we continue to enhance and expand the footprint of our front end TV application for over the top set top boxes smart Tvs in connected devices, which launched commercially for the first time last quarter and is now already live with four television operators.

By adding a set of front end experience applications to our backend platform.

To provide an end to end TV offering for our media telecom customers.

This increases our average deal size and strengthens our competitive positioning and stickiness and also enables future introduction of additional revenue streams from user insights and advertising.

In summary.

The results of the first quarter allow us to remain cautiously optimistic about the rest of 2023.

Some of the industry headwinds that we experienced in 2022 are still present, and we see customers continued to tightening budgets and delay purchases.

We are encouraged to see early indicators of improved market demand translate into a year over year growth in sales force productivity and new bookings.

And our expanding product portfolio is encouraging companies to consolidate a radical drop, especially in the current financial climate, which has resulted in an increase in our average deal size.

We've made progress towards improving our adjusted EBITDA and cash flows from our operations in the first quarter and remain committed to the goal of returning to profitable growth.

I mentioned, we believe that most of the cash flow from operations burn for the year is already behind us and we are.

Reaffirming our forecast for a single digit adjusted EBITDA loss this year into achieving a positive adjusted EBITDA and cash flow from operations breakeven in 2024.

With that I will turn it over to your own our CFO to discuss our financial results in more detail.

Thank you Ron and good morning, everyone.

As they review the first quarter results today. Please note that I will be referring to our non-GAAP metric adjusted EBITDA.

A reconciliation of GAAP and non-GAAP financials included in todays earnings release, which is available on our website at www dot the inverse does that Kultura that's cool.

Total revenue for the first quarter ended March 31st 2023 was 30, $43 3 million or 4% year over year.

Exhibition revenue was $40 4 million up 9% year over year, while professional services revenue contributed $2 9 million down 39% year over year.

The remaining performance obligations were $167 4 million down 2% year over year.

Of which we expect to recognize 58% as revenue, although the next 12 months.

Annualized recurring revenue was $159 6 million up 8% year over year.

Our net dollar retention rate was 102% in the first quarter.

In Q1 2022.

Within our E&P segment total revenue for the first quarter was $31 3 million up 5% year over year subscription revenue was $29 9 million up 8%, while professional services revenue contributed $1 5 million down 31.

1% level.

We know MLP segments total revenue for the first quarter was $11 9 million led to year over year.

Revenue was $10 5 million up 12% the holder, while professional services revenue contributed $1 4 million down 45% year over year.

GAAP gross profit for the quarter was $27 3 million, representing a gross margin of 63% the same gross margin.

Q1, 'twenty <unk> two.

In our E&P segment gross profit for the first quarter was $22 8 million, representing a gross margin of 73% up from 70% gross margin in Q1 2022.

We know MMP segment gross profit for the third quarter was $4 5 million, representing a gross margin of 38% down.

The 6% gross margin in Q1 2022.

GAAP net loss in the quarter was $12 8 million.

109, they look at sure.

Adjusted EBITDA for the quarter was a negative $2 7 million improving from a negative $8 4 million in Q1 2022.

Turning to the balance sheet and cash flow, we ended the quarter with $77 million in cash and marketable securities.

Net cash used in operating activities was seven $4 million in the quarter compared to $19 6 million in Q1 2022.

I would like now to turn to our outlook for the second quarter of <unk>.

2023, and for the fiscal year ending December 31st 2023.

In the second quarter, we expect subscription revenue to grow by 5% to 7% to between $39 9 million and $46 million.

Total revenue to increase by two focusing to between $42 8 million and $43 7 million.

We expect a negative adjusted EBITDA between $1 5 million and $2 5 million.

For the full year, we expect subscription revenue to grow by 14, 6% to between $158 6 million and $161 7 million and total revenue to grow by zero to 2% to between $168 8 million and 170.

$2 2 million.

We expect that the full year negative adjusted EBITDA to be between $5 million and $8 million.

In summary, though we are still encountering industry headwinds, we met our internal expectations of booking retention revenue profitability and <unk> for this quarter.

