Earnings call: Kaltura reports growth and positive cash flow in Q3

Kaltura, Inc. (NASDAQ: KLTR), a leading video cloud platform, has reported a successful third quarter in 2024, with a 2% increase in total revenue year-over-year, reaching $44.3 million. The company has achieved its fifth consecutive profitable quarter, with subscription revenue growing to $42.1 million, a 3% rise from the previous year. Kaltura also reported a record cash flow from operations of $10.7 million and increased its full-year guidance for revenue and adjusted EBITDA, while anticipating positive cash flow for both the fourth quarter and the full year.



Key Takeaways



Kaltura's total revenue for Q3 2024 was $44.3 million, with a 2% increase year-over-year.Subscription revenue reached a record $42.1 million, up 3% year-over-year.Adjusted EBITDA for the quarter was $2.4 million, marking the fifth consecutive quarter of profitability.The company generated a record cash flow from operations of $10.7 million, a significant increase from $1.7 million in Q3 2023.Full-year revenue and adjusted EBITDA guidance were increased, with positive cash flow expected for Q4 and the full year.New subscription bookings grew, with two seven-digit and 22 six-digit deals across various industries.Product developments included enhanced event and webinar capabilities, Microsoft (NASDAQ:MSFT ) Teams integration, and the introduction of Kaltura Content Lab with generative AI.Annual recurring revenue (ARR) reached $168.9 million, indicating a positive outlook for future growth.Company Outlook



Kaltura expects subscription revenue between $41.8 million and $42.5 million in Q4 2024.Total (EPA:TTEF ) revenue for Q4 is projected to be between $44 million and $44.7 million.Adjusted EBITDA for Q4 is anticipated to be between $0.5 million and $1.5 million.The company plans to provide detailed revenue and margin forecasts for 2025 in February, suggesting modest growth and improved profitability.Bearish Highlights



The company reported a GAAP net loss of $3.6 million, though this was an improvement over the previous year.Bullish Highlights



New subscription bookings reached the highest level since Q4 2022, marking two consecutive quarters of growth.Demand for Kaltura's offerings is increasing across technology and regulated industries.The average ARR is approximately $200,000, reflecting a year-over-year growth of over 10%.Misses



There were no specific misses reported in the earnings call.Q&A Highlights



The company is reallocating resources to focus on higher return opportunities.Kaltura is optimistic about continued growth in revenue and profitability.There is a strong commitment to enhancing cash flow and customer engagement.

Kaltura's leadership has made significant changes to enhance product offerings and focus on customer profitability. The company's strategy of customer consolidation and verticalizing sales efforts is expected to contribute to sustained growth. With the introduction of new AI tools like Class Genie and Work Genie, Kaltura is innovating in the realm of personalized content creation. The company's optimism is backed by a robust pipeline for Q4 and a dedication to leveraging video as a critical tool across industries.InvestingPro Insights





Kaltura's recent financial performance aligns with several key metrics and insights provided by InvestingPro. The company's strong Q3 2024 results, including its fifth consecutive profitable quarter and record cash flow from operations, are particularly noteworthy when considering its financial position.

According to InvestingPro data, Kaltura's market capitalization stands at $243.6 million, reflecting investor confidence in the company's growth trajectory. The revenue for the last twelve months as of Q2 2024 was $176.83 million, with a modest growth of 2.65%. This is consistent with the 2% year-over-year increase in total revenue reported for Q3 2024.

An InvestingPro Tip highlights that Kaltura holds more cash than debt on its balance sheet, which supports the company's strong financial position and ability to generate positive cash flow, as mentioned in their Q3 report. This solid financial footing could provide Kaltura with the flexibility to invest in product development and pursue growth opportunities.

Another InvestingPro Tip notes that Kaltura has seen a significant return over the last week and a strong return over the last three months. This aligns with the positive market reaction to the company's recent financial performance and increased full-year guidance. The 3-month price total return of 24.56% underscores the market's optimism about Kaltura's prospects.

It's worth noting that while Kaltura reported its fifth consecutive profitable quarter on an adjusted EBITDA basis, an InvestingPro Tip indicates that the company was not profitable over the last twelve months. This discrepancy highlights the importance of considering both adjusted and GAAP figures when evaluating a company's financial health.

For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights beyond those mentioned here. In fact, there are 7 more InvestingPro Tips available for Kaltura, which could provide valuable context for understanding the company's financial position and future prospects.



Full transcript - Kaltura Inc (KLTR) Q3 2024:





Operator: 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.

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 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.

