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home / news releases / KLTR - Kaltura Inc. (KLTR) Q3 2023 Earnings Call Transcript


KLTR - Kaltura Inc. (KLTR) Q3 2023 Earnings Call Transcript

2023-11-10 20:02:13 ET

Kaltura, Inc. (KLTR)

Q3 2023 Earnings Conference Call

November 08, 2023 08:00 AM ET

Company Participants

Erica Mannion - Investor Relations

Ron Yekutiel - Co-Founder, Chairman & Chief Executive Officer

Yaron Garmazi - Chief Financial Officer

Conference Call Participants

Jake Titleman - Goldman Sachs

Ryan Koontz - Needham & Company

Patrick Walravens - JMP Securities

Austin Williams - Wells Fargo

George Iwanyc - Oppenheimer

Matthew Niknam - Deutsche Bank

Presentation

Operator

Good morning everyone and welcome to the Kaltura Third 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.

Erica Mannion

Thank you and good morning. With me today from Kaltura are Ron Yekutiel, Co-Founder, Chairman and Chief Executive Officer, and Yaron Garmazi, Chief Financial Officer. Ron will begin with a summary of the results for the third quarter ended September 30, 2023 and provide a business update.

Yaron will then review in greater detail the financial results for the third quarter of 2023 followed by the company's outlook for the fourth 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 Kaltura's expected future financial results and management's expectations and plans for the business.

These statements are neither promises, nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Important factors that could cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Kaltura's annual report on Form 10-K for the fiscal year ended December 31, 2022 and other SEC filings, including the quarterly report on Form 10-Q for the quarter ended September 30, 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 obligations to update or revise them, whether as a result of new developments or otherwise, except as required by law.

Please note, we will be discussing a non-GAAP financial measure, adjusted EBITDA during this call. For a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP metric, please refer to our earnings release which is available on our website at www.investors.kaltura.com.

Now, I'd like to turn the call over to Ron.

Ron Yekutiel

Thank you, Erica and thanks to everyone for joining us on the call this morning. Today, we reported total revenue for the third quarter of 2023 of $43.5 million, up 6% year-over-year, and subscription revenue of $40.8 million, up 8% year-over-year. Adjusted EBITDA for the quarter was $0.3 million.

For the fourth quarter in a row, we posted record subscription revenue, and our year-over-year total revenue growth rate was the highest since the first quarter of 2022. Subscription revenue represented 94% of total revenue, compared to 92% in Q3 2022. We are pleased to share that our keen focus on returning to profitability has proven fruitful, and that we achieved adjusted EBITDA profits for the first time since 2020.

In the third quarter, we also posted $1.7 million in cash flow from operations, the highest since the fourth quarter of 2020. Stabilizing our bottom line in cash burn has been our main goal for the year.

We repeatedly stated that we have reported both positive adjusted EBITDA and cash flow from operations in 2019 and 2020, and that we had a plan to achieve it again. We are pleased to have achieved it again in the third quarter ahead of plan.

We go on to the business update. In the third quarter, we secured a seven-digit deal with a new leading financial services customer, who has chosen Kaltura as their go-to platform for all their virtual and hybrid events.

We also expanded our collaboration with two of the largest banks in the United States, including signing a seven-digit upsell deal with one of those banks. Over the quarter, we continue to see growing demand for consolidation around Kaltura across a wide array of on-demand live and real-time video use cases for both employees, customers, and prospects.

We continue to drive larger deals with new customers and expansions with existing ones. For example, a leading Fortune 500 tech customer that started working with Kaltura less than a year ago to power external events and marketing use cases, expanded this quarter with another seven-digit deal to also utilize Kaltura as their internal video portal for improved employee collaboration, knowledge sharing, and training.

And a European university customer expanded this quarter beyond our video content management suite, connected to their LMS, to also utilize a real-time conferencing virtual classroom solution to enrich their hybrid and remote learning experiences.

