Q3 2024 Kaltura Inc Earnings Call
Speaker Change: Greetings and welcome to the CalTORIS 3rd Quarter 2024 Conference Call. At this time, all participants are an allus and only mode. A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operators to send storing the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erica Mann, Caltora Investor Relations.
Speaker Change: Thank you, you may begin.
Erica Mann: Thank you operator and good morning. I'm joined by Ron Yukutiel, Keltour's co-founder, chairman, president and chief executive officer, and John Doherty Chief Financial Officer.
Speaker Change: Rondal began with the summary of the results for the third quarter-ended September 30, 2024, and provided business update.
Speaker Change: John Will then review the financial results for the third quarter of 2024 in greater detail, followed by the companies that look for the fourth quarter in full year 2024. We will then open the call for questions.
Speaker Change: Please note that this call will include forward-looking statements within the meaning of the federal security's laws, including but not limited to statements regarding CalTOR's expected future financial results and management's expectations and plans for the business.
Speaker Change: The statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here.
Speaker Change: is an important factor that could cause actual results to differ from board-looking statements can be found in the risk factor section of Couture's annual report on Form 10K for the fiscal year and December 31, 2023, and other SEC filings, including the quarterly report on Form 10Q for the quarter-ended September 30, 2024 to be filed with the SEC.
Speaker Change: Any forward-looking statements made during this conference call, including responses to your questions, are based on current expectations as of today, and Kaltura assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law.
Speaker Change: Please note, we will be discussing a non-GAAP financial measure, adjusted EBITDA, during this call.
Speaker Change: 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.investors.kaltora.com. Now I am pleased to hand the call over to Ron.
Ron Yukutiel: Thank you, Erica, and welcome everyone to our third quarter earnings call.
Ron Yukutiel: We reported today total revenue for the third quarter of 2024 of $44.3 million, up 2% year over year, and record subscription revenue of $42.1 million, up 3% year over year.
Speaker Change: In the third quarter, we also posted a record ARR for the second consecutive quarter, as well as a record RPO.
Speaker Change: As for our bottom line, in the third quarter, we posted adjusted EBITDA of $2.4 million, representing our fifth consecutive quarter of adjusted EBITDA profitability and the highest result since the second quarter of 2020, fueled in part by a record gross margin.
Speaker Change: In the third quarter, we also generated a record cash flow from operations of $10.7 million, a significant improvement from $1.7 million in the third quarter of 2023.
Speaker Change: In light of these results, we're once again increasing our full-year revenue and adjusted EBITDA guidance, and are expecting to post positive cash flow from operations in the fourth quarter, as well as for the full year in 2024.
Speaker Change: Moving on to the business updates.
Speaker Change: In the third quarter, we posted both year-over-year and sequential growth in youth subscription bookings for the second consecutive quarter.
Speaker Change: These new bookings were at the highest level since the fourth quarter of 2022 and came from two seven-digit deals and twenty-two six-digit deals across a diverse array of industries, use cases, and geographies.
Speaker Change: New customers included a Fortune 500 automotive manufacturer that is now using our video portal and content management system for internal live and on-demand communication and collaboration.
Speaker Change: A leading training and certification provider that is now using our virtual events and webinars for internal learning and development.
Speaker Change: a leading visual discovery engine that is now using our virtual events and webinars for marketing, sales, and customer success.
Speaker Change: and a North American TV company that is now using our streaming platform for entertainment and monetization.
Speaker Change: A majority of our new bookings came, again, from providing additional solutions
Speaker Change: and powering new use cases for our existing customers.
Speaker Change: including, for example, providing marketing, sales, and customer success solutions to an S&P 500 health insurance company, to a leading provider of an employee experience platform, to a Fortune 100 bank, and to a top-ranked music college.
Speaker Change: from providing communication and collaboration solutions to a Fortune 100 tech company and to a leading healthcare software company.
Speaker Change: from providing teaching training and certification solutions to universities in the U.S. and Europe and from providing entertainment and monetization solutions to telcos.
Speaker Change: Upsales to our customers continue to be fueled by an increased interest to consolidate around Kultura across multiple internal and external use cases, which is also evidenced through our increased average subscription revenue per customer, which was also at an all-time high in the third quarter.
Speaker Change: In addition to growing new bookings, gross retention in the third quarter of 2024 continued to improve year over year.
Speaker Change: And net dollar retention, which, as we stated in the past, is a lagging indicator, started reacting to the recent improvements, bouncing back to 101% after posting 98% in the last three quarters.
Speaker Change: A combination of increased gross new subscription bookings and continued improved gross retention rates has yielded, for the first time since the second quarter of 2021,
Speaker Change: Two consecutive quarters with a year-over-year increase in net new subscription bookings, which is fueling the pickup in our year-over-year subscription revenue growth.
