Greetings. And welcome to the Kaltura Third Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erica Mannion, Kaltura Investor Relations. You may begin.

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. Ron will begin with a summary of the results for the third quarter ended September 30, 2024, and provide a business update. John will then review the financial results for the third quarter of 2024 in greater detail, followed by the company’s outlook for the fourth quarter and full year 2024. 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. 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 factor section of Kaltura’s annual report on Form 10-K for the fiscal year ended December 31, 2023, and other SEC filings, including the quarterly report on Form 10-Q for the quarter ended September 30, 2024, to be filed with the SEC. 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. Please note we will be discussing a non-GAAP financial measure, adjusted EBITDA, during this call. For a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP metric, please refer to our earnings release, which is available on our website at www.investors.kaltura.com. Now I’m pleased to hand the call over to Ron.

Thank you, Erica, and welcome, everyone, to our third quarter earnings call. We reported today total revenue for the third quarter of 2024 of $44.3 million, up 2% year-over-year and record subscription revenue of $42.1 million, up 3% year-over-year. In the third quarter, we also posted a record ARR for the second consecutive quarter, as well as a record RPO. As for our bottomline, in the third quarter, we posted adjusted EBITDA of $2.4 million, representing our fifth consecutive quarter of adjusted EBITDA profitability, and the highest result since the second quarter of 2020, fueled in part by a record gross margin. In the third quarter, we also generated a record cash flow from operations of $10.7 million, a significant improvement from $1.7 million in the third quarter of 2023. In light of these results, we’re once again increasing our full year revenue and adjusted EBITDA guidance, and are expecting to post positive cash flow from operations in the fourth quarter, as well as for the full year in 2024. Moving on to the business update. In the third quarter, we posted both year-over-year and sequential growth in new subscription bookings for the second consecutive quarter. These new bookings were at the highest level since the fourth quarter of 2022 and came from two seven-digit deals and 22 six-digit deals across a diverse array of industries, use cases and geographies. New customers included a Fortune 500 automotive manufacturer that is now using our video portal and content management system for internal, live and on-demand communication and collaboration, a leading training and certification provider that is now using our virtual events and webinars for internal learning and development, a leading visual discovery engine that is now using our virtual events and webinars for marketing, sales and customer success, and a North…

Thanks, Ron, and hello to everyone on the call today. Kaltura continued its strong and focused execution in the third quarter, achieving continued growth in new subscription bookings, sustained high gross retention rate, further monetization of our existing customer base, in addition of new customers, and continued improvement in operating efficiency and reallocation of resources towards higher ROI opportunities and markets. I want to touch on a few highlights in the quarter that demonstrate this. The highlights include new subscription bookings continue to grow both sequentially and year-over-year for the second consecutive quarter, posting the highest new bookings since Q4 2022. Gross retention continued to improve year-over-year, and in the third quarter, represented an annualized run rate similar to the two years preceding last year’s gross retention decline. Our eighth consecutive quarter of year-over-year total revenue growth, driven primarily by strength in our subscription revenue, which has grown year-over-year in this and all past quarters. Our growth in remaining performance obligations and ARR, with both metrics at the highest level to-date. And our reinforced belief that we are strongly positioned to achieve our profitability targets, with gross margin at a record high level, lower year-over-year operating expenses, continued improvement in adjusted EBITDA, representing the fifth consecutive positive quarter and the highest results since the second quarter of 2020, and a record cash flow from operations quarter. With that, let me move on to our results. Our results exceeded our guidance for both revenue and adjusted EBITDA for the quarter. Total revenue for the quarter ended September 30, 2024, was $44.3 million, up 2% year-over-year, and above the high end of our guidance range of $42.6 million to $43.3 million. Subscription revenue was $42.1 million, up 3% year-over-year. This is also above the high end of our guidance range of $40.5…

Thank you. [Operator Instructions] Our first question comes from Gabriela Borges with Goldman Sachs. Please proceed with your question.

Hi. Good morning and good evening, Ron and John. Congratulations on the quarter. This seems like some of the cleanest beat and raise results that you’ve had in a number of quarters. So, Ron, I’m hoping you can comment, is there one or two things that you would point to from a company-specific standpoint that you think are really driving incremental stability in your business now relative to all of the heavy lifting that you’ve been doing over the last, call it, four to six quarters?

