Good morning, everyone, and welcome to the Kaltura First Quarter 2025 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 Sapphire Investor Relations. Please go ahead, Erica.

Thank you, operator and good morning. I am 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 first quarter ended March 31, 2025, and provide a business update. John will then review the financial results for the first quarter of 2025 in greater detail, followed by the company's outlook for the second quarter and full year 2025. We will then open the call for questions. Please note that this call will include forward-looking statements within the meaning of the Federal Securities laws, including, but not limited to statements regarding Kaltura's expected future financial results and management's expectations and plans for the business. These statements are neither promises nor guarantees, and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Important factors that could cause actual results to differ materially from forward-looking statements can be found in the risk factors section of Kaltura's annual report on Form 10-K for the fiscal year ended December, 31, 2024, and other SEC filings. 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 during this call, we will be discussing non-GAAP financial measures, adjusted EBITDA, adjusted EBITDA margin and adjusted gross margin. For a reconciliation of these measures to the most directly comparable GAAP metric, please refer to our earnings release, which is available on our website at www.investors.kaltura.com. I will now turn the call over to Ron.

Thank you, Erica, and thanks to everyone for joining us on the call this morning. Today we reported record total revenue of $47 million for the first quarter of 2025, up 5% year-over-year, which included record subscription revenue for the quarter of $44.9 million, up 9% year-over-year. It was our third consecutive quarter of increasing year-over-year revenue growth. We also posted record ARR for the fourth consecutive quarter, up 7% year-over-year and grew our RPO 12% year-over-year. As for our bottom line, in the first quarter, adjusted EBITDA reached a record level of $4.1 million, representing our seventh consecutive quarter of adjusted EBITDA profitability. We also posted record positive non-GAAP earnings per share. This was fueled in part by a strong non-GAAP gross margin of 70%, up from 65% in the same quarter last year. We consumed $1 million in cash for operations during the quarter, similar to what we had consumed in the first quarter of last year. While cash flow was a little lower than expected, it is aligned with our typical seasonality and does not change our cash flow forecast for the full year. Moving on to the business update. New subscription bookings in the first quarter were seasonally low compared to other quarters as usual and expected. Similar to the first quarter of last year, it included 1 7-digit deal and 15 6-digit deals, though the portion of new subscription bookings from new customers grew year-over-year as did the average selling price for new customers. New logos in the passing quarter included Stripe, a leading financial services company, Novo Nordisk, a leading multinational pharmaceutical company, a leading global medical device company and a large U.S. private university. Most of our new subscription bookings came again from upselling to existing customers, including a global leading cloud provider,…

Thanks, Ron, and hello to everyone on the call today. Kaltura continued its strong and focused execution in the first quarter with further monetization of our existing customer base and addition of new customers, continued improvement in operating efficiency and reallocation of resources towards higher ROI opportunities and markets. Touching on a few highlights in the quarter that demonstrate this. For the 10th consecutive quarter, total revenue grew year-over-year, driven primarily by strength in our subscription revenue, which has grown year-over-year in this and all past quarters. It was also our third consecutive quarter of increasing year-over-year growth rates. Both total ARR and average ARR per customer continued to grow and are at the highest level to-date. Net dollar retention reached its highest level since first quarter of 2022. A strong gross retention rate in EE&T, which was at its highest level since the fourth quarter of 2022. A record level of adjusted EBITDA, representing the seventh consecutive positive quarter of adjusted EBITDA profitability, highlighting our continued focus on operating expense management and significant net loss improvement on a GAAP basis and record positive adjusted net income on a non-GAAP basis. With that, let me move on to our results. Our results once again exceeded our guidance for both revenue and adjusted EBITDA for the quarter. Total revenue for the quarter ended March 31, 2025, was $47 million, up 5% year-over-year and above the high end of our guidance range of $45.7 million to $46.5 million. Subscription revenue was $44.9 million, up 9% year-over-year. This was also above the high end of our guidance range of $43.4 million to $44.2 million. Professional services revenue contributed $2.1 million for the quarter, down 42% year-over-year, consistent with the expected trends we discussed on our previous 3 earnings calls. The remaining performance obligations…

[Operator Instructions] Your first question comes from Gabriela Borges with Goldman Sachs.

