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spk01: Good morning everyone and welcome to the Kaltura first quarter 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 Sapphire Investor Relations. Please go ahead.
spk04: Thank you and good morning. With me today from Kaltura are Ron Yucatel, co-founder, chairman, and chief executive officer, and Yaron Gamazi, chief financial officer. Yaron will begin with a summary of the results for the first quarter ended March 31, 2023, and provide a business update. Yaron will then review in greater detail the financial results for the first quarter of 2023, followed by the company's outlook for the second quarter and full year of 2023. 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 Keltor'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 Caltor's annual report on Form 10-K for the fiscal year ended December 31, 2022, and other SEC filings, including the quarterly report on Form 10-Q for the quarter ended March 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. For reconciliation of this non-GAAP financial measure to the most directly comparable GAAP metric, please refer to our earnings release, which is available on our website at www.investors.kaltura.com. Now I would like to turn the call over to Ron.
spk06: Thank you, Erica, and thanks to everyone for joining us on the call this morning. Today we reported total revenue for the first quarter of 2023 of $43.3 million, up 4% year-over-year, and subscription revenue of $40.4 million, up 9% year-over-year. Adjusted EBITDA for the quarter was negative $2.7 million. This quarter, we posted record subscription revenue, and our year-over-year total and subscription revenue growth rates were the highest since the first quarter of 2021. Subscription revenue represented a record 93% of total revenue, up from 89% in quarter one 2022, as our revenues from professional services continue to decrease due to our increased productization and evolution towards low-touch products. We're also encouraged to see our net dollar retention improve as predicted. While we do not provide a formal forecast for this KPI, and it may still fluctuate, we believe it will continue to do better than what it was in the second half of last year. We continue to focus on our plan to return to profitable growth and achieve the lowest adjusted EBITDA loss of the last six quarters. Once again, We reaffirm our goal of achieving a single-digit adjusted EBITDA dollar loss in 2023 and a positive adjusted EBITDA in 2024. Regarding cash flow, we materially reduced our cash consumption from operations in this quarter to $7.4 million, compared with $19.6 million in Quarter 1, 2022. As we discussed on our last call, we believe the majority of our expected cash consumption from operations for the year occurred in the first quarter due to typical seasonality and the partial impact of our January budget cuts. We expect a significant improvement in our cash flow in the next three quarters and to achieve cash flow from operations break-even during 2024 with sufficient cash reserves. As stated before, we were adjusted EBITDA and cash flow from operations profitable in 2019 and in 2020 and are committed to the goal of getting there again soon, independent of our top-line growth. Moving on to a business update. We continue to benefit from the secular trends shifting business processes from physical to online and personal interactions from in person to remote. This is leading to the full digital transformation of companies and industries with video increasingly playing mission critical roles. This new world with video at its center requires new engagement models with customers and new skill sets for employees. For example, This quarter, one of the largest banks in the U.S. launched a remote wealth advisory service based on Kultura's platform. We empower the bank's financial consultants to connect in a more meaningful digital way with their prospects and customers, enabling them to improve their reach and effectiveness by easily producing, approving, and sharing videos and incorporating them into events and seminars. We also continue to see new and existing customers consolidate around Kultura's single, flexible platform that uniquely caters to all video needs, including internal and external use cases, and all types of video delivery, on demand, live, and real time. Many companies use different platforms and vendors to power, for example, their video content management and portals, internal events training and town halls, and external events and webinars. A recent Forrester webinar stated that 60% of organizations are even using multiple providers to just power their events. some as many as seven different providers. Companies increasingly appreciate the great value in consolidating around a single vendor. This reduces unnecessary complexities, streamlines workflows, eliminates content silos, and is far more economical and therefore especially appealing in today's challenging financial environment. Though the first quarter is typically our softest for new ARR bookings, and we expect this year to be no different, Bookings grew compared to the same quarter last year, despite having fear around quota-carrying salespeople. This translates to a meaningful sales productivity improvement. This also marks our second consecutive quarter with higher new bookings compared to a year ago, following five earlier quarters of year-over-year new ARR booking declines. The biggest contributor to new business this quarter continued to be the enterprise segment, in which half of our new ARR bookings came from new customers, which is more than recent quarters. The increase was not just in new customers, but also in our average deal size, mostly thanks to the broadening of our product portfolio in both our EMT and M&T segments. To that end, this quarter we closed five seven-digit contracts with insurance, banking, tech, and media companies, four of them new customers. Our sales pipeline for the rest of the year is growing with great opportunities across all sectors, we see leading indicators of support and expected continued growth in new bookings, including growth in the number of sales meetings set by our SDRs and in the number of our RFP submissions compared to the numbers in the second half of 2022. We're also boosting our marketing activities this June with the relaunch of our physical industry event for the first time since 2020 pre-COVID. This time, we decided to get closer than ever to the market with a series of five events that will take place in New York, San Francisco, Atlanta, London, and Berlin. In KOTURA Connect on the Road 2023, we will discuss how to achieve greater engagement, improve learning, training, and collaboration, and increase leads adoption and retention with fewer resources using advanced video experiences. Attendees including marketing, training, learning, IT professionals, and event technologists will hear from top industry speakers and participate in workshops geared towards creating action plans for increasing return on investment through