And in light of the early indicators of improved market demand. It's Ron spoke about are cautiously optimistic about the rest of 2020 suites.

We expect revenue from professional services to continue to decrease.

Gibson revenue to continue to grow faster than our total revenue.

Notwithstanding our topline growth, we remain firmly committed to our goal to return returning to profitability.

This means meeting this year single digit negative adjusted EBITDA forecast and positive adjusted EBITDA next year.

Cash burn we believe that most of this year's cash flow from operation losses are already.

And we plan also to achieve the cash flow from operations breakeven during 2024.

We have sufficient cash lease out with that we will open the call operator.

Okay.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the wondering your Touchtone phone.

Three Tom prop acknowledging your glass my questions will be pulled in the order they are received.

With the decline from the polling process. Please press star followed by two.

You are using a speaker phone please lift the handset before pressing any one.

One moment. Please for your first question.

Question comes from Gabriela Borges with Goldman Sachs. Please go ahead.

Good morning, guys. This is Jake <unk> on for Gabrielle Hi, Thanks for taking our questions I just wanted to ask about the improvements that youre seeing in sales productivity do you think that's a function of the market environment and getting better or are there specific actions that you've taken internally to improve that productivity.

Hey, Jake Thanks for the question and Hello to everybody pulled down the line.

We think it's.

It's an improvement in both starts but let me give you some more color on where things stand by way of <unk>.

What can behavior. So we've noted that it was higher than the first quarter of last year in the second quarter of year over year bookings increase and thats after like fiber earlier quarters of year over year decline.

Bookings were as usual from the enterprise side.

<unk> bookings this quarter came from new logos as opposed to in the past. So the ratio in enterprise is now back to about 50 50, which is.

After Covid went down so that's a good average deal size continue to go up.

Geo split channels booking from services Hasnt changed much its mainly North America 10 percentage from channels and services declining.

But the rest from our marketing top of funnel indicator as we said there's more visitors to our website the better a year ago and we have more meetings set by <unk>, we have more RFP submissions, notably than second half last year and we also have a higher win rate percentage its actually higher than all of last year's quarters on the win rate.

And so kind of we try to figure out what's what's changing well tailwind.

Still the same shifting work stream online, but now it's even more because people want to save money by reducing travel costs.

We did speak about the fact that the fact that they could cut vendors and consolidate around culture is really exciting.

And the new products that we've brought to the market around events are now added to the interim loan products that we've had which is great.

So that's good we are seeing more events and used by other types of companies and before that was predominantly pack and all it's across all industries and our media and Telecom. We also recently added new front end, which is also increasing our pool and so we noted that we still see the headwinds are still the macroeconomic situation and customers are still.

Reducing budgets you still have incumbent vendors lowering prices, but when you factor all the other stuff, including all the new trends around Rebooking.

Then we think it was just the back when the result of potentially a bit above the market, but also our products coming to market, which make a difference.

Lastly, we said we have $5 seven digit deal.

One large media services deal.

It's a paas platform to service with a very large and well known new logo Tech company.

And our consolidated multiple vendors on couture, you've got three enterprise SaaS deals for both internalized streaming webcasting and external virtual and hybrid marketing events with Fortune 50 company banks insurance companies and these are new logos, we got more around the media and telecom.

That's a media company. That's also factoring on our front and so I think our product strategy is affecting and we're seeing the pipeline growth does that address your question Jay.

Yes, that's a great answer I just wanted to pick up on one of the things you mentioned on there being higher win rates I know in the past couple of quarters, we had talked about pricing pressure just from some sort of lower cost competitors. What do you think is driving those higher win rates and maybe just talk about the competitive environment overall.

Yes.

It's a good question. So first of all for the new logo win rate was notably higher than anything you'll be earlier quarters that did come down a bit.

I think that.

Maybe the situation is that people want more because we're seeing a lot more consolidation deals and the and the value and that the virtue of data gone up that's number one number two hopefully and potentially as markets do a little bit better if people come out of the shell shock of the second half of last year, and having a premium product like <unk>.

