Q2 2025 Kaltura Inc Earnings Call

Speaker #2: Good morning, everyone, and welcome to the KALTURA second quarter 2025 earnings call. All material contained in the webcast is the sole property and copyright of KALTURA, with all rights reserved.

Speaker #2: For opening remarks and introductions, I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead, Erica.

Speaker #4: Thank you, operator, and good morning. I'm joined by Ron Yekutiel, KALTURA's co-founder, chairman, president, and chief executive officer. And John Doherty, chief financial officer.

Speaker #4: Ron will begin with a summary of the results for the second quarter end of June 30, 2025, and provide a business update. John will then review the financial results for the second quarter of 2025, in greater detail, followed by the company's outlook for the third quarter, and full year, 2025.

Speaker #4: We will then open the call for questions. Please note that this call will include forward-looking statements, within the meaning of the Federal Securities Laws, including but not limited to statements regarding KALTURA's expected future financial results and management's expectations and plans for the business.

Speaker #4: These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Important factors that could cause actual results to differ from forward-looking statements can be found in the risk factors section of KALTURA's annual report on Form 10-K for the fiscal year end of December 31, 2024, and other SEC filings, including the quarterly report on Form 10-Q for the quarter end of June 30, 2025, to be filed with the SEC.

Speaker #4: 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 #4: Please note we will be discussing non-GAAP financial measures adjusted EBITDA non-GAAP net loss and non-GAAP gross margin during this call. For reconciliation of these measures to the most directly comparable GAAP metric, please refer to our arnings release, which is available on our website at www.investors.kaltura.com.

Speaker #4: Now, I'd like to turn the call over to Ron.

Speaker #5: Thank you, Erica, and thanks to everyone for joining us on call this morning. Today, we reported total revenue of $44.5 million, for the second quarter of 2025, up 1% year over year.

Speaker #5: And subscription revenue of $42.4 million, up 3% year over year. Our ARR and RPO grew by 3% and 6% year over year respectively. Our year over year revenue growth this quarter was fueled by E&T, and curtailed as expected by M&T due to the delayed M&T churn for 2024, as discussed in the last two earnings calls.

Speaker #5: Consequently, while E&T total revenue grew in the second quarter by 7% year over year, its highest growth rate since the first quarter of 2022, M&T total revenue declined in the second quarter by 14% year over year, its sharpest decline ever.

Speaker #5: With that said, as we look ahead, we expect to post sequential growth in M&T revenue in the fourth quarter, fueled by an expected improvement in M&T gross retention, and also an increase in new bookings as also discussed in previous earnings calls.

Speaker #5: The recently announced extension and expansion of our long-term contract with Vodafone a global telecom leader and our largest customer throughout the last decade supports that and highlights our continued leadership in cloud TV market.

Speaker #5: In the second quarter, we posted a record non-GAAP net profit of $2.5 million, adjusted EBITDA was 4.1 million, consistent with our record first quarter, and represented our eighth consecutive quarter of adjusted EBITDA profitability.

Speaker #5: This was driven by a strong non-GAAP gross margin of 70%, up from 66% in the same quarter last year. Cash flow from operations was $2.7 million, the highest second-quarter results since 2020.

Speaker #5: Moving on to the business update. New subscription bookings in the second quarter grew sequentially and comprised 21, 6-digit deals, including with technology providers such as AWS and Xbox, which we can name and with an employee experience platform provider and a leading financial services platform provider.

Speaker #5: Our 6-digit deals also included two of the largest US banks, a top pharmaceutical company, a leading medical organization, one of the largest automakers, one of the leading global professional services firms, and several education institutions and media and telecommunications companies.

Speaker #5: Customers continued to consolidate around KALTURA, and our average ARR per customer once again reached a record high. I am pleased to update that in the second quarter, we closed our first three AI deals, which included sales of our exciting new offerings content lab and Genie.

Speaker #5: Over the last few quarters, we progressed rapidly from initial product vision to development, proofs of concept, beta releases, and full commercialization. Use cases included automation of manual workflows for video creation, enrichment, delivery, and measurement, as well as providing end users with interactive, hyper-personalized, video-first onboarding and upskilling experiences.

Speaker #5: Among the first customers is a leading professional services and consulting powerhouse, with over 750 thousand loyees worldwide. We expect many more and bigger deals to follow in the quarters ahead, as our growing sales pipeline already includes over 100 additional qualified opportunities with companies from all our get industries, including technology companies, regulated industries including banking, insurance, healthcare, and pharma, education institutions, and media and telecom companies.

Speaker #5: I'll discuss the AI opportunity further in my upcoming product update. On the gross retention front, as noted, we anticipated a lower rate of retention in the first and second quarters of the year due to delayed media and telecom churns from last year.

Speaker #5: That said, our gross retention rate in E&T continued to be very strong in the second quarter, reaching again its best level since the fourth quarter of 2022.

Speaker #5: We continue to forecast an annual E&T gross retention rate in 2025 that is better than that of the previous four years. And for M&T gross retention rate to improve in the fourth quarter, as stated earlier.

Speaker #5: We were also pleased that despite the strong temporary media and telecom winds, our net dollar retention in the second quarter was above 100% for the fourth quarter in a row.