Thank you, Gabriela, and good morning to everybody on the call today. What can I say? Luck favors the prepared. We’ve been working hard towards this and it’s showing results. I think the industry is gradually turning around. You can see a bit of it from some of the other vendors in this industry, which is good. We’ve always outperformed and we continue to outperform and continue to climb and grow, and we’re seeing increased demand and definitely continued success in being able to deliver against that demand. I’m happy to give you a bit more color around what’s happening on the business side. So, you do know that we had the highest new bookings since Q4 of 2022, and it’s both sequential and year-over-year growth now for the second quarter in a row. We did have bigger deals. So, we had two seven-digit deals this quarter compared to none last quarter and one deal in Q1. We also had 22 six-digit deals, so they’re bigger. We do see customers continue to consolidate around Kaltura, which has been our strategy. We’ve said we expect to see more and more of that, especially as times improve, because people have the time and the bandwidth to think forward and not myopically and not go for the better solution, but also one that is also financially making sense to the mid- and long-term, because we’re saving costs and not just providing better solutions. We’ve seen success across all industries, tech, financial services, automotive, professional services, healthcare, education. If I look at it per industry and give you a bit of an analysis there, we’ve seen most of the new bookings come in this last quarter from the tech companies. They also grew most year-over-year and sequentially. And after that, I’d say regulated industries,…

Yeah. Absolutely. Thanks for the call. The follow-up is for John. So this will be your first year with Kaltura for the annual planning process for 2025. Talk to us a little bit about your framework for 2025 forecasting, any early call you’re willing to give on how to think about revenue growth and margins for 2025 and maybe how you’re applying all of the dynamics that Ron was just talking about to coming up with a forecast for 2025? Thank you.

Yeah. Sure. And it sounds a little bit like a setup, but appreciate the question in terms of you going deeper on guidance for 2025, which, as I mentioned, and as is typical for us, we’ll provide in February when we do the full year and fourth quarter. That said, yeah, I think one of the things about our performance this quarter and also which sets us up well for 2025, hence my comment around us seeing what we consider to be a bit of a brighter kind of forecast overall, and we’ll leave it at that in terms of a general comment. It’s basic blocking and tackling. The company is executing well. Expenses are down, hence profitability is up. Hence profitability is up. Adjusted EBITDA is moving in the right direction. Company continues to grow revenue. Ron touched on this a bit. But it’s been a very consistent focus of ours on a couple areas. Customer profitability, we’ve been dissecting our profitability by customer over the course of the past year, and the company started doing that before I joined, and we’ve just continued, which I’ll call basic blocking and tackling, and ultimately, some of that’s what’s driving some of the price increases, because we’re targeting what we’re doing and where we have opportunities to derive additional value from our products that we’re doing it. In addition, we have also realigned some of our workforce, if you will, which has driven additional improvement in operating expenses. OpEx is better, $2 million year-over-year, $3 million sequentially, and we continue to expect to go down that path. So for 2025, as we mentioned, we think we’re going to have a modestly improving growth and profitability profile.

Sounds good. Thank you for the color.

Thank you, Gabriela.

Our next question comes from DJ Hynes with Canaccord Genuity. Please proceed with your question.

Hey, guys. I’ll echo Gabriela’s comments. Congrats on the nice bookings quarter and nice to see that dollar-based net retention back in the triple digits. Maybe we could start there, and actually something you alluded to, Ron, in your answer to Gabriela. So the majority of bookings I think you noted in the quarter were new use cases or expansion with existing customers. What’s the pipeline for new customers look like, and how important is that to the sustainability of renewed growth from here?

