Kaltura Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 22, 2024

There are 10 speakers on the call.

Operator

Good morning, everyone, and welcome to Kaltura Fourth Quarter and Full Year 2023 Earnings 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 at

Speaker 1

Thank you, and good morning. With me today from Kaltura are Ron Yucateel, Co Founder, Chairman and Chief Executive Officer Yaron Gomazy, Chief Financial Officer and John Doherty, Kaltura's incoming CFO. Ron will begin with a summary of the results for the Q4 ended December 31, 2023, and the company's plans and expected trends for 2024. Yaron will then review details of the financial results for the Q4 and full year of 2023, followed by the company's outlook for the Q1 and full year of 2024. We will then open the call for questions.

Speaker 1

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 quarterly report on Form 10Q for the quarterly period ended September 30, 2023 and other SEC filings, including the annual report on Form 10 ks for the fiscal year ended December 31, 2023, to be filed with the SEC. Any forward looking statements made in 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.

Speaker 1

For a reconciliation of this non GAAP financial measure to the most directly GAAP metric, please refer to our earnings release, which is available on the company's website at www.investors. Kaltura .com. Now, I will turn the call over to Ron.

Speaker 2

Thank you, Erica, and thank you everyone for joining us on the call this morning. Today, we reported total revenue for the Q4 of 2023 of $44,500,000 up 1% year over year subscription revenue of $40,800,000 up 3% year over year. Adjusted EBITDA for the quarter was 800,000 We posted record high total revenues in the 4th quarter, which also marked the 5th consecutive quarter of year over year growth. The quarter wrapped up a year where as we had previously forecasted, we saw increased subscription revenue and growth rate And despite declining professional services revenues, as expected, total revenue growth rates also increased. As for our bottom line, the 4th quarter was also a 2nd consecutive quarter of adjusted EBITDA profitability and a positive cash flow from operations, both for the first time since 2020.

Speaker 2

There was also our highest adjusted EBITDA results since the Q4 of 2020. This concluded the year with marked bottom line improvements year over year where we posted $2,500,000 of adjusted EBITDA losses compared to $28,300,000 in the prior year and reduced our cash flow used for operations by $38,500,000 from $46,800,000 to $8,300,000 As we draw 2023 to a close, We are pleased to have achieved and surpassed our revenue and adjusted EBITDA guidance for the year, delivering on our goal of accelerating revenue growth, while also returning to adjusted EBITDA profitability in the past 2 quarters and as forecasted, dramatically improving our cash flows. To that end, we are reaffirming our expectation of posting both a positive adjusted EBITDA and positive cash flow from operations this year. Moving on to the business updates. While booking and retention results in the Q4 continued to be lower than in 2022, We closed more deals, achieved higher new bookings and posted a higher gross retention rate than in each of the first three quarters of 2023.

Speaker 2

In addition, the top of our sales funnel continued to show a sequential increase in the number of qualified leads in the passing quarter. We believe that our differentiated horizontal platform and continuous product portfolio expansion enables our customers to increasingly consolidate many video use cases internally and externally around Cultura and by doing so to reduce their costs and complexities and avoid disjointed workflows and content silos. This consolidation brought forth in 2023 larger deals and continued to increase our average customer size As evident, my record high ENT new logo ARPU is a record high average ARR per customer in 2023, which we believe will help our future growth. In the Q4, we saw our new event platform garner traction. We extended our reach within a pair of global enterprise software giants to support them with our events and webinar offerings, both for internal communication and training, as well as external marketing and partner enablement.

Speaker 2

Additionally, a prominent technology company already leveraging our event platform a substantially broadened the range of events supported by our platform and a leading U. S. Automotive company upgraded from Kaltura's webcasting to Kaltura Events. The Advanta webinars, a Fortune 100 Financial Institution, one of Kaltura's largest and earliest customers, have purchased additional accessibility features to further extend the reach and inclusion of their internal video communication. One of the world's largest restaurant chains expanded its usage and increased its access to Cogura's product suite capability In a very well known global leader in the direct to consumer streaming space, a new customer, selected Filtruda Power's internal video on demand portal for employees and partners.

Speaker 2

In the education sphere, we continued our global expansion by securing a large European university and a prestigious European business school as new customers after conducting successful proof of concept with our product. We also continued to increase the number of end users over media and telecom platform with our top EMEA customers migrating hundreds of thousands of new households into our Cloud TV service. On the product front, during the Q4, we continued boosting our event platform with roles and permissions, enriched registration reporting, an advanced landing page editor and additional features that encourage interactivity for both virtual and in person audiences. Our video portal now enables users to seamlessly stitch videos together and we also improved its user experience and branding options. We added to our video player additional call to action capabilities and enhanced podcast experience and customizable pre and post broadcast links.