Speaker Change: [inaudible]
Speaker Change: On the product front,
Speaker Change: In the third quarter, we continued boosting events and webinars with automated email scheduling and enhanced our chat and collaboration widgets and integrations with a third-party marketing platform, further enabling our customers to run their marketing automations via their preferred MarTech partner or directly in Kaltura.
Speaker Change: On the Video Conflict Management and Portal side, we completed our integration with Microsoft Teams.
Speaker Change: And together with our other Zoom and WebEx integrations, now offer a comprehensive archiving solution that enables organizations using multiple conferencing tools to seamlessly and flexibly access, manage, and share video content across these leading platforms with a unified workflow.
Speaker Change: We launched an updated VPAT for our video player as part of our continued commitment to accessibility, enhanced content layout in our conferencing room and on our cloud TV platform, enhanced subscription management capabilities and furthered security and protection around operator workloads.
Speaker Change: On the AI front, we are continuing to move towards a future where video content will be created and modified seamlessly for the benefit of each individual viewer.
Speaker Change: Over the prior quarters, we conducted successful pilots for content repurposing, where Gen-AI was used to analyze video captions and viewership engagement data of existing videos, to create new clips, highlight reels, and other immersive experiences in real-time that are hyper-personalized and hyper-contextualized.
Speaker Change: In the third quarter, we started productizing this functionality by adding it into our video content management system in a new component called Kaltura Content Lab. We also showcased a beta version of our Gen AI offerings for media and telecom at the IBC 2024 conference in Amsterdam.
Speaker Change: Among the features presented to excited customers and prospects were AI-generated metadata enrichment, subtitles, dubbing, chaptering, highlights, and content recommendations for live streaming, VOD assets, and user-generated content.
Speaker Change: Over the next few quarters, we plan to further enhance Kilterra Conflict Lab and integrate it into our product portfolio, including streamlining with our other Gen-AI developments, such as our transcription engine, quiz generator, sentiment analyzer, notification engine, and Gen-AI assistance for events.
Speaker Change: Our product leadership was recently recognized with the receipt of two additional industry awards.
Speaker Change: The Best Overall Event Management Solution Award in the 7th Annual International MARTEC Breakthrough Award Program
Speaker Change: and the Best Video Management Platform Award in the 2024 DigiDate Technology Awards.
Speaker Change: We are pleased to have posted a record quarter across many top-line and bottom-line parameters.
Speaker Change: We continue to see both sequential and year-over-year growth in new subscription bookings and a growth retention rate that materially improves over last year, both resulting in an uptick in year-over-year subscription revenue growth.
Speaker Change: In addition, we saw continued expansion of our growth in net margins, as well as cash flow, leading us to forecast for the year a positive annual adjusted EBITDA in cash flow from operations for the first time since 2020.
Speaker Change: And we plan to continue expanding our gross margin, adjusted EBITDA margin, and cash flow from our operations in 2025 and beyond.
Speaker Change: In recent years, we and our entire industry have experienced strong downward pressure on bookings, retention, and revenue growth that was induced by post-COVID and economic downturn headwinds.
Speaker Change: To that end, while we are not content with our slower revenue growth, we do appreciate the fact that unlike many other companies in our industry, our quarterly subscription revenue always continues to grow year over year.
Speaker Change: And with the exception of only the third quarter of 2022, our year-over-year total revenue has also grown every quarter despite the purposeful decline in our revenue from professional services in order to accelerate our deployment time and increase gross margin.
Speaker Change: In summary,
Speaker Change: We believe the tide is gradually turning on the industry in Kotara and the improved booking and retention trend we began to see in recent quarters
Speaker Change: will continue and strengthen in 2025 and beyond, fueled by renewed industry and macroeconomic tailwinds, as well as product enhancements, like Gen AI, that are expected to bring about further digital transformation and proliferation of video experiences.
Speaker Change: We are excited about the opportunities ahead, especially since we believe Kiltura's flexible and extendable platform uniquely caters to the widest array of enterprise video experiences while also providing the tightest integrations with our mission-critical workflows.
Speaker Change: We expect that as the market gradually recovers, customers will further accelerate the consolidation of their video needs around Kultura to boost all of their employee and customer experiences across communication and collaboration, training, teaching, and learning, marketing, sales, and customer success, and entertainment and monetization.
Speaker Change: Kaltura's single platform is designed to help our customers avoid unnecessary content and data silos.
Speaker Change: broken workflows, complexities, and costs that can result from using many disparate point solutions and increase their productivity and AI-infused insights, engagement, and business results.
Speaker Change: With that, I'll turn it over to John, our CFO, to discuss our financial results in more detail. John.
John: Thanks, Ron, and hello to everyone on the call today. Kaltura continued its strong and focused execution in the third quarter, achieving continued growth in new subscription bookings.
Speaker Change: sustained high gross retention rate, further monetization of our existing customer base in addition of new customers, and continued improvement in operating efficiency and reallocation of resources towards higher ROI opportunities and markets. I want to touch on a few highlights in the quarter that demonstrate this.
