Q4 2024 Kaltura Inc Earnings Call
Good morning, everyone, and welcome to the Caltrans fourth quarter and full year 2024 earnings call.
All material contained in the webcast is the sole property and copyright of Kaltura, with all rights reserved. For opening remarks and introductions, I will now turn the call over to Erika Mannion at Sapphire Investor Relations. Please go ahead, Erika.
Erika Mannion: Thank you, Operator, and good morning. I am joined by Ron Yekutiel, Kaltura's Co-Founder, Chairman, President, and Chief Executive Officer, and John Doherty, Chief Financial Officer.
Erika Mannion: Ron will begin with a summary of the results for the fourth quarter ended December 31, 2024, and the company's plans and expected trends for 2025.
Erika Mannion: John will then review details of the financial results for the fourth quarter and full year 2024, followed by the company's outlook for the first quarter and full year of 2025. We will then open the call for questions.
Erika Mannion: Please note that this call will include four looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding Kaltor's expected future financial results and management.
expectations and plans for the business.
Erika Mannion: These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here.
Erika Mannion: can be found in the risk factors section of Kaltura's quarterly report on Form 10-Q for the quarterly period ended September 30, 2024.
Erika Mannion: and other SEC filings, including the annual report on Form 10-K for the fiscal year ended December 31, 2024, to be filed with the SEC.
Erika Mannion: 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.
Erika Mannion: Please note, we will be discussing non-GAAP financial measures, adjusted EBITDA, and adjusted EBITDA margin during this call.
Erika Mannion: For a reconciliation of adjusted EBITDA to the most directly comparable gap metric, please refer to our earnings release, which is available on our website at www.investors.caltora.com. Now, I'd like to turn the call over to Ron.
Ron Yekutiel: Thank you, Erika, and thanks, everyone, for joining us on the call this morning.
Ron Yekutiel: Today, we reported record total revenue of $45.6 million for the fourth quarter, up 3% year-over-year, and record subscription revenue for the quarter of $43.4 million, up 6% year-over-year.
Ron Yekutiel: We also achieved record ARR for the third consecutive quarter as well as record RPO for the second consecutive quarter
Ron Yekutiel: In short, all top-line related KPIs were at record high levels.
Ron Yekutiel: As for our bottom line, in the fourth quarter adjusted EBITDA was $2.7 million, representing our sixth consecutive quarter of adjusted EBITDA profitability and the highest quarterly result over the past four years.
Ron Yekutiel: This was fueled in part by a record gross margin. Cash flow from operations was $4.3 million.
Ron Yekutiel: For the year, we reported subscription revenue, total revenue, adjusted EBITDA, and cash flow from operations, all above the guidance and forecast we provided.
Ron Yekutiel: We are pleased with the progress we have made towards our goal to return to profitable growth, including accelerating year-over-year growth rates in the second half of 2024.
Ron Yekutiel: We have delivered on our goal of returning to adjusted EBITDA and cash flow from operations profitability in 2024, posting year-over-year improvements in these metrics of $9.8 million and $20.5 million, respectively.
Ron Yekutiel: We're looking forward to expanding these profitability metrics in 2025 and beyond.
Moving on to the business update.
Ron Yekutiel: New subscription bookings in the fourth quarter were at the highest level since the fourth quarter of 2022. Over the last three quarters, this metric has been growing as we expected, both sequentially and at increasing year-over-year rates.
Ron Yekutiel: In the fourth quarter, it included four 7-digit deals and 29 6-digit deals.
Ron Yekutiel: The highest combined number of six- and seven-digit deals since the third quarter of 2022.
Ron Yekutiel: A portion of new subscription bookings that came from new customers also grew both sequentially and year-over-year in the fourth quarter, including a seven-digit deal with a leading global health care insurance company who licensed all of our enterprise products to power their digital campus training and certification programs,
Ron Yekutiel: and a seven-digit deal with a European government entity that will be providing our suite of education products to over 35 universities.
Ron Yekutiel: Most of our new subscription bookings came, again, from upselling to our existing customers.
Ron Yekutiel: where we provided licenses for increased usage, additional users, additional solutions, and additional use cases.
Ron Yekutiel: Upsells included a seven-digit upsell deal with a major U.S. bank.
Ron Yekutiel: a seven-digit European telco deal and several six-digit deals with leading organizations across a wide array of industries including technology, banking, pharma, health care, education, government, automotive, media and telecom.
Ron Yekutiel: Customers that we can name that have closed new deals with us this quarter
Ron Yekutiel: include Adobe, Healthstream, Red Hat, Berlitz, and Connecticut State Colleges and Universities.
Ron Yekutiel: Growing user adoption, usage, and consolidating around Kultura to power multiple products and use cases contributed in the fourth quarter to the continued growth of our average subscription revenue per customer, which reached, once again, a record high level.
Ron Yekutiel: As we wrap up 2024, we're encouraged not just from our recent booking momentum, but also by the size and nature of our sales pipeline, which grew throughout the past year. We believe we'll support continued year-over-year new bookings growth in 2025.
Ron Yekutiel: In addition to growth in new bookings, growth retention in the fourth quarter continued to improve year-over-year, enabling us to obtain our best full-year growth retention rates of the past four years.
Ron Yekutiel: The combination of increased new subscription bookings and improved gross retention rate in the fourth quarter has yielded, for the first time since 2021, a third consecutive quarter with a year-over-year increase in net new subscription bookings, which have been helping us fuel our year-over-year subscription revenue growth.
