Kaltura, Inc.

Good morning, everyone, and welcome to the Kaltura second quarter 2021 earnings call. This call is being simultaneously webcast on the company's website in the investor section under events. For opening remarks and introductions, I'll now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Thank you and good morning. With me today from Kaltura are Ron Yekutiel, co-founder, chairman, and chief executive officer. and Yaron Gamazi, Chief Financial Officer. Ron will begin with a brief review of the business results for the second quarter ended June 30, 2021, and an overview of Kaltura. Yaron will then review the financial results for the second quarter, followed by the company's outlook for the third quarter and full year of 2021. We will then open the call for questions. Please note this call will include forward-looking statements within the meaning of the federal securities laws. including but not limited to statements regarding Kaltura's 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. Additional information that could cause actual results to differ from forward-looking statements can be found in the risk factors section of Kaltura's prospectus filed with the SEC on July 22, 2021 pursuant to Rule 424B and other periodic SEC filings, including the quarterly report on Form 10-Q for the period ended June 30, 2021 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. All material contained in the webcast is the sole property and copyright of Kaltura, with all rights reserved. Please note, this presentation describes the non-GAAP measure adjusted EBITDA, which is not prepared in accordance with U.S. GAAP. For a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP metric, Please refer to our earnings release. Now, I'd like to turn the call over to Ron, co-founder, chairman, and chief executive officer.

Thank you, Erica, and thanks to everyone for joining us on the call this morning. We're excited to report our first quarter as a public company. I want to start off this special call with a few quick acknowledgments and thanks. First, to our amazing team, employees, partners, and longtime shareholders, or as we call ourselves, culturians, for always dreaming big, for your unwavering dedication, passion, and resilience, and for your steadfast commitment to our founding values of openness, flexibility, and collaboration. Second, to our loyal customers, for your partnership, trust, and support. We look forward to continuing to videify the world with you, as they say in the Olympics, faster, higher, and stronger together. And lastly, and most importantly, to our new shareholders, Thank you for your vote of confidence. We're excited to have you join our extended family. Our journey to power any video experience for any organization has only just begun. We are all energized and thrilled to enter this new chapter and strongly believe that the best is very much ahead of us. I'll start this morning with just a few opening financial highlights from the second quarter. Then because it is our first earning call, I want to take some time to provide an overview of our business. and Market Opportunity, as many of you may be used to the Cultura story. After which, I'll provide more details on the passing quarter and the road ahead. We reported a very strong second quarter fueled by robust bookings, selfless productivity and net dollar retention rate. Our revenue for the quarter was 41.6 million, up 45% year over year. Subscription revenue for the quarter reached 36.5 million, an increase of 46% from the prior year. and represented 88% of total revenue. Our annual recurring revenue run rates grew to 145.4 million, up 46% year-over-year, and our net dollar retention rate continued to increase to 121%, up from 105% one year ago. We're very excited about the results of the passing quarter, but before I share more details about it and the road ahead, for the benefit of those for you to filter out, I want to quickly provide a summary of our business and why we believe the best is yet to come. If you participated in major virtual events in the past year, it was possibly conducted using KOTORA. If you're studying in a university or have graduated from one in the last decade, you may have used KOTORA when you created or consumed videos in class or remotely. If you work at any large organization, you also possibly watched internal videos in town halls and have engaged your customers with videos using KOTORA. If you are a TV subscriber of a major PTV provider like Vodafone, you may have also watched your favorite series using KOTURA. Video is everywhere, and increasingly, so is KOTURA. We started KOTURA in 2006 when online video was just in its infancy and embarked on a mission to build a single, open, and flexible platform that would power any video experience for any organization. Over the years, we've built a robust video experience cloud that includes live, real-time, and on-demand video products, solutions, and developer tools for organizations that drive today communication, collaboration, learning, and entertainment for many millions of people at home, work, and school. More specifically, we are recognized as the leading vendor in the enterprise video content management market, offering a broad set of products and capabilities for on-demand and live, both for web and TV solutions. And in 2020, we expanded into the real-time conferencing space, focusing primarily on experiences that require both real-time conferencing as well as advanced live and on-demand content management capabilities. Our video experience cloud today is comprised of the following three components. First, a set of media services that include hundreds of video APIs, for on-demand, live and real-time video, developer tools, and video and TV content management systems. We license these media services to tech companies that want to add video workflows to their own products. We also built all of our own products and solutions at Kaltura on top of these same media services and APIs, which make all of our offerings very flexible, interoperable, and easy to customize and integrate with, avoiding traditional silos and redundancies. This modularity also fuels a rapid pace of innovation. Second, on-demand, live, and real-time video products that cater to all industries, powering both the internal video needs of organizations with our employees, as well as their external needs with our customers, partners, and prospects. Our products include a video portal, a system for panels, a system for sending video messages, and ever since we've added real-time conferencing last year, also offerings for webinars and virtual events. Third, industry-specific video solutions currently catering to two