While regardless of the exact price, whether it's higher or even stay and we did say that the existing incumbent vendors are reducing prices in some cases.

Maybe now they're saying you know what.

In the second half of last year, it was enough to delayed decisions or or go their way, but now that we're back to breathing normally or a bit better than we're willing to go the colter away, which is better products and more consolidation.

So I think that that'll be the best reason, the other thing and again theres the undercurrent.

Our new products that we've launched around event platform et cetera to continue to strengthen and with them are further offering around consolidation.

I think it was just a more powerful offering on one hand and on the other hand, the markets that are maybe more willing to understand the value and willing not to go the other way with much cheaper prices with lesser vendors out there.

Great. Thank you very much.

Appreciate it.

Your next question comes from Matt Nick <unk> with Deutsche Bank. Please go ahead.

Hey, guys. Thank you for taking the questions just two if I could first on <unk> one.

Wondering why it was relatively flattish sequentially. Despite some of the larger deals you referenced so I'm wondering if there are larger deals that were booked that maybe haven't yet been implemented started billing and then maybe on a related note.

You can talk about the linearity of new bookings in the quarter, particularly given some of the macro choppiness in March and the restructuring that took place earlier in the quarter. Thanks.

Yes, let me take this one and we're gathering data around.

Jessica matter of timing of revenue recognition there is a delay from the time that we see the momentum picking up as Ron mentioned.

The time between book fully book It and then we recognize revenues. So if this trend will continue for the rest will be definitely we should see some pickup in deal out numbers.

And so this is addressed probably your question, but what was the second part I missed it.

Just around the cadence of the bookings so was there any drop off in March.

We saw a lot of headlines around financial industry, maybe taking a little bit longer to make decisions. So I'm just wondering between that between the restructuring you had earlier in the quarter did you see maybe any.

Lower bookings activity in March or any push outs from March into April given longer sales cycles.

No no the general comment that we made before the sales cycles are longer still probably apply and we'd still valid but to tell you that we saw some declines in the second part of deal going into the beginning this quarter.

The answer is no we don't see any significant change in the trend.

I wanted to add to the first question about just the overall remembering.

The way, we've always looked at <unk> is not <unk> not committed or contracted they are but it's a different number we basically take the subscription revenue and just make some corrections for ASC 606, so its a glorified subscription revenue kpis. The reason, we didnt want that's from the IPO from the moment, we started reporting we didn't want to add.

Contracts that were signed even if they are assigned to the <unk> because some of our deals take longer to implement especially media and otherwise we don't want to put in a CLO number that's going to take a few quarters, maybe sometimes to watch and that could be confusing. So.

The fact that we closed deals throughout the quarter. If there were not recognized as revenue throughout the quarter that are not defined as <unk> anyway, and so you wouldn't see that Thats number one number two let's remember that it is a softer quarter than most like we've always said in quarter. One. So we have good deals still going well, it's going to do better than we had planned so things are going in the right direction.

But it sounds like this is a huge revolution this or the other.

We're also thoughtful about the rest of the year. So such that lastly, I want to say about E&P versus LNG and trends and you said about <unk> growth et cetera, you could look at the subscription revenue that E&P. This quarter group last time. It was S&P that actually group, we have a lot of that sometimes it's one sometimes it's the other.

They are clunky I'm in tears, and sometimes there's big projects that come in and they are influencing especially nonrecurring so ill.

Note that this quarter and we said that last quarter that we're going to have a revival of BB&T. There was a subscription sequential growth as well as the nonrecurring sequential growth from the last quarter, which is not what happened in <unk>.

<unk> was a bit of a kind of a flat quarter inch but we expect that to continue to change throughout the year as things come and go.

And lastly on the question around March specifically, no nothing bad happened in March specifically compared to earlier in the quarter was as expected and Thats why the bookings for the quarter closed okay.

I said, we're already factoring into our numbers the slowdown, but all in all when all said and done we're still seeing better productivity than before.

That's great. Thank you both.