Yeah. Thanks, DJ. I appreciate it. Let me first comment on that first part about upsells, which has been the core focus for us in NDR and taking care of our existing customers, and especially the bigger ones. We posted in the third quarter the similar kind of high quarterly gross retention that we’ve seen in the last few quarters and it’s materially improved from same quarter last year and our current gross retention forecast for the full year is at this moment expected to be even at higher levels than 2021 and 2022, not to mention 2023, which was the one single bad year that we’ve said that was to our belief an outlier and we’ve seen that in some other companies in the industry with different metrics that have also seen a dip in gross retention in 2023. So it has been a very good rebound to the tune of better than the other years. Most of the last MRR from a gross term perspective had been partial, so it’s downsells as opposed to full churn, that continues, and only a small piece of it had been associated with a certain year of product or service gap, like 15%-ish, but most of it is still budget limitations, product services that are no longer needed, et cetera. And so we did expect NDR, given the last improvements and given the rebound and bookings to continue to go up and we are glad to have seen it go up, again, north of 100%, and we expect that trend to continue into the future. To your question about new logos, obviously, we’ve had some good quarters in between and some are picking up. It’s choppy, it’s not something that you will 100% see growing in a linear way, but we expect…

Yeah. Yeah. That makes sense. That’s a helpful color. Maybe as a follow-up, Ron, you’ve got new leaders now in the product and sales lead roles, obviously, not new to Kaltura, but new to those responsibilities. Are there any changes those folks have implemented or are contemplating that we should be aware of? I mean, I know you’ve talked about focusing on larger opportunities, verticalization of the sales force. Anything else we should be thinking about?

So, first of all, yes, we have to some extent new, but to another extent, they’re not new to the company and have been around for a long time and they are -- have been extremely well-accepted and are doing an amazing, amazing job. We have Navi that has moved from Chief Revenue Officer to lead our product and tech. And to remind everybody, when we said that last quarter, Navi’s background was from engineering and as a CEO of an analytics BI and AI company. He’s also coming from a lot of data and enterprise sales. But when he joined the company, he was supposed to have been a GM. And then when things slowed down, he was put to run revenue and understanding our customers and their needs. He’s in the best situation now to bring about continued success and changes within our R&D department. He’s done a great job there and we are pushing, continue to push forward very aggressively on the AI front. So it’s not a change, but it is doubling down and continue to push forward. And I want to state there very clearly, we think that’s a huge backroom opportunity. And the reason is that we are integrated deep into the workflow and we are the ones that are harmonizing all the data external and internal in the company. So we can prompt the system and the LLM in the best way in order to generate the experiences, which we also power. So if you look at that sandwich, workflow integration, data harmonization, AI on top of that, the experience we could offer all that. And again, we spoke this quarter about how we’re bringing a market, the latest AI updates around Content Lab. We’re launching what we call a Class Genie and…

Very good. Thank you, guys. Congrats.

Thank you, DJ.

Our next question comes from Ryan Koontz with Needham & Company. Please proceed with your question.

Hi. Thanks. Congrats on the great results. Really nice to see this. Maybe you can unpack a couple of the customer applications that you talked about there in the strong tech vertical, Ron. Can you maybe unpack that a little bit in terms of what some of these use cases are and where your real value is in terms of either, are these renewals versus new logos, et cetera? Thanks.

Yeah. Happy to do that. So, again, the beauty of Kaltura is that we have the widest array of products and we cater to the widest array of use cases in the market. So from a product perspective, what we’ve been selling are both the underlying VCMS, the video content management system to run all the content across the enterprise. And on top of which, at the enterprise level, we have our video portals that are enabling both internal and external gatherings, as well as creation of content, user-generated and otherwise. We have the events and webinar offering that originally was for very large events and has come down to power thousands of events in a highly engaging way for both marketeers and trainers. We have the virtual classroom product that enables real-time teaching and learning for partners, for customers, as well as internally for employees, specializing in these non-symmetrical places where the teacher or the trainer has these pervasive meetings that have a purpose and they prepare the room before, during and after, and this is where we shine. We also have our integration into LMSs and CMSs for both schools and organizations. And of course, we have the Media and Telecom suite. What we see generally is that people start with one and move to another. Sometimes they want to have the content management and the video portal experience internally and sometimes externally, and then they move internally and they go throughout both. And from a use case perspective, if it’s employee-related, it’s either communication and collaboration or teaching, learning and development, and we’re seeing both. So some people come in and say, look, we just want to have a unified system to record, store and manage all of our conferencing stuff or have more advanced webcasting capabilities…

That’s really great. Sounds like what you’ve been working on for years and the market’s maybe finally coming to you. Thanks for the question.