Ron Yekutiel: 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 American TV company that is now using our streaming platform for entertainment and monetization. A majority of our new bookings came, again, from providing additional solutions empowering new use cases for our existing customers, including, for example, providing marketing, sales and customer success solutions to an S&P 500 health insurance company, to a leading provider of an employee experience platform, to a Fortune 100 bank and to a top-ranked music college, from providing communication and collaboration solutions to a Fortune 100 tech company, and to a leading healthcare software company, from providing teaching, training and certification solutions to universities in the U.S. and Europe, and from providing entertainment and monetization solutions to telcos. Upsells to our customers continue to be fueled by an increased interest to consolidate around Kaltura across multiple internal and external use cases, which is also evidenced through our increased average subscription revenue per customer, which was also at an all-time high in the third quarter. In addition to growing new bookings, gross retention in the third quarter of 2024 continued to improve year-over-year, and net dollar retention, which, as we stated in the past, is a lagging indicator, started reacting to the recent improvements, bouncing back to 101% after posting 98% in the last three quarters. The combination of increased gross new subscription bookings and continued improved gross retention rates has yielded, for the first time since the second quarter of 2021, two consecutive quarters with a year-over-year increase in net new subscription bookings, which is fueling the pickup in our year-over-year subscription revenue growth. On the product front, in the third quarter, we continued boosting events and webinars with automated email scheduling and enhanced our chat and collaboration widgets and integration with a third-party marketing platform, further enabling our customers to run their marketing automation via their preferred market partner or directly in Kaltura. On the video content management and portal side, we completed our integration with Microsoft Teams, and together with our other Zoom (NASDAQ:ZM ) and WebEx integrations, now offer a comprehensive archiving solution that enables organizations using multiple conferencing tools to seamlessly and flexibly access, manage and share video content across these leading platforms with a unified workflow. We launched an updated VPAT for our video player as part of our continued commitment to accessibility, enhanced content layout in our conferencing room, in our Cloud TV platform, enhanced subscription management capabilities and furthered security and protection around operator workflows. On the AI front, we are continuing to move towards a future where video content will be created and modified seamlessly for the benefit of each individual viewer. Over the prior quarters, we conducted successful pilots for content repurposing, where Gen AI was used to analyze video captions and viewership engagement data of existing videos to create new clips, highlight reels and other immersive experiences in real time that are hyper-personalized and hyper-contextualized. This functionality is designed to address individual end user wants and needs at the right time and context, and to achieve heightened engagement and interactivity and boost business results at a fraction of the current time and costs. In the third quarter, we started productizing this functionality by adding it into our video content management system in a new component called Kaltura Content Lab. We also showcased a beta version of our Gen AI offerings for Media and Telecom (BCBA:TECO2m ) at the IBC 2024 conference in Amsterdam. Among the features presented to excited customers and prospects were AI-generated metadata enrichment, subtitles, dubbing, chaptering, highlights and content recommendations for live streaming, VOD assets and user-generated content. Over the next few quarters, we plan to further enhance Kaltura Content Lab and integrate it into our product portfolio, including streamlining with our other Gen AI developments, such as our transcription engine, quiz generator, sentiment analyzer, notification engine and Gen AI assistance for events. Our product leadership was recently recognized with the receipt of two additional industry awards, the Best Overall Event Management Solution Award in the 7th Annual International MarTech Breakthrough Award Program, and the Best Video Management Platform Award in the 2024 Digiday Technology Awards. We are pleased to have posted a record quarter across many topline and bottomline parameters. We continue to see both sequential and year-over-year growth in new subscription bookings and a growth retention rate that materially improves over last year, both resulting in an uptick in year-over-year subscription revenue growth. In addition, we saw continued expansion of our growth and net margins, as well as cash flow, leading us to forecast for the year a positive annual adjusted EBITDA and cash flow from operations for the first time since 2020. And we plan to continue expanding our growth margins, adjusted EBITDA margins and cash flow from operations in 2025 and beyond. In recent years, we and our entire industry have experienced strong downward pressure on bookings, retention and revenue growth that was induced by post-COVID and economic downturn headwinds. To that end, while we are not content with our slower revenue growth, we do appreciate the fact that, unlike many other companies in our industry, our quarterly subscription revenue always continues to grow year-over-year. And with the exception of only the third quarter of 2022, our year-over-year total revenue has also grown every quarter, despite the purposeful decline in our revenue from professional services in order to accelerate our deployment time and increase growth margins. In summary, we believe the tide is gradually turning on the industry and Kaltura, and the improved booking and retention trend we began to see in recent quarters will continue and strengthen in 2025 and beyond, fueled by renewed industry and macroeconomic tailwinds, as well as product enhancements like Gen AI that are expected to bring about further digital transformation and proliferation of video experiences. We are excited about the opportunities ahead, especially since we believe Kaltura’s flexible and extendable platform uniquely caters to the widest array of enterprise video experiences, while also providing the tightest integrations with our mission-critical workflows. We expect that as the market gradually recovers, customers will further accelerate the consolidation of their video needs around Kaltura to boost all of their employee and customer experiences across communication and collaboration, training, teaching and learning, marketing, sales and customer success, and entertainment and monetization. Kaltura’s single platform is designed to help our customers avoid unnecessary content and data silos, broken workflows, complexities and costs that can result from using many disparate point solutions and increase their productivity and AI-infused insights, engagement and business results. 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. 