Maybe we'll follow up here, Ron and John, on the macro commentary that you just provided. I fully understand that the situation is fluid and that you're monitoring it. I'd love to just get a sense of what customers are telling you, particularly those customers that have some exposure to consumer or ad spending trends. What are they telling you in terms of their willingness to spend this year relative to 4 or 5 months ago? And is there any nuance between your larger customers and then some of the mid-market customers that I know you're increasingly targeting?

Yes. Thank you for the great question, Gabriela. Let me start by saying that we don't see any negative impact at this point. We're thoughtful, we're careful. We all live in the same world. But we have not heard anything material from any material customer about exposure to the situation. I would repeat your point that we are catering to larger organizations by design. We are not an SMB company. We're also definitely not a B2C company. And those that we work with are thinking for the mid- to long-term and are not planning monthly and are not planning quarterly. So it's been stable over the last weeks and months. That being said, it's hard to know whether, for example, if certain deals slip from this quarter to the next quarter is because people are taking a little bit of time to figure things out even if they don't tell us as it were, as we always know, the first quarter is a slower quarter. It has been similar to last year. So we don't have any alarm bells, but could it have been maybe a bit better if the world would have been stabler and people would have felt comfortable to close deals earlier rather than wait a bit? It could have been. But at this point, we've not had any direct impact. Also important to note, we're a SaaS company, we're a cloud company. We don't have any equipment or CapEx or things that need to be shipped from one place to the other. So we don't expect tariffs to have a big impact on Kaltura in any way, shape or form. But again, I think the operative word here is being thoughtful and it is the first quarter of the year. We never change guidance after the first quarter and this year wouldn't be the odd year in that. But let me pass it over to John. John, go ahead.

Yes. I mean, Ron touched on it. Mainly, we don't have an exposed supply chain. So effectively, as a SaaS company focused on the enterprise market, we feel, as I mentioned in the upfront comments that we can manage through this. But it's important that we are watching this. We haven't really heard signals from our customers. I mean, one of the other things is we have a product suite that ultimately can allow our customers to have a more efficient operating expense depending on how they deploy our products. So certainly, that's an angle that we've used in the past and we'll continue to use going forward from a sales perspective. And the other thing is, which I mentioned too, is really around currency. We're watching currency. We're well positioned in terms of from an expense perspective, how we're hedged with the expenses we have in Israel. And then we're looking -- we continue to look at the dollar against the euro and the pound, dollar weakening, euro-pound, a little bit stronger, primarily in the back half of the first quarter. So from that perspective, we're watching it, but that's not a hurt for us.

I'd say even the contrary. I mean a stronger European currency is good for us because a certain percentage of our revenue is from Europe. If that currency gets stronger on a dollar basis, we're even better. So that's a good thing from a cost perspective, it's really mostly the U.S. and then Israel, which is its own story. But I want to double down on a good comment that John had stated insofar as being kind of counter recessionary in a way insofar as supporting reduced OpEx. One comment that was an off comment that we did hear at least from one place and I don't know if it's indicative, I don't know if there's going to be more of it, was a question of virtual events versus physical events. We all know that there had been after the height of COVID, where everything had gone virtual, returned to physical and hybrid. We have heard at least a couple of occasions where people had spoken about, yes, we want to strengthen the virtual side to reduce or accommodate for lower travel spend. And so we feel that we, as a company, are very well positioned to benefit from any situation where companies are going to want to spend less and be efficient in training, marketing, selling, collaborating remotely. Answer is absolutely yes.

Yes. That makes sense. Thanks for all the detail there. And as a follow-up, you've talked about growing the sales team gradually this year. Maybe tell us a little bit about where you're most excited to put new resources to work. It's a pretty unique position where you've done all the heavy lifting and optimization in the last 3 years and now you're thinking about growth. So I would love to hear where you plan to allocate those resources.