Speaker #5: Moving on to the product front, let's begin with our continued and growing investment in our AI offerings. In the second quarter, we enhanced our content lab agent to support multilingual video metadata, summaries, and quizzes, making video more accessible, discoverable, and impactful across a diverse user base globally.

Speaker #5: We also integrated content lab natively into our virtual events offerings, designed help event organizers generate clips and video summaries, repurpose content, boost discoverability, and increase engagement.

Speaker #5: As for our family of Genie agents, work, class, and TV Genies, the power of per-personalized video experiences for end users. In the passing quarter, we enabled them to pull insights and generate content not only from videos, but also from additional data sources such as documents, making their output much more rich, contextualized, and personalized.

Speaker #5: We also enabled them to support anonymous and unauthenticated users which is intended to broaden their reach and usability to external public websites and portals while maintaining privacy and compliance.

Speaker #5: Lastly, regarding our homegrown AI-based automatic speech recognition transcription engine, in the second quarter, we launched our live captioning service and seamlessly integrated it into our live video workflows.

Speaker #5: For our previously released video on demand AI-based automated transcription engine, we added support for additional languages, and a dictionary feature which allows customers to define custom word substitutions and rules that improve accuracy and quality of captions particularly for company-specific language and frequently used terms.

Speaker #5: As we look forward to our planned AI developments in the second half of the year, we intend to expand Genie to include enhanced response formats beyond flashcards and videos, add conversational memory to increase response quality, and enable a more natural flowing dialogue.

Speaker #5: And enable users to utilize Genie directly on any individual videos to extract deeper insights and information and drive deeper engagement. Beyond Genie enhancements, in the second half of this year, our planned roadmap includes a new AI agent for content publishing that would automate related manual processes including complex repetitive tasks for content and metadata moderation and approval, accessibility, enrichment, repurposing, captioning, clipping, and quiz insertion.

Speaker #5: We believe these updates will help enable content to be published at scale, faster, and cheaper with higher consistency and better compliance. Looking further down the road beyond the second half of the year, our vision is to transform our AI agents from reactive prompt-based agents into proactive automated ambient agents that will anticipate needs and take actions to optimize impact across the content lifecycle of all our use cases.

Speaker #5: Including marketing, sales, and customer success, teaching, learning, and training, communication and collaboration, and entertainment and monetization. We plan for our agents to not only drive productivity but to become intelligent enough to replicate human rules and automate tasks, acting as AI twins, and to gradually further evolve into AI specialists that are intended to be role-aware use case-specific and ultimately also industry-specific as we plan to launch for example specific agents that will cater to video-first employee and customer experiences in the financial services, pharma, or education markets.

Speaker #5: Moving beyond our AI innovation, in the second quarter, we rolled out powerful updates across the KALTURA AI video experience cloud. Making video creation, management, and engagement more intelligent and inclusive and scalable.

Speaker #5: We enhanced our self-serve event platform to also support multi-track events without requiring professional services from Kaltura. Additionally, we enabled more personalized notifications based on session interest, improving event participation and engagement.

Speaker #5: We also expanded our events APIs making them easier to integrate with external systems and to manage events at scale efficiently while generating more data and insights.

Speaker #5: On the video portal front, we've expanded the theming module to enable more consistent professionally branded experiences and introduced a content tab web page that increases discoverability of public content.

Speaker #5: We also enhanced our LMS and CMS extensions with a modern folder structure that enables users to better manage large volumes of videos. Lastly, in regard our virtual classroom product, we enabled hosts to add audio files to their session storyboard to be used, for example, for narrations, guided instructions, and shared music.

Speaker #5: Our product leadership continued to earn a strong industry recognition in the second quarter. With our new class Genie winning the e-learning innovation of the year award in the seventh annual EdTech Breakthrough Awards, and our virtual events and webinars offering sweeping five golds at the 2025 EventX Awards, earning us top honors in every category where it's competed in, including Best Event AI Technology, Best New Event Technology, Best Audience Engagement Technology, Best Data Collection and Event Analytics Technology, and Best Virtual Event Platform.

Speaker #5: In the passing quarter, we were also recognized by IDC as a leader in their first-of-its-kind market scape research and vendor assessment for AI-enabled enterprise video platforms.

Speaker #5: Reports stated that we were named a leader due to our intelligent automation, extensible workflows, and advanced analytics and that our full-spectrum platform built for both internal and external use cases stands out due to its modular API-first architecture, self-service capabilities, and support for content reuse.

Speaker #5: It further states that a key factor in our strong positioning was the recent launch of our agentic AI offerings including content lab and Genie which are designed to boost productivity and maximize content value.

Speaker #5: We're honored to be recognized and awarded time and again as leaders by so many industry experts, and we're excited to see the buzz around our new AI products.

Speaker #5: Moving beyond product, in the passing quarter, we hosted our KALTURA Connect On the Road 2025 events in New York, San Francisco, and London. Hundreds of marketing, communication, and video tech leaders from top organizations came together to discuss how AI-infused video can transform organizational knowledge and employee and customer experiences.

Speaker #5: Speakers included leaders from leading corporations such as AWS, YouTube, Adobe, Salesforce, IBM, Visa, AstraZeneca, Pinterest, Vanguard, Bloomberg, and many more. We give you recordings of these events on our website.