Speaker Change: The highlights include new subscription bookings continue to grow both sequentially and year-over-year for the second consecutive quarter, posting the highest new bookings since Q4 2022.
Speaker Change: Gross retention continued to improve year-over-year and in the third quarter represented an annualized run rate similar to the two years preceding last year's gross retention decline.
Speaker Change: Our eighth consecutive quarter of year-over-year total revenue growth, driven primarily by strength in our subscription revenue, which has grown year-over-year in this and all past quarters.
Speaker Change: Our growth in remaining performance obligations and ARR, with both metrics at the highest level to date, and our reinforced belief that we are strongly positioned to achieve our profitability targets.
Speaker Change: with gross margin at a record high level, lower year-over-year operating expenses, continued improvement in adjusted EBITDA representing the fifth consecutive positive quarter and the highest result since the second quarter of 2020 and a record cash flow from operations quarter.
Speaker Change: With that, let me move on to our results.
Speaker Change: Our results exceeded our guidance for both revenue and adjusted EBITDA for the quarter.
Speaker Change: Total revenue for the quarter, ended September 30th, 2024, was $44.3 million, up 2% year-over-year, and above the high end of our guidance range of $42.6 million to $43.3 million.
Speaker Change: Subscription revenue was $42.1 million, up 3% year-over-year. This is also above the high end of our guidance range of $40.5 million to $41.2 million.
Speaker Change: Professional services revenue contributed 2.2 million for the quarter and was down 18% year-over-year consistent with the expected trends we discussed on the second quarter earnings call.
Speaker Change: The remaining performance obligations were $187.8 million, up 6% sequentially, and 15% year-over-year, of which we expect to recognize 59% as revenue over the next 12 months.
Speaker Change: Consistent with what I mentioned last quarter, the increase in RPO is a result of our increased renewal bookings this quarter as well as improvement in new bookings.
Speaker Change: Anod's recurring revenue was $168.9 million, up 2% sequentially, and 4% year-over-year. This is the highest ARR we have achieved to date, and is reflective of increased subscription revenue in the quarter.
Speaker Change: Our net dollar retention rate for the quarter was 101%, an improvement from 98% in the previous three quarters.
Speaker Change: Within our enterprise education and technology segment, total revenue for the third quarter was $32.3 million, up 4% year-over-year.
Speaker Change: Subscription revenue was $31.5 million, up 5% year-over-year, while professional services revenue contributed $0.8 million, down 20% year-over-year.
Speaker Change: Within our media and telecom segment, total revenue for the third quarter was $12 million, a decrease of 4% year-over-year.
Speaker Change: Subscription revenue was $10.6 million, which was down 2% year-over-year, while professional services revenue contributed $1.4 million, down 17% year-over-year.
Speaker Change: Gap gross profit for the third quarter was $29.5 million, up 3% sequentially, and 7% year-over-year.
Speaker Change: Gross Margin was 67%, which is up from 64% in Q3 2023 and Subscription Gross Margin was 75%, which is up from 73% in Q3 2023.
Speaker Change: Within our enterprise, education, and technology segment, gross profit for the third quarter was $24.5 million, up 7% sequentially, and 8% year-over-year.
Speaker Change: EE&T gross margin was 76%, which is up from 73% in Q3 2023, and subscription gross margin was 82%, which is up from 79% in Q3 2023.
Speaker Change: Within our media and telecom segment, gross profit for the third quarter was $5 million, down 13% sequentially and up 1% year-over-year.
Speaker Change: Media and telecom gross margin was 42 percent, up from 40 percent in Q3 2023. And subscription gross margin was 55 percent, consistent with Q3 2023.
Speaker Change: Total operating expenses in the quarter were $34 million, compared to $36 million in the third quarter of 2023, a reduction of 6% year-over-year.
Speaker Change: Adjusted EBITDA for the quarter was $2.4 million, an increase of $2.1 million from $0.3 million in the third quarter of 2023. This result, along with our improving expense profile, highlights our continued focus on improving our operating efficiency over time.
Speaker Change: Gap net loss for the quarter was 3.6 million or negative two cents per diluted share. This is an improvement of 7.1 million year-over-year.
Speaker Change: Turning to the balance sheet and cash flow, we ended the quarter with $79.9 million in cash and marketable securities.
Speaker Change: We generated a record $10.7 million in cash from operations during the third quarter, which reflects a significant improvement of $9 million compared with $1.7 million in Q3 2023.
Speaker Change: In the quarter, this is aided by our lower operating expenses.
Speaker Change: Collections seasonality, in which the third quarter is our highest collections quarter, primarily in the EENT segment, as well as the delay of a 2.3 million payment from a large customer from the second quarter to the third quarter that I mentioned on the last earnings call.