From a marketing perspective, last week we hosted our third annual virtually live event, our own virtual event for marketing and event professionals, focused on discussing how to best reach and excite audiences through virtual and hybrid events, including leveraging innovative AI tools.

It was a huge success with thousands of registrants. We had insightful fireside chats and panel discussions featuring leading minds from the marketing world, including senior leaders from Kaltura customers such as AWS, VMware, Adobe, SAP, and Salesforce, which is a new 2023 customer that uses Kaltura to power live and on-demand videos in Salesforce Plus in order to, among other things, provide the online experience for large events like Dreamforce, which took place this passing quarter and was a huge success.

This year's Virtually Live included a showcase of our latest AI-focused product releases, including crowd reactions, AI-based content discovery, and our new event AI assistant, which I will talk about later. Discussions revolved around enhancing ROI, strengthening brands, and building robust pipelines.

We also dedicated significant attention to sustainability, diversity, equity, and inclusion, acknowledging their growing importance in the marketing landscape. Underlying all discussions was the transformative potential of AI in marketing. We explored how AI is revolutionizing the game for marketers and how its ongoing evolution will continue to impact all of us in the industry.

While on the topic of AI and moving to product updates, we've started bringing AI offerings to market. Salesforce Plus incorporated Kaltura-powered AI enrichment services for content repurposing in alignment with our AI-forward Einstein focus, particularly for events.

Salesforce leveraged Kaltura's AI to create automatic summaries and key takeaways for over 300 Dreamforce sessions, providing great value to attendees and saving their marketers and event organizers countless hours.

In addition, another leading Silicon Valley technology company went live this quarter with a pilot program that utilizes Kaltura powered generative AI tools to rapidly produce on-the-fly, highly targeted, short-form video content, and automatically publish it across many distribution channels.

This quarter, Kaltura also released an AI assistant that streamlines the process of setting up webinars, providing users with intelligence suggestions and automated actions to increase the efficacy of event management.

Soon, we plan to expand the AI assistant to provide insights and suggested actions to organizers and presenters during webinars and other events, from recommending audience engagement strategies to providing real-time performance metrics.

We believe this assistant will be a valuable tool for optimizing the event experience and maximizing the impact of each session. We also added an AI-powered chatbot to our media and telecom cloud TV offering. Our new Kaltura TV genie now engages TV viewers with tailored content suggestions.

Lastly on AI, we kicked off in the passing quarter the Kaltura AI accelerator program with the goal of integrating the best Gen-AI third-party technologies with an open and flexible platform.

We are already engaged with 15 pioneering Gen-AI startups that specialize in diverse fields such as video creation, editing, repurposing, and analysis. Over 10 large Kaltura customers across various industries have shown interest in these solutions for their specific use case and needs.

We are excited about the great opportunity that the AI accelerator program can bring to our customers and to the wider tech ecosystem. Beyond AI, during the quarter on the E&P product front, we introduced more event platforms features aimed at enhancing engagement in ROI. These include a new dashboard for session analytics, interactive quick polls, improved recording management, and deeper integration with our video portal.

We also added a connector to Salesforce CRM, a new HubSpot integration, and a theme editor for customization. On the M&P products front, we integrated new ad-supported fast channels and server-side ad insertion capabilities designed to allow us to broaden the target segment of our Kaltura streaming platform to media companies who want to syndicate their content to third-party platforms like LG, Samsung, Amazon Prime, and Roku.

Before I summarize and hand the call over to Yaron, I would like to briefly comment on the recent escalation in the Middle East. Kaltura is a U.S. domicile company that operates in many countries, including Israel, where we have a sizable presence.

We are heartbroken and our thoughts and prayers go out to our Israeli Kalturans and their families and to everyone else that has been impacted. Approximately 10% of our Israel-based workforce, which is approximately 5% of our global workforce has been called up for reserve duty. And we are prioritizing and allocating resources between projects to mitigate any impact to our business.