Thank you Matt.

Your next question comes from George <unk>.

Nick with Oppenheimer. Please go ahead.

Thank you for taking my question, maybe digging into the success you are seeing on the consolidation front.

Can you maybe can add some perspective on the type of traction you are seeing from the low touch effort with the sales productivity gains.

Yes. So again, we always said that the low touch in a no touch are just starting now and so that's not something that we've put in the model for ourselves we have very low numbers for 2023, and it's all upside and the numbers are expected to make a difference in 2024.

We started putting a few people on the low touch sales and they are working and contributing in selling but it's a very handful of people, especially given all the chip cookie and adjustments until we have the exact good feel around the product markets et cetera, and in the no touch it's really around our new Webinars product launch in Q4 for those of notice we just launched a.

First large campaign around Webinars, just came out literally a couple of days ago.

You can see it also on our website, there's a very nice video there I think it could go pretty viral promoting and stuff and free trial for the product you're invited to try it yourself and see what you think about it we think it's a great product and it's going to make a difference for right now on the numbers definitely for quarter, one and not even for the majority.

A 2023, that's not a short term accelerator midterm accelerator that you expect it to move numbers through 'twenty, four and beyond but we're equally committed there is nothing that has shown up in our analysis of <unk>, that's causing us to think that this is different than what we anticipated is just not an immediate impact on the revenue numbers.

Okay.

And <unk>.

Maybe you can spend some time digging into that new customer success that you're seeing at the moment are you landing in any different ways smaller Baker.

Maybe some comments on <unk>.

Where you are landing by use case as well.

So no. It's a combination it's not very different in recent in the sense that.

We have a wide array of industries I, just said earlier about some of our big deals there.

Large tech one there is another one.

Insurance there is another one that's health care there is another one that.

Cloud PV Theres, obviously more things around EU I mean, if you take also the six digit deals.

Very nice contract with the defense industry wide manufacturing we had.

If you look at our current pipeline.

Around the World also in Europe , we have one of the largest software companies, we have a very large European bank.

We have a large Indian service for a large U S retailer another health care provider.

So its pretty wide.

And from a size of deals like we said the new the RPE is going up and the reason it's growing up again is that increasingly people are going for.

The combined offering that are both internal and external if you recall when we IPO stat, but said that half of our customers use three plus products. It's always been a strength for the company to have a unified powerful horizontal platform the theaters across use give some products and when we said that in 2020 and beyond we started adding external use cases.

More products, we said that we know that thats going to bump.

Our ARPA and graduates can also bump our net dollar retention and we're just seeing bigger deals some of them in the financial services have recently grown three to five X compared to the original entry point. So we expect to see more of that as these products become further mature.

And now you're on and maybe just one question for you can you give us a sense about.

What youre expecting from an investment pace this year.

And that will be taken into a little bit the seasonality comment that you talked about.

Can you say it again, when you say investment grade could you clarify.

Sure just from a pace of investment the share or are you comfortable with the spending that level you are at right now.

Yes.

Your comments on seasonality can you kind of taken from a visibility standpoint and guidance.

Yes, yes so.

First of all regarding the investment.

Expense base that we have right now.

We basically completed obviously all the exercise that we have done.

Dave.

First reduction most of it started to impact Q1, and then it will continue to give us some benefit in Q2, so the trend the bottom line.

Is going to continue.

Into the rest of the year.

The most important part from a seasonality point of view is related actually to the cash flow situation.

Most of our cash burn for this year as we mentioned.

Earlier.

As already we already took place in Q1 so.

Number that youll see in cash flow from operation, which is a negative of $7 4 million representing may feel part of the overall spend it we will let the seal. So the second part of it is definitely going to be.

In a completely different number.

Area and by the way it's already a significant improve you saw the same trend last deal, which we started with $20 million in Q1, we've now had seven four and it's going to turn it around completely in the second part of the year.

I would just re highlight that things are going I would just restate the things are going according to plan.

And there is no surprises for us so nothing in the results was off for US adjusted EBITDA was where we thought it would be and as we look at the rest of the year, it's still where we're thinking it's going to be.