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 million to $41.2 million. Professional services revenue contributed $2.2 million for the quarter and was down 18% year-over-year, consistent with the expected trends we discussed on the second quarter earnings call. The remaining performance obligations were $187.8 million, up 6% sequentially and 15% year-over-year, of which we expect to recognize 59% as revenue over the next 12 months. Consistent with what I mentioned last quarter, the increase in RPO is a result of our increased renewal bookings this quarter, as well as improvement in new bookings. Analyzed recurring revenue was $168.9 million, up 2% sequentially, and 4% year-over-year. This is the highest ARR we have achieved to-date, and is reflective of increased subscription revenue in the quarter. Our net dollar retention rate for the quarter was 101%, an improvement from 98% in the previous three quarters. It is also consistent with our expectations for improvement in the second half of 2024 that we mentioned on the second quarter earnings call. This result has been driven by the improved gross retention profile throughout the last four quarters, and the sequential and year-over-year increase in new subscription bookings over the past two quarters. Within our Enterprise, Education and Technology segment, total revenue for the third quarter was $32.3 million, up 4% year-over-year. Subscription revenue was $31.5 million, up 5% year-over-year, while professional services revenue contributed $0.8 million, down 20% year-over-year. Within our Media and Telecom segment, total revenue for the third quarter was $12 million, a decrease of 4% year-over-year. Subscription revenue was $10.6 million, which was down 2% year-over-year, while professional services revenue contributed $1.4 million, down 17% year-over-year. GAAP gross profit for the third quarter was $29.5 million, up 3% sequentially and 7% year-over-year. Gross margin was 67%, which is up from 64% in Q3 2023 and subscription gross margin was 75%, which is up from 73% in Q3 2023. Within our Enterprise, Education and Technology segment, gross profit for the third quarter was $24.5 million, up 7% sequentially and 8% year-over-year. EE&T gross margin was 76%, which is up from 73% in Q3 2023 and subscription gross margin was 82%, which is up from 79% in Q3 2023. Within our Media and Telecom segment, gross profit for the third quarter was $5 million, down 13% sequentially and up 1% year-over-year. Media and Telecom gross margin was 42%, up from 40% in Q3 2023. And subscription gross margin was 55%, consistent with Q3 2023. Total operating expenses in the quarter were $34 million, compared to $36 million in Q3 2023, a reduction of 6% year-over-year. Adjusted EBITDA for the quarter was $2.4 million, an increase of $2.1 million from $0.3 million in Q3 2023. This result, along with our improving expense profile, highlights our continued focus on improving our operating efficiency over time. GAAP net loss for the quarter was $3.6 million or $0.02 per diluted share. This is an improvement of $7.1 million year-over-year. Turning to the balance sheet and cash flow, we ended the quarter with $79.9 million in cash and marketable securities. We generated a record $10.7 million in cash from operations during the third quarter, which reflects a significant improvement of $9 million, compared with $1.7 in Q3 2023. In the quarter, this is aided by our lower operating expenses, collections seasonality, in which the third quarter is our highest collections quarter, primarily in the EE&T segment, as well as the delay of a $2.3 million payment from a large customer from the second quarter to the third quarter that I mentioned on the last earnings call. Through the first three quarters of 2024, we generated $7.9 million in cash from operations, compared to consuming $9.9 million in the same period last year, a $17.8 million year-over-year improvement. I would now like to turn to our outlook for the fourth quarter of 2024 and for the fiscal year ending December 31, 2024. As we have mentioned in the past, throughout 2023, we experienced pressure on our revenue growth due to year-over-year declines in gross retention and new subscription bookings, along with reduced demand for our lower margin professional services that was driven by our expansion into products that are easier and faster to deploy. With the improvement in gross retention in recent quarters, and two successive quarters of increased new subscription bookings, our overall outlook on the business is brighter. Last quarter, we guided towards a sequential stabilization of subscription revenue in the third quarter, followed by a return to growth. We also forecasted a continued sequential decline in our lower margin professional services revenue, with positive benefits from enabling faster deployments and higher gross margins. Well, we were right on one count, and pleasantly surprised on the second. We did see a continued sequential decline in lower margin professional services revenue. However, subscription revenue returned to growth faster than anticipated, with revenue approximately $1 million above the higher end of our previous Q3 2024 guidance and up 3% sequentially. This result was driven by our continued solid gross retention results, as well as increased new bookings. I would now like to discuss our outlook for the fourth quarter of 2024 and for the fiscal year ending December 31, 2024. In the fourth quarter, we expect subscription and total revenue to be consistent with the third quarter, with subscription revenue between $41.8 million and $42.5 million and total revenue between $44 million and $44.7 million. We expect adjusted EBITDA in the fourth quarter to be between $0.5 million and $1.5 million. Accordingly, for the full year, we expect subscription revenue to be between $166.1 million and $166.8 million, total revenue to be between $177.1 million and $177.8 million, and adjusted EBITDA to be between $5.1 million and $6.1 million, which compared to the negative $2.5 million adjusted EBITDA of 2023, would be an improvement of $8.1 million at the midpoint of the guidance range. As Ron mentioned, and as supported by our third quarter results, we are also expecting to post positive cash from operations in the fourth quarter, as well as for the full year in 2024, as compared to a negative $8.3 million in 2023 and a negative $46.8 million in 2022. We believe the company continues to be well-positioned to benefit from emerging tailwinds we are seeing of spend consolidation to a single vendor, digital transformation and the hybrid workplace that is continuing to drive demand for video-based offerings. As we move into the fourth quarter of 2024 and beyond, we continue to target both revenue growth and sustained and improving profitability. We believe our results demonstrate we are on the right path to achieve these objectives and to drive consistent returns to our shareholders. We are encouraged by the increased adoption of our products, highlighted by our increase in new bookings, our sustained high growth retention rate and the deals in our pipeline that we believe could yield continued growth in bookings and by growing industry talent as we bring 2024 to a close. We are also confident that this sets us up for a modestly accelerated growth profile for 2025 and a sustainable increasing adjusted EBITDA profitability and cash flow from operations profile. We will provide guidance for 2025 when we report to you for 2024 and 2024 full year in February of 2025. With that, we’ll open up the call for questions. Operator?

