Good morning everyone and welcome to the Kaltura Fourth Quarter and Full Year 2024 Conference 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 Erica Mannion of Sapphire Investor Relations. Please go ahead, Erica.

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 fourth quarter ended December 31, 2024, and the company's plans and expected trends for 2025. 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. 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 materially from forward-looking statements can be found in the risk factor section of Kaltura’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2024, 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. 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, and adjusted EBITDA margin during this call. For a reconciliation of adjusted EBITDA 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’d like to turn the call over to Ron.

Thank you, Erica and thanks everyone for joining us on the call this morning. 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. We also achieved record ARR for the third consecutive quarter as well as record RPO for the second consecutive quarter. In short, all top line related KPIs were at record high levels. 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 results over the past four years. This was fueled in part by a record gross margin. Cash flow from operations was $4.3 million. For the year, we reported subscription revenue, total revenue, adjusted EBITDA, and cash flow from operations all above the guidance and forecast we provided. 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. 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. We're looking forward to expanding these profitability metrics in 2025 and beyond. Moving on to the business update. 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. In the fourth quarter, it included four seven-digit deals and 29 six-digit deals, the highest combined number of six and seven-digit deals since the third quarter of 2022. The portion of new subscription bookings that came…

Thanks Ron and hello to everyone on the call today. Kaltura continued its strong and focused execution in the fourth quarter, achieving growth in new subscription bookings, a sustained high gross retention rate, 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. Touching on a few highlights in the quarter that demonstrate this, 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. 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. 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. Remaining performance obligations in 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, 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. Our results once again exceeded our guidance for both revenue and adjusted EBITDA for the quarter. Total revenue for the quarter ended December 31st, 2024 was $45.6 million, up 3% year-over-year and above the high end of our guidance range of $44 million to $44.7 million. 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. Professional services…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question is from Michael Turrin from Wells Fargo. Please go ahead.

Hi. This is Richard Poland on for Michael Turin. Thanks for taking my question. I guess to start, I just want to 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.

Sure. Good morning, Richard, and hello, everyone. So, on premise represents less than 5% of our revenue, somewhere around 2%. 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 it at the ARR itself. So, it does not represent the fast recognition. 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. 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 had become a bit more pronounced with one of the deals that again, that's a very small minority of what we do. 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. And so generally there is a low, sometimes negative net booking if you take away churn from gross booking. We also have that M&T stuff. So, the combination of all these things is what's creating downward pressure in Q2, which is quite typical for us. Does that address your question?

Yes, that was perfect. Appreciate that. And then when we think about some of these new AI features and products, I know you announced a couple in the quarter and its early days in beta. But when we think about that in the context of that 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 both as we think about next year, but also in just kind of beyond years?

Yes. Thank you for that. Good question. We're excited about AI. It's one of the big drivers we believe of the industry and of Kaltura. And specifically, we're in the best situation we believe to capitalize on that opportunity because the companies who would best benefit from AI are those who are sitting already on the content. And we have a treasure trove being the leading content management platform for many, many years. If you look at Gartner reports, so 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. And we've been atomizing the content there, learning it so that we could best deliver it in a hyper personalized, hyper contextualized way that delivers great results. So, we have an unfair advantage. The other point there is that the more you control all of the content of the users and the organization, the more insights you could generate. 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. So, if we need to understand how you could best monetize on a lead or how you could best engage and teach, learn, train, upscale an employee, we have all that data. 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 it basically enables us to create clips to generate quizzes on the fly, to create text summaries and chaptering and highlight videos and stuff of that regard. So that's already live and out there…

Awesome. That's really helpful. Thank you.

Thank you, Richard.

The next question is from Gabriela Borges from Goldman Sachs. Please go ahead.

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 Kaltura last year? Where are you incrementally spending more of your time? Clearly, the consistency on the execution you called 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 last year. Thanks.

So, first, I mean, there was a question there and hello, Gabriela, and thanks for the question. There was we've highlighted five areas of growth, right? We said first, the market is re-growing. Put aside Kaltura 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. There is a focus that we have provided on consolidation around Kaltura and putting together both internal and external for employee and customer. And that's been driving up our average ARR, our ARPUs and its enabling us to have a stronger walk in. That has been really important and will continue to be. There's an element around maturity of our new products. We've put a lot of investments on our event platform, again, not for the high level events that used to have been have physical, they moved to virtual, then many of which have come back to being physical. We're talking about thousands of events that large organizations have every year, departmental, internal, external that we manage. 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. So, that will continue to be a focus for us. There is the Agentic AI features that we just discussed around hyper personalization. And then just there's just a lot of opportunity across our existing customer base. As of recent, 75% of booking has come from up sells and not new logos. And we've identified 3x wide space of growth within…

Yes, I mean, Ron pretty much covered it, but just a summary moving forward, if you were to look at it from a financial perspective, I mean, we do see continued investment in the sales and marketing activity, consistent with our desired revenue growth goals. We'll see from 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. 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.

Yes, absolutely. Well, thank you for all the comments. Follow-up for Ron on AI. So, maybe just 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 with us what those conversations look like.

I think it's somewhere in the middle, Gabriela. 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, and we are definitely not sharing any of that with 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 the issue with AI is not so much what it can do, but how you actually bring it to the last mile place where you want the opportunity, Kaltura is a great vehicle because we are connected to the workflows because we have all the metadata, we have all the content and because we run the experience itself. And so we have everything that's required. The last mile piece of it is to bring the core capabilities of generating videos on the fly, repurposing them, or creating different 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. 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 to that and excited about that. So we think it's going to have a big impact over the quarters ahead. 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. 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.