Speaker 2

Our real time conferencing rooms continue to evolve with the launch of our proprietary new whiteboard, which complements existing third party integrations. We have also introduced simulcast features to improve broadcast quality and network efficiency. On the infrastructure front, we continue to support the regional SaaS cloud and have made strategic investments in enhancing our capabilities around hold your own key options, enforcing our commitment to security and data sovereignty. As for AI, as previously discussed, we believe that we're in the cusp of a transformative era where video first AI infused experiences will drive great engagement and improve business results. In the passing quarter, we extended our AI assistant to provide real time insights and suggested to organizers and presenters during webinars and other events by identifying changes in viewer engagement in real time initiating actions such as launching relevant quizzes in polls and evoking audience reactions.

Speaker 2

The AI Accelerator program, which we launched last quarter, continue to grow with more technology partners joining and more customers exploring with us the possibilities of AI powered video experiences and how they can support their interest and needs in Booster Business Results. Throughout 2024, we expect to gradually cater to many of their needs for AI to become an increasingly important part of our offerings. As we look ahead to 2024 and beyond, we anticipate a more favorable market environment that is to ease budgetary constraints for enterprises, particularly in North America. We believe that enterprises will gradually reinvest in digital technologies, including a video based experiences for employees, customers and prospects. We believe that this will be fueled by an increasingly hybrid workplace with lesser travel in order to reduce costs and carbon emissions by a growth in the millennial and Gen Z workforce, which is both savvy and reliant on video and by the much greater expected ROI generated by AI infused video experience.

Speaker 2

We believe Cogura provides the most robust, engaging and impactful advanced video based solutions, powering use cases such as marketing and customer engagement, employee and partner communication and training, student learning and engagement and online entertainment. Beyond this, we believe we are unique in offering a single platform that addresses all these use cases and others to follow. As mentioned, we see the single platform approach not only boosting functionality, reliability and scalability, but also being much more cost effective. While we believe our advantages helped us outperform many of our competitors in the passing challenging year, we believe that we'll become even more impactful when improved macroeconomic conditions are to cause customers to start making longer term investments to elevate their systems quality, performance and efficiency. As mentioned, we've already seen this trend affect our entire sales funnel from growing leading demand indicators such as the number of new qualified leads We're fueling higher win rates to continuing to increase our new logo ARPU and average ARR per customer.

Speaker 2

In 2024, we will continue to focus on and cater to the growing demand for our event platform from existing and new customers for both internal and external use cases. We plan to continue our expansion down market and increase the size of our commercial sales team that sells low touch solutions to SMEs and to departments within large enterprises. To that end, While in 2023, we reduced for the first time the size of our sales team to match the lower enterprise budgets and longer sales cycles and to address our profitability goals, This year, we plan to gradually regrow our sales force. In summary, we wrapped a tough year with strong macroeconomic induced headwinds that weighed down our new bookings and gross retention and generated a revenue growth rate that albeit better than last year's guidance and that of the previous year is far below our historical level. We enter 2024 with a robust product offering, A clear strategic direction and a validated go to market thesis.

Speaker 2

With market conditions improving, enterprise spending recovering and new opportunities arising from AI, we believe we are well positioned to capture the increasing demand for video experiences. While we believe we have the right products and market positioning to support faster growth, given the still unclear macro conditions And considering last year's outcome, we're thoughtful with our revenue guidance for 2024. Regardless of our top line growth, We are reaffirming our expectations of posting both a positive adjusted EBITDA and positive cash flow from operations this year. Now before handing it over to Yaron Darmazdy, our CFO to discuss our financial results in more detail, I would like to address his planned transition, which we announced a few weeks ago. First, I'd like to extend to Yaron our deepest gratitude his great contributions to the company throughout the past 7 years.

Speaker 2

Laurent's commitment to Couture's growth and his professional excellence have been invaluable. We wish him success in his next endeavor. As we have shared, Yaron shall be named CFO until March 1 and will continue to support the company throughout 2nd quarter to ensure a smooth transition. We have a saying at Cultura, once a Culturian, always a Culturian. While Yaron is moving on, you'll be staying close and will forever remain a partner and friend for the company in need.

Speaker 2

With that, I'm pleased to warmly welcome and briefly introduce to you our soon to be CFO, Mr. John Doherty. Dawn joined us earlier this month and she'll formally take the reins as CFO on March 1. Dawn brings more than 3 decades of financial and operational experience. Most recently, he served as CFO and COO at Magic Leap.

Speaker 2

Prior to that, he served as CFO of publicly traded Interxion until after its $8,000,000,000 plus acquisition. Prior to that, John held a variety of senior financial and operational roles at Verizon, including Head of Corporate Development and Verizon Ventures, Head of Investor Relations and CFO of multiple large divisions. I am excited to welcome John to our team. His experience in both financial and corporate development functions of large publicly traded enterprises will greatly contribute to our efforts, including our plans to explore strategic opportunities that advance our commercial goals. Welcome aboard, John.

Speaker 3

Thank you, Ron, and hello to everyone on the call today. I'm very excited to join Ron and the talented Kaltura team. I firmly believe that Kaltura has the potential for significant growth in an exciting domain and that it is well positioned to lead the market. I'm looking forward to the exciting journey ahead and to getting to know many of you personally soon.

Speaker 2

Thank you, John. And now over to you, Yaron.

Speaker 4

Thank you, Ron, and good morning, everyone. I would like to start off by welcoming John and thanking Ron and the team for the amazing past 7 years. My period at Kaltura left me with great learning, close friendship and very fond memories. I'm very excited about the role ahead of the company and I'm confident that it has the right leadership, right products and the right strategy in place to return to a meaningful profitable growth and to lead the market. As Ron mentioned, I shall be supporting John and the company on a full time basis throughout the Q2 to ensure a smooth transition.

Speaker 4

As Ron also said, once a Culturian, always a Culturian. Now back to our financial results. As I review the Q4 and the full year fiscal year results today, please note that I will be referring to a non GAAP metric adjusted EBITDA. A reconciliation of GAAP to a non GAAP financials is included in today's earnings release, which is available on our website at www investors. Kaltura.com.

Speaker 4

Total revenue for the Q4 ended December 31, 2023 was $44,500,000 up 1% year over year. Subscription revenue was $40,800,000 up 3% year over year, while professional services revenue contributed $3,700,000 down 18% year over year. The remaining performance obligation were $185,300,000 up 8% year over year, of which we expect to recognize 59% as revenue over the next 12 months. Annualized $164,700,000 up 3 percent year over year. Our net dollar retention rate was 99% in the 4th quarter, up from 96% in Q4 2022.

Speaker 4

Within our E and T segment, total revenue for the 4th quarter was 31.6 $1,000,000 up 5% year over year. Subscription revenue was $30,400,000 up 5% year over year, while professional services revenue contributed $1,100,000 up 13% year over year. Within our M and T segment, total revenue for 4th quarter was $12,900,000 down 8% year over year. Subscription revenue was $10,400,000 down 2% year over year, while professional services revenue contributed 2,500,000 down 27% year over year. GAAP gross profit in the quarter was $28,600,000 representing a gross margin of 64%, up from 63% in Q4 2022.

Speaker 4

Within our E and T segment, Gross profit for the Q4 was $23,000,000 representing a gross margin of 73%, up from 70% gross margin in Q4 Within our M and T segment, gross profit for the 4th quarter was $5,600,000 representing a gross margin of 44 down from 46% gross margin in Q4 2022. GAAP net loss in the quarter was 12,100,000 or $0.09 per diluted share. Adjusted EBITDA for the quarter was $800,000 improving from a negative $4,200,000 in Q4 22. And now for the full year fiscal year results. Total revenue for the year ended December 31, 2023 was $175,200,000 up 4% year over year.

Speaker 4

Subscription revenue was $162,800,000 up 7% year over year, while professional services revenue contributed $12,400,000 down 24% year over year. Within our E and T segment, total revenue for 2023 was $125,200,000 up 4% year over year. Subscription revenue was $120,600,000 up 6% year over year, while professional services revenue contributed $4,600,000 down 31% year over year. Within our M and T segment, total revenue for 2023 was $50,000,000 up 3 percent year over year. Subscription revenue was $42,200,000 up 8% year over year, while professional services revenue contributed $7,900,000 down 19% year over year.

Speaker 4

Our net dollar retention rate was 100% in 2023 and was 100% in 2022. GAAP gross profit in 2023 was $112,200,000 representing a gross margin of 64%, up from 63% gross margin in 2022. Subscription revenue gross margin was 73%, down from 74% in 2022. Within our E and T segment, gross profit in 2023 was $91,600,000 representing a gross margin of 33%, up from 70% gross margin in 2022. Subscription revenue gross margin was up from 78% in 2022.

Speaker 4

Within our M and T segment, gross profit in 2023 was $20,600,000 representing a gross margin of 41%, down from 48% gross margin in 2022. Subscription revenue gross margin was 55%, down from 63% in 2022. GAAP net loss in 2023 was $46,400,000 or 0.34 per diluted share. Adjusted EBITDA in 2023 was negative $2,500,000 improving from a negative of $28,300,000 in 2022. Turning to the balance sheet and cash flow.

Speaker 4

We ended the quarter with $75,200,000 in cash and marketable securities. Net cash provided by operating activity was 1.6 $1,000,000 in the quarter compared to $5,800,000 net cash used in operating activities in Q4 2022. For the full year 2023, net cash used in operating activity was $8,300,000 compared to $46,800,000 net cash used in operating activities in 2022. In the Q4, we also entered into a new agreement with our lender extending the maturity and amending the certain financial terms as discussed in our Form 8 ks filed on December 27, 2023. I would now like to turn to our outlook for the Q1 of 2024 and for the fiscal year ending December 31, 2024.

Speaker 4

In the Q1, we expect subscription revenue to range from a 1% decrease to 1% increase to between 39,900,000 $40,600,000 and total revenue to range from a 1% decrease to 1% increase to between $42,700,000 $43,500,000 We expect an adjusted EBITDA to be between a negative $500,000 and a positive $300,000 For the full year, we expect subscription revenue to range from a 1% decrease to a 1% to between $161,200,000 $164,200,000 and total revenue to range From a 1% decrease to 1% increase to between $173,700,000 $176,700,000 We expect adjusted EBITDA to be between $1,000,000 In summary, due to a tough macro condition and industry headwind, We closed a much slower growth year than usual, albeit better than last year's guidance and that of the previous year. While we believe that we have the right product and market positioning to accelerate growth and that market condition shall gradually improve Considering the market uncertainty and last year's outcome, we are thoughtful with our guidance for 2024. We are satisfied to have achieved our bottom line accrual and cash flow goal from the passing year And then reaffirming our expectation of posting above positive adjusted EBITDA and the positive cash flow from operation this year.

Speaker 4

With that, we will open the call for questions. Operator?

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Matt Niknam with Deutsche Bank. Please proceed with your question.

Speaker 5

Hey guys, thanks so much for taking the question. Maybe 2 if I could. 1, Ron, if you could talk about Some of the confidence you have in terms of improving market conditions that you referenced and when you could maybe see this driving more positive inflections in subscription revenue? And then secondly, just in terms of competitive backdrop, if you could just talk about what you're seeing there And then any change in terms of competitive dynamics over the last couple of months? Thanks.

Speaker 2

Thank you, Matt, and hello to everyone on the call today. Let's start with the first one, confidence for market conditions. Let's what we had this quarter by way of demand and trends and leading indicators. It was, As mentioned, the highest booking quarter of last year, albeit relatively flattish, but also the best retention that we had in the year past. And it's It was a better quarter than the ones before.

Speaker 2

Again, it's been a tough year and it's another quarter of improvement. We're going to wait a bit and see where things go, But it is headed in the right direction. Also important to note that as we wrapped up the year and our booking had come down from the year before by about 25%. As mentioned earlier, we also had about 25% less salespeople than the year before, which is the first time that we've actually done that. So productivity hasn't fallen down, it has kept.

Speaker 2

And now that we've become profitable, we could invest and we could put more, we believe we could cater to the demand with more people. So it's not just about the demand, it's our ability to cater to the demand. But other points to your question about demand, we look at the leading indicators we had throughout the year. Look at the QBMs, they're qualified by marketing leads. They continue to grow and they grew sequentially throughout the whole year.

Speaker 2

They had come down from the year at the beginning of the year, but ever since have gradually climbed up. And also the RFP submissions have also grown materially both sequentially and year over year. And so that's a good sign. And lastly, on that point, we are selling bigger deals and to bigger customers Because of all the additional products and our strategy to consolidate our own culture for internal and external, we've seen this year record ARPUs and continued increase in average MRR per customer all the time that win rates have remained high. So if you look at all these things together, I think for us, they still we believe things are going in the right direction.

Speaker 2

We're talking to folks, I think in North America more so than in Europe. There's conversation about more comfort around taking a decision. It was always the case that people said that in the mid to long term, CogThera makes more sense, not just because it's a premium technology, but the consolidation that we offer enables them to have less silos, less spoken workflows and lesser total cost of ownership. It was just doing it in the tough year That it was, was harder because people were looking very nearsighted to additional costs just to get things shaken and moved. But as people look into the following years, I think people are getting geared and ready to make the better decision for the mid to long term, which is Faltura.

Speaker 2

So again, we're Careful. We're not celebrating. It's been a tough year. We've talked about slower growth rates than we've seen in the past, but we've also delivered on what we said we would. And let's look how next year pans out and hopefully it continues to climb up.

Speaker 2

To your second question around competitive change, we have not seen a material difference At the last quarter, so we continue to lead for reasons that we've always led. The 4 main differentiators for Cultura, 1, The depth of our APIs and the integration that we could offer, enabling a lot more mission criticality and to the breadth of what we offer that enables us to offer VOD live in real time internal and external. And as I said earlier, to enable consolidation. The third is the enterprise ability that we offer, meaning by way of scale, reliability, security, compliance And the last is the degree of engagement and analytics that comes from our products. And we continue to see these strong.

Speaker 2

We have not seen lower win rates or stronger competition coming from elsewhere. It's up to you to look at the end year results of the other companies. I think most of the public companies out there have shown lower growth rate is not negative this year and we think that the reason that we have done relatively better is because of these advantages. Does that address your

Speaker 5

question, It's just one quick follow-up in terms of sales cycles. Are you seeing those maybe shorten or maybe stabilize? Just Curious in terms of how that's been impacted as well of late?

Speaker 2

Good question. Not yet. But the good news is that the ones that have come in into the pipe are actually going to need to come out. So they do come out. We are closing the deals.

Speaker 2

As mentioned at the beginning of the year, the pressures, the headwinds that we've seen that have caused this year to be over past year, 2023, to be so off are a significant lengthening of the sales cycle as well as price pressures. And we're still seeing that. Too early to say that it's suddenly getting better. But as mentioned, since win rates are held and the top of the funnel is continue to grow, then what comes in must come out and we are closing these deals. So we believe there will be more opportunity to close these deals in 2023

Operator

Our next question comes from George Iwanyc with Oppenheimer and Co. Please proceed with your question.

Speaker 6

Thank you for taking my question. And just to start off, Yaron, best of luck on what's ahead and congratulations to you, John. So maybe Ron starting off with kind of your comments on the sales productivity. Can you maybe give us some perspective on what you're from a hiring perspective this year and when those additions might happen during the year? Sure.

Speaker 2

Happy to do that. So first on sales productivity, as mentioned, it had kept compared to last year. I could also say it's broadly aligned with the pre COVID productivities. But we had reduced quite materially our sales force after growing it always year over year. We had a 25% drop in order to be profitable, but also aligning us to the lesser productivities than during COVID.

Speaker 2

We're now ready given our profitability metric and the ability of additional salespeople to contribute in a decent way. It's not as great as it has always been. Already to do that. And even if it is the existing productivity of the last couple of years, it's still good. And so far as numbers, Order of magnitude of maybe another 10 at this point, we're doing it gradually.

Speaker 2

We're doing it throughout the year. There's going to be more focus on inside sales, commercial sales rather than outside sales, but we're going to increase both, because we want to continue going down markets, the discussion we could continue separately. And that's important for us, but that's the order of magnitude. Does that address your question?

Speaker 6

Yes. And Yaron, maybe on the net expansion number, that was up year over year, but did decline a little bit on a quarterly basis. Can you give us some perspective on what you're seeing there from an expansion perspective and what your expectations are for 2024?

Speaker 4

Yes. So first of all, you are right. There was a decline of 1%. It was 99% this quarter. But as you can see the year, it was 100%.

Speaker 4

We said in the previous calls that we believe that for the short term, it's going to be around 100%. Based on the fact that we saw, as Ron mentioned, the improvement in both booking And retention rates, we believe that we will be able to see are coming to a A bit better numbers than the 100%, but at least for the short term, I believe that this is the new normal. Obviously, if and when We will see a reacceleration of both booking and retention rates. We do believe that we will see an increase to the rates that we saw before COVID, which was in the low 100.

Speaker 2

Thank you.

Operator

Our next question comes from Gabrielle Borjas with Goldman Sachs. Please proceed with your question.

Speaker 7

Hi, good morning. Thank you. I wanted to follow-up Ron on your comments on the macro. Appreciate the detail. I wanted to understand what you think is driving that.

Speaker 7

How much of this is just COVID normalization or a couple of years out and customers are ready to reinvest again? Any qualitative color from your customer conversations that you can share with us?

Speaker 2

Thank you, Gabriela. I think we had the 2 back to back issues, right? COVID was the first one when people said, We've just bought a lot, give us a bit of time to figure out what we're doing in a more strategic way. And we heard a lot of that in the end of 2021, the beginning of 20 When people said, listen, there were a bunch of different systems that we had bought. There's a bunch of new use cases that we're powering.

Speaker 2

We want to make order in the whole thing. Give us a few quarters or less and we'll come back to you with thoughts. And they said that they love the fact that we can Consolidate and offer solution across and the fact that we could offer even more mission critical services that are more tightly integrated that could be customized and tailored to their needs. And everybody said, look, we understand video is the new normal and something that happened here, we intend to do more in video. Just as this was getting ready to impact us, have the financial downturn.

Speaker 2

So I think ever since over the last year and a half, couple of years, it's more the financial downturn than a post COVID impact. People said, look, we already know that we want to have more. It's just now is not the right time. And so we have the price pressures and people staying with incumbent vendors, Even if it's not the most ideal system, things that they're going to make a switch later on, but that's the main, main rationale. Also bear in mind that Sometimes some of the products, definitely the internal ones are FTE based licenses.

Speaker 2

And so if there's also of FTEs because companies are letting go people as opposed to hiring, and that in itself is also pushing against usage. And so I think that was the biggest issue so far. And what we're hearing from folks now is they're saying, look, we waited enough. We need to be smarter about what we do. Goals are not just 2024 goals, they're also 2025 and beyond.

Speaker 2

And we're spending too much money and it's too complex, plus there's more things that need to be done. I want to be cautious about this and our guidance is in that as well. It's not yet time to celebrate. This Industry had gone down and it's gradually hopefully going to start going up again. But at this point, we're seeing Our competitive advantage, being accepted in the market and there is interest in moving forward with Cofura.

Speaker 2

Let's see how quickly that goes.

Speaker 7

That makes sense. And on the sales productivity metrics, remind us how long does it take typically for a deal to go from top of the funnel To close, how long does it take typically for a salesperson to ramp up to full productivity? And any color

Speaker 2

On the third one, training enablement, is that for the customers or enablement for our new salespeople?

Speaker 7

The latter.

Speaker 2

The salespeople. Okay, good. So let me start with the last. I mean, we're definitely very structured in our onboarding folks into the company. And we're a video first company, so we have everything video 5.

Speaker 2

We have an internal group that's also, experts in training our customers, and they're the ones that are also helping us. So we do that well. To your first question connected to that, which or the second one on the ramp time, in our models, we put 6 months ramp for outside salespeople and 3 months around for CSMs. And we factor that into our expectations around booking. Can tell you that most salespeople, if they come in and they get some leads, they could start selling before.

Speaker 2

But that's for us to be careful in our modeling around when bookings going to hit. And so far as the sales timeline, it varies between the different markets, Right. Media and Telecom, which is why most of our focus was not there, it was more on the ENT is longer sales cycles. If you're coming into a new logo, It could be sometimes a year and a half, 2 years, it's lengthy discussion and then even more so the deployment time are relatively long and the time that it takes all the way to Back to my point that we've during downtimes have always enjoyed the organic growth of users within the existing customers, which is quite significant. This quarter, we added 100 of 1000.

Speaker 2

But we're putting our foot off gas a bit and try to hunt new customers that will take longer to bring and longer to make revenue and longer to make profit. On the enterprise side of the business, It usually had been somewhere around 6 to 12 months, cycles, albeit that as we've come to offer more low touch products and we've moved from internal, which is more content management to external, which is more event than they have shortened. But over the course of the last year, given trends that have happened in the industry, it has started to elongate. And we're seeing things go beyond the year, which is in line if you talk major large software companies out there. But we don't have enough statistical answer to tell you if it's exact 12 months or 18 months, but it's not a few On average, we definitely have from time to time deals that come in, and I'm talking about new logos, not upsell, that are way faster.

Speaker 2

Education is a tweener. It takes sometimes it's depending on the situation, there's also cycles around when they actually deploy the software for the new learning year, but I'd say it's closer to enterprise than the other ones. Does that address your questions, Gabriel?

Speaker 7

Yes. Thank you for the detail.

Speaker 2

Yes. Thank you.

Operator

Our next question comes from Ryan Kuntz with Needham and Co. Please proceed with your question.

Speaker 8

Thanks for the question and welcome to John coming on board. On your guidance there for subscription for the year flat, how would you unpack that in terms of Turn and down sell kind of negative impacts on your returning customers versus new logos or new customers as part of that guide? Thanks.

Speaker 4

Yes. First of all, When you are saying about the declining guidance for Q1, actually what you see is that as Ron mentioned, we had some pressure all year from booking and retention level, which were lower than last than 2022, obviously. But at the same time, we do see an increase in Q4, both on retention rates and in Booking rate, at this point, if you look on our forecast, obviously, we see an improvement because we are comparing to Q4, which was much higher than what was expected before, so the basis was higher. So in effect, it's a decline, but from our focus And even compared to the numbers that you saw before, it's not really a decline in guidance for this year. And we do believe that as Hopefully, we will see continue increasing both retention rate and booking rate.

Speaker 4

You will see a situation that the second part of the year it will start to improve. And obviously at this point we are trying be very thoughtful with our guidance. But what was the specific other question?

Speaker 2

It was around down sell versus new logo. I could address that if you'd That's all. So let's start with the fact that we've not taken any assumptions that are not happening already over the past few months. So we're not assuming any strengthening, we're not assuming any change. We're assuming that things would remain, albeit that we do expect and hope that things are going to get better.

Speaker 2

Meaning that if we're looking at retention rates that we're currently seeing, we're expecting them to continue forward. We're also expecting from a ratio of down sell versus full churn in the last quarter, Only 12% of the churn of the loss that we've had of any dollar was associated with an issue of service or product. Most of it was budget issues, price issues and the majority was still done through not full departure of customers, but through down sell. And so we're assuming an NDR that would continue the trends of what we've seen. We're assuming productivities for both upsell and you that are more or less aligned.

Speaker 2

And so everything is, at this point, guided to flattish, which obviously we've kept the necessary cushion for us, but we also want to be very, very thoughtful given the past of the year that we've seen. Is there any more specific questions than you have on this you want me to address, right? No, that was good. But a little follow-up here if

Speaker 8

I could On the inside sales focus, is that more on renewals or is this on kind of more lead qualification inside sales hires?

Speaker 2

So most of our customers have been managed by outside sales. The ARPU, let's look at the average MR. We have 1,000 ish customers and we have 175 $1,000,000 of revenues. So the typical customer here is paying us around $170,000 that's the average. But if you also look at the median, this is by and large, large enterprise sales.

Speaker 2

What's happened as of recent is, over the last couple of years as we've added the products that are to go down market is that we're targeting both small and medium enterprises as well as departmental sales. And by doing so, we're going to be doing that through more low touch inside sales. And therefore, because it's a new cohort for us, It's not so much renewal, it is more new and we have that coming from the top of the funnel and we divide that based on the size of the opportunity between the different sales team. Now one other thing that we did do this year in order to kind of double click on the size of the opportunities because our big Customers are quite big. Coming back to my earlier statement about ARPU, we have a lot that have climbed 5x and more in growth into multimillion dollar opportunity.

Speaker 2

And we believe we could copy paste that again and again. So what we've actually done this year for the renewal side is have taken at this point somewhere around a third of our customers that are larger and have moved them into a team that is more automated, that's working on lower touch renewals in very structured approaches. And if that works out, we're gradually going to do more and more and we're going to leave the outside sales team to address the 80% of the revenue, which usually is 20% of the customers and get that 5x10x growth and bring more and more multimillion or very high figure numbers. So We're thinking we're very thoughtful about how to optimize efficiency in the sales force and how to maximize the output, But happy to talk more about that later if you'd like. That's great, Ron.

Speaker 2

Thanks so much for the color. That's all I got. Thank you, Our next question from Austin Cole of Citizens GMP. Please proceed with your question.

Speaker 6

Hey there. Thanks for taking the question. Ron, I was just wondering if maybe you could talk about what some of your conversations have been like recently with regards to AI And kind of what those features are adding to your platform and what the response has been like from customers? Thanks.

Speaker 2

Yes. Thank you, Austin. Over the last quarter, and we just mentioned that we expanded our AI assistant for webinars and events. The quarter before, we mentioned how we did that for preparing events and we said that we're going to continue to add features that will be during the event in order to offer real time recommendations on how to increase engagement. And we've added that.

Speaker 2

We're seeing very good acceptance for that. We're also working on a bunch of other features that we will announce when they come out. We, in addition to our in house work, have worked on our accelerator program that has increased the number of customers and vendors there. We have a couple dozen each. And so we have more folks that are helping add value because the virtue of Cultura how flexible and open it is, is that it could be a bus to connect to a lot of innovation from the ecosystem.

Speaker 2

In addition, the Customers that are in discussions with us across a variety of industries are expressing a lot of interest around AI in all its fashions. It is not yet, and I said that at the beginning of the process, turning into immediate significant revenue. I think the entire industry understand that as we continue to add these things, we're going to monitor what part of it will be baked into the existing costs and prices and what part of it will be additive. And I think that over the year, we'll gradually provide more and more info about how this is impacting growth in revenue. The one thing I will state is that for me, it's clear and over time hopefully we could provide more statistics around it that AI will cause for a lot more videos to be created a lot more videos to be consumed in a more contextualized way.

Speaker 2

So regardless of how one monetizes it, whether it's a usage based, a user based, a value based, The value of the system is going to increase in a material way and we're seeing folks echo that. A lot of customers, as I mentioned, quite significant across multiple industries So we're seeing continued trends, but as mentioned earlier, it's not one of these things that you'd expect the next quarter going to come and say, here's the amount of revenue. This is how much is moving the needle for the company. It's a multiyear move and we're advancing there. That works for you, Austin.

Speaker 2

I appreciate the time. Can you guys still hear me? Yes. Operator, do

Speaker 9

you have any questions at this time?

Speaker 2

Yes.

Speaker 9

Thank you. We'll move on to our next question, which is coming from the line of Michael Turrin with Wells Fargo. Please proceed with your question.

Speaker 6

Hey guys, this is David Unger calling in for Michael Turrin. Thanks for taking the question.

Speaker 2

I just wanted to see if

Speaker 6

you could double click on some of the demand trends. I know we heard some comments around geography, but I wanted to double click on what you're seeing by geography, anything specific in terms of vertical strength? Thank you. Sure.

Speaker 2

On the geo side, we're seeing stronger North America and a bit weaker Europe. It's been consistent throughout the throughout the year and it's connected immediately to macro and current geopolitical situation, etcetera. On the vertical side, it's not so much just a demand issue. We've been, as mentioned over the last couple of years, focused more on the enterprise, more to market to bear, we're continuing to pull across all of these. I mentioned earlier, we closed even to that extent education opportunities in Europe, which are the 2 that I mentioned that are a bit less than the focus.

Speaker 2

So we're attacking it all. I could tell you media and telecom. We increased a lot of users in Europe or now engaged in conversation with a bunch of customers that are generally outside of the U. S. But if I were to say given the macro situation, Most of the focus and most of the upside is North America enterprise.

Speaker 6

I appreciate that. And then just Just one more for me. Can you just talk about the biggest areas of focus as it relates to driving profitability of the business? Thank you.

Speaker 2

Yes. So first of all, I'm very content of the improvements that we've done over the last year. As you know, 1st of all, the last quarter was the 2nd quarter in a row of adjusted EBITDA profitability and cash flow profitability, cash flow ops, which is great and the year has been a massive leap forward compared to the years before. Not a big surprise Because we said that we're going to do this and we have done this in the past. We've demonstrated it yet again.

Speaker 2

What I like is that we've done that at the same time we have hit our revenue goals and we are still growing faster than the industry. And so the reason was that we did not drop the ball in completing the big moves that we have made in order to expand our TAM, our ARPU and our competitive positioning over the last few years. So we While we cut, I wouldn't say fat, but we made sure that at the right time we reduced what we could reduce, we didn't cut muscle and we're able to move forward and continue to grow. Me turn it to your own to give you a bit more thoughts about profitability and areas of focus and maybe I'll add a couple of words after.

Speaker 4

Yes. So Two important points. First of all, regarding the gross margin, we are working very hard in order to continue to improve it. In the short you should probably not see a significant improvement, but we will try to get few more points here and there in terms of the gross margin. Ron mentioned the fact that we are going to invest start invest back in sales and marketing based on the change that we see in the market under the assumption that it will continue to change.

Speaker 4

But as mentioned, we are committed by the end of the day to post both positive adjusted EBITDA and positive cash flow from operations for this year.

Speaker 6

Very much appreciated detail. Thank you.

Speaker 9

Thank you. We have reached the end of our question and answer session. So I'd like to pass floor back over to Ron Yekateel for closing remarks.

Speaker 2

Yes. Thank you, everyone, for your great questions and for participating today. As mentioned, we're feeling okay about the year that had passed. We achieved what we said that we would. And at the same time, that we're strengthening capability to lead the market forward, it's been a tough year.

Speaker 2

We believe there's a good macro directions that are going to improve next year. We're thoughtful with our guidance and beyond anything and everything. I want thank again Yaron Gormazi for his great partnership and work with the company. He's still with us in a month ahead helping us. And welcome John, quite excited about him joining the team.

Speaker 2

A lot of great things for us to do together this year. Thank you everybody and have a beautiful day.

Speaker 9

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.

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Earnings Conference Call
Kaltura Q4 2023
00:00 / 00:00