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

Gabriela Borges: 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?

Ron Yekutiel: 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, so that would be financial services, it’ll be government, it’ll be insurance, it’ll be healthcare, because of the integrated workflows that we offer connected to compliance and all these detailed things that regulated industries require. And then after that, we’re seeing folks like M&T, education, and professional and commercial services. From a geo-perspective, we mentioned back that Europe was doing well in balancing. They still did well. They still did better year-over-year in Europe compared to Q3 the year before, but in this quarter, most of the new booking came from North America and it was more on a percentage basis and an absolute basis as well compared to Q1 and Q2. So it was definitely looking well. From a per product perspective, it’s across the Board. We’ve seen most of it come from our video content management core and then followed by virtual events and the TV platform. And from a use case perspective, again, a healthy blend between CX, customer experience, and training and teaching and certification externally, but also EX around corporate communication and collaboration, and also entertainment and monetization. The other point that I’d note, we’ve said throughout the year that we were doing okay in price increases. We also had this quarter about a 3x booking from price increase compared to same quarter last year. We’re able to continue to show customers that we are a premium product and we should be paid for it. And maybe lastly, the record average ARR. We’ve mentioned ARPUs and ARR continue to climb up as it is, it’s at about 200 grand and some of the other players there are maybe a 10th of that. So it’s real true enterprise deals. And when you think about that and it’s growing significantly, I mean, grew year-over-year by more than 10%, but that is a tribute to the continued consolidation around Kaltura. So as we think into the future, not only do we see continued upsell and hopefully continued pickup in NDR and the ability to serve our customers more with more consolidation and more penetration, we’re looking forward to having more new logos. And I mean, that’s the one point that I’ve slowed down in these last few years for most because people have done limited jumps from one vendor to another. We expect to see more of that. That’s going to fuel our growth.

Gabriela Borges: 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.

John Doherty: 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.

Gabriela Borges: Sounds good. Thank you for the color.

Ron Yekutiel: Thank you, Gabriela.

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

DJ Hynes: 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?