Ron Yekutiel: Mid-dollar retention in the fourth quarter continued to improve from our increased gross retention and upsell bookings, reaching 103% in the fourth quarter and closing the year at 100%.
Ron Yekutiel: Moving on to the product front, let's begin with our growing investment in AI. Kilterra's AI infused video experience strategy is centered on integrating AI across every stage of the video lifecycle.
Ron Yekutiel: including content creation, discovery, distribution, engagement, and analytics to deliver fully personalized data-driven experiences.
Ron Yekutiel: In the fourth quarter, we launched beta releases of two new AI-infused offerings.
Ron Yekutiel: Both offerings are designed to support individualized learning journeys for teachers and students in the education sector, as well as for trainers and trainees in the enterprise sector.
Ron Yekutiel: Recognizing that one-size-fits-all rarely addresses diverse learning needs, Kaltura's genies tailor content to each individual. They create hyper personalized content experiences.
Ron Yekutiel: from video snippets, interactive flashcards, and quizzes to podcasts, video modules, learning paths, and knowledge chests by drawing exclusively on relevant institutional data, helping to precisely meet each learner's unique requirements.
Ron Yekutiel: Our AI beta program for evaluating our working-class genies saw strong interest from dozens of large organizations, including top universities, global Fortune 500 companies, and leading tech firms who are interested in evaluating these products for both employee and customer experience use cases.
Ron Yekutiel: We also continued boosting our AI-infused content lab, which helps organizations repurpose content at scale. New and enhanced features include automated clip creation, automated quizzes, chapters, and summaries.
Ron Yekutiel: Content Lab is now integrated into our VCMS platform and video portal and is serving through them also our virtual events and webinars, virtual classroom, LMS and CMS extensions, TV CMS platform, and TV streaming apps.
Enabling Enhanced Automation, Interactivity, and AI-Powered Content Recommendation.
Ron Yekutiel: Regarding our TV content management system and TV streaming apps, we enhanced our AI capabilities to further drive content discovery, engagement, and monetization. Our AI-powered recommendation engine now delivers more personalized user experiences, while AI-based chaptering and metadata tagging improve content accessibility and searchability.
Ron Yekutiel: We also introduced AI-powered dubbing and subtitling, which enable global reach and reduce translation costs for media providers.
Ron Yekutiel: In the third quarter, at the International Broadcasting Convention in Amsterdam, our AI-driven advancements received strong industry validation, which subsequently led to starting TOCs in the fourth quarter with three global media and telecom companies, and we're in discussions to potentially onboard an additional five.
Ron Yekutiel: Thoreau's AI innovations received additional industry recognition, with their new Gen AI features for broadcast, streaming, and media earning us a place in the Feed Magazine 2024 honors list in the Special Recognition in AI category.
Ron Yekutiel: Additionally, as you may have read in the press release we sent out in December, we published a new industry report called, The Marketing Power of Video-Based Experiences and AI in 2025.
Ron Yekutiel: serving 600 senior marketing professionals from companies with over a thousand employees across the US and Europe. The report confirms the growing impact of video based experiences and the search for AI tools to augment them.
Beyond AI.
Ron Yekutiel: One of our main product investment areas continues to be our virtual events and webinars product, which offers fresh ways to engage large audiences and manage events and digital marketing programs at scale with minimal effort.
Ron Yekutiel: We launched a green room virtual studio for backstage preparation and a new bulk invite management tool to streamline the handling of participants and added new types of polls and quizzes to enhance interactivity during live sessions.
Ron Yekutiel: With our video portal, which is used by more than 70% of our ENT customers, we remain focused on helping our customers manage and engage with content at scale.
Ron Yekutiel: We implemented additional channel moderation tools to give administrators better oversight of user-generated content. We also introduced new chat and collaboration features for real-time interaction right within the portal, promoting deeper engagement and teamwork.
Ron Yekutiel: We're also continuing to reinforce our position as a leading enterprise video content management platform by integrating more deeply with modern workplace technologies.
Ron Yekutiel: We enhanced our Microsoft Team integrations, allowing seamless automated uploads of Teams recordings into Kaltura VCMS, alongside existing integrations such as Zoom and Webex Cisco.
Ron Yekutiel: as we look ahead to the market in 2025 and beyond.
Ron Yekutiel: We see a strengthening market for enterprise video driven by digital and AI transformations.
Ron Yekutiel: We anticipate it will be fueled by continued easing of budgetary constraints, an increasingly hybrid global workplace, reduced corporate travel costs and growing sustainability requirements, and the rising influence of millennials and Gen Z professionals, a workforce that is video native and AI savvy.
Ron Yekutiel: In the media and telecom segment, we see demand for cloud TV, OTT streaming, and AI-powered automation accelerating as providers modernize infrastructure and enhance monetization.
Ron Yekutiel: Across all industries, we expect companies to accelerate their move away from fragmented, non-integrated point solutions.
Ron Yekutiel: in favor of unified platforms which offer deep workflow integration and seamless cross-enterprise functionality.
Ron Yekutiel: In addition to anticipated improvements in market conditions, we believe there are five main growth engines that will fuel Kilter Earth's continued regrowth.
Ron Yekutiel: First, we believe our unified cross-enterprise platform is the ideal alternative to multiple siloed video point solutions.
Ron Yekutiel: From the outset, our differentiated approach has been to treat video as a data type, not just an application.
