Kaltura, Inc. (NASDAQ:KLTR) Q1 2024 Earnings Call Transcript

Kaltura, Inc. (NASDAQ:KLTR) Q1 2024 Earnings Call Transcript May 12, 2024

Kaltura, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning everyone and welcome to Kaltura's First Quarter 2024 Earnings Conference Call. [Operator Instructions] All material contained in this webcast is the sole property and copyright of Kaltura with all rights reserved. For opening remarks and introductions, I'll now turn the call over to Erica Mannion at Sapphire Investor Relations. Thank you. Please go ahead.

Erica Mannion: 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 results for the first quarter ended March 31, 2024 and provide a business update. John will then review the financial results for the first quarter of 2024 in greater detail, followed by the company's outlook for the second quarter and full year of 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 Factors 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 March 31, 2024, to be filed with the SEC. Any forward-looking statements made during this conference call, including responses to 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 metrics, 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.

Ron Yekutiel: Thank you, Erica and welcome, everyone, to our first quarter earnings call. The first quarter of 2024 marked our sixth consecutive quarter of year-over-year growth. We reported record total revenue of $44.8 million, up 3% year-over-year and record subscription revenue of $41.2 million, up 2% year-over-year. Adjusted EBITDA for the quarter was positive $0.6 million. As for our bottom line, the first quarter was our third consecutive quarter of adjusted EBITDA profitability. We consumed cash from operations during the first quarter as expected due to our typical seasonality which came in at $1.1 million, an improvement from $7.4 million in quarter 1, 2023. Moving on to the business update. Gross retention in the first quarter of 2024 continued to improve for the third quarter in a row and was the highest level in 5 quarters.

This represents an annualized rate that is better than that of the last 3 fiscal years. We continue to forecast a better retention level this year compared to last. We believe this is driven by the passage of most post-COVID video usage reductions and of the budgetary constraints of the subsequent global economic downturn. As for new bookings, the first quarter was, as usual, a slower quarter and this year, even more so as we had a few large deals slip into the second quarter. In the first quarter, we closed 1 7-digit deal with a large Fortune 100 insurance company and 12 6-digit deals. Consistent with one of our key focus areas, we continue to see growth in the number and size of the opportunities for our event platform for both internal and external use.

We also continue to see existing customers expand their adoption of Kaltura from their original mostly internal use cases for employee communication and learning and development to also external use cases for marketing and customer engagement. In addition, while the market remains competitive, we have been increasingly successful at raising our prices upon contract renewal. From a geographic perspective, while our bookings from outside of the U.S. continue to be negatively impacted from the macro environment, we are seeing initial signs of recovery with multiple new large EE&T and M&T deals in the sales pipeline that are coming from EMEA and APAC. On the product front, in the first quarter, we continued boosting our event platform with enhanced content management capabilities, lead management features and onsite registration for hybrid events.

We enhanced our video portal search results, filters and user experience and added to our video player, ad-block detection and hotspots for Simulive entries. The real-time conferencing rooms within our event platform and virtual classrooms now also enable interludes and have more granular roles and permissions, improved dual screen layout and globally shared storyboards. On the M&T front, we continue to beef up scalability and security and analytics for both end users and quality of service as well as to simplify the experience of content curation. Our strong and growing product portfolio yielded us several recognitions and awards in the passing quarter. These included G2's 2024 Best Software Awards in the categories of Best Design Software as a Virtual Event Platform and Best Education Software, as well as the Best Virtual Event Platform in North America Award at the 2024 Innovation in Business MarTech Awards.

On the AI front, we were continuing to infuse the AI features and capabilities into our products. We completed a successful pilot with a leading tech company to repurpose video content and create snippets and snackable moments from video. The feedback has been superb and the ROI measured was very significant with savings of $1,000 to $1,500 [ph] in 3 hours to 5 hours in turnaround time per clip. We're ramping up investment in content repurposing with the goal of further integrating it into our content management, webinars and event workflows, are expanding our AI add-on for webinars and events with capabilities to automatically generate notifications and sentiment analysis for chat and are developing our own AI-powered automatic speech recognition solution with the goal of providing improved results and extended features.

In summary, we wrapped up another record revenue quarter that showed continued improvement in our gross retention rates. While the year started as usual with lower new bookings, our current pipeline indicates an expected improvement in the coming quarters and we believe we will encounter more tailwinds as companies start reaccelerating investments in digital transformation and online experiences. We expect that this will be fueled by the increasingly hybrid workplace, growth in Gen Z and Millennial video-savvy employees, the need to save cost by consolidating multiple enterprise video use cases around a single video platform and the advent of Gen AI which will bring about more creation and consumption of videos and increased ROI. Despite our revenue guidance, our performance in the first quarter, considering the lower bookings start and the still uncertain macro outlook, we need to be thoughtful and are, therefore, maintaining revenue guidance for 2024.

Lastly, regardless of our top line growth, we are reaffirming our expectation of posting both a positive adjusted EBITDA and positive cash flow from operations this year. With that, I'll turn it over to John, our CFO, to discuss our financial results in more detail. John?