meaningful, engaging digital interactions. Lastly, on the product development front, during the first quarter, we continued to evolve our events platform, our webinars product, and our APIs and developer tools. We introduced a set of advanced capabilities that make complex events easier to launch and operate, further reducing the need for services. These include single sign-on templates, custom metadata support, and automated certification workflows for continued professional education. We also expanded usage and session analytics and enhanced our integrations with marketing automation systems. We also launched several capabilities that increase the benefit of consolidating our Ancultura to all video types and needs, on-demand, live, and real-time video types for internal and external needs. For example, we launched the ability to aggregate user data across all Ancultura products including events, webinars, and video portals, which now enables customers to collect, present, and gather user profile and insights across all products to further increase personalization, interactivity, engagement, and return on investment. Or as another example, we launched a new showcase page where all customer events and webinars, past and upcoming, are visible. This allows customers to share their full event schedule and consolidate all their event content in a single, easy to find location that can be embedded anywhere. On the media and telecom front, we continue to enhance and expand the footprint of our front-end TV application for over-the-top set of boxes, smart TVs, and connected devices, which launched commercially for the first time last quarter and is now already live with four TV operators. By adding a set of front-end experience applications to our back-end platform, we're now able to provide an end-to-end TV offering for our media and telecom customers. This increases our average deal size and strengthens our competitive positioning and stickiness, and also enables future introduction of additional revenue streams from user insights and advertising. In summary, the results of the first quarter allow us to remain cautiously optimistic about the rest of 2023. While some of the industry headwinds that we experienced in 2022 are still present, and we see customers continue to tighten budgets and delay purchases, we are encouraged to see early indicators of improved market demands translating to a year-over-year growth in Salesforce productivity and new bookings. And our expanding product portfolio is encouraging companies to consolidate around cultura, especially in the current financial climate, which has resulted in an increase in our average deal size. We've made progress towards improving our adjusted EBITDA in cash flows for operations in the first quarter and remain committed to the goal of returning to profitable growth, As I mentioned, we believe that most of the cash flow from operations burned for the year is already behind us, and we are reaffirming our forecast for a single-digit adjusted EBITDA loss this year into achieving a positive adjusted EBITDA and cash flow from operations breakeven in 2024. With that, I'll turn it over to Yaron, our CFO, to discuss our financial results in more detail.
spk05: Yaron. Thank you, Ron, and good morning, everyone. As I review the first quarter results today, please note that I will be referring to a non-GAAP metric, adjusted EBITDA. A reconciliation of GAAP and non-GAAP financials, including in today's earnings release, which is available on our website at www.investors.cultura.com. Total revenue for the first quarter ended March 31, 2023, was $43.3 million, up 4% year-over-year. Subscription revenue was $40.4 million, up 9% year-over-year, while professional services revenue contributed $2.9 million, down 39% year-over-year. The remaining performance obligations were $167.4 million, down 2% year-over-year, of which we expect to recognize 58% as revenue over the next 12 months. Annualized recurring revenue was $159.6 million, up 8% year-over-year. Our net dollar retention rate was 102% in the first quarter, the highest since Q1 2022. Within our EMP segment, total revenue for the first quarter was $31.3 million, up 5% year-over-year. Subscription revenue was $29.9 million, up 8% year-over-year. while professional services revenue contributed $1.5 million, down 31% year-over-year. Within our M&P segment, total revenue for the first quarter was $11.9 million, flat year-over-year. Subscription revenue was $10.5 million, up 12% year-over-year, while professional services revenue contributed $1.4 million, down 45% year-over-year. GAAP gross profit for the quarter was $27.3 million, representing a gross margin of 63%, the same gross margin as in Q1 2022. Within our EEMT segment, gross profit for the first quarter was $22.8 million, representing a gross margin of 73%, up from 70% gross margin in Q1 2022. Within our M&P segment, gross profit for the first quarter was 4.5 million, representing a gross margin of 38% down from 46% gross margin in Q1 2022. Gap net loss in the quarter was 12.8 million or 0.09 per diluted share. Adjusted EBITDA for the quarter was a negative of 2.7 million, improving from a negative of 8.4 million in Q1 2022. Turning to the balance sheet and cash flow, we ended the quarter with 77 million in cash and marketable securities. Net cash used in operating activities was 7.4 million in the quarter compared to 19.6 million in Q1 2022. I would like now to turn to our outlook for the second quarter. of 2023 and for the fiscal year ending December 31, 2023. In the second quarter, we expect subscription revenue to grow by 5 to 7 percent to between 39.9 million and 14.6 million, and total revenue to increase by 2 to 4 percent to between 42.8 million and 43.7 million. We expect a negative adjusted EBITDA between 1.5 million and 2.5 million. For the full year, we expect subscription revenue to grow by 4 to 6 percent to between 158.6 million and 161.7 million, and total revenue to grow by 0 to 2 percent to between 168.8 million and 172.2 million. we expected the full year negative adjusted EBITDA to be between $5 million and $8 million. In summary, though we are still encountering industry headwinds, we met our internal expectations of booking, retention, revenue, profitability, and cash flow for this quarter. And in light of the early indicators of improved market demand that Ron spoke about, I'm cautiously optimistic about the rest of 2023. We expect revenue from professional services to continue to decrease and subscription revenue to continue to grow faster than our total revenue. Notwithstanding our top-line growth, we remain firmly committed to our goal to return into profitability. This means meeting this year's single-digit negative adjusted EBITDA forecast and positive adjusted EBITDA next year. As for cash burn, we believe that most of this Here's cash flow from operation losses are already behind us, and we plan also to achieve the cash flow from operations break-even during 2024 with sufficient cash results. With that, we will open the call from cash operator.