Yes. Thank you for that. So we had reduced our sales headcount by about 25% from the height during COVID. And we've done that to accommodate for our return to profitability plan as well as for the declining demand in order to kind of match our sales efficiency, customer acquisition cost ratios, et cetera. And when things started turning around, bookings started coming back, markets started being more efficient and we had achieved our profitability goals and became adjusted EBITDA profitable and now in EPS levels, non-GAAP, et cetera and are getting in the right direction, we feel comfortable to gradually and the operative word here again is gradually, start increasing it and it's throughout the year. It's not an immense increase, but for the first time, there will be an increase. As to the question of where, there's 2 aspects here. When we have reduced the headcount, we had focused increasingly on the enterprise side of the business more so than M&T and education. And the reason for that was that we felt that that represented at the time the most effective return on our capital spend. It is both the largest TAM. It was also where we had the most amount of continued demand. M&T had stopped even more aggressively than some others on new initiatives. We had our own organic growth as it were. These cycles are longer. They're a bit less profitable. So we said that's not the time to double down on that. And on the education front, it was more upselling goals that market is a bit more saturated compared to enterprise. And again, it made more sense to go deeper on the enterprise front. What we're seeing now is 2 things. So number one is enterprise continue to, even increasingly so, interesting and excited. Right? We had expanded our use cases to cater to CMOs with adding our event-based and virtual and webinar-based products together with our virtual customers. So we have more products. The market is doing better. But we're also in a great position to reaccelerate the markets that we've taken the foot off the gas a bit more. So we're seeing a rebound in interest in media and are able to cater with a great success and continued growth and great endorsement by our existing market-leading blue-chip customers. And in education, likewise, we're in such a strong position, market presence, additional products that enables us to continue to expand from teaching and learning to marketing and admissions with a slew of new products that we have launched. So where we had taken off the foot was more from these areas now that we're reaccelerating, we're reaccelerating across the board.

Next question, Ryan Koontz with Needham & Company.

Ron, relative to the M&T churn that you see coming down the pipe here, is this -- are these customers that are downsizing deals? Are they exiting the business? Any color you can share generally on the kind of nature of the churn?

Yes, happy to do so. So just to remind all of us because we've been talking about this for a while in the last earnings call and this is as expected. So nothing here has changed over the last few months insofar as expectations for the year. I'm reminding us that last year, we had a very low churn, historically low churn lower than any other year in the history of the company for M&T. In general, by the way, it was a much, much better year than earlier years and a big rebound in gross retention compared to the year before for the company. So we're all doing great. But we also said that there were a few churns as of last year that had been pushed into 2025. And accordingly, we expect the gross retention this year for M&T to be lower. We still said that while this is going to drag down our gross retention as a company, it's going to be better than 2023. It's going to be a bit lower than 2024 and we expect that to be 100% temporary. So we don't expect that to continue after. Now back to this quarter and to your question about, is this decreasing or exiting a few points, but I'll start actually from the E&T and then I'll talk about M&T. E&T was a great gross retention quarter, best for multiple years and continue to do good and this is the majority of our business. So I want to first take off the table that the conversation here is not on E&T, it's 100% on M&T. Coming back to M&T and a), it is the expected few accounts that we knew that are coming off, nothing more. And then we continue to see increase in both upsells for our existing other customers as well as a material regrowth in new booking opportunities in that line of business. Now finally, getting to your specific question as to the cases that we're talking about here. In most of the cases here and it's only less than 5, right? It's a few customers. It is mostly a full exit as opposed to decrease due to a strategic decision that they have taken for various different reasons. So they brought it in-house, they wanted to move to something else. It was a company that was acquired out of a bigger company that we have catered to and that separate company has a different plan given the exit from the larger company. So these are very specific situations and it is more a full exit rather than a decrease. Does that address your question, Ryan?

Yes, it does. And one more follow-up, if I could. That's really helpful. On the product front, as you think about your kind of your build-out of the product and obviously attempting to reaccelerate revenue, are you -- do you think it's more critical to build out kind of deeper solutions around verticals? Or is it more about self-service, ease of onboarding, simplify the product, go down market? Like kind of which direction are you placing bets there on the product investment?