Speaker #5: In the second quarter, we also launched our KALTURA Connect in education 2025 series of events with the first event in the Netherlands, four additional events have already been held in the third quarter across the US, and another two events are planned to be held later this year in Europe and Asia Pacific.

Speaker #5: Information about these events is available on our website. Lastly, we announced that our board of directors has approved a reorganization plan that includes, among other things, downsizing approximately 10% of our current workforce.

Speaker #5: We expect to realize cost savings starting later in the third quarter. The plan is focused on realigning our operations to further increase efficiency and productivity.

Speaker #5: John will provide details on the expected cost savings, but I want to highlight three high-level points. First, this type of reorganization was anticipated in connection with our stated goal earlier this year of doubling adjusted EBITDA in both 2025 and 2026 and returning to be a rule of 30 company by 2028 or earlier through a combination of double-digit revenue growth and adjusted EBITDA margin.

Speaker #5: Second, this organization plan moves us to a unified technology team which includes all our ineering resources, in a unified customer experience and sales team which caters to all our customers and prospects across both E&T and M&T.

Speaker #5: Our plan is to gradually further verticalize both teams into a more granular E&T sub-industries to develop, market, and sell more vertical SaaS AI-infused video solutions, for example, to the financial services, pharma, tech, and education markets.

Speaker #5: Translating to spending, the budget reduction applies to engineering, professional services, and administration spending items, and not to our sales and marketing spend run rate, which is planned to remain at the same level in this gradually expected to grow.

Speaker #5: And third, factored into our total cost savings are our ongoing automation and modernization efforts through AI-driven productivity improvements across the company, which are already contributing to our efficiency, and are expected to grow.

Speaker #5: In summary, we wrapped up another strong quarter where we surpassed the high end of our subscription revenue total revenue and adjusted EBITDA guidance ranges as well as our expected cash flow from operations.

Speaker #5: Our new bookings grew sequentially, and our sales pipeline indicates a higher level of new bookings in the second half of the year for both E&T and M&T, coupled with an expected return to a strong M&T gross retention rate in the fourth quarter.

Speaker #5: We continue to be fueled by customer consolidation around our platform, the maturity of our newer products, and our exciting new GenAI offerings that started to yield revenue in the passing quarter and are expected to yield much more in the quarters ahead.

Speaker #5: We continue to see momentum building across several parts of the business, and while this gives us confidence in our trajectory, we remain mindful of market uncertainties and continued geopolitical turbulence.

Speaker #5: And therefore, we are maintaining our previously provided revenue guidance for 2025 with refined ranges for both total revenue and subscription revenue. We are, however, increasing once again our adjusted EBITDA guidance for the year, and restating our expectations of stronger cash flow from operations throughout the second half of the year resulting in an annual level similar to our guided adjusted EBITDA.

Speaker #5: With that, I'll turn it over to John, our CFO, to discuss our financial results in much more detail. John.

Speaker #6: Thanks, Ron, and I appreciate you all joining the call this morning. KALTURA continued its strong and focused execution in second quarter, with sequential growth in new bookings from existing and new customers, initial sales of our exciting new AI products, continued improvement in operating efficiency, and further reallocation of resources towards higher ROI opportunities and markets.

Speaker #6: Touching on a ew highlights in the quarter that demonstrate this, for the 11th consecutive quarter, total revenue grew year over year, driven primarily by strength in our subscription revenue which has once again grown year over year, consistent all past quarters.

Speaker #6: Both total ARR and average ARR per customer continued to grow year over year, with average ARR at a record high. The highest total revenue growth rate in E&T since first quarter 2022, as well as the continued strong E&T gross retention rate, which was at its highest level since the fourth quarter of 2022.

Speaker #6: Worked on the extension and expansion of the Vodafone contract, which we announced earlier in the week, fortifying our M&T segment. A record level of adjusted EBITDA matching the first quarter result and representing the eighth consecutive positive quarter of adjusted EBITDA profitability, highlighting our continued focus on operating expense management and cash flow from operations was the highest second quarter result since 2020.

Speaker #6: With that, let me move on to our results. Our results once again exceeded our guidance for both revenue and adjusted EBITDA for the quarter.

Speaker #6: Total revenue for the quarter ended June 30, 2025, was $44.5 million, up 1% year over year, and above the high end of our guidance range of $43.4 million, to $44.2 million.

Speaker #6: Subscription revenue was $42.4 million, up 3% year over year, this was also above the high end of our guidance range of $40.8 million, to $41.6 million.

Speaker #6: Professional services revenue contributed $2.1 million for the quarter, similar to down 31% year over year, consistent with the expected trends we discussed on previous earnings calls.

Speaker #6: The remaining performance obligations were $188.1 million, up 2% sequentially, and an increase of 6% year over year, of which we expect to recognize 61% as revenue over the next 12 months.

Speaker #6: The strength in RPO is driven by our strong renewals and upsells in the quarter, and we expect this to continue to improve as we move through the year consistent with past years as Ron touched on earlier.

Speaker #6: Annualized recurring revenue was $170.4 million, up 3% year over year, driven by our increase in subscription revenue in the quarter. Our net dollar retention rate for the quarter 101%, compared to 107% last quarter, and 98% in the same quarter last year.

Speaker #6: This sequential decrease was anticipated and reflective of the increased churn in M&T in the first half of 2025, due to the delayed churn from 2024 as Ron mentioned earlier.