spk01: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request Your questions will be pulled in the order they are received. Should you wish to decline from the pulling process, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Gabriela Borges with Goldman Sachs. Please go ahead.
spk09: Good morning, guys. This is Jake Teitelman on for Gabriella. Thanks for taking our questions. I just wanted to ask about the improvements that you're seeing in sales productivity. Do you think that's a function of the market environment getting better or are there specific actions that you've taken internally to improve that productivity?
spk06: Hey, Jake. Thanks for the question and hello to everybody today on the line. We think it's an improvement in both stuff, but let me give you some more color on where things stand by way of booking behavior. So we've noted that it was higher than the first quarter of last year, and it's the second quarter of year-over-year booking increase, and that's after like five earlier quarters of year-over-year decline. Most bookings were, as usual, from the enterprise side. More bookings this quarter came from Ulogos. as opposed to in the past. So the ratio in enterprise is now back to about 50-50, which is after COVID, it went down. So that's good. Average deal size continued to go up. Geo split channel booking from services hasn't changed much. It's mainly North America, 10%-ish from channels and services declining. But the rest from a marketing top of funnel indicator, as we said, there's more visitors to our website compared to a year ago. We have more meetings set by our SDRs. We have more RFP submissions, notably than the second half last year. And we also have a higher win rate percentage. It's actually higher than all of last year's quarters on the win rate. And so kind of we try to figure out what's changing. Well, tailwinds, you know, it's still the same shifting work stream online. But, you know, now it's even more because people want to save money by reducing travel costs and You know, we did speak about the fact that they could cut vendors and consolidate around Couture. It's really exciting. And the new products that we've brought to the market around events are now added to the internal products that we've had, which is great. So that's good. We're seeing more events in use by other types of companies than before. That was predominantly tech, and now it's across all industries. And immediate telecom, we also recently added the front end, which is also increasing ARPU. And so, you know, we noted that we still see the headwinds is still the macroeconomic situation. Customers are still reducing budgets. You still haven't come to vendors lowering prices, but when you factor all the other stuff, including all the new trends around rebooking, um, then we think it was just the backwind. That's a result of potentially a bit of the market, but also our products coming to market, which make a difference. And lastly, we said we have five, seven digit deals. It's a one large media services deal. It surpassed Platforms of Service with a very large and well-known new logo tech company. And that consolidated multiple vendors on Kotura. We got three enterprise SaaS deals for both internal live streaming and webcasting and external virtual and hybrid marketing events. That's with Fortune 50 companies, banks, and insurance companies. And these are new logos. We got more around the media and telecom. That's a media company. It's also factoring on our front end. So I think our product strategy is affecting and we're seeing the pipeline grow. Does that address your question, Jake?
spk09: Yeah, that's a great answer. I just wanted to pick up on one of the things you mentioned on there being higher win rates. I know in the past couple of quarters we have talked about pricing pressure just from some of the lower cost competitors. What do you think is driving those higher win rates and maybe just talk about the competitive environment overall?
spk06: Yeah, it's a good question. So first of all, for the new logo, win rate was notably higher. than any of the earlier quarters. It had come down a bit. I think that maybe the situation is that people want more, because we're seeing a lot more consolidation deals, and the value in that, the virtue of that had gone up. That's number one. Number two, hopefully and potentially, as markets do a little bit better, people come out of the shell shock of the second half of last year. and having a premium product like Cultura is worthwhile, regardless of the exact price, whether it's at higher or even the same. You know, we did say that existing incumbent vendors are reducing prices, and in some cases, you know, maybe now they're saying, you know what, in the second half of last year, it was enough to delay decisions or go their way, but now that we're back to breathing normally or a bit better, then we're willing to go the Cultura way, which is better products and more consolidation. So I think that that'll be the best reason. The other thing, and again, there's the undercurrent of our new products that we had launched around event platform, et cetera, that continue to strengthen. And with them are, you know, further offering around consolidation. I think it was just a more powerful offering on one hand. And on the other hand, the markets that are maybe more willing to understand the value and willing not to go the other way with much cheaper prices with lesser vendors out there.