Excellent. Thank you.

Thank you.

The next question is from Patrick Walravens from Citizens. Please go ahead.

Hey, this is Austin Cole on for Pat Walravens. A question for Ron and just kind of broadly about this Rule of kind of 30 goal by 2028. I mean as you look at the market right now and you talk about kind of some of the positive momentum you're seeing, does Kaltura need to continue to see kind of 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.

Yes. Thank you for that. The short answer is no. We are already in a direction, and we've reduced our sales force by 25% to where we are now from the high and bringing it back to profitability and accelerated profitability. The last three quarters have shown both sequential and year-over-year growth in bookings, and that's before increasing the sales force, and we expect to continue to start gradually adding people. And so we don't think that that's required to get things done. 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 in H2 as we have promised. So we think we'll get there. What combination will build the Rule of 30? Is it like a 30% grower and a 0% adjusted EBITDA or 20 to 10? 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, do you want to add?

I mean, no, you said it, and I mentioned it in regards to the last question, I mean our goal is to have the most flexible business as possible. And ultimately, right now, obviously, we have a plan in terms of how we're going to get to the longer-term goals that we cited on the call. But importantly, we have been growing nine revenue quarters of growth in total subscriber OEs, six consecutive quarters of positive adjusted EBITDA. And both of those areas, we've also been doing better each and every quarter, and we expect that absolutely to continue. And we do have the flexibility if we see 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.

Great, that’s helpful. A quick follow-up for John. Just looking at the gross margin in the quarter here, I just wanted to dig a little deeper into kind of what's driving that. And then just how to think about kind of those levels going forward?

So, a couple of things. First and foremost, if you look at the overall mix of the business, we have moved a little bit more towards subscription versus PS. I mean it's always been a strong part of our business, but we've moved, it's become an even greater part of our business, number one. Number two, which obviously has a higher margin, gross margin associated with it. Number two, our EE&T mix has also been higher overall, which also has a higher margin associated with it. And 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 where we've been looking at profitability by customer across EE&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 pricing, whether it's through cost management. We're managing all aspects of the business to help drive gross margin up and to the right, which is obviously what you're seeing in our results. Longer term, moving that on a consistent basis up and towards 70% certainly is within the realm of possibility. And not that we're necessarily going to be there in 2025, but certainly, 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.

I'll add just one more piece. Just one more piece from my end. You would have seen that we've grown from 2020 on a non-GAAP basis from 61% to 67%. When we IPO-ed the company, we said we're going to be climbing towards 70%, and we're definitely on track to do that and more. The one thing I will just say is that there could be jumps between quarters. It so happens that Q4 also had some more short-term credits that have come from AWS. So, that sometimes it boosts things. 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.

Okay, that’s super helpful. Thank you.

Thank you.

[Operator Instructions] The next question is from Ryan Koontz from Needham & Company. Please go ahead.

Hi, this is Matt Cavanagh 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, Matt, for the good question. I mean maybe this is an opportunity to give you a bit of color around what we've been achieving from a business perspective over the last quarter. We did say that it's been a very good quarter. It was the third quarter in a row of both sequential and year-over-year growth in our bookings. And that actually was both in E&T and M&T that we're doing well. E&T had the highest bookings since Q3 2022. M&T had the highest bookings since Q2 2023. And also the new businesses, not just the upsell, but new business has been increasing both quarter-over-quarter and year-over-year. So, it's just general. And I think we also noted the number of six and seven-digit TCV deals we had four accounts of seven-digit TCV deals versus two the quarter before, none, the one before that, and 1 deal at the beginning. And so we also had a record number of six-digit deals. So all in all, things are pulling up. We've given you a few examples. I'm not going to get into them across both cases where it was internal communications, cases where it was external L&D, M&T. One that I didn't, by the way, add on top of those that we've mentioned like Adobe and HealthStream and Red Hat and Bret and Connecticut State Colleges is also British Telecom as a channel, which is also interesting because they added some more customers. We had with them interesting strategic partnership where they brought a global automotive brand. And in this quarter, a couple of other logos around multinationals in the automation world and global shipbuilding group and stuff like that and channel business have grown to about 15% of our booking. Last year it was about 5%. So it's definitely…

Great, that’s helpful. And as a quick follow-up, are you seeing any changes in the time to close the deal? And along with that, have there been any changes in the closure rate as you're going into 2025?

No, I mean win rates have been holding very nice. This quarter was a good quarter. The one before was great as well. So it's strong. The time that it takes, I'd say still longer than it used to have been in the "normal years," but it's definitely now getting longer. So, I think we're seeing things getting better when things get a bit quicker. But I wouldn't say that there's been a dramatic shift in Q4 that we should talk about.

Got it. Thank you. That’s it for me. Congrats.

Thank you.

This concludes the question-and-answer session. I would like to turn the floor back over to Ron Yekutiel, CEO, for closing comments.

Yes, I want to thank you all for your great questions, everybody, for tuning in. We're pleased with our quarter four and fiscal year results in line with what we had communicated prior around accelerating revenue coming back to profitability. We're excited about 2025. We believe we're on track to continue growing both bookings, accelerating revenue growth, and increasing both our gross and net margins. We believe we're on track, as we had stated, to be a Rule of 30 company again, and we are happy 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. So, please go into our Investors section on our website and register if and when you can. Thank you, and have a wonderful day and week. Bye, bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.