markets, education and media and telecom. We offer video solutions that power in-class and remote teaching and learning for education institutions. This includes a video extension for all popular learning management systems, a lecture capture solution to record or stream live lectures, and starting from 2020, also a virtual classroom solution for remote and hybrid teaching and learning. We also offer media and telecommunications companies a platform to launch and manage their cloud-based, over-the-top TV service, including live, on-demand and catch-up TV, both subscription-based and ad-based. As of June 30, 2021, we have over 1,000 customers across four markets. Three of them, enterprise education and technology, are reported together as a unified segment, and the fourth, Media and Telecom, is reported as a second separate segment. Among these customers are 25 of the U.S. Fortune 100, more than 50% of the top U.S. research educational institutions, including seven of the eight Ivy League schools, and we power more than 15 major cloud TV initiatives for large media and telecom companies around the world. We sell our solutions primarily through direct sales teams and account teams, that are also organized based on these four customer markets. Today, we have invested primarily in increasing the scope and depth of our offering. At the same time, we've accelerated our year-over-year revenue growth from 12% in 2018 to 18% in 2019 and 24% in 2020. And from 17% in the first quarter of 2020 to 46% in the first quarter of 2021 and now 45% for the second quarter of 2021. Up from 21% in the second quarter of 2020. We accomplished this acceleration without materially increasing our sales and marketing spend over 2019 and 2020. In the fourth quarter of 2020, we began investing significantly in sales and marketing expenses to drive revenue growth, and we expect this trend to continue for the foreseeable future. Our revenue acceleration to date was achieved primarily through growing our sales efficiency and net dollar retention rate metrics. We estimate that during 2018, 2019, 2020, and the first quarter of 2021, the lifetime value of our customers exceeded 5, 7, 11, and again 11 times the cost of acquiring them. Our net dollar retention rate grew from 105% in 2019, 207 in 2020, 216% in the first quarter of 2021, and now in the second quarter of 2021, it continues growing to 121%. The rise of both metrics is attributed to increased demand into a growing average ARR per customer, which is fueled by increased consumption levels and a growing number of offerings purchased by each customer. To that end, to date, half of our customers have purchased three or more of our offerings and use them for a range of use cases across organizations. As we look into the future, all of us at Kaltura are more excited than ever We're finally accelerating our investment in sales and marketing at the heels of established leadership across several large markets, attractive unit economics, and proven operational efficiency. We only recently started commercializing our new and exciting products and solutions from 2020, including webinars, virtual events, and virtual classrooms, and we plan to continue to create innovative products and solutions for our customers. We're also planning to go downmarket and cater to smaller customers, including SMEs with new self-serve and low-touch products for companies and developers, and to do so with the support of new channel distribution partners. We have many growth drivers, and our opportunity is large and timely. This brings me back to the second quarter of 2021. I would like to give you some more color on what we've done in the past quarter from a go-to-market and technology development perspective, what development we plan to do next, and how we currently see our growth engine. First, from a go-to-market perspective, this was another great quarter. We once again saw strong traction, robust bookings and retention, and an increase of our average ARR per customer. On the enterprise front, Totara continues to position itself as the go-to platform for high-stakes virtual events. We sold our new virtual event product to large organizations, including Fortune 500 companies, and delivered major events around the world during the quarter. some including over 100,000 registrants. We also had initial virtual event customers renew their contracts and extend them for additional events. While on the topic, I'm delighted to announce today the upcoming launch of a new KOTURA-led industry event in the field of virtual and hybrid events. It is called Virtually Live by KOTURA and it will take place virtually this November 9th. Virtually Live will focus on the transformation of live Virtual, Unified, and Hybrid Events, and now they've changed forever, transforming the marketing funnel. We're expecting marketeers, business leaders, and market leaders to join up to reimagine how events would look like in the years to come. We will deliver the events on Cultura's virtual event platform, which has hosted some of the tech industry's biggest events this year. Beyond virtual events, video messaging continues to gain popularity in the enterprise markets. with the major financial institutions transitioning to video-based communication with its customers using our video messaging product. We're also seeing more global companies switch over to our virtual classroom solution from other virtual learning platforms, including one of the major consulting firms. And most of our customers continue to purchase multiple offerings, so all of our enterprise products remain very much in demand. Education institutions are continuing to grow their dependence on video for learning, both real-time and on-demand, and we're continuing to strengthen our position as the central media repository for educational institutions. Our tech customers that are embedding our media services in their own platforms have continued to grow their usage materially, and this remained the highest contributor to our net dollar retention rate. In media and telecom, we continue to broaden the footprint of our Cloud TV platforms, This quarter, our longtime customer Vodafone lost their Kultura-powered Vodafone TV service in Germany, their largest TV market. Also, in Q2, we closed an important deal to power cloud TV for a large telecom company in France. Second, from a technology innovation perspective, we continued with our fast pace of innovation this past quarter across our live, real-time, and on-demand stacks with a focus of driving convergence across On live, we've finished migrating our customers to our newly built modernized live streaming cloud infrastructure that is based on a new, powerful, cultural live streaming engine.