To-date, we've not seen any disruption to our ability to deliver products and services to our customers. In summary, in the third quarter, we achieved an important milestone in our journey back to profitability, boosting both positive adjusted EBITDA and positive cash flow from operations.

Given the quarterly results, we are slightly increasing our subscription and total revenue guidance for the full year. While top of the sales funnel KPIs, like the number of new qualified leads grew sequentially, underscoring the interest in Kaltura's comprehensive offering, the industry headwinds we have been discussing in recent quarters have continued to weigh down on both new deals and renewals.

Lower budgets, increased price pressure, and elongated sales cycles have kept new bookings relatively flat throughout this year, and have ticked down gross retention levels. As a result, we continue to forecast the combined impact will create a headwind through revenue in the fourth quarter, which is reflected in our guidance.

We are raising our adjusted EBITDA guidance for the full year, setting the middle of the range at negative $4.3 million compared with negative $28.3 million in 2022. We're also restating again our expectation of boasting a positive adjusted EBITDA in 2024.

And lastly, we are reaffirming once again our expectation to achieve positive cash flow from operations for the second half of 2023. This translates into a maximum forecasted annual cash consumption from operations of $11.5 million compared with $46.8 million in 2022.

We're also reaffirming that following the typical seasonal greater cash losses in the first half of next year, we expect to arrive at cash flow from operations breakeven by the second half of 2024 with sufficient cash reserves.

With that, I'll turn it over to Yaron, our CFO to discuss our financial results in more detail. Yaron?

Yaron Garmazi

Thank you, Ron, and good morning, everyone. As I review the third quarter results today, please note that I will be referring to a non-GAAP metric adjusted EBITDA. The reconsideration of GAAP and non-GAAP financials is included in today's earnings release, which is available on our website at www.investors.kaltura.com .

Total revenue for the third quarter ended September 30th, 2023, was $43.5 million up 6% year-over-year. Subscription revenue was $40.8 million up 8% year-over-year, while professional services revenue contributed $2.7 million down 14% year-over-year.

The remaining performance obligation were $164 million, down 3% year-over-year, of which we expect to recognize 59% as a revenue over the next 12 months. Annualized recurring revenue was $163.1 million, up 7% year-over-year. Our net dollar retention rate was 101% in the third quarter compared with 96% in Q3, 2022.

Within our E&P segment, total revenue for the third quarter was $31.1 million, up 3% year-over-year. Subscription revenue was $30 million up 5% year-over-year, while professional services revenue contributed $1.1 million, down 24% year-over-year.

Within our M&P segment, total revenue for the third quarter was $12.4 million, representing 13% year-over-year growth. Subscription revenue was $10.8 million, up 17% year-over-year, while professional services revenue contributed $1.6 million, down 6% year-over-year.

GAAP growth profit for the quarter was $27.7 million, representing a gross margin of 64%. Within our E&P segment, gross profit for the third quarter was $22.8 million, representing a gross margin of 73%, up from 71% growth margin in Q3 2022.

Within our M&P segment, gross profit for the third quarter was $4.9 million [ph], representing a growth margin of 40%, down from 47% growth margin in Q3 2022. GAAP net loss for the quarter was $8.3 million or $0.08 per diluted share. Adjusted EBITDA for the quarter was positive $0.3 million, improving from a negative $7.2 million in Q3 2022.

Turning to the balance sheet and cash flow. We ended the quarter with $71.1 million in cash and marketable securities. Net cash provided by operating activity was $1.7 million in the quarter compared to $1.1 million provided in Q3 2022.

I would now like to turn to our outlook for the fourth quarter of 2023 and for the fiscal year ending December 31, 2023. In the fourth quarter, we expect subscription revenue to be between 3% decline to 1% growth to between $38.4 million and $39.8 million, and total revenue to decrease by 7% to 4% to between $40.8 million and $42.3 million.