We're trying to be very thoughtful about guidance for the year still it's in the first quarter of the year in a very turbulent year for the entire industry in the world and so we're taking it easy.

But our confidence level is rising because we're at quarter end.

We only had a partial impact of our January cups, this quarter, and we will have a bit more of that impact next quarter and definitely the rest of the year and we are continuing to head towards better a better adjusted EBITDA numbers.

And then we're going to hit the number for the year, we've always hit our numbers on the bottom line, both adjusted EBITDA and cash flow will remind you we were profitable both cash flow ops and adjusted EBITDA in 2019, and 2020 and also our track record has always hitting the numbers that happened in 'twenty, one now, but even in 'twenty two when revenue numbers were off and so we.

We're very comfortable about the numbers that we've provided and the breakeven situation that we mentioned in terms of adjusted EBITDA for next year is still very valid.

We are planning growth as mentioned to be.

Fueling deal cash flow positive.

Cash flow from operation.

Next year.

Thank you again.

Thanks. Your next question comes from Michael.

Turning with Wells Fargo. Please go ahead.

Hey, guys. This is often Williams locker Michael turn.

It looks like the net dollar retention was up pretty meaningfully over the last quarter.

I was just wondering if theres any outlier deals that are helping to drive the bigger uptick in expansions here and there.

If there is any any change in what youre seeing on the gross retention side that you could you could add as well.

Yes, it's a good question. Thank you for the question, yes by the way last quarter, when we sold the state.

Towards the second quarter, we narrowed that it was 96% we say all along that it was.

Intermediate situation, it's going to pick up and when we say it's going to pick up we didn't meant for a specific quarter only or a specific deal only and we actually deliver we I think we mentioned that it's probably going to be above 100.

Round one lambda.

And yes. It went all the way to one or two.

To your specific question there is no outlier, there's no specific deal customers pull the number up and therefore, when we look on the rest of the yield we still see better numbers that we so in the second half for flash deal, which was around 96% and we do believe that it's going to be.

Above the 100, Mark for the rest of the year and as I mentioned the most important part is that there is no one outlier and in terms of your question on grocery churn or retention.

Obviously, we mentioned last quarter.

In Q4 last year that it was a very strong gay.

<unk>.

Actually a record quarter in terms of retention rates. It was a little bit less this quarter, but still very strong and not so different from numbers that we sold before so to make a long story short we definitely don't see at this point any change in.

Any significant change in trend in the gross retention and the pickup that you're seeing the net dollar retention rate is basically coming from closing.

<unk> new business for <unk>.

Previous customers and not so much momentum gross retention.

Okay got it.

Also I wanted to ask on generative AI and just how you see that trend evolving do you see this as an opportunity and what are you doing on the product side.

Essentially integrate this functionality if anything thank you.

Yeah, Great question, obviously generative.

Very very interesting and important.

Progress in our industry generally is the big disruptor, and we'll make a lot of changes as we all know in the months and years to come and yes, we're looking at it very seriously.

The value of culture.

As the platform that goes horizontally it goes deeply into the workflows.

Enables us to utilize things like AI, and a much better and stronger way than most.

What we provide is very clear our ROI and videos uses the mainframe that not just the dynamics with the video for the sake of video. It's video for learning video for marketing video for sale video for events video for increasing leads.

And we'll be discussing a lot of that in the upcoming quarter.

Connect conferences.

So while Phil.

Till now we got very strong and very good analytics, we also announced this quarter.

Meet them interconnected across all our products such that you could gather insights around individual users across all the different places its rights to go through the next steps and turn this from <unk> into AI and there's various ways in which we are considering and planning to get this done quite frankly.

Just a couple of years would have been stronger and better we would have already done it was in our to do list is the next big important item.

But we are monitoring our progress and spend accordingly, and so far is where we're putting up the budgets, but it is an important important area for us we think that ideally.