spk09: Great. Thank you very much. Appreciate it, Jake.
spk01: Your next question comes from Matt Nicknam with Deutsche Bank. Please go ahead.
spk10: Hey, guys. Thank you for taking the questions. Just if I could, first on ARR, just wondering why it was relatively flat sequentially despite some of the larger deals you referenced. I'm wondering if there are larger deals that were booked that maybe haven't yet been implemented, started billing, and then maybe on a related note, if you can talk about the linearity of new bookings in the quarter, particularly given some of the macro choppiness in March and the restructuring that took place earlier in the quarter. Thanks.
spk05: Yeah, let me take this one. Regarding the ARR, it's just a matter of timing of revenue recognition. There is a delay from the time that we see the momentum picking up, as Ron mentioned, till the time that we fully book it and then we recognize revenue. So if this trend will continue for the rest of the year, definitely we should see some pickup in the ARR numbers. So this is addressed probably your question, but what was the second part? I missed it.
spk10: Just around the cadence of the booking. So were there any drop-offs? in March, just, you know, we, we saw a lot of headlines around financial industry, uh, maybe taking a little bit longer to make decisions. So I'm just wondering between that and between the restructuring you had earlier in the quarter, did you see maybe any, uh, slower bookings activity in March or any push outs from March into April given longer sales cycles?
spk05: No, you know, the general comment that we made before the sales cycles are longer is still probably apply. And it's still valid, but to tell you that we saw some decline in the second part of the year or going into the beginning of this quarter, the answer is no. We don't see any significant change in the trend.
spk06: I want to add to the first question about ARR just so we're all remembering. The way we've always looked at ARR is not CRR. It's not committed or contracted ARR, but it's a different number. We basically take the subscription revenue and just make some corrections for AAC 606. So it's a glorified subscription revenue KPI. The reason we didn't want, that's from the IPO from the moment we started reporting. We didn't want to add contracts that were signed, even if they're signed, to the ARR because some of our deals take longer to implement, especially media and otherwise. We don't want to put a CRR number that's going to take a few quarters, maybe sometimes to launch. And that could be confusing. The fact that we close deals throughout the quarter, if they're not recognized as revenue throughout the quarter, they're not defined as ARR anyway. And so you wouldn't see that. That's number one. Number two, let's remember that it is a softer quarter than most, like we've always said in quarter one. So we have good deals, still going well. It's going a bit better than we had planned. So things are going in the right direction. But it's not that this is a huge revolution, this or the other. And we're also thoughtful about the rest of the year. So that's that. Lastly, I want to say about E&T versus M&T and trends. And you said about ARR growth, et cetera. You can look at the subscription revenue that E&T this quarter grew. Last time it was M&T that actually grew. We have a lot of that. Sometimes it's one, sometimes it's the other. They're clunky, M&T is, and sometimes there's big projects that come in and they're influential, especially non-recurring. So I would note that this quarter, and we said that last quarter that we're going to have a revival of E&T. There was a subscription sequential growth as well as a non-recurring sequential growth compared to last quarter, which is not what happened in M&T. And M&T was a bit of a kind of a flat quarterish, but we expect that to continue to change throughout the year as things come and go. And lastly, on the question on March specifically, no, nothing bad happened in March specifically compared to earlier in the quarter. It was as expected, and that's why the bookings for the quarter closed okay. And like we said, we're already factoring into our numbers The slowdown, but all in all, when all is said and done, we're still seeing better productivity than before. That's great. Thank you both. Thank you, Matt.
spk01: Your next question comes from George Awanek with Oppenheimer. Please go ahead.
spk03: Thank you for taking my question. Maybe digging into the success you're seeing on the consolidation front, Ron, can you maybe give us some perspective on the type of traction you're seeing from the low touch effort with the sales productivity gains?
spk06: Yeah. So again, we always said that the low touch and the no touch are just starting now. And so that's not something that we've put in the model for ourselves. We have very low numbers for 2023 and it's all upside and the numbers are expected to make a difference in 2024. We started putting a few people on the low-touch sales and they're working and contributing and selling, but it's a very handful of people, especially given all the cuts and adjustments until we have the exact good feel around the product market, et cetera. And in the no-touch, it's really around our new webinars product that launched in Q4. For those who have noticed, we just launched a first large campaign around webinars. It just came out literally a couple days ago. You can see it also on our website. There's a very nice video there. I think it could go pretty viral promoting and free trial for the product. You're invited to try it yourself and see what you think about it. We think it's a great product, and it's going to make a difference. For right now, on the numbers, definitely for quarter one and not even for the majority of 2023, that's not a short-term accelerator. It's a mid-term accelerator that's expected to move numbers for 24 and beyond, but we're equally committed. There's nothing that has shown up in our analysis that's causing us to think that this is different than what we anticipated. It's just not an immediate impact on the revenue numbers.