We expect negative adjusted EBITDA to be between $0.6 million and $1.1 million. For the full year, we expect subscription revenue to grow by 5% to 6% to between $160.3 million and $161.7 million, and total revenue to grow by about 2% to between $171.5 million and $173 million. We expect for the full year a negative adjusted EBITDA to be between $4 million and $4.5 million.

In summary, despite the macro environment and our industry headwinds, we are slightly increasing our total revenue, substitution revenue, and adjusted EBITDA guidance for the rest of the year, and reaffirming our focus to achieving a positive cash flow from operation for the second half of 2023.

Lastly, we are reaffirming our expectation to a positive and adjusted EBITDA in 2024 and to achieving a cash flow from operations breakeven by the second half of 2024 with sufficient cash reserves independent of our top line growth.

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

Question-and-Answer Session

Operator

Yes, thank you. At this time, we will begin the question-and-answer session. [Operator Instructions] And the first question comes from Gabriella Borges with Goldman Sachs.

Jake Titleman

Thanks for taking my question. This is Jake Titleman on for Gabriella. Our thoughts are with you and all the Kaltura employees on the ground in Israel. On subscription revenue, which has grown sequentially for the last four quarters, what has changed in the macro environment that's resulting in the negative sequential growth guide for the fourth quarter?

Ron Yekutiel

Thank you, Jake, and I appreciate your comments about Israel. Nothing has changed. By the way, we've said last quarter that that was expected to happen, and that's because of the booking versus gross retention in the last couple of quarters already. So that continued. You can see that the general direction is not very different than we had said last quarter. But let me give you a bit more insight around where business was and is to give you a bit more background around where we feel things are.

So first, in this quarter, most contribution came from upsells versus new logos and was still headed by enterprise and also headed by North America. You could see there's a bit more heat on the European side, but we have financial pressure. There's continued increase in demand for our event platform, and especially our external marketing use cases. Now, that's something that's not new. Again, we've been discussing this in recent years as we've moved from internal to also external, and earlier we referred to a seven-digit deal with a new customer that's one of the largest investment firms in the world, and they moved to us from a competitor to power all their marketing communication events. We're getting a lot more on that. So that continues.

We also continue to see companies consolidate around Kaltura, and so you're seeing both internal and external cases, which is unique for us. Half of our RFPs where we responded this quarter were combined internal and external, and the ARPU continues to grow. And we also mentioned earlier about another seven-digit deal with an existing Fortune 500 tech company that signed with us, and they expanded from external into internal, sometimes it's the other way around, and they grew their accounts to 2.5x the initial value. That's also typical. Win rates continue to be high this quarter, by the way, higher than all quarters last year, so the change isn't the percent of the deal that we win versus lose. Again, how many actually make it to the final process.

And we also had a higher percent of booking this quarter compared to usual from channels. It's generally been choppy now. It's deep into the double-digit, and we had two quite large channel drop competitors and we start working with us this quarter, and we expect it to impact future quarters as well. We saw a less percent booking from professional services. We know that. That's continued to pressure our PS revenue down, which is not amazing for the short term, but good for the mid-to-long term. It increases our TAM, accelerating our sales deployment cycle. It does well to gross margins, so that's good.

But we're still seeing good top-of-the-funnel signs. I mentioned the number of new TBMs in the quarter that grew sequentially, and also SBR meetings are generally low in Q3 because of the summer, but it was better year-over-year. So, all these are the good signs to your question about the dip. We're still seeing the industry headwinds. We reported on that earlier in the year. Still longer sales cycles, still reduced budgets, still price pressures. That means the deals get delayed again. The result is kind of a flat-ish new booking this quarter compared to Q1 and Q2, and it's at lower levels than last year, about 25% less. So bookings are a bit lower.