Content could be created on the fly targeted to the right people in the right context on the fly and then the feedback loop closes with a user behavior and we are there as a leading distribution platform in some cases started going up to become the creation platform and we think we could own the entire flow.

The entire shelf life and lifecycle of video from creation to consumption through targeting.

With improving a RMB. So thanks for the question, it's an important area for us.

Your next question comes from D. J Hynes with Canaccord. Please go ahead.

Hey, good morning, guys two.

Two questions on the LNG business. So the first one that is with subscription revenue up.

Services revenue down I would've expected to see kind of a favorable impact to gross margin. So maybe just touch on what's happening there and then second.

More interestingly just with what you talked about this morning. The addition of kind of a front end piece I think you alluded to some incremental revenue opportunities around consumer data mining maybe advertising over time, just how are you thinking about that business evolving.

Yeah, Great question. Thanks P. J. So first of all <unk> has always been a bit of a clunky business.

Which is because it's big deals professional services has a higher ratio and so it could go up and down for this quarter for example.

Yes came down significantly compared to Q4, but Q4 was also an anomaly and it went up and so in Q4. It went up both subscription and NPS and this time it was kind of flattish around subscription went down by PFS and so all in all it's not a big subscription change in FMT and it doesn't grow every quarter. Some cases for example, the re up and they calculate the <unk>.

<unk> of users in a half year basis, our largest contract is in such for example, and so it's hard to make the jumps in every single quarter given that but the business is continuing up into the right I could tell you that we've deployed this quarter multiple projects with new places we've shared I believe that we've gone live with another operator in the eastern side of <unk>.

Europe and they're in a second we will talk to fund and also using our pump and so we're definitely continuing in the right direction and empty, we could expect to see some ups and changes in downs a bit <unk>, but for the year right now when we're looking at it both subscription revenue increase as well as professional services decrease.

On our proportionate percentage level are expected to be quite similar to E&C I'll repeat.

The year over year growth on a percentage basis in subscription and the year over year decline on a percentage basis for professional services is expected to be quite similar by the way note that when you add them together because there is more <unk> than probable empty will overall grow a bit less because it has a bigger impact.

But theyre going to be a well theyre going to vote.

It makes no front end.

Yes, it's for a long time, we've waited to our front end and the reason is that if you control. The end user then you could get back into analytics targeting where commendation and even more so advertising and targeted advertising.

So we were the leaders number one backend system.

And then we started climbing up to offer the suntan, we launched that last quarter. After a fair bit of work towards it and it's already live and growing with many users and doing well are being accepted by more placement and the next natural step will be to get into further insights analytics targeting where commendation and advertising we think we could.

We're in a great spot for that because we know exactly how the users behave.

The consume where they consume what they do and whether you do and we also obviously know the content because we are the content managers, where the infrastructure to deliver the whole thing. We also know their behavior because we are in the front end.

So to optimize targeting if you think in general TV right now is not programmatic unlike online.

A video or a general online advertising and the few delivered the rights offering the right advertising to the right person and the right time in the right context in the right situation the cpm's could be dramatically higher.

It is also expected that the ratio of advertising based online TV or what's called the ewald advertising Vod will be higher than <unk>, and <unk> subscription and transaction. So it will be more and more advertising based inventory out there and so yes. So the natural progression for us we're going to get there I'm going to.

Park that again without comments earlier had it been a great year would've done advanced across some of these things we needed to prioritize very clearly over the last.

24 months more aggressively than we thought originally and so we will get there or not over the next immediate quarters, but its a progression that we believe will enable us to increase our <unk> materially create a network effect and.

The next big Leap in this industry. Thank you DJ Yes, yes helpful color. Thank you.

Thanks.

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

Hey, everyone. Thanks for taking my question guys.

My first question is on <unk>.

Integrations, I know you've talked more about going upstream and selling to CMO as in prior quarters sign a lot of a number of larger deals when spending is seems to be constrained here.

Across the companies that were that were analyzing here just wanted to see does it change maybe here in terms of the integration between with Cal Tara.

Organization systems that would be my first question on the context of what you've seen in the past part of what Youre seeing it.