Speaker #6: I will now touch on the segments briefly. E&T segment performance was strong. Total revenue for the second quarter was $33.2 million, an increase of 7% year over year.

Speaker #6: Subscription revenue was $32.6 million, up 9% year over year, while professional services revenue contributed $0.7 million, down 44% year over year. The M&T segment performance was challenged in the quarter due to the churn impacts that we previously discussed.

Speaker #6: Total revenue for the second quarter was $11.2 million, representing a decline of 14% year over year. Subscription revenue was $9.8 million, down 13% year over year, while professional services revenue contributed $1.4 million, down 23% year over year.

Speaker #6: We do anticipate M&T's performance to improve in the fourth quarter, through increased gross retention and new bookings. To that end, the renewed and extended long-term contract with Vodafone is a strong validation of our market and product leadership in M&T.

Speaker #6: Gap gross profit in the second quarter was $31.2 million, up 9% year over year, subscription gross profit was $32.7 million, also up 9% year over year.

Speaker #6: Gross margin was 70%, which is up from 65% in the second quarter, of 2024, and subscription gross margin was 77%, which is up from 74% in the second quarter 2024.

Speaker #6: Total operating expenses in the quarter were $34 million, compared to $37.2 million in the second quarter of 2024, a reduction of 9% year over year.

Speaker #6: Adjusted EBITDA for the quarter was $4.1 million, an increase of $2.5 million from $1.6 million in the second quarter of 2024. This result matched the record that we set in the first quarter.

Speaker #6: And along with our roving expense and margin profile, highlights our continued focus on improving our operating efficiency over time. I will discuss this more in a ent.

Speaker #6: Gap net loss in the quarter was $7.8 million, or 5 cents per diluted share. This is an improvement of 2.3 million year over year.

Speaker #6: Beginning with the passing quarter, non-GAAP net income adjusted for gains or losses from foreign currency translation adjustments in addition to our historical adjustments highlighted in our earnings release.

Speaker #6: We have decided to begin making an adjustment for FX impact now, given we incurred a material FX loss this quarter, primarily due to the depreciation of the US dollar against the Israeli shekel.

Speaker #6: Given the recent fluctuation of the dollar, related to less certainty in the global economic environment, as Ron touched on earlier, we believe this change will provide a better reflection of our overall operating performance on a non-GAAP net income or loss basis.

Speaker #6: This results in non-GAAP net income in the quarter $2.5 million, or 1 cent per diluted share, an improvement of 4.5 million year over year.

Speaker #6: Moving to balance sheet and cash flow. We ended the second quarter with $75.3 million in cash and marketable securities. Net cash generated by operating activities was $2.7 million in the quarter, an increase of 4.3 million year over year, and as I mentioned, was the strongest second quarter result since 2020.

Speaker #6: Lastly, before moving to our updated guidance, we announced this morning a reorganization within KALTURA as Ron mentioned earlier. This will result in a reduction of approximately 10% of our force, we expect to realize cost savings starting later in the third quarter.

Speaker #6: I want to reinforce that these reductions are not a reflection of market trends, and that they will not impact our marketing and sales activities.

Speaker #6: We still plan to increase marketing and sales investment gradually to support our expected top-line growth. We remain very confident in the market opportunity available for Kaltura, and have identified areas where we could streamline the business to more effectively target these opportunities and serve our customers.

Speaker #6: Total savings from workforce reductions associated with the reorganization expected for the balance of 2025 is approximately $2.6 million, which translates to $8.5 million on an annualized basis.

Speaker #6: Strengthening our financial position moving forward. The total one-time charge related to the reorganization is expected to be approximately $0.7 million, in the third quarter of 2025.

Speaker #6: I would now like to turn our outlook for the third quarter of 2025 and for the fiscal year ending December 31, 2025. We are executing well, as our solid second quarter performance demonstrates, while continuing to manage the uncertain macroeconomic environment and its impact on the general business landscape.

Speaker #6: We have been effectively addressing M&T churn and expected to be material lower in the fourth quarter enabling a forecasted sequential M&T revenue growth in the fourth quarter.

Speaker #6: In addition, the pipeline of opportunities for both M&T and E&T continue to grow, which we expect to drive new bookings in the second half of the year.

Speaker #6: As a result, we are maintaining our overall revenue guidance for the full year, with another increase to our adjusted EBITDA guidance and our expectation of a much stronger cash flow from operations throughout the second half of the year, resulting in an annual level similar to our guided adjusted EBITDA.

Speaker #6: Let's dive deeper into our guidance going forward. For the third quarter, we expect subscription revenue to range from a decrease of 3% to 1% year over year, and to be between $40.8 million and $41.6 million, and total revenue to range from a decrease of 3% to 2% and to be between $42.8 million and $43.6 million.

Speaker #6: We expect an adjusted EBITDA between $1.5 million to $2.5 million. This subscription revenue and adjusted EBITDA guidance is in line with last quarter's guidance, as some of the anticipated top-line headwinds rolled from the second quarter to the third.

Speaker #6: The quarter's total revenue guidance incorporates lower expectations for revenue from professional services in line with overall trend and last quarter's results. For the full year revenue, we are maintaining the midpoint of guidance, while tightening the upper and lower bounds of both subscription and total revenue.