100%, I appreciate that, Ryan. I will say there, for years, video has been used as an end as opposed to as a mean. Here’s a video player, run it, that’s highly commoditized, that was never interesting for us. Our vision was always how to use video in order to better learn, better market, better sell as part of the workflow and this has been the Kaltura promise since inception. I think that it started picking up, things were doing great. Then came a few years where things were a bit harder from a budget perspective. We think this is gradually, and I’m emphasizing gradually. I don’t think it’s an overnight, next quarter, everything’s totally hunky-dory, but it is picking up. And we think that now the value of video as a mean, not as an end, fueled with AI-infused feature sets will really enable to drive all these mission-critical use cases with video. And that enables a 10x growth for the opportunities around video, and we think we’ll be a leader there.

Great, Ron. Thanks a lot.

Appreciate it.

Our next question comes from Patrick Walravens of Citizens JMP. Please proceed with your question.

Oh! Great. Thank you and let me add my congratulations. The RPO growth is particularly nice to see. So I have two questions. Ron, for you, it’s nice to see the seven-figure deals come in Q3. Usually you think of that as sort of an end-of-the-year phenomenon. So how does the seven-figure pipeline look going forward? Are there still things in it?

Yes. There are. Thank you. And yes, thank you for noting Q3 versus Q4. I mean, it varies, sometimes Q4, sometimes Q3. Our pipeline does have a bunch of seven-figure deals and we’re hoping to continue to land them in Q4 and beyond, yes.

All right. Great. And then, John, for you, I noticed in your script, you made a comment about reallocating resources to, I forget how you word it, but sort of higher return opportunities. Like, I thought it’d be really interesting for investors to see some examples of what were some of the places you took resources from and where did you put them?

Yeah. If you look at our revenue results and kind of one of the themes that we’ve talked about is really two themes. Number one, focusing on customer profitability. So, ultimately, we have a team that works on that regularly and we use the information that comes out of that process to target the specific price increase opportunities where we have resale opportunities and we’ve been able to benefit from some of that. In addition, we’ve been very focused on, across the sales organization, it’s one thing about landing customers, we have a really deep and I think underappreciated customer profile. And ultimately, part of our success this quarter, and we saw some of it last quarter and we expect it to continue, is our ability to go deeper within existing customers and we’re very much aligned with the sales team, supporting the sales team, and certainly, that also takes a bit of a shift in focus and investment.

Awesome. Well, let me add my congratulations again. Thank you.

Thank you, Pat. And I’d just like to add, because we’ve really spoken a lot about the upside of the opportunities and growth and hopeful continued growth. I do want to say a word about the bottomline, because as John has referenced it in some of his answers, this is a big and important focus for us, and John has said that multiple times, that we’re an end company. We’re going to grow top and bottomline. You’ve seen gross margin grow. We expect that to continue to happen and we are expecting our bottomline to continue to grow, and we’re doing both. And so we’re looking very carefully on this and where and what we do to support that, and I and the entire company are fully committed to achieving that in the next quarter and beyond. So, and that obviously goes towards cash flow as well. You’ve seen this was a strong cash flow quarter, and again, some of these results might jump in any given quarter to the left or the right, but they could be a bit clunky. So I wouldn’t take any one of these statements verbatim for a Q4 versus a Q1, but the general trend that we’re going to continue to post here is one of increased cash flows, increased profitability and then increased growth.

[Operator Instructions]

Anything, Operator?

It appears there are no further questions at this time, so I would now like to turn the floor back over to Ron Yekutiel for closing comments.

Yeah. Appreciate it. So, yeah, we feel good about the quarter, but we feel that there’s a lot more hard work ahead of us and we are heads down to continue to execute to bring things onward and upward. I do appreciate everybody making time, especially in a special day like this. And just a word, maybe as in the US, everybody’s now coming together to be again, one nation and put our divides aside. I think we as Kaltura and definitely the tech industry are at the forefront of putting people together and collaborating in an open, flexible and collaborative way. So onward and upward to us and to the industry. Have a beautiful day and a great week. Thank you. Take care.

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