These most recent deals in the pipe as well.

Yes, so the answer is.

What are the biggest advantage of culture is a very flexible platform Thats API driven all the way from the beginning and then every software has API, but.

But most offers on Britain as Apis, we were first Paas and SaaS and the whole idea was this Lego concept that we build it all very flexibly and then put it together enables us to very quickly add a lot of integrations and to be very tightly connected into the workflows and so likewise, what we moved into the use case of the CMO.

So there is a few things to highlight number one is obviously they have an integrated workflow with everything else in the company. So it's connected to their internal use case. So the same content to go from one to another if somebody created internally and then externally.

And integration is the fact that we have Vod live and real time integrated together in a seamless way and the third by way of integrating to third parties, we have a partner ecosystem with about 120, plus companies already and yes over the last three quarters, we started integrating with more and more biotech technologies, we already have like three or four integrations.

Over the last couple of quarters, and we expect to have probably a dozen over the next year.

So this is running rapidly and the way that it's being added is that we have this generic middleware. If you may that enables us to very quickly add additional ones in a very.

Quick easy and affordable way and so theyre running very quickly.

So the speed there very fast and I think again, we're unique about if you look at all the different players in the world of CMO sales they don't do internal.

They don't do CIO, they don't do HR, they don't do LNG and it's not just cost savings as I mentioned is having an end to end solution that can cater for the different use cases, and they're mixed because even events. For example, a lot of them are internal and a lot of them, it's hard to say, where it starts and where it turns our partners' internal or external.

You need to have an end to end solution to address them, all and we're in that position.

Solid transferring that retention there and then my second question is.

I guess for you in your own about visibility here some comments.

I'm going to go in terms of questions about contracted versus you.

Your traditional way of.

Youre unorthodox way of calculating IRR.

Again with the increase in deal size on your own I just wanted to know what the kind of gating factors are around guidance and ultimately visibility here as we go into the second half of 'twenty three with some of these deals that would be helpful. Thank you, yes, I will let I'll, let your own answer, but I just want to make one thing very very clear you said, an orthodox and I understand what you mean, but it's very important to understand that.

It is conservatives less orthodox and whatever and so what you will.

To call it because it's a much more thoughtful it's much less.

Get excited because we closed a couple of big deals and put in there are a number that's higher so we've always said, let's just keep it real and if it goes up then youll be seeing it when it goes up but go ahead your own fleet.

If you look on the guidance, which we have provided obviously you saw that we did better than what we guided before for Q1 and we provided is solely the guidance for Q2 at the same time, we try to be very thoughtful.

In some way.

The.

To be cautious for the rest of the guidance in terms of the top line, because we don't give us strong visibility just because.

Things are still happening around us and we want to be clear and we want to make sure that we continue to deliver better numbers, but what we are promising so at this point, we do have a good visibility into the outcome of the year, especially based on some of the trends that Ron mentioned before which are definitely some positives.

<unk>, but at this point, we decided to be cautious and not to raise the guidance for the full year and hopefully.

Hopefully, we'll be able to deliver the same triangles beats that we did in Q1.

And it's the same thing regarding the Bottomline numbers that we guided.

You can see that it continued to improve nicely the bottom line and cash flow.

We have a strong visibility into this we took all the actions that we have most of the actions that we wanted to take in order to develop to deliver the bottom line numbers.

And we do have very strong visibility we believe that.

We will be able at least to achieve by the way we already delivered positive bottom line for the company even before we went public so we know how to delete while we are still maintaining solid growth rates.

Parallel to being profitable.

I'll just I'll just add that the first quarter and we said that all the time is not a strong quarter.

Any of the years that we've been around.

And so while we did well.

Not one that would cause us to change everything we think because of that it's early in the year, especially in this crazy year.

And therefore, we need to.

Take it easy and see where things go it doesn't change how the world looks.

Definitely it doesn't take it back.

But for US we werent comfortable enough right now to get forward hopefully whatever questions. We have in place there is still there and definitely the fact that we're a quarter end means that we are even safer.