Ron Yekutiel: Consequently, we built a flexible API-first platform that runs both deep and wide, tightly integrated into business workflows, and supporting use cases that run the gamut from employee communication and training to marketing, customer success, and entertainment. One platform that does it all, effectively and affordably.
Thank you.
Ron Yekutiel: Our newer products have reached maturity and are increasingly contributing to the continued regrowth of our ARPU, ARR per customer and market share.
Ron Yekutiel: Over the past few years, we have successfully developed key offerings, including virtual events and webinars, virtual classrooms, and our front-end TV streaming apps.
Ron Yekutiel: These solutions are now in their prime, enabling us to not only further expand the scope and value of our enterprise offerings, but also further the unique positioning of Kaltura's Video Experience Cloud as an ideal platform to centrally cater to all enterprise video needs and use cases.
Third.
Ron Yekutiel: The introduction of Gen-AI capabilities into our platform is unlocking ground-breaking opportunities to change how video experiences are created, delivered, and consumed.
Ron Yekutiel: We're uniquely positioned to lead this transformation, leveraging our deep business workflow integrations, our highly engaging and interactive employee and customer experiences, and the vast amount of video content, metadata, and analytics we manage for some of the world's largest organizations.
Ron Yekutiel: In 2025 and beyond, we plan to continue expanding our AI-infused capabilities, including agentic AI-powered tools, further amplifying the employee and customer engagement flywheels, and driving stronger retention and monetization.
Ron Yekutiel: Fourth, our loyal high-value customer base represents a significant expansional opportunity.
Ron Yekutiel: Kaltura serves some of the world's largest and most influential enterprises, including 24% of the top 50 financial institutions.
27% of the Fortune 100 companies.
Ron Yekutiel: 30% of the top 50 technology companies, over 50% of the U.S. R1 schools, and leading telecom and media providers, mainly across EMEA and APEC.
Ron Yekutiel: We believe that there is a significant opportunity for us to capture a larger share of our current customer spend primarily through selling more broadly to them across current product categories.
Ron Yekutiel: As mentioned before, we believe these customers will consolidate their vendors and given our offering superiority and the great relationships that we already have in place, we believe we're ideally positioned to benefit from this vendor consolidation.
Fifth.
Ron Yekutiel: Growing our sales force and ramping up our efforts to win new customers across all our industries. As we enter 2025, we are again starting to gradually grow our sales team to cater to the growing market demand. And as we do so, we plan to gradually redirect them towards securing new customers.
Ron Yekutiel: We enter 2025 with a robust product offering, a clear strategic direction, and a validated go-to-market thesis.
Ron Yekutiel: With market conditions improving, enterprise spending recovering, and new opportunities arising, we believe we are poised to capture the increasing demand for video experiences.
Ron Yekutiel: We believe that the improved market conditions and our five aforementioned growth engines
customer consolidation around our platform, maturity of our newer products.
Ron Yekutiel: exciting new Gen-AI capabilities, growth potential within our great customer base, and regrowing our sales force will yield continued year-over-year growth in our new bookings, as already recently demonstrated and supported by our growing pipeline.
Lastly, supporting our guidance.
Ron Yekutiel: We believe we have the right products and market positioning to enable a gradual and sustained acceleration of revenue growth.
Ron Yekutiel: Being mindful of the market volatility in recent years, however, we are continuing to be thoughtful with our revenue guidance and have set it to represent similar year-over-year growth levels in 2025 as in 2024.
Ron Yekutiel: We also expect our growth margin to continue to improve in 2025 and therefore believe we will achieve in 2025, once again, a year-over-year gross profit growth that is higher than our revenue growth.
Ron Yekutiel: As for our bottom line, we are working to further expand our profitability alongside our growth acceleration and are guiding towards doubling our adjusted EBITDA profit margin in 2025.
Ron Yekutiel: We're also keenly focused on continuing to grow our cash flow from operations to a similar level as our adjusted EBITDA.
Ron Yekutiel: The majority of our operational cash flow is expected to be generated in the second half of the year, consistent with historical seasonality.
A final word about our longer-term goals.
Our goal is to double our adjusted EBITDA in 2026.
Ron Yekutiel: and by 2028 or before to return to being a Rule of 30 company through a combination of an expected double-digit revenue growth rate and adjusted EBITDA margin. We have achieved this goal before and we believe we can and will get back there again.
Ron Yekutiel: With that, I'll turn it over to John or CFO to discuss our financial results and plans for 2025 and beyond in much more detail. John.
Thanks, Ron, and hello to everyone on the call today.
Ron Yekutiel: Kaltura continued its strong and focused execution in the fourth quarter, achieving growth and new subscription bookings, a sustained high gross retention rate
Ron Yekutiel: Further monetization of our existing customer base and addition of new customers and continued improvement in operating efficiency and reallocation of resources towards higher ROI opportunities and markets.
Ron Yekutiel: Touching on a few highlights in the quarter that demonstrate this.
Ron Yekutiel: New subscription bookings continued to grow both sequentially and year-over-year for the third consecutive quarter and professional services bookings were also up significantly both sequentially and year-over-year.
Ron Yekutiel: Gross retention continued to be strong and showed improvement both sequentially and year-over-year. For the full year, we achieved our best gross retention since 2020.
Ron Yekutiel: For the ninth consecutive quarter, total revenue grew year-over-year, driven primarily by strength in our subscription revenue, which has grown year-over-year in this and all past quarters.