Speaker #6: We expect subscription revenue to grow 2% to 3%, over 2024 fiscal year, and to be between $170.9 million and $172.9 million, and total revenue to range from an increase of 1% to 2% year over year, to be between $180.4 million and $182.4 million.

Speaker #6: For the full year, adjusted EBITDA we are again raising our guidance to be between $14.5 million and $16 million, this represents a tightening of the guidance range, while also increasing the top of the range.

Speaker #6: Our guidance reflects more than a doubling of our justed EBITDA profit and margin, versus 2024. In summary, the second quarter was better than expected as the impact of some revenue headwinds were pushed into the third quarter, as we mentioned in the last two earnings calls, we needed to manage through some delayed 2024 churn in M&T, in the first half of 2025, and we have.

Speaker #6: We also expected to continue to see solid performance in E&T, and we have. Going forward, we expect our M&T retention rate to improve in the fourth quarter to its typical strong level, and we continue annual E&T gross retention rate for 2025, that will be better than that of the previous four years.

Speaker #6: We also expect both E&T and M&T new bookings to continue to increase in the balance of the year, driven by momentum in our sales pipeline, which also includes exciting potential AI deals.

Speaker #6: While we continue to closely and prudently monitor the macroeconomic environment, as I mentioned earlier, we are navigating the current well, and we continue to believe that we will continue to benefit from the emerging tailwinds that we are seeing including spend consolidation, digital and AI transformations, and the hybrid workplace that is continuing to drive demand for video-based offerings.

Speaker #6: This is certainly highlighted by our record average ARR this quarter. As we said in the past, and I want to reinforce here, we will continue to target both revenue growth and sustained and improving adjusted EBITDA profitability, consistent with our guidance.

Speaker #6: Our results continue to demonstrate that we are on the right path to achieving these objectives, and to drive consistent returns to our shareholders. We are confident that we remain in a good position to achieve modestly accelerated revenue, adjusted EBITDA profitability, and cash flow from operations growth profile beyond 2025.

Speaker #6: Our target continues to be to achieve double-digit revenue growth, and a rule 30 combination between revenue growth and adjusted EBITDA margin by 2028 or sooner.

Speaker #6: As I've said before, KALTURA has achieved this goal in the past, and we firmly believe that we will achieve it again. With that, we'll open up the call for questions.

Speaker #6: Operator?

Speaker #2: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing keys.

Speaker #2: If at time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster.

Speaker #2: And your first question comes from Gabriela Borges with Goldman Sachs. Please go ahead.

Speaker #7: Hey, good morning. Thank ou. Ron and John, I wanted to ask you a little bit about your bookings come in for the back half of the year.

Speaker #7: Talk to us a little bit as a follow-on from the analyst day. What do you think's working well in your incremental new bookings? I mentioned and is there anything that you're learning as you go through the year that is different to our expectations as you started the year?

Speaker #7: Thank you.

Speaker #8: Thank you, Gabriela. for the good question, appreciate it. and for those, by the ay, who have not had a chance to listen to our March event for investors, it's of course in our in the investor section of our website.

Speaker #8: There's great, insights there and also great demos there. I think, you know, a few things are shifting gradually, and are helping our bookings pick up.

Speaker #8: And they are, some of them multi-quarter investments, some of even multi-year investments. If go far, to 2020, and when we started to add real-time conferencing and expand from the content management world into also events and webinars, we gradually moved from high services events into more self-serve, low-touch events that are enabling, not just the multi-track events, but also simpler events and going down market, you wait, if you may, by way of, the size and the complexities of events, they've become much more stable, much more robust, much more successful.

Speaker #8: and we are now very mature in that offering and taking a lot more business. That's one trend that's important, the maturity of our events offering.

Speaker #8: The second is consolidation that we've often discussed and mentioned. in part, as we've gotten further away from the post-COVID years, companies were able and are able to take a bit of a strategic approach towards their video purchasing and understanding they don't need to have two, three, four, five, sometimes a lot more vendors.

Speaker #8: it's the silos, it is the broken workflows, it is also a more expensive investment. And so, using KALTURA, and that's quite unique, not just in how deep we go by APIs, but how wide we go, and catering to multiple use cases and catering to multiple, buyers, so people consolidate further.

Speaker #8: And we're seeing that with the rease in the average ARR per, in the company that's been growing up and up and up. once again, a record high.

Speaker #8: And we have some very big deals ahead of us that are showing more of that. So again, consolidation, would be a second piece. AI would be a third where the beginning of that, but we expect to see a lot more.

Speaker #8: we have a strong pipeline. We have our initial products and more to follow. And we've spoken a lot about these things. It's really the fact that we're now able to marry the creation of content with the distribution of content in real time, that people could have a hyper-personalized, hyper-contextualized experience that is rich.

Speaker #8: And that enables us to continue to go further beyond just video, and be a video-first experience but really it's about customer experience, employee experience at large.

Speaker #8: It's immersive, it's not just video. and that that's quite exciting. There's a lot more that we expect around the corner. So, there's a lot of good moves.

Speaker #8: I mean, what we are adding to what I just stated is also further verticalization. We can talk more about that. You know, we we have had specific efforts on education, media and telecom, and have treated enterprise relatively horizontally.