spk03: And maybe you can spend some time digging into the new customer success that you're seeing at the moment. Are you landing in any different ways? smaller, bigger, you know, maybe some comments on where you are landing by use case as well.
spk06: So no, it's a combination. It's not very different than recent in the sense that we have a wide array of industries. I just said earlier about some of our big deals. There's a very large tech one. There's another one that's insurance. There's another one that's healthcare and, There's another one that's a Cloud TV. There's obviously more things around EDU. I mean, if you take also the six-digit deals, we had a very nice contract with the defense industry, with manufacturing. We had, you know, if you look at our current pipeline around the world, also in Europe, we have one of the largest software companies. We have a very large European bank. We have a large Indian IT service firm, a large U.S. retailer. another healthcare provider, you know, so it's pretty wide. And from a size of deals, like we said, the new, the ARPU is going up. And the reason it's going up again is that increasingly people are going for the combined offering that are both internal and external. If you recall, when we IPO, we had the stats that said that half of our customers use three plus products. It's always been a strength for the company. to have a unified, powerful, horizontal platform that caters across use cases and products. And when we said that in 2020 and beyond, we started adding external use cases and more products, we said that we know that that's going to bump our ARPU, and gradually it's going to also bump our net dollar retention. And we're just seeing this. It's bigger deals. Some of them in the financial services have recently grown 3 to 5x compared to the original entry point. So we expect to see more of that. as these products become further matured.
spk03: And Yoron, maybe just one question for you. Can you give us a sense about what you're expecting from an investment pace this year and maybe dig into a little bit the seasonality comments that you talked about?
spk05: Can you say it again?
spk03: When you say investment case, could you clarify what? Sure. Just from a pace of investment this year, are you comfortable with the spending level you're at right now? And your comments on seasonality, can you kind of dig in from a visibility standpoint and guidance?
spk05: Yes. So first of all, regarding the investment and the expense base that we have right now, We basically completed obviously all the exercise that we have done earlier this year around the cost reduction. Most of it started to impact Q1, and then it will continue to give us some benefit in Q2. So the trend in bottom line is going to continue into the rest of the year. The most important part from a seasonality point of view is related actually to the cash flow situation. Most of our cash burn for this year, as we mentioned earlier, already took place in Q1. So the number that you see in cash flow cooperation, which is a negative of 7.4 million, represent a major part of the overall spend that we will have this year. So the second part of the year is definitely going to be in a completely different area. And by the way, it's already a significant improve. You saw the same trend last year, which we started with $20 million barely in Q1, which now it's 7.4. And it's going to turn around completely in the second part of the year.
spk06: I would just re-highlight that things are going. I would just restate that things are going according to plan. And there's no surprises for us. So nothing in the results was off for us. Just the EBITDA was where we thought it would be. And as we look at the rest of the year, it's still where we're thinking it's going to be. We're trying to be very thoughtful about guidance for the year still. It's the first quarter of the year and a very turbulent year for the entire industry and world. And so we're taking it easy. But our confidence level is rising because we're a quarter in. We only had a partial impact of our January cuts this quarter, and we will have a bit more of that impact next quarter and definitely the rest of the year. And we are continuing to head towards better and better adjusted EBITDA numbers. And then we're going to hit the number for the year. We've always hit our numbers on the bottom line, both adjusted EBITDA and cash flow. We were profitable, both cash flow ops and adjusted EBITDA in 2019 and 2020. And also our track record is always hitting the numbers. It happened in 21. It happened even in 22 when revenue numbers were off. And so we feel very comfortable about the numbers that we've provided.
spk05: And the break-even situation that we mentioned in terms of adjusted EBITDA for next year is still very valid. We are planning also, as mentioned, to be viewing the cash flow positive from a cash flow move from operation during next year.
spk00: Thank you again.
spk01: Your next question comes from Michael Ternan with Wells Fargo. Please go ahead.
spk08: Hey, guys. This is Austin Williams on for Michael Turin. It looks like the net dollar retention was up pretty meaningfully over the last quarter. I was just wondering if there's any outlier deals that are helping to drive the bigger uptake and expansions here. And if there's any change in what you're seeing on the growth retention side that you could add as well.