Ron Yekutiel: Remaining performance obligations and ARR continue to grow with both metrics at the highest level to date, as Ron mentioned earlier, and achievement of our profitability targets with gross margin at a record high level, lower year-over-year operating expenses,
Ron Yekutiel: continued improvement in adjusted EBITDA, representing the sixth consecutive positive quarter and first positive adjusted EBITDA for the full year since 2020, and a record cash from operations year. With that, let me move on to our results.
Ron Yekutiel: Our results, once again, exceeded our guidance for both revenue and adjusted EBITDA for the quarter.
Ron Yekutiel: Total revenue for the quarter ended December 31st, 2024, with $45.6 million, up 3% year-over-year, and above the high end of our guidance range of $44 million to $44.7 million.
Ron Yekutiel: Subscription revenue was $43.4 million, up 6% year-over-year. This is also above the high end of our guidance range of $41.8 million to $42.5 million.
Ron Yekutiel: Professional services revenue contributed 2.2 million for the quarter and was down 40% year-over-year, consistent with the expected trends we discussed on the second and third quarter earnings calls.
Ron Yekutiel: The remaining performance obligations were $203.4 million, up 8% sequentially, and 10% year-over-year, of which we expect to recognize 58% as revenue over the next 12 months.
Ron Yekutiel: Consistent with what I mentioned last quarter, the increase in RPO is a result of our increased renewal bookings in the past two quarters as well as improvement in new bookings.
Ron Yekutiel: Our net dollar retention rate for the quarter was 103%, an improvement from 101% last quarter and 98% in the previous three quarters.
Ron Yekutiel: It is also consistent with our expectations for improvement in the second half of 2024 that we mentioned in the two previous earnings calls.
Ron Yekutiel: This result has been driven by improved gross retention in 2024 versus 2023, and the sequential and year-over-year increase in new subscription bookings over the past three quarters.
Ron Yekutiel: GAAP gross profit for the fourth quarter was $32.3 million, up 9% sequentially, and 13% year-over-year.
Ron Yekutiel: Gross Margin was 71%, which is up from 64% in Q4 2023, and Subscription Gross Margin was 77%, which is up from 73% in Q4 2023.
Ron Yekutiel: Total operating expenses in the quarter were $36.1 million, compared to $37.5 million in the fourth quarter of 2023, a reduction of 4% year-over-year.
Ron Yekutiel: Adjusted EBITDA for the quarter was $2.7 million, an increase of $1.9 million from $0.8 million in the fourth quarter of 2023. This result, along with our improving expense and margin profile, highlights our continued focus on improving our operating efficiency over time.
Ron Yekutiel: Gap net loss in the quarter was 6.6 million or four cents per diluted share. This is an improvement of 5.5 million year-over-year.
And now for our 2024 fiscal year results.
Ron Yekutiel: Total revenue for the year ended December 31st, 2024, was $178.7 million, up 2% year-over-year.
Ron Yekutiel: Subscription revenue was $167.7 million, up 3% year-over-year, while professional services revenue contributed $11 million, down 11% year-over-year.
Ron Yekutiel: Our net dollar retention rate was 100% in 2024 compared to 101% in 2023. The small year-over-year decline was primarily due to the lagging impact of the lower booking and gross retention level in 2023.
Ron Yekutiel: As I mentioned in relation to the quarter, we ended 2024 at a higher level than in Q4'23, which was 98%.
Ron Yekutiel: Gap gross profit in 2024 was $119.1 million, representing a gross margin of 67%, up from a 64% gross margin in 2023.
Ron Yekutiel: Adjusted EBITDA in 2024 was $7.3 million, a significant improvement from negative $2.5 million in 2023.
Ron Yekutiel: Gap net loss in 2024 was $31.3 million or $0.21 per diluted share.
Ron Yekutiel: Moving to the balance sheet and cash flow. We ended the fourth quarter with $84.7 million in cash and marketable securities.
Ron Yekutiel: Net cash provided by operating activities was $4.3 million in the quarter, compared to $1.6 million net cash provided by operating activities in Q4 2023. This represents an improvement of $2.7 million.
Ron Yekutiel: For the full year of 2024, net cash provided by operating activities was $12.2 million, compared to $8.3 million net cash used in operating activities in 2023. This represents an improvement of $20.5 million for the full year.
Ron Yekutiel: I would now like to turn to our outlook for the first quarter of 2025 and for the fiscal year ending December 31st, 2025.
Ron Yekutiel: and total revenue to reign from an increase of 2% to 4% to be between $45.7 million and $46.5 million.
Ron Yekutiel: We expect an adjusted EBITDA between $2.5 million and $3.5 million.
Ron Yekutiel: We are also expecting to continue to post positive cash flow from operations in the quarter.
Ron Yekutiel: For the full year, we expect subscription revenue to range from an increase of 2% to 3%, and to be between $170.4 million and $173.4 million, and total revenue to range from an increase of 1% to 2%,
to be between $179.9 million and $182.9 million.
Ron Yekutiel: As Ron mentioned earlier, we are being thoughtful with our overall guidance, which also takes into consideration the potential impact from macroeconomic environment as well as potential related FX fluctuation.
Ron Yekutiel: Regarding our revenue guidance and consistent with historical quarterly trends, we expect second quarter revenue to grow year-over-year but to decline sequentially.
Ron Yekutiel: This is due to the typical lower level of bookings in the first quarter and disproportionate recognition of on-prem revenue in Q1.
Ron Yekutiel: This year we expect to see a more pronounced decline due to higher Q1 on-prem revenue and increased M&T churn in the first half of the year, including delayed churn from last year.