I would note, though, that the productivity isn't lower. We have now two-thirds of the salespeople that we had a year ago, so bookings are less by 25%, but we have two-thirds of the salespeople that means that on average, we're actually selling better per salesperson. And so that's - the combination of that we could talk later about retention had pushed us a bit down, but we believe that the macro conditions are going to start improving. The headwinds are going to settle down. Productivity is expected to go up. And generally speaking, we - based on existing business, already see that compression that we're seeing in Q4 is not expected to continue to Q1. It's based on already deals that are in pocket. That's a lengthy answer, but it gives you a feel for the businesses. Does that address your question?

Jake Titleman

Absolutely. Thanks. That's super helpful color. And then maybe one for Yaron, and I realize that you're not going to provide 2024 guidance on this call. But if we look at the exit rate that's implied for Q4, how should we think about, like, planning for 2024 numbers at this point?

Yaron Garmazi

Thank you for the question. The one important comment as Ron mentioned that, first of all, the decline that we projected, and we projected it before in Q4 revenue. We don't see it continuing to Q1 2024. So it's definitely change direction. The way that you should look on 2024 is that at this point, we see that the subscription revenue will continue to grow. It's too early to give you the exact number and the rate that it's continued to grow. But at the same time, we will continue to see declining the professional services revenue. So net-net, we still want to close the quarter. We want to see the trends in terms of booking and retention rate. But to make a long story short, we see the subscription revenue continue to grow into next year and probably some more pressure that we saw before on the professional services.

Jake Titleman

Thank you and good luck.

Yaron Garmazi

Thank you.

Operator

Thank you. And the next question comes from Ryan Koontz with Needham & Company.

Ryan Koontz

It's a question on your AI developments, Ron, can you kind of walk us through some of your strategy there on build versus buy? Are you partnering for some of these? I'm certainly enthused about the kind of ecosystem partners you're bringing to bear. But on the new AI features you're rolling out, can you walk us through how much of that you're sourcing internally versus partnering? Thanks.

Ron Yekutiel

Sure. Happy to do that, Ryan. So yes, we said that in the last couple of quarters that AI is definitely an important direction for us. Now, part of the benefit of Kaltura is that we have almost all the layered cake and the AI would complete it, because we are running workflow integration deep into the workflows. And we have the metadata, so the data itself is owned by us or managed by us on behalf of the customers. And then if you add on top of that the AI, we also own the last layer, which is the engagement layer because we're a system of engagement.

So if you have the integration all the way to the workflow together with the data that could be prompted into the AI and then used immediately into the engagement, then you have yourself a full loop. And the vision that we said from the beginning is that we have several levels of work that we want to do. Some things are going to be around the video but not immediately touching video. So things like summarization of texts pertaining to videos or help around preparation or execution of a virtual event around lead management or messaging or speaker lists or recommendations.

So things like this could be actually used off-the-shelf with existing APIs that are out there for ChatGPT and otherwise. And the things that are more exciting for us that we want to either own by way of building from our existing people and/or maybe even M&A type activities that we're looking at options or whatever, are things pertaining to compressing the breadth of different providers around creation and consumption and distribution of video. Historically, and I said that last time, there have been different technology vendors that were addressing the creation of video, the production of video, the post-production of video to those that were dealing with the distribution and engagement.

And we see the future as one system that creates the videos, distributes them. Meaning, that you could have highly personalized, highly interactive videos that are made on the fly to cater to specific context and specific users, and then adopting on the way in order to maximize ROI, whether it is training or marketing. So this is a big focus for us as we go forward. Right now what we've launched, we mentioned a leading Silicon Valley company that's launched with us, that was around the short form content distribution together with repurposing up the content in order to address specific needs. So now that's done in an automated way. And the other one that we mentioned was done with Salesforce at their event at Dreamforce, which was also successful.

So it's already starting to hit. We also mentioned that we are working with a lot of ecosystem partners. As mentioned, we have some 15 already that are working with us. And there's many other customers. Many customers already 10 that are formally there and others that are joining and added into that that are looking to consume these services. A big advantage of Kaltura, given what I said earlier about APIs and workflows, is that we're open and flexible and we can easily insert third-party innovation coming from other companies. We've done that across our history. We have 120 different technology partners for the company at large beyond AI, and we expect to do the same here for AI. So a lot of plans and we're going to share them as we advance for both E&P and M&T. We also mentioned some M&T applications that we are running.