Yes, I love these questions. So first, we don't need a revolution and to be honest, not even an evolution because we have the products that we need in order to accelerate and grow. And you've seen this in growth numbers this quarter. Again, the specific situation that is occurring on the media and telecom side, which is the only piece that is slowing down growth to some extent, is a piece that is a very temporary situation. There's more demand. And to my point earlier, even about M&T, significant opportunities more of the pipeline now is huge compared to what it was a few quarters ago. And so we're not required to build new things in order to generate the goals that we had stated. That being said, the main focus that we have right now and we've stated that multiple times is to ensure that we continue to move from a content management company to a hyper personalized experience company, where we move to enabling individuals to have their own experience around learning, teaching, marketing, sales and entertainment with an AI-infused content management system. And we're in a huge advantage because we were atomizing content that we already own and maintain -- not own, but we manage on behalf of our customers. And so by doing so we're seeing great excitement. I've mentioned 150 customers that are going down the various stages of our POCs and 20 of them that are already generating a lot of traffic and excited. And daily, we get feedback from that. So that's an important piece that I call it horizontal because there's many agents that we're putting in place. They don't fall under deeper vertical solutions, they definitely don't fall under self-service, but that is an important part. Between the 2 that…

Yes, it does.

Next question, Patrick Walravens with Citizens JMP.

Great. Can you, John, maybe to start just sort of bridge the amount of the decrease from -- in total revenue from Q1 to Q2, like what are the components of that?

So basically, if you look at what's happening first in Q1, as mentioned on the call, we did have a pickup in on-prem. That was about $1.6 million. I mean, relative to the guidance, about $1.4 million of that is falling off, plus we had the lower bookings in the quarter, which also will impact the number for the most part. So those are the 2 biggest pieces.

I will note on the on-prem stuff that it is a typical Q1 situation. It has also happened last year. So it's not something that is completely off. It's just that the nature of the annualized behavior of on-prem is one that gives a pickup more in Q1 rather than not. And as you've noted, it's actually a bit probably less than that number when you look at the specific additional stuff that's come in, it's about $1 million. But if you look at that increment of about $1 million, that's been incremented compared to the year before as opposed to the same on-prems that have been there forever. That will return the Q1, the following few years as well. So it's not a one-off. It's just returning here and there depending on the renewal cycle.

And Pat, the last piece is the M&T churn that's been talked about.

Right. Okay. And I mean, your -- all your metrics look good, right? And your RPO looks good, but you're telling us that the bookings were soft. It's typical for softness, but maybe you'd hoped it would be better. Do we see that anywhere? Or is it just in the guidance that that shows up?

Yes, this isn't -- I mean, you would see it in the RPO. But again, the RPO is combining 2 things. It's combining all the existing business and to what extent it is being renewed or not renewed as well as the incremental new bookings. So you don't have a view on just new bookings. We have a view of everything. Q1 is always lower in RPO than Q4, mostly because forever, Q1 had been a low new bookings quarter. And because it's forever been a low new bookings quarter, then the renewals in Q1 are far, far, far lesser than any other quarters. And because the renewals are far lesser, then the RPO falls down. And the fact that that specific year is also another low number just adds to the point, but it's just that Q1 is always a drop because there's forever been much less business. So like I said, I don't -- nothing material happened from a standpoint of appreciating that the first quarter is not the quarter to usually open up champagne bottles and say, oh my God, what an amazing beginning for a strong year rather than, okay, pipeline still looks strong, Q1 is kind of naturally lower, let's see what happens in Q2, Q3 and Q4 to add to the fact that generally companies don't start off the year and immediately start changing their guidance. It is not a prudent thing to do. You don't get point for it and it doesn't make a lot of sense. But if you add a lot -- on top of that, then we have the discussion around the churn and M&T. So that's where it all comes together. But again, is there, we'd love to have suddenly a huge jump in the Q1 bookings, yes, but this is not something that's nonstandard for how the year starts. And we have not lost any material deals, maybe a few got pushed. And from a pipeline perspective, we have good coverage for a strong bookings year, so we feel good.

Right. So that's my last question, which is -- and you can't give the actual numbers, but you said that the pipeline is high compared -- huge, I think you said, compared to the last couple of quarters and then you have to assume some conversion rate, right? So can you quantify in any way for us sort of how big of the pipeline, what's the coverage like? Yes.