Speaker #8: We expect and plan in the months and quarters ahead to be able, especially with AI technology, to offer more verticalized additional, efforts. That take us deeper and deeper, and look, we're sitting in some of the biggest brightest customers out there, the biggest banks, the biggest insurance companies, some of the biggest tech companies, and we've been rowing we think we could continue to grow materially with them.

Speaker #8: That's all being said, we are seeing a significant increase in the size of our pipeline, the weighted pipeline. And so, we have backings to the fact that we expect the second half of the year to be better than the first.

Speaker #8: And so we're looking forward and cautiously to see where things take us.

Speaker #7: Yeah, absolutely. That makes sense. And then John, just in your comments on addressing M&T churn, I know you've been talking about this consistently for some quarters now.

Speaker #7: Remind us, why do you think churn was elevated, and what are you doing to address it?

Speaker #8: Yeah, as you mentioned, Gabriela, we've signaled this from the, back end of last year that we expected it coming into this year. there there is a lot of shifting going on, in that space.

Speaker #8: with with the move to, you know, IP in the cloud. So from that perspective, companies are continuously reevaluating how they want to go to market and also looking to, you know, refine the way in they go to market.

Speaker #8: We're just, this is happening. We're not unique to this. This is happening across that part of that that space. you know, that's why we we we made sure that we incorporated that into the guidance that we provided.

Speaker #8: You know, that said, we've been working very, very hard with our major customer, Vodafone, and it's it was really good to see that we were able to sign this extension and expansion of a contract with them.

Speaker #8: I think that's also a validation that we're we are well positioned, and that's y we do expect, while some of this also will impact the quarter as we discussed, we do expect that we're ind of bottoming out, it's going to be, you ow, up into the right from here and certainly, the Vodafone contract provides a little bit of extra wind in our sales.

Speaker #7: Thank you so much.

Speaker #8: And if I could

Speaker #8: , if I could add just a couple more words, and then thank you, John. you ow, some of the churns that we see are what we call OVP as opposed to OTT, online video platform as opposed to over-the-top or cloud TV.

Speaker #8: There are earlier customers that are less "strategic," because they're offering, the video flow of including delivery as opposed to more of the end-user experience for full-blown TV.

Speaker #8: Great, that is far more stickier and and exciting. when we look at the customer mix that we have ahead of us, a very good portion of that is extremely satisfied, extremely sticky, and is not expected to be let go.

Speaker #8: So there's some elements of it, that are, you know, peeling off, but the heart of it will not. And it has been strengthened to point, Vodafone, as mentioned, that we just increased for another decade this relationship.

Speaker #8: that they're very happy, and there's a lot of discussion about expansion of this relationship, both by feature and capability, including AI, as well as by geography, and user base.

Speaker #8: so that's exciting, and that's not a small feat for the type of customer they are to remind ou we had replaced Cisco Ericsson and TiVo companies that are, I don't know, 100 or more times the size of our when we have done so.

Speaker #8: A lot eyebrows, were kind of bent, and, we've, you know, they thought they were going to come back within a year because the small company KALTURA at the time, 2014, would not have been able to have kept hold.

Speaker #8: And here we are a decade after, growing and doing really well. and being endorsed. So the reason I say that is because in that industry, Vodafone, Wee, PPF, some of the biggest guys around, people look at them and get great marks for KALTURA.

Speaker #8: Last thing I'd say is you've asked about churn, that's really also a question of net, which is also bookings. We've taken our foot off the gas and M&T by choice over the last few years.

Speaker #8: We all know this industry is kind of slowed down at large when I say this, video. and we needed to have made decisions, and we doubled down on enterprise and on that move towards real time and events and consolidation and ything else we've discussed.

Speaker #8: And 're seeing that nice yearly growth and everything else, and we said, look, media is going to come back. It's slowed down quite a bit.

Speaker #8: Now we're seeing a lot more interest in this industry, and now that we're profitable and growing, we're able to regrow our sales effort because we were on idle.

Speaker #8: we were catering to our existing customers, upward to mystically, we were picking up stuff, but we declared that we're not strongly pushing into that market and sales, period.

Speaker #8: Now we started putting a few more, and we have significant pipeline that's being added up. So I expect that the next, we've id, you know, churn will will go down by Q4, and then we expect sequential growth as we look into the next few quarters.

Speaker #8: We expect to start reporting on bookings that are coming in, on deals that we've been long working on, and we expect the revenue to turn around, start picking and growing, because we're a strong leader in that space.

Speaker #7: Thank you for the thoughts.

Speaker #2: In your next question, come from Ryan Koontz with Needom. Please go head.

Speaker #9: Great. Thanks for the estion. I wanted to ask you, Ron, how your new AI products are are folded into your selling motion and your pricing.

Speaker #9: Is is it currently an upsell to your current offering primarily, on the ET side? And, you know, when do you think that maybe these AI products could become like a lead engagement tool for some of the sales efforts?

Speaker #9: Thanks.

Speaker #8: Yeah, thanks for asking, Ryan. So yes, it is an upsell. and right now we're talking both the content lab and the Genies and there's more agents that are going to come around the corner.

Speaker #8: they're being used mostly based on FTE pricing like we have for the other ones, but depending on where and how they're inserted, they're augmenting and would be priced associated with the attached products in the world of events.

Speaker #8: It's quite often the number of registrants or attendees or the number of permitted people to, to create events. so there could be flexible pricing, but there are for sure additives.