Speaker Change: Through the first three quarters of 2024, we generated $7.9 million in cash from operations compared to consuming $9.9 million in the same period last year, a $17.8 million year-over-year improvement.
Speaker Change: I would now like to turn to our outlook for the fourth quarter of 2024 and for the fiscal year ending December 31st, 2024.
Speaker Change: as we have mentioned in the past.
Speaker Change: Throughout 2023, we experienced pressure on our revenue growth due to year-over-year declines in gross retention and new subscription bookings, along with reduced demand for our lower-margin professional services that was driven by our expansion into products that are easier and faster to deploy.
Speaker Change: With the improvement in gross retention in recent quarters, and two successive quarters of increased new subscription bookings, our overall outlook on the business is brighter.
Speaker Change: Last quarter, we guided towards a sequential stabilization of subscription revenue in the third quarter, followed by a return to growth. We also forecasted a continued sequential decline in our lower margin professional services revenue, with positive benefits from enabling faster deployments and higher gross margins.
Speaker Change: Well, we were right on one count and pleasantly surprised on the second.
Speaker Change: We did see a continued sequential decline in lower-margin professional services revenue. However, subscription revenue returned to growth faster than anticipated, with revenue approximately $1 million above the higher end of our previous G3 2024 guidance, and up 3% sequentially.
Speaker Change: This result was driven by our continued solid gross retention results as well as increased new bookings.
Speaker Change: I would now like to discuss our outlook for the fourth quarter of 2024 and for the fiscal year ending December 31st, 2024.
Speaker Change: In the fourth quarter, we expect subscription and total revenue to be consistent with the third quarter with subscription revenue between $41.8 million and $42.5 million, and total revenue between $44 million and $44.7 million.
Speaker Change: We expect adjusted EBITDA in the fourth quarter to be between 0.5 million and 1.5 million.
Speaker Change: Accordingly, for the full year, we expect subscription revenue to be between $166.1 million and $166.8 million.
Speaker Change: Total revenue to be between $177.1 million and $177.8 million.
Speaker Change: An adjusted EBITDA to be between $5.1 million and $6.1 million, which compared to the negative $2.5 million adjusted EBITDA of 2023, would be an improvement of $8.1 million at the midpoint of the guidance range.
Speaker Change: As Ron mentioned, and as supported by our third quarter results,
Speaker Change: We are also expecting to post positive cash from operations in the fourth quarter, as well as for the full year in 2024, as compared to a negative $8.3 million in 2023 and a negative $46.8 million in 2022.
Speaker Change: We believe the company continues to be well-positioned to benefit from emerging tailwinds we're seeing of spend consolidation to a single vendor, digital transformation, and the hybrid workplace that is continuing to drive demand for video-based offerings.
Speaker Change: As we move into the fourth quarter of 2024 and beyond, we continue to target both revenue growth and sustained and improving profitability.
Speaker Change: We believe our results demonstrate we are on the right path to achieve these objectives and to drive consistent returns to our shareholders.
Speaker Change: We are encouraged by the increased adoption of our products, highlighted by our increase in new bookings, our sustained high growth retention rate, and the deals in our pipeline that we believe could yield continued growth in bookings and by growing industry tailwinds as we bring 2024 to a close.
Speaker Change: We are also confident that this sets us up for a modestly accelerated growth profile for 2025, and a sustainable, increasing, adjusted EBITDA profitability and cash flow from operations profile.
Speaker Change: We will provide guidance for 2025 when we report to you for 2024, and 2024 full year in February of 2025. With that, we'll open up the call for questions. Operator?
Speaker Change: [inaudible] David Hynes, John Doherty
Speaker Change: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask your question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue.
Speaker Change: You may press star 2 if you would like to remove your question from the queue. We ask that you limit your questions to one and a follow-up so that others may have an opportunity to ask questions.
Speaker Change: You may re-enter the queue by pressing star 1. For participants using speaker equipment, it may be necessary to pick up your handsets before pressing the star keys. One moment please while we poll for questions.
Speaker Change: Our first question comes from Gabriela Borges with Goldman Sachs. Please proceed with your question.
Gabriela Borges: Hi, good morning and good evening, Ron and John. Congratulations on the quarter. This seems like some of the cleanest beat and raise results that you've had in a number of quarters. So, Ron, I'm hoping you can comment. Is there one or two things that you would point to from a company-specific standpoint that you think are really driving incremental stability in your business now relative to all of the heavy lifting that you've been doing over the last, call it, four to six quarters?
Speaker Change: and Yaron Garmazi.
Speaker Change: Thank you, Gabrielle, and good morning to everybody on the call today. What can I say? Luck savers are prepared. We've been working hard towards this, and it's showing results.
Speaker Change: I think the industry is gradually turning around. You can see a bit of it from some of the other vendors in this industry, which is good.