Yes, we can. But -- and again, we've got to be consistent and careful and let John comment on it. But just to be very clear, when I said huge, I said the M&T pipeline is huge compared to what it was before because I also said the sentence before that we took our foot off the gas and we had no people selling to M&T. We made a very clear decision that this is not a focus area for new logo rather than upsell. So for the M&T case, it's a very, very steep jump when you look at our current pipeline compared to what it was before. Now for the rest of the business, it's a very nice pickup and we do see the pipeline picking up and looking nice and supportive of our plan for year-over-year growth. But I didn't come and say that for the entire company, it's a huge bounce. So just to make that point. But yes, we don't -- as you know, we've never and we don't change that from a KPI perspective, provided actual booking numbers nor actual coverage ratios, it's just not a KPI that we provide, but I'll let John comment about it.

Yes. I mean, just to wrap it all up and we mentioned some of this, but I'll talk about a little bit more into 2025. Typical lower bookings first quarter. We gave you guidance for second quarter in terms of what we expect. And we are seeing and expect bookings to pick up as we move into the second half of the year and to have a very strong and solid second half of the year, which would round us out to our overall annual guidance.

Next question comes from Michael Turrin with Wells Fargo.

This is Ronit Shah on for Michael. Just a question on the higher ARR per customer. Maybe just talk about the dynamics between price increases and customers expanding their product portfolio and what's driving that record number?

Yes. Thank you, Ronit, for your question. We've had both and we've stated consistently that as things advance, we're getting kind of the automatic price increases and we're pushing for some of that. But note that the price increase is always a lesser piece compared to more products. And the reason is that the price increase is only relevant for those that have come to a new renewal session, which by design in the first quarter is a small group, as I said earlier, because most of the renewals do not come there. So even if there is some price increase by some of the customers that have come to renewal, that doesn't move the needle as much compared to the latter part, which is consolidation around Kaltura, more upsells, more products being used. Continue to focus on the larger opportunities as opposed to the small folks out there, which is where we're strategically positioned. So the #1 push and that would be that our customers use us for multiple products, multiple use cases, of course, multiple video technologies between on-demand, live and real time. That is the main driver of the increase, which has always been there. It's almost quarter-by-quarter. And of course, that could shift in any given quarter a bit to the right to the left, but it continue to grow and grow and grow. But if you look at a multiyear basis, the graph is very strong and you could just see us growing and growing.

Got it. And then just another follow-up. At the Investor Day, you guys said it was early days on AI monetization strategy. Wondering if you guys have any update here just having another quarter under your belt with customers testing out the products?

Yes, we continue to be very excited. The -- like I said, the pipeline is growing. The companies are going down the funnel of our POCs, both the number of companies in that funnel, the stage they're in the funnel, the feedback we're getting from them, the recognition in the market insofar as awards that are stating this is really, really exciting. There's just all lights are green. It's just a question of how quickly that turns into dollar signs. We are, for the first time, mentioning in this earnings call that we are now with opportunities in our pipeline and we expect to start monetizing over the next few quarters. You have not heard that in earlier calls because, quite frankly, we weren't as close. And we said, look, we're starting to launch stuff. We believe it's going to be interesting. Then we said, okay, we launched stuff. It's becoming interesting. Now we're saying, well, we've launched stuff, people are testing it. They're saying they're excited. And now we're saying and they're also talking to us about paying us money and it's around the corner. So we are absolutely moving forward, but this is too early to call it and to be able to say exactly how much and where, but this is becoming and will continue to become an important piece of our revenue.

I would like to turn the floor over to Ron Yekutiel for closing remarks.

Yes. So we're very excited to start the year strong with some good growth and continued march towards profitability. I think one of the interesting remarks that was made by us is "look at the Rule of 30" and where it has gone and how much it has jumped and continue to jump. And I think when you look at other companies in this industry, I think it's clear that we're continuing to outperform and do well. We want to thank you again for your interest and for joining our call. And just a reminder, we're going to be participating at the Needham Technology Media and Consumer Conference in May and we look forward to meeting you there. And so thank you for Needham folks. And lastly, we do hope to see some of you coming to our Connect Events throughout the months that we have in both New York, San Francisco and London and later the education events. So please go to our website and register. We'd love to see you there. So thanks and have a wonderful day and week. Take care.

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