Ron Yekutiel: 2024 was a record gross retention year for M&T, and the average expected M&T gross retention level across both 2024 and 2025 remains healthy.
Ron Yekutiel: As in the past, we expect revenue growth to reaccelerate in the second half of the year.
Ron Yekutiel: We expect an adjusted EBITDA between $12.7 million and $14.7 million. This would effectively result in a doubling of our adjusted EBITDA margin from 2024.
Ron Yekutiel: We are also expecting to continue to post positive and improving cash flow from operations to a similar level as our adjusted EBITDA for the full year in 2025, with the majority of our operational cash flow expected to be generated in the second half of the year consistent with historical trends.
Ron Yekutiel: This compares to $12.2 million in 2024, negative $8.3 million in 2023, and negative $46.8 million in 2022.
In summary,
Ron Yekutiel: 2024 was a solid year and positioned us well going forward. While we will need to manage through some of the delayed churn in M&T in the first half of 2025, we expect to achieve a better result in E, E&T, and at a consolidated level, gross retention remains strong.
Ron Yekutiel: I mentioned last quarter that our overall outlook on the business is brighter and the results this quarter have only reinforced this view.
Ron Yekutiel: We believe the company has enhanced its position in 2024 to benefit from emerging tailwinds that we are seeing of spend consolidation to a single vendor, digital and AI transformations, and the hybrid workplace that is continuing to drive demand for video based offerings.
Ron Yekutiel: As we move into 2025, we will continue to target both revenue growth and sustained and improving adjusted EBITDA profitability, consistent with our guidance.
Ron Yekutiel: We believe our results demonstrate that we are on the right path to achieving these objectives and to drive consistent returns to our shareholders.
Ron Yekutiel: We are encouraged by the increased adoption of our products, highlighted by our increase in new bookings, and deals in our pipeline that we believe could yield continued strength in bookings, and by growing industry CAD wins as we move into 2025.
Ron Yekutiel: We are also confident that this sets us up for a modestly accelerated revenue, adjusted EBITDA profitability, and cash flow from operations growth profile beyond 2025.
Speaker Change: Our target is to achieve double-digit revenue growth and a Rule of 30 combination between revenue growth and adjusted EBITDA by 2028 or sooner. As Ron mentioned, Katora has achieved this goal in the past and we firmly believe that we are on the right path to achieve it again.
Speaker Change: Before moving on to questions, I would like to highlight our upcoming investor event scheduled for Wednesday, March 12.
Speaker Change: We look forward to providing more insights into our products, customer use cases, and our financial results. For more information, please go to the investor relations page on our website that Eric has cited up front. With that, we'll open up the call for questions. Back to you, operator.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please, while we poll for questions.
Speaker Change: The first question is from Michael Turin from Wells Fargo. Please go ahead.
Speaker Change: Hi, this is Richard Polin on for Michael Turin. Thanks for taking my question. I guess to start, I just want to...
Speaker Change: give you an opportunity to just kind of elaborate a little bit on the on-premise commentary in Q1. Just want to make sure we fully kind of unpack what's going on there from Q1 to Q2 next year.
Speaker Change: Sure, good morning Richard and hello everyone. So, on-premise represents less than 5% of our revenue, somewhere around 2%.
Speaker Change: And yet when it is recognized, it's recognized within a given quarter. It is not spread. When we look at our ARR, then we correct that in order to look at the ARR itself. So it does not represent the fast recognition.
Speaker Change: But according to the rules of accounting, if you have that renewal and or new deal happening in a given quarter, then the full year revenue is recognized within that quarter.
Speaker Change: So Q1 has a few things going for it. One of it is that it has a bit more on-prem than others and it has become a bit more pronounced with one of the deals. And again, that's a very small minority of what we do.
Speaker Change: But if you look at last year also, there was a sequential decline between Q1 and Q2. The other reason is not just the on-prem, is the fact that generally most of our bookings are coming at the latter part of the year, with an emphasis on Q4 and on Q2, so Q1 is the weaker one.
Speaker Change: and so generally there's a low, sometimes negative net booking if you take away churn from gross booking.
Speaker Change: We also have that MNT stuff. So the combination of all these things is what's creating downward pressure in Q2, which is quite typical.
Does that address your question?
Yeah, that was perfect. Appreciate that.
Speaker Change: And then when we think about some of these, you know, new AI features and products, I know you announced a couple in the quarter, and it's...
Speaker Change: early days in beta. But, you know, when we think about that in the context of that, you know, 3x upsell opportunity you see in the base, how are you thinking about kind of monetizing some of the AI opportunity there? And kind of how should we think about that, you know, both, you know, as we think about next year, but also in just kind of beyond years?
Speaker Change: Yeah, thank you for that good question. We're excited about AI. It's one of the big drivers, we believe.
Speaker Change: of the industry and of Kultura and specifically we're in the best situation we believe to capitalize on that opportunity because the companies that would best benefit from AI are those who are sitting already on the content.
Speaker Change: And we have a treasure trove being the leading content management platform for many, many years. If you look at Gartner Reports, we're sitting on half of the content of half of the R1 schools in the U.S., many of the Fortune 100 and others. We've been atomizing the content there, learning it so that we can best deliver it.
Speaker Change: in a hyper-personalized, hyper-contextualized way that delivers great results, so we have an unfair quote-unquote advantage.
Speaker Change: The other point there is that the more you control all of the content of the users and the organization, the more insights you can generate.