But we have good visibility, but we don't want to raise the bar and were.

I'm not expecting you guys to raise the bar if you may because we just want to move forward continue executing and deliver good results.

Understood clear and helpful. Thank you gentlemen.

Thank you.

Your next question comes from Paul I'm, Sorry, Pat.

Ravens with JMP. Please go ahead.

Oh, great. Thank you.

From the norm in hotel in Tel Aviv Ron.

Hey.

Alright.

All right.

So two questions one just housekeeping, which is so.

Alright is there in <unk>.

Give me if I missed it is there a chunk of that that's getting paid off.

Pretty soon.

At current.

Right now we are.

Quarterly repayment of $1 $5 million, we know that so we did pay at the end of Q1 Q.

$1 5 million and we supposed to continue to pay for the rest of the $1 50 each quarter.

But at the same time.

By the way, it's not secret between our records defeats SBB loan.

Ill discuss and wait to refi refinance it but other than that yes. It was the one <unk> million dollars payment this quarter.

Okay. This is why right that with the current.

Current liability is that because of something that you do with SBB.

No. It has nothing to do it because of the timeline of the payment.

Towards the original payment schedule Sustainment, nothing changed because of they're actually be situations.

Okay. So when does that mature is that.

When do you have to pay the full amount.

Next year, but as I mentioned, we are already discussing discussion.

In order to refinance and as you can see from our.

Cash project projection and the fact that we mentioned it mixed data dealing data we'd be cash flow positive from operations.

Even if needed to pay all that we still being a very strong cash position, but at this point, we are probably going to refinance those and again, we have some traction from potential lenders.

Okay, Perfect and then bigger picture Ron can you can you talk that you mentioned.

One of the use cases are using video for increasingly.

And particularly in this environment I think everyone needs that so can you talk about where you are a little bit on that and then maybe what you are.

Yeah.

Plenty, maybe be able to do in the future and I don't know.

AI fits into your.

Your plans there, but if it does that would be interesting too.

Yes, thanks, Matt So yes, I mean, the use case that we've moved out to the CMO and we started working on defense as well as Webinars and the whole thing was geared towards measuring interaction and trying to follow up and see what people actually do end up.

On a shelf life of that lead to be able to continue and thank them do stuff with us.

So we're in early days in the sense that we don't have kind of the whole market conditions that continues across the entire lead life to be able to turn that into a full opportunities et cetera, but that's a general direction. When you think about kind of a DXP digital experience platform that is that video.

The general direction as we've started inside and then moved out from learning into marketing.

Just like in TV that I said earlier that we're moving from the back end to the front end and then all the way to targeted analytics is to move from the internal to the external and then to be the cause of better monetization in the enterprise as well fueled by video and to meet and then if you look at todays martech.

They kind of stopped there theyre not so much the engagement platform their moat there mainly the lead management platform on the backend, but they don't bring about the engagement and the opportunity to vertically integrated and be the engagement platform using video that would then also drive and manage the lead process is important.

Again, I'm going to have to put this was part of the general statement is that earlier I had been better.

<unk>, we were planning to do more but this is the direction, we're going and we've put very significant milestones to become that vendor and we're adding very big logos and big names in which we're bringing them all the way to the leads and working with them on the leads so the next step when we get into as you had mentioned AI et cetera, then it will be 100% connected into.

Two.

Maximizing.

The inter activity personalization.

And our ROI around leads that will be the heart of the value of AI for culture.

Thank you.

Okay.

There are no further questions at this time. Please proceed.

Okay. It sounds like we're all done want to thank you all for the call and great questions wish everybody. Good health I think.

As I said the general industry tailwind.

And headwinds we're clear, but also from a company perspective, we feel that we have greater visibility and more comfort on the numbers that we've provided for the year and we're moving forward thoughtfully with all the areas of growth as we had mentioned earlier. Thanks again of a beautiful day bye bye.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

Okay.

Okay.

Sure.

Yes.

[music].

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<unk> is no longer being recorded.

Okay.

Sure.

Okay.