Speaker Change: We've always outperformed and we continue to outperform and continue to climb and grow And we're seeing increased demand and definitely continued success in being able to deliver against that demand I'm happy to give you a bit more color around what's happening on the business side
Speaker Change: So you do know that we have the highest new bookings since Q4 22 and it's both sequential and year-over-year growth now for the second quarter in a row.
Speaker Change: We did have bigger deals, so we had two seven-digit deals this quarter compared to none last quarter, and one deal in Q1. We also had 22 six-digit deals, so they're bigger.
Speaker Change: We do see customers continue to consolidate around Kaltura, which has been our strategy. We've said we expect to see more and more of that, especially as...
Speaker Change: times improved because people have the time and the bandwidth to think forward and not myopically and not go for the better solution, but also one that is also financially making sense to the mid and long term because we're saving costs and they're just providing better solutions.
Speaker Change: We've seen success across all industries, tech, financial services, automotive, professional services, healthcare, education.
Speaker Change: After that I'd say regulated industries, so that would be financial services, it'll be government, it'll be insurance, it'll be health care, because of the integrated workflows that we offer connected to compliance.
Speaker Change: and all these detailed things that regulated industries require. And then after that, we're seeing folks like M&T Education and Professional Commercial Services.
Speaker Change: From a geo perspective, you know, we mentioned back that
Speaker Change: Europe was doing well in balancing. They still did well. They still did better year over year in Europe.
Speaker Change: compared to Q3 the year before.
Speaker Change: But in this quarter, most of the new booking came from North America. And it was more on a percentage basis and an absolute basis as well compared to Q1 and Q2.
Speaker Change: So it was definitely looking well.
Speaker Change: from a pro-product perspective. It's across the board. We've seen most of it come from our video content management core.
Speaker Change: and then followed by virtual events and the TV platform. And from a use case perspective, again, in healthy blend.
Speaker Change: between CX, customer experience and training and teaching and certification externally, but also EX around co-communication and collaboration, and also entertainment and monetization.
Speaker Change: The other point that I'd note we've said
Speaker Change: throughout the year that we were doing okay in price increases.
Speaker Change: We also had, this quarter, about a 3x.
Speaker Change: Booking from price increase compared to same quarter last year We're able to continue to show customers that We are a premium product and we should be paid for it
Speaker Change: And maybe lastly, the record average ARR, you know, we've mentioned ARPUs and ARR continue to climb up.
Speaker Change: As it is, you know, it's...
Speaker Change: at about $200,000 and some of the other players there are maybe a tenth of that. So it's real, true enterprise deals.
Speaker Change: And when you think about that and it's growing significantly, I mean, grew year over year by more than 10%, that that is a tribute to the continued consolidation.
Speaker Change: around Kultura, so as we think into the future.
Speaker Change: Not only do we see continued upsell and hopefully continued pick up in NDR and the ability to serve our customers more with more consolidation and more penetration.
Speaker Change: We're looking forward to having more new logos, and that's the one point that I've slowed down in these last few years for most. Because people have done limited jumps from one vendor to another, we expect to see more of that. That's going to fuel our growth.
Gabriela Borges: Yeah, absolutely. Thanks for the call. The follow-up is for John. So this will be your first year with Kaltura for the annual planning process for 2025. Talk to us a little bit about your framework for 2025 forecasting, any early call you're willing to give on how to think about revenue growth and margins for 2025, and maybe how you're applying all of the dynamics that Ron was just talking about to coming up with a forecast for 2025. Thank you.
Speaker Change: Yes, sure, and it sounds a little bit like a setup, but I appreciate the question in terms of you going deeper on guidance for 25, which
Speaker Change: As I mentioned, and as is typical for us, we'll provide in February when we do the full year.
Speaker Change: and fourth quarter. You know, that said, yeah, I think one of the things about
Speaker Change: our performance this quarter and also which sets us up well for 2025.
Speaker Change: Hence, my comment around us seeing what we consider to be a bit of a...
Speaker Change: you know, a brighter kind of forecast overall, and we'll leave it at that in terms of...
Speaker Change: you know, a general comment. It's basic blocking and tackling. You know, the company...
Speaker Change: is executing well, expenses are down, hence, profitability is up, Jocelyne Bida is moving in the right direction.
Speaker Change: The company continues to grow revenue. Ron touched on this a bit, but it's been a very consistent focus of ours on a couple areas.
Speaker Change: customer profitability and we've been dissecting our profitability by customer.
Speaker Change: over the course of the past year and the company started doing that before I joined and we've just
Speaker Change: You continued, which I'll call basic blocking and tackling.
Speaker Change: and ultimately some of that's what's driving some of the price increases because, you know, we're targeting what we're doing and where we have opportunities to derive additional value from our products that we're doing it.
Speaker Change: In addition, we have also realigned some of our workforce.
Speaker Change: If you will, which has driven additional improvement in operating expenses. You know, OPEX is better, 2 million year over year, 3 million sequentially. And, you know, we continue to...