Speaker Change: And a big advantage of Kaltura is that we've been consolidating multiple use cases, multiple products. So the entire employee and customer journey are running on Kaltura. That means that the metadata, the content, the analytics around the entire journey is in one place.
Speaker Change: So, if we need to understand how you can best monetize on a lead or how you can best engage and teach, learn, train, upscale an employee, we have all that data.
Speaker Change: So, with that, a few words about what are the things we're doing with AI. We recently launched the AI Content Lab, and that's a piece that basically enables us to create clips.
Speaker Change: to generate quizzes on the fly, to create text summaries and chaptering and highlight videos in some of that regard. So that's already live and out there and being used.
Speaker Change: The second piece of what we're doing is the Genies, which we've released this quarter. We have both Work, Class, and TV Genie. These are agentic AI services that are fit to increase interactivity with the end users.
Speaker Change: that is immersive, that brings together video together with flashcards and graphics and text. So you basically have an agent that sits there and you ask it any question that you want, and the answers are free from any hallucination because it's 100% reliant on the data within your organization.
Speaker Change: So that's something that's very exciting. We have dozens of folks that are already better testing it and excited both on the education and the enterprise front.
The other piece is around AI enrichment.
Speaker Change: So we've already launched our own automatic speech recognition tool, which we used to have used third parties.
Speaker Change: We're now launching OCR tools for optical character recognition, moderation agents. We also have a whole TV experience that enables to create content and manage it in a much more effective way for TV. So there's just a lot of stuff there.
Speaker Change: By and large we think that this is going to boost how much content is created, how much is consumed, how much value is generated, and bringing together content creation and content distribution into a virtual circle, which is really, really exciting.
Speaker Change: So we believe there's a 10 to 100% growth opportunity for consumption of video in organizations and we are in a great, great spot to be able to monetize on that.
Thank you. Thank you. Thank you.
Awesome, that's really helpful. Thank you.
Thank you, Richard.
Speaker Change: The next question is from Gabriela Borges from Goldman Sachs. Please go ahead.
Speaker Change: Hey, good morning. Thank you. Ron and John, I know we spoke a little bit about 2025 priorities last quarter, and certainly you gave us some more color in the prepared remarks as well. I wanted to ask you the follow-up on what do you think is incrementally more important for Caltura last year, or where are you incrementally spending more of your time? Clearly, the consistency on the execution, you called that out in the prepared remarks. You talked about the focus on growth and profitability, so we'd love to hear anything incremental this year versus
with Lost Year. Thanks.
Speaker Change: So, first, I mean, there was a question there, and hello, Gabriella, and thanks for the question. There was, we've highlighted five areas of growth.
Speaker Change: We said, first, the market is regrowing. Put aside culture, demand and budget and the digital and AI transformation and hybrid workplace and Gen Z in the workplace. So that's great. So that's happening anyway.
Speaker Change: There is the focus that we have provided on consolidation around KOTORA and putting together both internal and external for employee and customer and that's been driving up our average ARR, our ARPUs and enabling us to have a stronger lock-in. That has been really important and will continue to be.
Speaker Change: There's an element around maturity of our new products. We've put a lot of investment on our event platform. Again, not for the high-level events that used to have been physical. They moved to virtual, and many of which have come back to being physical. We're talking about...
Speaker Change: multinational in the automation world and global shipbuilding group and stuff like that and channel business had grown to about 15% of our booking last year was about 5, so it's, it's definitely picking back up, uh, you know, we are seeing customers consolidate around culture. We are seeing them as we've mentioned, excited about it, but to your question about geographies and verticals, you know, it's been coming across the board tech financial services, professional services, automotive healthcare. I would say that.
Speaker Change: thousands of events that our large organizations have every year, departmental, internal, external, that we manage.
Speaker Change: We're now firing on all four cylinders and able to sell this and compete against others in a market that we had not been in. So it's been an important focus for us to catch up on that, also aligned with shifting the focus from more EX to more CX, more customer experience, and that's enabling us to do both.
Speaker Change: We expect that that will be somewhere that we could break maybe quicker on the AI front compared to others like government or education from a geo tier question, uh, it's been a relatively consistent trend. Our strongest regions for ENT, uh, continues to be North America and our strongest region for M&T continues to be in. Um, I will say that when, when you think about the impact on the average ARR that we sell earlier it's been picking up and picking up. We have
So that will continue to be a focus for us.
Speaker Change: There's the agentic AI features that we just discussed around hyper-personalization. And then there's just a lot of opportunity across our existing customer base. As of recent, 75% of booking has come from upsells and not new logos. And we've identified 3X white space of growth within our existing customers.
Speaker Change: which we are tapping into, but there's going to be a lot more. We believe that as markets improve, more folks are going to be looking further and not going to be myopic about growth, and they're going to choose a system that's better for them in the mid to long term, but also saving costs, which is Kultura.
Speaker Change: closed the year with 30 customers north of a million, which is 4 more than the year before, and obviously we didn't get much into retention, but this year was a great tour, 2024, great retention years from net booking had been uh doing very, very well and it's picking up a quarter of a quarter time and time again. So the short answer to your question about both geos and verticals were successful, where we've been successful in accelerating business, both in AIA and in North America, and also
Speaker Change: And lastly, regrowing our Salesforce, because we are going to continue to bring a lot more new logos. It's slowed down for the entire industry because everybody's stuck to their own guns, and a lot of folks have not jumped into whole new opportunities. But for this year and beyond, we believe there's going to be a lot more new things coming in.