Speaker #8: it's not that there's no AI-infused components that might not be additive because they're just better replacements of existing products. An example of that could be our video on demand transcription engine that's Whisper-based that's replaced third-party vendors, enabling us to reduce costs and also provide greater quality and have a stronger hold of the technology so we could add more feature sets, c.

Speaker #8: but the core, core AI products that we've been discussing here are additive. in our vision in the quarters ahead, it's going to take a bigger and bigger part of what we're discussing.

Speaker #8: Again, because we're becoming more and more a video creation tool and a way for people to generate video for customer experience and employee experience.

Speaker #8: and we expect that also to find its way through different efforts we're doing to become more PLG. So that you'd be le to put an embed code, whether it's in your website or in the learning environment, and to start off by enabling people to, watch videos that are hyper-relevant for them in real time with conversational AI, etc.

Speaker #8: when that happens, that would become not only an increasing, part of our revenue, but also, the best starting point to insert KALTURA into companies that they could then gradually go deeper and deeper into the rest of what we do.

Speaker #8: so we expect that to become more material in the percentage of our revenue and more material in the ability to convert to sell additional products for the company.

Speaker #8: Now, we've ways been careful not to over-step our bounds and to set specific expectations. know, originally when we started, we said, "Not yet monetized," and we said, "We'll let ou know," and now we just said, "Just started monetizing it, and we'll keep you on track as we continue to advance on when it would become a big enough contributor to our, revenue that we could start talking about that particularly and maybe carving it out and talking it more." it's just the very, very first quarter, so let's let's take one quarter at a time.

Speaker #9: Sure, that's that's at. Maybe a quick call if could. Are there any particular market verticals in ET that you're, excited about in the second half of this year that are behaving well for you?

Speaker #8: Yeah, thanks. I mean, they're all, 's exciting stuff in all of em. I mean, we we are talking about the main ones that we're breaking out in need to, of course, are education, tech, we have the regulated industries that include both financial services and pharma, and, government to some extent.

Speaker #8: and then we have technology, of course. And, and, and I could say that increase in each one of these different environments, we're seeing a lot of excitement around all the different elements I said earlier, the maturity of our events, the consolidation efforts, AI, and so we're we're quite excited about all of them.

Speaker #8: we're going to go deeper into further verticalizing our product, product marketing, marketing, sales, to offer more capabilities for each one of them. That is unique and distinct.

Speaker #8: And to be able sell more aggressively deeper into each one of these areas, with references across other competing or or or similar cases, so no, I can't say that any one of them sticks out much more than others, but these areas that I just mentioned are the top areas we're focused on.

Speaker #9: Great. Thanks so much, Ron. Appreciate .

Speaker #8: Thank you, Ryan.

Speaker #2: In your next question comes from DJ Hines with Canaccord. Please go head.

Speaker #10: Hey, Ron. Hey, John. so look, in your answer to Gabriela's question, you guys reiterated, you ow, you've been very transparent about the M&T churn that happen Q2.

Speaker #10: You told us that NRR would take a step back. But the sequential decline in E&T revenue caught me little by surprise this quarter, you know, when most of the metrics seemed to be trending in the right direction over the last several quarters.

Speaker #10: Can you just help understand what's happening there, if it's seasonality or I know our expectations are positive for the back half of the year, but just help me with the revenue dip here in Q2.

Speaker #8: Yeah, I appreciate it. Yeah, we actually guided it by words for that because we don't provide separate guidances for each, and we said that generally speaking, the first quarter of the year is very low, and that what's leading the second quarter, revenue really.

Speaker #8: So if the bookings are low and the churn, even if it's reasonable, doesn't contribute much. Also, very importantly, we also said that we had the on-prem revenue in the first quarter, and that's almost only E&T.

Speaker #8: and we said that was a big increment that causes Q2 to go below Q1. So it's actually in everything we have discussed in the last quarter, it wasn't a surprise.

Speaker #8: And it's not that E&T isn't doing well; it's the behavior that's governing it. Yeah, but I'll let you answer that.

Speaker #10: Well, I think forgot about that. On-prem piece.

Speaker #9: Yeah, Ron really touched on it. It was really the strength of the first quarter, so it was a ugh comparison overall.

Speaker #10: Yeah. Yeah. Okay. Okay. Makes sense. And then, Ron, I'd love to have you talk a little bit about the bookings mix in terms of, you ow, net new versus into the base and kind of if this quarter looked like previous quarters, kind of what the plan is to catalyze, you know, the net new business.

Speaker #8: Could you clarify the question? 'm not sure you talk about net new, not necessarily new logo, but net new addition, and what's plan?

Speaker #10: No, new logo, I guess, versus sales back into the base. I think, you know, the business has been doing quite well selling back into the base, maybe a little bit lighter on new logos, and I'm just kind of curious what the pipeline looks like for new logos in the back half and what you guys are doing there.

Speaker #8: Got it. Appreciate it. So yeah, I an, we've been talking about that for the longest time, that historically, this company had been about of a 50/50 between you versus upsells.

Hey, good morning. This is Braun on for Michael. I just have a question on the 10th. Maybe you could talk about some of the drivers and thought processes that you guys had internally going into that, and I would love some color on the areas that were most affected there and kind of how you expect it to ramp into cost savings through.