Speaker Change: expect to go down that path. So for 2025, as we mentioned, we think we're going to have a modestly improving growth and profitability profile.
Speaker Change: Sounds good. Thank you for the call. Thank you, Gabrielle.
Speaker Change: Our next question comes from D.J. Hines with Canaccord Genuity. Please proceed with your question.
Speaker Change: Subs by www.zeoranger.co.uk
D.J. Hines: Hey guys, I'll echo Gabriela's comments. Congrats on the nice bookings quarter and nice to see that dollar-based net retention back in the triple digits. Maybe we could start there and actually something you alluded to, Ron, in your answer to Gabriela. So the majority of bookings I think you noted in the quarter were new use cases or expansion with existing customers. What's the pipeline for new customers look like and how important is that to the sustainability of renewed growth from here?
Ron Yukutiel: Thanks DJ, I appreciate it. Let me first comment on that first part about upsells which has been the core focus for us and NDR and taking care of our existing customers and especially the bigger ones.
Ron Yukutiel: We posted in the third quarter the similar kind of high quarterly gross retention that we've seen in the last few quarters And it's materially improved from same quarter last year and our current gross retention forecast for the full year
Ron Yukutiel: is at this moment expected to be even at higher levels than 2021 and 2022.
Ron Yukutiel: Not to mention 23, which was the one single bad year that we've said that was, to our belief, an outlier. And we've seen that in some other companies in the industry with different metrics that have also seen a dip in gross retention in 23. So, it has been a very good rebound to the tune of better than the other years.
Ron Yukutiel: MRR from a gross term perspective had been partial, so it's down cells, as opposed to full churn, that continues, and only a small piece of it had been associated with a certain year of product or service gap, like 15%-ish.
Ron Yukutiel: So most of it is still budget limitations, product services that are no longer needed, etc.
Ron Yukutiel: And so we did expect NDR given the last improvements and given the rebound and bookings to continue to go up and we are glad to have seen it go up again north of 100 and we expect that trend to continue into the future. To your question about new logos.
Ron Yukutiel: Obviously, we've had some good quarters in between and some are picking up.
Ron Yukutiel: It's choppy, it's not something that you will 100% see growing in a linear way, but we expect that to continue to grow. The reason, as I said earlier, that that took a bit longer in these times is that a lot of folks were very thoughtful about the time, effort, risk.
Ron Yukutiel: budget that's associated with moving to a different vendor altogether.
Ron Yukutiel: And so, when existing vendors were willing to provide discounts...
Ron Yukutiel: They would rather stay with them even if the product was less successful, not as good, and also if it was more expensive to some extent, because when you move to a consolidated vendor like Altura, you can save more cost in the mid-term. Now we've heard from many.
Ron Yukutiel: that they are interested in our better solution or more affordable solution in the mid to long term. That had been the case over the last few years.
Ron Yukutiel: And they said, we're waiting for the right time to execute on this. So now we're seeing a lot of them discuss that. A lot of these are in cycle. A lot of these are active.
Ron Yukutiel: within our pipeline and are discussed to happen in the next few quarters. So we expect to see more. We expect to see a rebound. That being said...
Ron Yukutiel: You know, it's a show-me market, not a tell-me market, and as you know, we as a company are very thoughtful about how we talk about things into the future and how we forecast. And let's wait and see that this happens, but we 100% believe that that's going to be a material.
Ron Yukutiel: growth that would be added to the company that will bring us back to what we believe is the right growth for us.
Speaker Change: Yeah, yeah. It makes sense. It's a purple color. Maybe as a follow-up, Ron, you've got new leaders now in the product and sales lead roles, obviously not new to Kaltura, but new to those responsibilities. Are there any changes those folks have implemented or are contemplating that we should be aware of? I mean, I know you've talked about...
Speaker Change: focusing on larger opportunities, verticalization of the sales force. Anything else we should be thinking about?
Ron Yukutiel: So, first of all, yes, we have, to some extent, new, but to another extent, they're not new to the company and have been around for a long time.
Speaker Change: have been extremely well accepted and are doing an amazing, amazing job. We have Navi that has moved from chief revenue officer to lead our product and tech.
Speaker Change: and to remind everybody when we said that last quarter Navi's background was from engineering and as a CEO of an analytics BI and AI company. He's also coming from a lot of data and enterprise sales but when he joined the company he was supposed to have been a GM and then when things slowed down he was put to run revenue and understanding our customers and their needs. He's in the best situation now to bring about continued success and changes within our R&D department.
Speaker Change: He's done a great job there and we are pushing, continue to push forward very aggressively on the AI front.
Speaker Change: So it's not a change, but it is doubling down and continuing to push forward, and I want to state there very clearly...
Speaker Change: We think that's a huge back-end opportunity, and the reason is that we are integrated deep into the workflow, and we are the ones that are harmonizing all the data, external and internal, in the company.