If I superimpose that on the product side,
Speaker Change: starting to open APAC more. We're doing less work in Latin America. We'll probably get back to that in the future, but it's still the same regions and verticals were successful across.
Speaker Change: Great, that's helpful, uh, and as a quick follow up, are you seeing any changes in the time to close the deal?
Speaker Change: to cater to sales, marketing, and customer success. And again, not just, but both, and the consolidation of both. There is a move that we're gonna continue to do towards content creation tools. To remind you, we came from content management and are now moving not just to create content, but to make it hyper-personalized.
Speaker Change: And along with that, have there been any changes in the closure rate because you're going into 25.
Speaker Change: Uh, no, I win rates have been holding very nice, uh, this quarter was a good quarter. The one before was great as well, so it's, uh, it's strong, um, the time that it takes, I'd say it's still longer than it used to have been in the quote unquote normal years, but it's definitely not getting longer, so I think we're, we're seeing things getting better with things get, get a bit quicker, but I wouldn't say that there's been a dramatic shift in Q4 that we should talk about.
Speaker Change: There is another move to go beyond video, which we've done over the years, to manage text, photos, and not just be at the video side, to enable full experiences around EX and CX that are video-first and AI-infused, but they are full experiences.
Speaker Change: And lastly, continued move towards lower touch doesn't necessarily mean that it's for SMBs.
Speaker Change: Got it thank you that's it for me, congrats.
Speaker Change: but, for example, to better move from telcos to media companies.
Thank you.
Speaker Change: This concludes the question and answer session. I would like to turn the floor back over to Ranu Catel, CEO for closing comments.
Speaker Change: So, all these are in place, we're all excited about them, but what I'm most excited about...
Speaker Change: is that none of the things that we said here are prerequisites for growth. We've already laid the seeds for everything we're discussing in 2024 and before. We've never fallen, quote-unquote, backwards as the industry has slowed down. We have done this amid expansion into new products, new markets successfully with great new logos.
Speaker Change: Yeah, I wanna thank you all for your great question everybody for tuning in. Uh, we're pleased with our quarter 4 and fiscal year results, um, in line with what we had communicated prior around accelerating uh revenue coming back to profitability. We're excited about 2025. We believe we're on track to continue growing both booking, accelerating revenue growth and increasing both our growth and net margins, uh, we believe we're on track to as we had stated to be a rule of 30 company again and.
Speaker Change: And we're now already reaping the success of that, you know, given that we're still growing. We've never declined. Year-over-year growth is there. Second half of the year has been accelerating. Profitability is there. So, you know, we'd love for it to be faster, bigger, quicker, and we're going to work towards that. But I think we're in the right direction. John, you want to comment, please? Thank you.
Speaker Change: And um we uh are happy um of how we've been advancing towards that and we look forward to talking to a lot of you guys on March 12th to remind you we have our investor day investor meeting, um, um, so please, um, go into uh our investors section on our website and register if and when you can. Thank you and have a wonderful day and week. Bye bye.
John Doherty: Yeah, I mean, Ron pretty much covered it, but just to...
John Doherty: Summary moving forward if you were to look at it from a financial perspective. I mean we do see continued investment in the sales
in marketing activity consistent with our desired revenue growth goals.
John Doherty: We'll see, as a percent of revenue, expect slight decline in R&D, slight decline in G&A, but we also have a very, very flexible business. If we see opportunities to accelerate revenue growth, we're going to take advantage of that.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
John Doherty: That's why we're going to have a relatively stable, as I mentioned, consistent with revenue growth sales and marketing as a percent of revenue, because we need to continue to invest in the growth opportunities that we see in front of us. So that's it, if you look more thoroughly at the P&L.
Speaker Change: Thank you for all the comments. Follow-up for Ron on AI.
Speaker Change: Talk to us about how much this conversation is a pull versus a push from customers. To what extent are customers kind of gearing up to adopt and know what they want to do versus being still in the exploratory phase where Kaltura can be a strategic partner to help educate them? Maybe just share for us what those conversations look like.
Speaker Change: I think it's somewhere in the middle, Gabriella. Some folks are still worried about the general concept of AI within the enterprise. The good news is that we are not training the models.
Speaker Change: And we are definitely not sharing it any of that across customers. There's a kind of Chinese wall So there's no problem there in that regard and we're delivering all that great value The other great thing is that you know, the issue with AI is not so much what it can do But how you actually bring it
Speaker Change: to the last mile place where you want the opportunity to be. And Kaltura is a great vehicle because we are connected into the workflows, because we have all the metadata, we have all the content.
and because we run the experience itself.
Speaker Change: And so we have everything that's required, the last mild piece of it is to bring the core capabilities of generating videos on the fly, repurposing them or creating them for text, and delivering that within the learning or working environment. So people appreciate that. So what we've been seeing across dozens of organizations, both schools, corporations, across all industries,
is that they're absolutely interested.
They're intrigued by it.
Speaker Change: But they're not coming at it, in most cases, by saying this is exactly what we need, but how can we think together about how this could disrupt.
and improve my business, but everybody is very, very attuned.
Speaker Change: to that and excited about that. So we think it's going to be a big impact over the quarter's end. As I said, and I'm repeating it, none of these things in and of themselves are required for us to continue to accelerate our business.
Speaker Change: That's all additional layers that are going to continue to fuel even faster the growth opportunity because the core business with everything else is still accelerating and growing nicely.
Next slide. Thank you.