John Doherty: Thanks, Ron and hello to everyone on the call today. With 3 months behind me, I want to open up with a few of my thoughts on Kaltura overall. Kaltura has been operating in a very challenging environment over the past 2 years. There have been industry headwinds from budgetary constraints, competitive pressure and elongated sales cycles due to the economic environment which impacted the company more in Europe than in the U.S. during this period. Kaltura has made the necessary and difficult adjustments, including improving its operating efficiency, focusing on further monetizing the existing customer base and reallocating resources towards higher ROI opportunities and markets. Based on these actions and with the continued steady execution, the company is well positioned to benefit from emerging tailwinds of spend consolidation to a single vendor, digital transformation and the hybrid workplace that is continuing to drive demand for video-based offerings.

With that, let me move on to our results. Results exceeded expectations for revenue and adjusted EBITDA for the quarter. Total revenue for the quarter ended March 31, 2024, was $44.8 million, up 3% year-over-year. Subscription revenue was $41.2 million, up 2% year-over-year. Total revenue and subscription revenue were also up 1% sequentially. Professional services revenue contributed $3.6 million, up 25% year-over-year. The remaining performance obligations were $165.2 million, down 1% year-over-year, of which we expect to recognize 57% as revenue over the next 12 months. With the anticipated increase in bookings as we move to the second half of the year, we expect RPO to trend upward as well. Annualized recurring revenue was $162.7 million, up 2% year-over-year.

We slightly modified our net dollar retention calculation and the results that I will reference reflect that adjustment for all periods which were to the tune of up to plus or minus 1%. Our net dollar retention rate for the quarter was 98%, incidentally, both before and after the modification. This reflects no change from where we were in the fourth quarter but down from 103% in Q1 2023. This result was expected due to lower net bookings last year. NDR is a lagging indicator for gross retention and upsell booking. We expect it to further decrease in the second quarter and then rebound in the second half of 2024 given the sequential improvement in gross retention that we have demonstrated over the last 3 quarters and our upcoming forecasted sequential pickup in booking following the traditional slower beginning of the year.

Within our EE&T segment, total revenue for the first quarter was $32.4 million, up 4% year-over-year. Subscription revenue was $30.7 million, up 3% year-over-year, while professional services revenue contributed $1.8 million, up 23% year-over-year. Within our M&T segment, total revenue for the first quarter was $12.3 million, representing 3% year-over-year growth. Subscription revenue was $10.5 million which was flat year-over-year, while professional services revenue contributed $1.8 million, up 28% year-over-year. GAAP gross profit in first quarter 2024 was $28.6 million compared to $27.3 million in first quarter 2023, resulting in a gross margin of 64% for the quarter, up from 63% in Q1 2023. Within our EE&T segment, gross profit for the quarter was $23.6 million, representing a gross margin of 73% which is consistent with where we were in Q1 2023.

Subscription gross margin was 79%, up from 78% in Q1 2023. Within our M&T segment, gross profit for the quarter was $5.1 million, representing a gross margin of 41%, up from 38% in Q1 2023. Subscription gross margin was 53%, down from 56% in Q1 2023. Total operating expenses in the quarter were $35.9 million compared to $39.2 million in the first quarter of 2023, an improvement of 9% year-over-year and indicative of our goal of improving our operating efficiency. GAAP net loss in the quarter was $11.1 million or $0.08 per diluted share. Adjusted EBITDA for the quarter was $0.6 million, increasing by $3.3 million from negative $2.7 million in Q1 2023. Turning to the balance sheet and cash flow. We ended the quarter with $73.8 million in cash and marketable securities.

We consumed $1.1 million in cash from operations during the quarter as expected due to our typical seasonality. This reflects a significant improvement compared with $7.4 million in Q1 2023. I would like now to turn to our outlook for the second quarter of 2024 and for the fiscal year ending December 31, 2024. In 2023, we experienced a year-over-year decline in gross retention and new bookings which impacted our revenue. And while gross retention sequentially improved in recent quarters, new booking was still low in the first quarter for reasons mentioned. In the last 2 quarters, we had guided towards sequential total revenue declines but ultimately, our revenue grew. We believe that the downward pressure that had accumulated in prior quarters will catch up to us this quarter and therefore, we are forecasting a modest low single-digit sequential revenue decline in both subscription and total revenue in the second quarter.

As a result, we expect subscription revenue in the second quarter to be between $39.6 million and $40.3 million and total revenue to be between $42.7 million and $43.5 million. We expect adjusted EBITDA in the second quarter to be between negative $0.6 million and positive $0.4 million. As we look towards the second half of the year, we expect to return to sequential revenue growth driven by our improved gross retention rate and our forecasted growth in new bookings. For the full year, we are reaffirming our guidance. We continue to expect total revenue to be between $173.7 million and $176.7 million and subscription revenue to be between $161.2 million and $164.2 million. We also continue to expect adjusted EBITDA for the year to be positive with a high end of $1 million which compares to negative $2.5 million in 2023.

We also continue to forecast a positive cash flow from operations for the full year. Now I'd like to share some closing thoughts as we look out over the balance of 2024 and into 2025. We are aiming to achieve both revenue growth and sustained and improving profitability over the long-term. We believe we are on the right path to achieve this objective and to drive consistent returns to our shareholders. We are encouraged by the increased adoption of our products, the continued improvement in our gross retention rate, the large deals in our pipeline that we expect will yield growing bookings and by what we believe will be growing industry tailwinds in the second half of the year and in 2025. With that, we'll open it up for questions. Operator?

Operator: [Operator Instructions] Today's first question is coming from Matt Niknam of Deutsche Bank.

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