Speaker Change: So, we could prompt the system and the LLM in the best way in order to generate the experiences which we also power. So, if you look at that sandwich, workflow integration, data harmonization, AI, and on top of that, the experience, we could offer all that.
Speaker Change: And again, we spoke this quarter about how we're bringing the market.
Speaker Change: the latest AI updates around Content Lab.
Speaker Change: We're launching what we call a Class Genie and a Work Genie that's enabling basically people at work and at school to get hyper-personalized, hyper-contextualized content either repurposed or created.
Speaker Change: from scratch.
Speaker Change: And that's because we're atomizing all of the content that's on our system. Remember, we're sitting on a gold mine of data, sitting on all of the data that's recorded in universities, most of the data in 25% of the Fortune 100 companies, and we're adding a lot of logic into the content and how they're being used in order to best cater to the needs. So, point number one on the product side is more AI.
Speaker Change: On the go-to-market side, with Liad, we've already led our most strategic customers. He's back now to leading the entire team and has been for more than a decade in the company. He knows it inside out.
Speaker Change: very well embraced and hit the ground running and the team is further verticalizing our efforts, bringing him more into mission-critical capabilities and expanding globally. He's been traveling the world, he's now in Europe, he was in Asia-Pac,
Speaker Change: So we're doubling down and going deep into all the initiatives we had before. So no news, but a lot more of what you've seen before, and we're excited.
Speaker Change: Very good. Thank you, guys. Congrats.
Speaker Change: Thank you, D.J.
Speaker Change: Our next question comes from Ryan Coutts with Needham and Company. Please proceed with your question.
Ryan Coutts: Thanks, congrats on the great results. Really nice to see this.
Ryan Coutts: Maybe you can unpack a couple of the customer applications that you talked about there in the strong tech vertical, Ron. Can you maybe unpack that a little bit in terms of what some of these use cases are and where your real value is in terms of either are these renewals versus new logos, etc. Thanks.
Ron Yukutiel: Yeah, happy to do that. So again, the beauty of Kuktura is that we have the widest array of products and we cater to the widest array of use cases in the market. So from a product perspective,
Ryan Coutts: What we've been selling are both the underlying VCMS, the video content management system, to run all the content across the enterprise, and on top of which, at the enterprise level, we have our video portals that are enabling both internal and external gatherings as well as creation of content, user-generated and otherwise.
Ryan Coutts: We have the events.
Speaker Change: questions, please. And then on the left-hand side, what you see at the bottom is a part of Kefoe-Vaska Hup information center con argue, we are one of the largest organizations in the world that is focusing on Dory and breast cancer research, and behind it there's a law firm called GoSmart Hot Basics who are working with Dr. 🎈 with us today.
Ryan Coutts: specializing in these non-symmetrical places where the teacher has, or the trainer, has these pervasive meetings that have a purpose and they prepare the room before, during, and after, and this is where we shine. We also have our integration into LMSs and CMSs for both schools and organizations.
Ryan Coutts: and they go throughout both. And from a use case perspective, if it's employee related, it's either communication and collaboration or teaching, learning, and development.
Ryan Coutts: workgenie and classgenie, it enables each employee or each student
Ryan Coutts: to basically have their dynamic learning path. And for based on what we know...
Ryan Coutts: that they're interested in based on quiz results, based on test results, based on interaction, to create in real time the video that they need from all the material that's in the company's flash.
Ryan Coutts: from text.
Ryan Coutts: and deliver that to them, kind of a Khan Academy on steroids, if you may, that happens in real time.
Ryan Coutts: The use case externally with customers, partners, is divided between, again, teaching, training, learning, educating, where we're offering use cases that enable full certification with any and all analytics that comes with that.
Ryan Coutts: and then reaching out for sales customer success.
Ryan Coutts: and marketing for folks around events, around sales enablement. We have tools for banks that enable them to reach out.
Ryan Coutts: For example, to wealth management customers with the right videos for them to make a trade and in health care to enable the patient
Ryan Coutts: communications in order for them to understand what they need to take and have a better relationship with doctors. So across each one of the industries the engagement is a bit different but we're integrated into all the systems.
Ryan Coutts: that they require, and the beauty is...
Speaker Change: That sounds like a very wide array of capability. That's exactly the power of Kaltura. We run deep and we run wide. We run deep because we're in the mission-critical workflows, which is why we're able to be stickier and able to have much higher ARPU and to really be mission-critical. But we also run wide in their ability to have a single system that powers seemingly very different use cases with a wide array of products. And as I said earlier, it saves cost.
Speaker Change: And so people save money on production, they save money on finding, and they increase their shelf life.
Speaker Change: of their content because now it doesn't go stale. You can actually, again, now we've been powered with AI, find the right content and the right context to deliver it to the right customer in the right time and the right place. So there's just a lot. There's a lot of things, and that's the beauty of Kaltura, and we're doing all of it.