Ron Yekutiel: 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 that to continue to grow. The reason, as I said earlier, that that took a bit longer in these times is that a lot of folks were very thoughtful about the time, effort, risk budget that’s associated with moving to a different vendor altogether. And so when existing vendors were willing to provide discounts, they would rather stay with them, even if the product was cheaper, sorry, was less successful, not as good, and also, if it was more expensive to some extent, because when you move to a consolidated vendor like Kaltura, you can save more costs in the mid-term. Now, we’ve heard from many that they are interested in our better solution and more affordable solution in the mid- to long-term. That had been the case over the last few years. And they said, we’re willing -- we are waiting for the right time to execute on this. And now we’re seeing a lot of them discuss that. A lot of these are in cycle. A lot of these are active within our pipeline and are discussed to happen in the next few quarters. So we expect to see more. We expect to see a rebound. That being said, it’s a show-me market, not a tell-me market. And as you know, we as a company are very thoughtful about how we talk about things into the future and how we forecast, and let’s wait and see that this happens. But we 100% believe that that’s going to be a material growth that would be added to the company that will bring us back to what we believe is the right growth for us.

DJ Hynes: 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?

Ron Yekutiel: 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 a Work Genie that’s enabling basically people at work and at school to get hyper-personalized, hyper-contextualized content, either repurposed or created from scratch, and that’s because we’re atomizing all of the content that’s on our system. Remember, we’re sitting on a gold mine of data, sitting on all of the data that’s recorded in universities, most of the data in 25% of the Fortune 100 companies and we’re adding a lot of logic into the content and how they’re being used in order to best cater to the needs. So point number one on the product side is more AI. On the go-to-market side with Liad, we’ve already led our most strategic customers. He’s back now to leading the entire team and has been for more than a decade in the company. He knows it inside out. Very well embraced and hit the ground running and the team is further verticalizing our efforts, bringing in more into mission critical capabilities and expanding globally. He’s been traveling the world, he’s now in Europe, he was in Asia-Pac, so we’re doubling down and going deep into all the initiatives we had before. So no news, but a lot more of what you’ve seen before and we’re excited.

DJ Hynes: Very good. Thank you, guys. Congrats.

Ron Yekutiel: Thank you, DJ.

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

Ryan Koontz: 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.

Ron Yekutiel: 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 than the classic meeting solutions offered today. That’s more in the communication and collaboration. By the way, we added in this quarter the ability to also record and manage teams together with Zoom and together with WebEx, and it’s a unified tool that does all of that together and some are just bringing it deep into L&D where they use our system in order to better train and learn and educate their employees on their lifelong learning, adaptive learning experiences. By the way, when you add our AI tools that are now coming in with this Work Genie and Class Genie, it enables each employee or each student to basically have their dynamic learning path. And based on what we know that they’re interested in based on quiz results, based on test results, based on interaction, to create in real time the video that they need from all the material that’s in the company slash from text and deliver that to them, kind of a Khan Academy on steroids, if you may, that happens in real time. The use case externally with customers, partners, is divided between, again, teaching, training, learning, educating, where we’re offering use cases that enable full certification with any -- and all analytics that comes with that and then reaching out for sales customer success and marketing for folks around events, around sales enablement. We have tools for banks that enable them to reach out, for example, to wealth management customers with the right videos for them to make a trade and in healthcare to enable the patient communications in order for them to understand what they need to take and have a better relationship with doctors. So across each one of the industries, the engagement is a bit different, but we’re integrated into all the systems that they require. And the beauty is, that sounds like a very wide array of capability. That’s exactly the power of Kaltura. We run deep and we run wide. We run deep because we’re in the mission critical workflows, which is why we’re able to be stickier and able to have much higher ARPU and to really be mission critical. But we also run wide in their ability to have a single system that powers seemingly very different use cases with a wide array of products. And as I said earlier, it saves costs, but more so, it makes sure they don’t have silos of content, because the same content that you use internally for training and learning, communication, collaboration, you should and can use externally, depending on the right permissions and rights and workflows and approvals. And we enable all of that in a highly secured environment with high compliance. And so people save money on production, they save money on finding and they increase the shelf life of their content because now it doesn’t go stale. You can actually, again, now we’ve empowered with AI, find the right content and the right context to deliver it to the right customer in the right time and the right place. So there’s just a lot. There’s a lot of things, and that’s the beauty of Kaltura and we’re doing all of this.

Ryan Koontz: 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.

Ron Yekutiel: 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.

Ryan Koontz: Great, Ron. Thanks a lot.

Ron Yekutiel: Appreciate it.

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

Patrick Walravens: 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?

Ron Yekutiel: 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.

Patrick Walravens: 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?

John Doherty: 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.

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

Ron Yekutiel: 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: [Operator Instructions]

Ron Yekutiel: Anything, Operator?

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.

Ron Yekutiel: 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.

Operator: This includes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Source: Investing.com