spk05: Yeah, it's a good question. Thank you for the question. Yes, by the way, last quarter when we saw that it was the second quarter in a row that it was 96%, we said all along that it was an intermediate situation and it's going to pick up. And when we say it's going to pick up, we didn't mean for a specific quarter only or a specific deal only. And we actually deliver, I think we mentioned that it's probably going to be above 100 or around 100. And yes, it went all the way to 102. To your specific question, there is no outlier. There is no specific deal or customers that pull the number up. And therefore, when we look on the rest of the year, we still see better numbers than we saw in the second half of last year, which was around 96%. And we do believe that it's going to be above the 100 mark for the rest of the year. And as I mentioned, the most important part is that there is no one outlier. And in terms of your question on gross retention, obviously we mentioned last quarter in Q4 last year that it was a very strong, actually a record quarter in terms of retention rates. It was a little bit less this quarter, but still very strong and not so different from numbers that we saw before. So to make a long story short, we definitely don't see at this point any significant change or trend in gross retention. And the pickup that you see in net dollar retention rate is basically coming from closing additional new business for previous customers. and not so much for gross retention.
spk08: Okay, got it. I also wanted to ask on generative AI and just how you see that trend evolving. Do you see this as an opportunity, and what are you doing on the product side to potentially integrate this functionality, if anything? Thank you.
spk06: Yeah, great question. Obviously, generative AI is a very, very interesting and important tool progress in our industry and in general, AI is a big, big disruptor and will make a lot of changes, as we all know, in the months and years to come. And yes, we're looking at it very seriously. I think that the value of Kotura as a platform that goes horizontally and goes deeply into the workflows enables us to utilize things like AI in a much better and stronger way than most. because what we provide is very clear ROI, and video is used as a mean for an end, not just as an end. It's just a video for the sake of video. It's video for learning, video for marketing, video for sales, video for events, video for increasing leads. And we'll be discussing a lot of that in the upcoming CULTURA Connect conferences. And so while until now we've had very strong BI and very good analytics, we also announced that this quarter Well, we made them interconnected across all our products that you could gather insights around individual users across all the different places. It's ripe to go to the next step and turn this from BI into AI. There's various ways in which we are considering and planning to get this done. Quite frankly, if this couple of years would have been stronger and better, we would have already done it. It was in our to-do list as the next big important item. But we're monitoring our progress and spend accordingly. And so far as before we're putting up the budgets. But it is an important, important area for us. We think that ideally, content could be created on the fly, targeted to the right people in the right context on the fly, and then the feedback loop closes with a user behavior. And we are there as a leading distribution platform. In some cases started going up to become the creation platform. And we think we could own the entire flow of video, the entire shelf life and life cycle of video from creation to consumption through targeting with improving AI and BI. So thanks for the question. It's an important area for us.
spk01: Your next question comes from DJ Hines with Canaccord. Please go ahead.
spk11: Hey, good morning, guys. Ron, I have two questions on the M&T business. So the first one, just with subscription revenue up and services revenue down, I would have expected to see kind of a favorable impact to gross margins. So maybe just touch on what's happening there. And then second, more interestingly, just with what you talked about this morning, the addition of kind of a front end piece, I think you alluded to some incremental revenue opportunities around consumer data mining, maybe advertising over time. Just how are you thinking about that business evolving?
spk06: Yeah, great question. Thanks, Keisha. So first of all, M&T. M&T has always been a bit of a clunky business, which is because it's big deals. Professional services is a higher ratio, and so it could go up and down. For this quarter, for example, PS came down significantly compared to Q4, but Q4 was also an anomaly and it went up. And so in Q4, it went up both subscription and PS, and this time it was kind of flattish around subscription went down by PS. And so all in all, it's not a big subscription change in M&T, and it doesn't grow every quarter. Some cases, for example, they re-up and they calculate the number of users on a half-year basis. Our largest contractors and such, for example, and so it's hard to make the jumps in every single quarter getting that. But the businesses continuing up and to the right, I can tell you that we've deployed this quarter multiple projects with new places. We've shared, I believe, that we've gone live with another operator in the eastern side of Europe and there in a second we'll talk to Fontaine also using our Fontaine so we're definitely continuing in the right direction in M&T we could expect to see some ups and changes and downs a bit clunkier but for the year right now when we're looking at it both subscription revenue increase as well as professional services decrease on a proportionate percentage level are expected to be quite similar to E&T I'll repeat The year-over-year growth on a percentage basis in subscription and the year-over-year decline on a percentage basis for professional services is expected to be quite similar. By the way, note that when you add them two together, because there's more PS and M&T, then probable M&T will overall grow a bit less because it's a bigger impact on PS. But they're going to behave well and they're going to both work nicely. Now, front end. Yes, it's for a long time we've waited to add our front end, and the reason is that if you control the end user, then you can get back into analytics, targeting, recommendation, and even more so advertising and targeted advertising. So we were the leader's number one back end system. And then we started climbing up to offer the front end. We launched that last quarter after a fair bit of work towards it. And it's already alive and growing with many users and doing well and being accepted by more places. And the next natural step will be to get into Further insights, analytics, targeting, recommendation, and advertising. We think we're in a great spot for that because we know exactly how the users behave, what they consume, where they consume, what they do, and where they do. And we also obviously know the content because we are the content managers. We're the infrastructure that deliver the whole thing. We also know their behavior because we're in the front end. So to optimize targeting, if you think in general, TV right now is not programmatic unlike online. um video or in general online advertising and if you deliver the right offering the right advertising to the right person in the right time in the right context in the right situation then the cpms could be dramatically higher um it's also expected that the ratio of advertising based uh online tv or what's called the avog advertising vod will be higher than tvod and svod subscription and transaction so it'll be more and more advertising based inventory out there and so yes there's a natural progression plus we're going to get there i'm going to park that again with that comment earlier had it been a great year we would have done advanced across some of these things we needed to prioritize very clearly over the last 24 months more aggressively than we thought originally and so we will get there not over the next immediate quarters but it's a progression that we believe will enable us to increase our pool materially create a network effect and have the next big leap in this industry thank you dj yeah
spk11: Yeah, helpful caller. Thank you.
spk01: Thanks. The next question comes from Tom Blakey with KeyBank Capital Markets. Please go ahead.
spk07: Hey, everyone. Thanks for taking my question, guys. My first question is on integrations. I know you talked, Ron, more about going upstream and selling to CMOs in prior quarters, signing a number of larger deals when spending seems to be constrained here. across the companies that we're analyzing here. Just wanted to see if there's a change maybe here in terms of the integration with Kaltura and organization systems. That'd be my kind of first question. And, you know, in the context of what you've seen in the past, Ron, and what you're seeing in these most recent deals and the pipes as well.
spk06: Yep. So the answer is yes. One of the biggest advantages of Kotura is a very flexible platform that's API driven all the way from the beginning. I mean, every software has APIs, but most softwares aren't written as APIs. We were first passed in SAS and the whole idea was this Lego concept that we build it all very flexibly and then put it together. It enables us to very quickly add a lot of integrations and to be very tightly connected into the workflows. And so likewise, when we move into the use case of the CMO, there's a few things to highlight. Number one is obviously they have an integrated workflow with everything else in the company, so it's connected to their internal use case. So the same content could go from one to another if somebody created it internally and then used it externally. The second in integration is the fact that we have VOD live in real time integrated together in a seamless way. And the third, by way of integrating two third parties, We have a partner ecosystem with about 120 plus companies already. And yes, over the last few quarters, we started integrating with more and more MarTech technologies. We already have like three or four integrations over the last couple of quarters, and we expect to have probably a dozen over the next year. So this is running rapidly. And the way that it's being added is that we have this generic middleware, if you may, that enables us to very quickly add additional ones in a very quick, easy, and affordable way. And so they're running very quickly. So the speed there is very fast. And I think, again, we're unique at that. If you look at all the different players in the world of CMO sales, they don't do internal. They don't do CIO. They don't do HR. They don't do L&D. And it's not just cost savings, as I mentioned, is having an end-to-end solution that could cater for all the different use cases. And they're mixed. Because even events, for example, a lot of them are internals. And a lot of them, it's hard to say where it starts and where it ends. Our partners, internal or external, you need to have an end-to-end solution to address them all. And we're in that position.
spk07: Sounds solid transfer net retention there. And then my second question is, I guess, for you and your own about visibility here. Some comments a moment ago in terms of questions about contracted versus your traditional way of contracting. You're an unorthodox way of calculating ARR. Again, with that increase in deal size, Ron, on your own, I just wanted to know what the kind of gating factors are around guidance and ultimately visibility here as we go into the second half of 23 with some of these deals. That'd be helpful. Thank you.
spk06: I will let your own answer, but I just want to make one thing very, very clear. You said unorthodox, and I understand what you mean, but it's very important to understand that it is conservative slash orthodox or whatever you want to call it because it's much more thoughtful. It's much less, you know, let's get excited because we closed a couple of big deals and put an ARR number that's higher. So we've always said Let's just keep it real, and if it goes up, then you'll be seeing it when it goes up.
spk05: But go ahead, Yaron, please. Yeah, if you look on the guidance which we have provided, obviously you saw that we did better than what we guided before for Q1, and we provided a solid guidance for Q2. At the same time, we tried to be very thoughtful and in some way to be cautious for the rest of the year guidance in terms of the top line, not because we don't have a strong visibility, just because things are still happening around us and we want to be clear and we want to make sure that we continue to deliver better numbers than what we are promising. So at this point, we do have a good visibility into the outcome of the year, especially based on some of the trends that Ron mentioned before, which are definitely some positive developments. But at this point, we decided to be cautious and not to raise the guidance for the full year. Hopefully, we'll be able to deliver the same trend of bids that we did in Q1. And it's the same thing regarding the bottom line numbers that we guided. You can see that it's continued to improve nicely, the bottom line and the cash flow. We have a strong visibility into this. We took most of the actions that we wanted to take in order to deliver the bottom line numbers. And we do have a strong visibility and we believe that we will be able at least to achieve. By the way, we already delivered a positive bottom line for the company even before we went public, so we know how to do it while we are still maintaining solid growth rates, parallel to being profitable.