Speaker Change: That's really great. Sounds like what you've been working on for years and the market's maybe finally coming to you.
Speaker Change: Thanks for the question. A hundred percent. I appreciate that, Ryan. I will say there, for years, video has been used as an end as opposed to as a mean. Here's a video player, run it, that's highly commoditized, that was never interesting for us.
Speaker Change: Our vision was always how to use video in order to...
Speaker Change: better learn, better market, better sell, as part of the workflow, and this has been the Cultural Promises Inception.
Speaker Change: I think that it started picking up, things were doing great, then came a few years where things were, you know, a bit harder from a budget perspective. We think this is gradually, and I'm emphasizing gradually, I don't think it's an overnight, you know, next quarter, everything is totally hunky-dory, but it is picking up.
Speaker Change: And we think that now the value of video as a mean, not as an end, fueled with AI-infused feature sets, will really enable to drive all these mission-critical use cases with video. And that enables a 10x growth for the opportunities around video, and we think we'll be a leader there.
Speaker Change: Great, Ron. Thanks a lot.
Speaker Change: Appreciate it.
Speaker Change: Our next question comes from Patrick Walravens with Citizens JMP. Please proceed with your question.
Patrick Walravens: Thank you. Let me add my congratulations. The RPO growth is particularly nice to see. I have two questions. Ron, for you, it's nice to see the seven-figure deals come in Q3. Usually you think of that as sort of an end-of-the-year.
Speaker Change: phenomenon. So how does the seven-figure pipeline look going forward? Are there still things in it?
Ron Yukutiel: Yes, there are. Thank you. And yes, thank you for noting Q3 versus Q4. I mean, it varies, sometimes Q4, sometimes Q3. Our pipeline does have a bunch of seven-figure deals, and we're hoping to continue to land them in Q4 and beyond.
Speaker Change: and Yaron Garmazi.
Speaker Change: John, for you, I noticed in your script you made a comment about
Speaker Change: reallocating resources to, I forget how you word it, but sort of higher return opportunities. I thought it'd be really interesting for investors to see some examples of what were some of the places you took resources from and where did you put them?
Speaker Change: Yeah, if you look at, you know, our revenue results and kind of one of the themes that we've talked about
Speaker Change: is really two things. Number one, focusing on customer profitability. So ultimately, we have a team that works on that regularly and we use the information that comes out of that process to target a specific...
Speaker Change: price increase opportunities where we have
Speaker Change: you know, resell opportunities, and we've been able to benefit from some of that. In addition, we've been very focused on, across the sales organization,
Speaker Change: It's one thing about landing customers if we have a really deep and I think underappreciated customer profile and ultimately You're part of our success this quarter, and we saw some of it last quarter, and we expect it to continue
Speaker Change: is our ability to go deeper within existing customers. And we're very much aligned with the sales team, supporting the sales team. And certainly that also takes a bit of a shift in focus and investment.
Speaker Change: For more information, visit www.fema.gov
Speaker Change: Awesome. Well, let me add my congratulations again. Thank you.
Speaker Change: Thank you, Pat. And I'd just like to add, because we've really spoken a lot about the upside of the opportunities and growth and hopeful continued growth.
Speaker Change: I do want to say a word about the bottom line, because as John has referenced it in some of his answers, this is a big and important focus for us. And John has said that multiple times that we're an end company. We're going to grow top and bottom line.
Speaker Change: You've seen gross margin grow. We expect that to continue to happen. And we are expecting our bottom line to continue to grow, and we're doing both. And so we're looking very carefully.
Speaker Change: on this and where and what we do to support that.
Speaker Change: and I and the entire company are fully committed to achieving that in the next...
Speaker Change: quarter and beyond. So, and that obviously goes towards cash flow as well. You've seen this was a strong cash flow quarter. And again, some of these results might jump.
Speaker Change: in any given quarter, to the left or the right, but they could be a bit clunky. So I wouldn't take any one of these statements verbatim for a Q4 versus a Q1, but the general trend that we're going to continue to post here is one of increased cash flows, increased profitability, and then increased growth.
Speaker Change: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: Anything else, Laura?
Speaker Change: It appears there are no further questions at this time. So I would now like to turn the floor back over to Ron Yekutiel for closing comments.
Ron Yekutiel: Yeah, appreciate it. So yeah, we feel good about the quarter, but we feel that there's a lot more hard work ahead of us, and we are heads down to continue to execute to bring things onward and upward. I do appreciate everybody making time, especially on a special day like this.
Speaker Change: and just a word maybe as.
Speaker Change: In the U.S., everybody's now coming together to be, again, one nation and put our divides aside. I think we as Kultura and definitely the tech industry are at the forefront of putting people together and collaborating in an open, flexible, and collaborative way. So onward and upward to us and to the industry. Have a beautiful day and a great week. Thank you.
Speaker Change: David Hynes, George Iwanyc, George Iwanyc, David Hynes,
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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