Thank you.
Speaker Change: The next question is from Patrick Walravens from Citizens. Please go ahead.
Austin Cole: Great. This is Austin Cole on for Pat Wall Ravens. A question for Ron.
Austin Cole: And just kind of broadly about this rule of kind of 30 gold by 2028. I mean, as you look at the market right now and...
Austin Cole: You know, you talk about kind of some of the positive momentum you're seeing.
Austin Cole: Does Kaltura need to continue to see an improvement in the market to achieve those goals, or is it really just about capturing the opportunity as it stands right now? Thank you.
Yeah, thank you for that. Short answer is no.
Austin Cole: We are already in the direction and we've reduced our sales force by 25% to where we are now from the high and bringing it to back to profitability and accelerated profitability. The last three quarters have shown both sequential and year-over-year growth in bookings.
Austin Cole: And that's before increasing sales force, and we expect to continue to start gradually adding people.
Austin Cole: And so we don't think that that's required to get things done. You know, to remind you, we were there in the past. It's been very, very tough years for the industry. We've done better than the peers, and we've never come down. And we're now reaccelerating at H2, as we have promised.
Austin Cole: So I think we'll get there. What combination will build the Rule of 30? Is it like a 30% grower and a 0% adjusted EBITDA?
Austin Cole: you know, 2010, you know, that's, we said it's going to be double-digit growth, but the combination and the exact timing remains to be seen. I think you've seen us, we're very thoughtful, we're trying to be very careful about the expectations that we set and to over-deliver and under-promise, and hopefully that's going to continue to be the case. John, you want to add?
John Doherty: I mean, no, you said it, and I mentioned it in regard to the last question. I mean, our goal is to have the most flexible businesses possible.
John Doherty: And ultimately, you know, right now, obviously, we have a plan in terms of how we're going to get to, you know, the long-term goals that we've cited on the call.
John Doherty: But importantly, you know, we have been growing nine revenue quarters of growth in total subscriber always
six consecutive quarters of positive adjusted EBITDA.
John Doherty: And both of those areas we've also been doing better each and every quarter, and we expect that absolutely to continue.
John Doherty: And we do have the flexibility to where we see if we see
John Doherty: Growth acceleration opportunities on the revenue front, we're going to certainly take advantage of that. And could we sacrifice a little bit of profitability? Sure, but we're still going to be profitable. We're still 100% committed to that.
Speaker Change: Great, that's helpful. Quick follow-up for John, just looking at the gross margin in the quarter here, just wanted to dig a little deeper into kind of what's driving that and then and just how to think about kind of those levels going forward.
Speaker Change: So a couple things, you know first and foremost if you look at the overall mix of the business we have moved a little bit more towards
Speaker Change: Subscription versus PS. I mean, it's always been a strong part of our business, but that's we've moved
Speaker Change: it's become an even greater part of our business, number one. Number two, which obviously has a higher gross margin associated with it.
Speaker Change: Number two, our E, E, and T mix has also been higher overall, which also has a higher margin associated with it.
Speaker Change: And, you know, we've mentioned this, I believe it was a few calls ago, we've also had internally a very comprehensive...
process and team in place.
Speaker Change: where we've been looking at profitability by customer across E, E&T, across M&T and really going after it where we see customers that effectively aren't where we feel we need them to be whether it's through
Speaker Change: pricing, whether it's through cost management, you know, we're managing all aspects of the business to help drive, you know, gross margin to, you know, up and to the right, which is obviously what you're seeing in our results.
Longer term, you're moving that on a consistent basis.
Speaker Change: Up and towards, you know, 70% certainly is within the realm of possibility, and, you know, not that we're necessarily going to be there in 2025, but certainly, you know, we expect to continue to move that up and to the right as we move throughout the year and as we move throughout the next couple of years.
This all adds just one more piece.
Speaker Change: Just one more piece from my end. You would have seen that we've grown from 2020 on a non-gap basis from 61% to 67%.
Speaker Change: When we IPO'd the company, we said we're going to be climbing towards 70% and we're definitely on track to do that and more.
Speaker Change: So it could come down in Q1. We think it might come down a bit. But that being said, 2025 is expected, as we've noted, to be higher than 2024 as a year, and that trend is continuing to grow into the future.
Thank you. Thank you. Thank you.
Okay, that's super helpful. Thank you.
Thank you.
Thank you. Thank you. Thank you.
Speaker Change: As a reminder, to ask a question, please press star 1.
Speaker Change: The next question is from Ryan Kuntz from Native & Company. Please go ahead.
Speaker Change: Hi, this is Matt Kavanaugh on for Ryan. Thanks for the question. With expectations for better market conditions next year, are there any verticals or geographies that are standing out versus others?
Thank you very much.
Speaker Change: Thank you Matt for the good question. I mean, maybe this is an opportunity to give you a bit of color around what we've been
and that actually...
Speaker Change: with both ENT and MNT that we're doing well. ENT had the highest booking since Q3 22, MNT had the highest booking since Q2 23.
Speaker Change: Four Accounts of Seven-Digit TCB Deals versus two, the quarter before, none, the one before that and one deal at the beginning.
Speaker Change: So, you know, we also have the record number of six-digit deals. So, all in all, things are pulling up. You know, we've given you a few examples. I'm not going to get into them across both.
Speaker Change: The opinions rendered herein are those of the guests, and not necessarily those of Douglas
Speaker Change: and Connecticut State College is also British Telecom as a channel, which is also interesting because