spk06: I'll just add that the first quarter, and we said that all the time, is not a strong quarter for any of the years that we've been around. And so while we did well, it's not one that would cause us to change everything we think because of that. It's early in the year, especially in this crazy year, and therefore we need to take it easy and see where things go. It doesn't change how the world looks. It definitely doesn't take it back. but for us, we weren't comfortable enough right now to get forward. Hopefully, whatever questions we had in place, they're still there, and definitely the fact that we're a quarter in means that we are even safer and that we have good visibility, but we don't want to raise the bar, and we're not expecting you guys to raise the bar, if you may, because we just want to move forward, continue executing, and deliver good results.
spk07: Understood.
spk06: Clear and helpful.
spk07: Thank you, gentlemen. Thank you.
spk01: Your next question comes from Paul. I'm sorry, Pat. Wall Ravens with JMP. Please go ahead.
spk02: Oh, great. Thank you. From the Norman Hotel and Tel Aviv, Ron. Hey. Hey, I know.
spk05: I know.
spk02: I know. I know. So two questions. One is just housekeeping, which is, so is there, and forgive me if I missed it, is there a chunk of debt that's getting paid off pretty soon? Yeah, yeah, yeah.
spk05: Right now we have a quarterly repayment of $1.5 million in our debt. So we did pay at the end of Q1 $1.5 million, and we're supposed to continue to pay for the rest of the $1.5 each quarter. But at the same time, by the way, it's not secret. It's in our records that it's a SBB loan. We are discussing ways to refinance it. But other than that, yes, it was a $1.5 million payment this quarter.
spk02: Okay. This is why I listed as current liability. Is that because of something having to do with SBB? No, it has nothing to do with it because of the timeline of the payment.
spk05: No, no, it was the original payment, schedule of payment. Nothing changed because of the SVB situation.
spk02: Okay, so when does that mature? When do you have to pay the full amount?
spk05: Next year, but as I mentioned, we are already in discussion in order to refinance. And as you can see from our cash project projection and the fact that we mentioned that next year during day will be cashflow positive from operation. Even if needed to pay all that, we will still be in a very strong cash position. But at this point we are probably going to refinance those things and we have some tractions from potential lenders.
spk02: Okay, perfect. And then a bigger picture, Ron, can you, um, can you talk, you mentioned, um, you know, one of the use cases of, of, uh, using video for increasing leads. And, you know, particularly in this environment, I think everyone needs that. So can you talk about where you are a little bit on that and then maybe what you are planning to maybe be able to do in the future? And I don't know if AI fits into your plans there, but if it does, that would be interesting too.
spk06: Yeah, thanks, Pat. So, yeah, I mean, the use case, when we moved out to the CMO and we started working on events as well as webinars, And the whole thing was geared towards measuring interaction and trying to follow up and see what people actually do and have a shelf life of that lead to be able to continue and think them and do stuff with them. So we're in early days in the sense that we don't have kind of a full market condition that continues across the entire lead life to be able to turn that into a full opportunity, et cetera. But that's a general direction. think about kind of a DXP a digital experience platform that is a video first the general direction as we've started inside and then moved out from learning into marketing is to just like in TV that I said earlier that we're moving from the back end to the front end and then all the way to targeted analytics is to move from the internal to the external and then to be the cause of better monetization and the enterprise as well fueled by video to mean and if you look at today's Martech You know, they kind of stop there. They're not so much the engagement platform. They're mainly the lead management platform on the back end, but they don't bring about the engagement. And the opportunity to vertically integrate and be the engagement platform using video, that would then also drive and manage the lead process is important. Again, I'm going to have to put this as part of the general statement I said earlier. It would have been a better year if we always had a multi-strategy and we were planning to do more. But this is the direction we're going, and we've put, very significant milestones to become that vendor. And we're adding very big logos and big names in which we're bringing them all the way to the leads and working with them on the leads. So the next step when we get into, as you've mentioned, AI, et cetera, then it will be a hundred percent connected into, um, maximizing, um, the, the, uh, inter activity, personalization, um, um, and, uh, ROI around leads. That will be the heart of the value of AI for Quartura. Thank you.
spk01: There are no further questions at this time. Please proceed.
spk06: Okay. Sounds like we're all done. I want to thank you all for the call and great questions. I wish everybody good health. I think, as I said, the general industry tailwinds and headwinds were clear, but also from a company perspective, we feel that we have greater visibility and more comfort on the numbers that we've provided for the year, and we're moving forward thoughtfully with all the areas of growth, as we had mentioned earlier. Thanks again. Have a beautiful day. Bye-bye.
spk01: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please
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