The back half of the year and next year.

Appreciate everyone. I'll I'll say some words and pass it over to John to talk about their numbers. So uh, this is really a reorg in order to continue to enhance productivity streamline. The operations capture more synergies, you know, to the tune of 10% of our total Workforce. It's both full employees as well as offshore and full-time Outsource and uh, that's the order of magnitude. We expect to realize the cost savings later this quarter. And then next, and again, the numbers Tom will talk about, um, it's mostly engineering Professional Services Administration, not sales and marketing that we are keeping in touch and expect to continue to grow. It is taken into consideration AI improvements, which we've seen quite significant especially in our engineering World. Um, so that's great. It's been already taken into consideration and passed when we started and the year and we said, look, we're going to double just, you know, we knew that down the road, we're going to have some of that. Um, so it's not a big surprise um and uh, we feel that

That it's an opportunity moment to do that. You know, throughout the different years we've had to put a bit more gas on the pedal in so far as what we've developed in the EP, etc. And we've got to that maturity around the event platform. We're now getting into cycles that are faster in innovating around AI. And so we are able to do that with less, but it's really in support of our commitment to continue to be an 'and Company,' as John likes to say it. You know, growing both revenue.

You as well as profitability you can see our gross margin have been always increasing in recent years by about 10 points throughout the last 4 or 5 Years and we're expecting. As we have shared with you guys, in a multi-year basis, to continue to grow that nicely, um, and the same for the bottom line, which is put the in grow up. So we're we're very much committed to achieving both of these and to become a rule of 30 company again with double digit growth by 2028 or before with that. Let me pass it over to John.

In our, our guidance, you really even from the beginning of the year. Um, you know, that said, you know these things will take time uh you know folks won't be coming off until sometime uh in the early September time frame. So we'll start seeing benefits, uh, from from the September time frame this year. We expect, as we mentioned in the prepared, remarks would be about 2.6 million for the year, if you annualize that, um, it's 8 and a half million. Now, that doesn't mean, you take the straight 8 and a half and apply it to 2000. I'm sorry to 2026 because we are going to continue to invest in sales and marketing. You know, as Ron mentioned, the savings really are coming from what we're doing. Where we see see that we have opportunities across our our R&D organization, as well as in, you know, for the most part, our GNA. Um, and you know, a lot of the moves will as we talked about nothing to do with how we think about the market, the opportunities that are in front of us, I'm still very, very positive there and we just felt it was

There was an opportunity for us to kind of make some moves pivot, the organization to be more reflective of where we're going from a strategic perspective. Um, in terms of the verticalization and, you know, it's consistent with our our commitment to continue to be a more profitable company. But also go, you know, go after the market and and not sacrifice anything in the sales and marketing area.

Great. And just a quick follow-up, um, kind of related to that your, uh, sequential, uh, ebita guide has a, a step down, uh, just anything to call out there, uh, in terms of seasonality or anything to note, as the rift kind of layers into the profitability metrics.

Yeah, we're running a little bit short on time, but um, effectively

You know you know our our our justinee but our overall has been you know, relatively strong I mean we did get some help in Q2 from some 1-time items. Uh you know, that that really around a PTO reversal withholding tax bonus reversal. Some of that uh

You know, gave us some strength in the second quarter so that would be reflective. If you look at what you, what we expect in the third quarter, but we do expect uh, to to, you know, have a very, very strong um, you know, fourth quarter and fourth quarter would be better than than any of the quarters before it.

Back to the operator move on. Yeah we'll take our final question from Patrick Wall Ravens with citizens. Please go ahead.

Oh great. This is Kincaid on for Pat. You know I was really excited to see that you guys had announced the the 3 big wins as well as the 100 qualified opportunities in the pipeline. I was wondering if we could get a little bit of color on how many of those uh 3 wins were really driven by the uh, features you guys already have implemented versus teachers you have on the horizon and the same question for those 100 qualified opportunities.

Yeah, appreciate it. It's all, uh, things that we have and sold. It's not selling road map. Its existing products again the uh, content lab 1 end the genie product of the other. They're quite exciting inviting everybody to go to the website and check them out. Um so it's 100% selling what we have and not what we're planning to have. There's a lot more of our planet to have and the thing goes to the 100% opportunities.

Is there anything you're hearing from customers about what they want, beyond what you guys have?

Um, I think we're leading more than they're leading in so far as explaining the art of the possible, but I think that, you know, if you go to the content lab is really about automating the process of production, um, of videos. So you automate the clipping and the metadata, you know, addition and everything else that you have there, the enrichment. Um, so that you have far less people and far less time, required to create clips and then deliver them to the right people in the right time in the right place. So it reduces cost reduces time, make some more efficient, and ultimately increases uh your ability.

Real time experience across also avatars and across um more interactivity and Tighter interactivity um so by doing. So we're becoming increasingly not just a video Edition that supports employee customer experience. But become the video first customer experience and employee experience platform. Um so it's increasing the breadth of what we do while keeping it something that's a complete Standalone and you can plug in and start running with it.

Thanks so much.

This concludes our question-and-answer session. I would like to turn the conference back over to Ron Yekutiel for any closing remarks.

Uh, thank you. Uh, everybody for joining the call today, have a beautiful uh, rest of the week. Take care. Bye, bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect