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

Thank you, operator, and good morning. I'm joined by Ron Yekutiel, Kaltura's Co-Founder, Chairman, President and Chief Executive Officer; and John Doherty, Chief Financial Officer. Ron will begin with a summary of results for the first quarter ended March 31, 2024, and provide a business update. John will then review the financial results for the first quarter of 2024 in greater detail, followed by the company's outlook for the second quarter and full year of 2024. We will then open the call for questions. Please note that this call will include forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding Kaltura's expected future financial results and management's expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Important factors that could cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Kaltura's annual report on Form 10-K for the fiscal year ended December 31, 2023 and other SEC filings, including the quarterly report on Form 10-Q for the quarter ended March 31, 2024, to be filed with the SEC. Any forward-looking statements made during this conference call, including responses to questions are based on current expectations as of today, and Kaltura assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. Please note, we will be discussing a non-GAAP financial measure adjusted EBITDA during this call. For a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP metrics, please refer to our earnings release, which is available on our website at www.investors.kaltura.com. Now I'm pleased to hand the call over to Ron.

Thank you, Erica, and welcome, everyone, to our first quarter earnings call. The first quarter of 2024 marked our sixth consecutive quarter of year-over-year growth. We reported record total revenue of $44.8 million, up 3% year-over-year and record subscription revenue of $41.2 million, up 2% year-over-year. Adjusted EBITDA for the quarter was positive $0.6 million. As for our bottom line, the first quarter was our third consecutive quarter of adjusted EBITDA profitability. We consumed cash from operations during the first quarter as expected due to our typical seasonality, which came in at $1.1 million, an improvement from $7.4 million in quarter 1, 2023. Moving on to the business update. Gross retention in the first quarter of 2024 continued to improve for the third quarter in a row and was the highest level in 5 quarters. This represents an annualized rate that is better than that of the last 3 fiscal years. We continue to forecast a better retention level this year compared to last. We believe this is driven by the passage of most post-COVID video usage reductions and of the budgetary constraints of the subsequent global economic downturn. As for new bookings, the first quarter was, as usual, a slower quarter, and this year, even more so as we had a few large deals slip into the second quarter. In the first quarter, we closed 1 7-digit deal with a large Fortune 100 insurance company and 12 6-digit deals. Consistent with one of our key focus areas, we continue to see growth in the number and size of the opportunities for our event platform for both internal and external use. We also continue to see existing customers expand their adoption of Kaltura from their original mostly internal use cases for employee communication and learning and development to also external…

Thanks, Ron, and hello to everyone on the call today. With 3 months behind me, I want to open up with a few of my thoughts on Kaltura overall. Kaltura has been operating in a very challenging environment over the past 2 years. There have been industry headwinds from budgetary constraints, competitive pressure and elongated sales cycles due to the economic environment, which impacted the company more in Europe than in the U.S. during this period. Kaltura has made the necessary and difficult adjustments, including improving its operating efficiency, focusing on further monetizing the existing customer base and reallocating resources towards higher ROI opportunities and markets. Based on these actions and with the continued steady execution, the company is well positioned to benefit from emerging tailwinds of spend consolidation to a single vendor, digital transformation and the hybrid workplace that is continuing to drive demand for video-based offerings. With that, let me move on to our results. Results exceeded expectations for revenue and adjusted EBITDA for the quarter. Total revenue for the quarter ended March 31, 2024, was $44.8 million, up 3% year-over-year. Subscription revenue was $41.2 million, up 2% year-over-year. Total revenue and subscription revenue were also up 1% sequentially. Professional services revenue contributed $3.6 million, up 25% year-over-year. The remaining performance obligations were $165.2 million, down 1% year-over-year, of which we expect to recognize 57% as revenue over the next 12 months. With the anticipated increase in bookings as we move to the second half of the year, we expect RPO to trend upward as well. Annualized recurring revenue was $162.7 million, up 2% year-over-year. We slightly modified our net dollar retention calculation and the results that I will reference reflect that adjustment for all periods, which were to the tune of up to plus or minus 1%.…

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

Just 2, if I could. First, on the demand backdrop, I think Ron, you spoke to maybe a little bit softer bookings. It sounded like that may have been more seasonal in the first quarter. But just generally wondering if you can speak to what you're seeing and hearing from customers as they entered the new year in terms of budgets and the willingness to spend on video and how that's evolved relative to 2023? And then secondarily, on the deal slippage, maybe just a follow-on to that. If you can talk to what drove some of those larger deals slipping from 1Q to 2Q? Are we seeing lengthening sales cycles again, and have these ended up ultimately closing by where we sit today?

Yes. Matt, thank you, and thanks everybody for joining today. Let's start with the demand and a bit of kind of background around where we start. Yes, Q1 is always a drop to Q4. The numbers are generally not very high for Q1 compared to the year. So difference is if -- even if we come a bit softer, do not necessarily say much about the rest of the year. It's just the nature of our business being a larger enterprise company. We are seeing Q2 already in a better spot and expecting to continue to pick up throughout the rest of the year. To your point about the slippage of these deals, yes, they seem strong coming into Q2. I can't foreclose exactly what happened and what have closed since, but we feel pretty good about this being a better quarter than Q1 from a booking perspective. Most of the new bookings were upsells from North America. I mentioned the amount of deals that we had closed. We did mention that there is a strengthening of the pipeline across EMEA and APAC, which is interesting for us. There's also some high-flying deals that are being looked at, that might make a very big difference to our numbers. But it's early to talk about these things, and they could take a while, but we are excited about these things. The type of demand we're seeing out there continues to be similar in the sense of consolidating around Kaltura for internal and external use cases. We are seeing more EP sales, event platform sales, both opportunities and usage. By the way, we just came out of the first Kaltura customer event for the year, Kaltura Connect in New York. We will be discussing it in the subsequent call given the timing…

If I can just follow up also just one question for John. I know it's still relatively early, but just being in the seat a couple of months now, you talked about longer-term sustained revenue growth as well as profitability. What's the path, I guess, to more sustained profitability and cash flow generation? Is it improving gross margins? Is it more work to be done on the OpEx space? I just want to maybe get a little higher level sense of what the path is as you think about later '24 into '25?

Yes, sure. I mean, basically, it's all of the above. I mean I mentioned some of it in my prepared comments in terms of the hard work that the company did over the last couple of years to improve the overall operating expense foundation. I certainly think there's additional work that can be done there. But the largest driver, I anticipate would be coming from top line given what we're seeing and kind of what I said about what we see for the second half of this year and into 2025.

The next question is coming from Ryan Koontz of Needham & Co.

Great. Ron, how do you think about pricing for AI? Are there some features there that are definitely really kind of the shiny objects to attract customers to the platform? And are there other features that come with a higher COGS perspective element that you've got to accommodate higher price points for? How do you generally think at this point about AI as a feature set in pricing?

Yes. Thanks for that good question. As you know, we're very excited about AI. We think that it represents a material shift and change in the world at large, obviously, but also in the world of video. I think that video is the most engaging data type out there, and organization is going to want to have a lot more immersive experiences. And if they're AI-infused immersive experiences, it could drive results. The beauty in Kaltura is that we are tightly integrated into workflows and that we have all the content federated across the enterprise given the breadth of use cases and being the system of record and then we're also the engagement layer. So if you consider kind of a sandwich at the bottom of which are the integration into the workflows, then the data, then the AI and on top of that, the system of engagement, then you could create solutions with [ Kaltura's ] kind of cycle that enables to provide the right contextualized hyper-relevant content for interaction with individuals like kind of a Khan Academy on steroids for all the schools that we're in, plus corporate training that would enable people to learn. And we could go up to the content realm and not just the system platform, providing the right information for people to learn and rescale. And that could increase ARPU by an order of magnitude when we're not just kind of the pipes, but we're helping the water come. The thing goes to marketing and the stuff that we're doing now with big, big brands where it's supporting Salesforce and Adobe and so many others right now, and they are looking into inserting whether they're AI or RAI. So we're excited about that. To your question about pricing, I think we as much…

Makes great sense. And it sounds like...

And one additional comment because you did ask about COGS. This is actually an opportunity for reducing COGS in various areas. Let me give you one example. We announced and mentioned in our prepared remarks that we are creating our own ASR. So the transcription engine that we've used from a third-party is not going to be based on Whisper, an open-source library that is AI-driven, not only increasing and improving quality, but also reducing COGS. And so if used smartly, the opportunity here is to actually generate something that's improving our margins. We are not in the business of creating from scratch new LLMs. We're not crunching endless amount of data, like I mentioned earlier in the sandwich metaphor. We're riding on existing integrations into workflows with existing data and are prompting the LLMs. I will say that the opportunity that we have, and we're talking about major banks and financial institutions and insurance companies and just about every industry is that they have vertical solutions based on their improved LLMs for their specific vertical case, but that does not require crunching of an endless amount of data that is extremely expensive. So I don't foresee a worsening in our margins. I potentially foresee an improvement.

Interesting. Super helpful. A follow-up, if I could. Any comments around kind of industry structure out there in terms of larger players, smaller players, how you see this evolving? Right now, we just seem to be kind of a stall in terms of growth and potential consolidation still. Any comments -- any updated comments on that area?

Yes, that's a good question. No major change. I mean, we are seeing the beginning of the reports for the quarter and glad to see that where we're coming and again, with the caution forward are above or we're not below any forward-looking kind of year-over-year growth directions of other companies, which is not surprising. But again, it's the beginning of the year, and there could be many surprises as we advance. Insofar as consolidation, yes, we are keeping an eye on opportunities out there to create further value for shareholders. We do believe that this industry had been under quite significant pressure over the last couple of years. We do believe things are going to turn around what's coming out of COVID on one hand and coming into the financial crisis of the other. And when there's blood in the street, there is the opportunity. I think we've proven that we could be the consolidator of this industry by way of the depth of integration into workflows as well as the breadth of products and use cases and industries. And so that introduces opportunities to partner with other technologies that we've done successfully to integrate them into our APIs quite easily as well as to potentially consolidate a market and cater to a larger set of customers, which could introduce economies of scale and more operational leverage. So nothing specific to state, obviously, on this call, but the fact that we also have John together with us, and he's done great things of that nature in the past is indicative as we've said to us looking on seizing the opportunity around this market to actually become a stronger leading player and because of the amazing technology positioning and customer set that we have. I'm going to let John comment on this if he has anything to [ add ].

I think Ron covered it all. I mean I would expect over the course of time, there could be strategic activity in the space, just given kind of what's happening in the space and you mentioned it upfront. Our goal is to make sure we continue to build a tremendous business here, a business that shows off revenue growth and positions -- and puts the company in a great position for revenue growth as well as increasing profitability. And we do that. We feel other things take care of themselves.

The next question is coming from George Iwanyc of Oppenheimer & Co.

Ron, given the comments you made for EMEA and APAC, can you kind of expand on the regional trends you're seeing at this point?

And again, it's early in the year. We got to be careful, but a few things that we're seeing. So one, we have the majority of our EE&T business coming from North America, but we have a fair bit significant revenue for M&T coming from Rest of World, kind of immediately connected to the fact that the very large companies in the U.S. have bought or built their own technologies. We consider the large streamers or the very, very large telcos or media companies in North America, which is very different otherwise. So that's historically been the case. The growth we're seeing around the world is a function of 2 things. Number one, a certain regrowth of the M&T opportunity. And I want to be very clear, these are long cycles and they are also long to convert into revenue and profitability. So not to say that [ it close a ] deal within a second or that it impacts revenue or profitability within a second, but we are cooking some stuff and looking at various opportunities. And it seems as if some folks that have taken a pause, given COVID or given following some financial and geopolitical unrest, et cetera, are considering to improve where they are and what they're doing. And to remind you, we are a premium technology there, and these are quite significant large deals. And so that's one thing. But it's not just that. We are seeing also in EE&T. And to remind you again, we're a large enterprise, not SMB. But some of the folks out there that have been extremely cautious over the course of the last couple of years given where things are, are understanding that they can't sit on their hands forever, especially that the decision to move to a Kaltura is not just a decision to improve the functionality and to have less complexity and less silos, but it is also a cost reducer because there's economy of scale associated with having a single platform as opposed to multiple vendors. And so what might not work well for a given year could very much be smart for a company as they look forward into the next 2 years, 3 years, 4 years. And I think companies now are more open to consider the mid- to long term than they were a couple of years back. But again, let's wait and see. We're just giving what we see at the pipeline. When it converts to more deals, we're going to report on it.

And given the seasonal start to the year and maybe the -- a little bit softer trends that you're seeing, can you maybe update us on your hiring expectations, especially from a sales force perspective? And when you talk about sales force, maybe give us some update on your down market focus?

Sure. So we did say when we were prepping for the year and giving the year guidance that last year, we reduced sales force by about 25% and indicative with that, booking have come down by about the same amount, meaning that the sales efficiency was kind of flat year-over-year. And that this year, unlike before, we expect to not reduce but gradually increase to the tune of 10 people. But that was going to be more so on the second half of the year and that it's not going to make a huge difference for this year, but it will start building up towards the following year by way of revenue. That's still the case. We haven't changed our thesis. Again, it's just a small minor changes at the beginning of the year. But we're keeping an eye and we're going to continue to keep an eye. And at the end, what we're here to do is to be effective, efficient. If we're seeing that there's enough breakthrough capacity to move forward and put more people out there to generate growth, and we're going to do that. If we think we need to weight it up a bit, and so that focus more on bottom line than top line growth, we're going to do that as well. We're agile, and we'll see where things go. But at this point, there's no change in our philosophy. The same goes to going down market. We have continued to show some interesting deals as we go down to SME and departmental and where our plans have not changed to continue to go down that track. I had mentioned for the prior call that we are less looking into going full on self-serve, but more the low touch mid-market, again, aligned with needing to pick your battles in the years that we have seen. And we're still very much aligned with that. We want to be thoughtful. We don't want to shoot to all directions. There's a lot of upside for the company, but we've got to choose our battles and we -- the battles haven't changed. It's been a good start for the year, and we're waiting to see where things continue, and we're continuing forward with the same strategy and the same execution.

[Operator Instructions] The next question is coming from Michael Turrin of Wells Fargo.

This is Ronit Shah filling in for Michael. I wanted to ask on the retention rates. What levers do you guys kind of have to pull to bring these back to where they were about a year ago?

Yes. Thank you for asking on retention. It was a good progress. And I'm going to repeat some of what I said earlier. This was the third consecutive quarter of improvement to remind you that we had the lowest gross churn in Q4, and now it was even lower than that, meaning better gross retention. It's actually the best that we've seen since the last quarter of 2022. And I also mentioned in the prepared remarks that it represents an annual retention rate that's better than the last 3 years on a quarterly basis. So meaning if you multiply that by 4, you're getting to better results in the last 3 years. So I would say that where we are now actually, if this were theoretically to continue, we're definitely back to where we were even better, not to say that it would be copy paste and that's what's going to continue. But when we look at the year and that we said in advance, we believe that the year would be a year that is aligned with the prior results of the company prior to last year, which was a tick up, and we remain in that belief that we're in the right direction. I'll also add on retention that a smaller piece was a full churn, let's say, to the tune of 25% of our churn was full churn. The majority of it was down sales, call it, 75% of the churn. And that's the case in both EE&T and M&T, and that we continue to see a very small piece, call it, less than 10% of our gross churn associated with either product or service gaps. So the rest are either budget limitations, product services that are no longer needed. These are things that are aligned with what we've recently seen. I'll just say as this touches NDR, we've mentioned how we fared in Q1, not a surprise for us, given last year's churn, it is a lagging indicator. And we also -- as we look forward into the future, we did say kind of cautiously in the prepared remarks that there may be a bit of a decrease into the next quarter. We're not seeing anything significant. So let's wait and see where it goes. If it is, it might be a small decrease. And then hopefully, as the continued improvement around gross retention and the bookings that we expect will start climbing, then we expect to gradually start showing better results there. So that's it. I don't know if you have any other questions on that. John, anything you want to say on this?

No, I think you covered it.

Okay.

Yes. Yes. Great. Just one more, if you don't mind, on the competitive landscape and who you're running into with deals and comments on pricing trends, things like that?

Yes. We're not seeing anything new. No [ fiercer ] competition nor new players come in. And on the pricing, I did mention that we are -- we were able to have increased contractually more so than in the past, and that was by way of strategy, which I had stated prior that we intend to do so as well this year. So we're not seeing additional pressures come in.

The next question is coming from Pat Walravens of Citizens JMP.

This is Oliver Crookenden on for Pat. Going back to competition a little bit, with the 7-figure and 6-figure deals that you closed this quarter, can you talk a bit about the extent to which these deals you were involved in were part of competitive bake-offs?

Most of them were not. Like I said, most of the bookings this quarter was more so on upsells rather than new logos, which is indicative. It's kind of aligned for the industry in recent quarters, given where things are. People are sticking to their existing vendors more so than in the past because it's just too risky to start making moves. This hasn't changed. But in most of these cases, people -- they love us to bid and they want to stay with us, and they're not considering a change, and it's also a sticky offering, and especially for Kaltura because unlike the other folks that are quite often offering just kind of a low-touch self-serve product or without a lot of APIs, not necessarily mission-critical, more so an app, that's easy to replace. In our case, quite often what we're offering is something with a lot of API integrations and [ harder ] switch. Again, to remind you when we spoke about even higher churn rates or lower retention rates, it was more often than not down sales because people needed to use less stuff, not because they want them to disconnect or were interested to switch. What we're seeing, again, in line with your question is that things are maintaining with Kaltura. There's mainly upsells and people are not considering significantly doing it with somebody else. It's just a question of how much money they have in order to do, what they wanted to do now versus wait a bit longer.

Great. That's helpful. And I guess a little bit of a follow-up. I know you powered some of the functionalities of the GTC conference than you have in the past. So has the growth of that ecosystem helped at all in terms of upsells?

So NVIDIA is a great partner and customer, obviously a phenomenal company. We're privileged to do some work with them. And in fact, we're doing a bit more work with them and hopeful that, that trend will continue. If they were to mimic historical contracts and we were able to have come and expanded quite significantly, then we're hoping that, that will continue to be the story with this amazing company as well.

Thank you. At this time, I would like to turn it back over to Mr. Yekutiel for closing comments.

Yes, I want to thank you all for your good questions. It's a good beginning for a year. Like I said, optimistic trends around retention, which we promised and are currently delivering on. We're excited, and we're going to share in the next call how our company conference, the Kaltura Connect is taking place for those of you who still want to join. San Francisco is happening tomorrow, and London is going to happen later this month. Please do come and you could find it on our website. By the way, we're going to be sharing the recording from that event, so you'll be able to have a look at them. I think they're quite telling the breadth and depth of what it is that we offer. Thank you all for joining the call, and have a wonderful day.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines to log off the webcast at this time, and enjoy the rest of your day.