Ryan Koontz

Okay. That's great, Ron. Thank you for that color. On your large deals, your six and seven-figured new deals you announced. Any general trend there in terms of these typically still displacements of multiple vendors you're going into, or some of them new use cases for your customer base? Thanks.

Ron Yekutiel

It's a combination of both. So - but we mentioned one of them, for example, an existing bank that we have. It's an existing use case that we powered, but they continue to grow organically. The specific bank that we're discussing, it is the wealth management use case. If you recall, and that specific bank in the past we've discussed was one we started internally with a video portal for training and knowledge sharing, and then I moved to webcasting and then I moved to external use. And ultimately have moved into video for wealth management where ARPU enable a secure distribution and creation and distribution of content for wealth managers for their customers in a mission-critical way, connected to all the compliance and security and approvals that are required in such a situation.

In this specific piece, by the way, that customer had grown 10x in recent years in a deep, dipped into the seven-digit figure as a bank, and it started with six-digit as an initial deal. Not only are we adding use cases, but they're adding users and adding departments, and so it continues to grow and grow. In a different example which we've mentioned, it was the expansion from external into internal use case where we started with events less than a year ago as a new customer, and now they had moved into their internal 'TV' for internal learning and collaboration.

By the way, that customer is now in discussion with us around a very large deal to move all of their marketing use case to Kaltura, which could be another very large seven-digit deal, which as an example, budget pertaining, they already said, look, we wanted to do this in Q4, but we're rolling this into next year because of budgetary reasons. But we've already selected Kaltura. We believe you're the right partner. We'd like to do it with you, but budget-wise, it's going to need a bit longer to get the budget. And so this keeps on being the story. We enter from the window. We exit from the door, or the other way around. Its either internal goes external, external goes internal, but the ARPU continue to climb, and the land and expand will continue to do very well for us.

Ryan Koontz

That's really helpful, Ron, and best thoughts to everyone there and at the company.

Ron Yekutiel

Thank you, Ryan. Appreciate it.

Operator

Thank you. And the next question comes from Patrick Walravens with JMP Securities. Please go ahead, Mr. Walravens. Your line is live.

Patrick Walravens

Thank you. And let me add my thoughts and prayers, Ron, to you, your families, and everyone. So, number one, why is subscription revenue, and I know you answered it, but just very clearly for us, why is subscription revenue going down from Q3 to Q4 by $1 million to $1.5 million?

Ron Yekutiel

So, I mentioned half of this, right? And I said bookings are flattish compared to last year, and at about a 25% to last. The other piece of it is retention, right? And I said last quarter that it went down, and we expected the continue to go down, because we also said that we had that large deal that we announced that came in after the end of the quarter, but we mentioned it last time for the RPO change, and it hit this quarter Q3. So, we had another quarter of lower gross retention rates than usual in part because of that large single customer. Now, annual gross retention rate in general is down by a few percentage points from the high 80 to the mid 80. It's still decent, but it's not as good as it was before.

By the way, E&P had lower gross retention rates this quarter than M&T, and in E&P, half of the churn, very similar to last time, was reduction and not full churn, so it's not customers completely leaving us, but spending less. Less than 10% of that reduction was because of product or services gap, and the rest is budget, price-related services that are no longer needed. So, net-net what we're seeing is lesser gross retention and lesser new bookings, which are and have for this specific quarter ended up with a negative impact on subscription revenue. Now, we're expecting and have expected this because we've seen that come towards Q2 and already saw what's going to happen in Q4, but likewise, we could already see what's expected to happen in Q1, or we're seeing this balance given the different numbers that we're seeing.

The question is for next year, right? Is the gross retention going to pick up again? And is the bookings going to go up again? I already mentioned earlier that productivity is higher than last year, because we've also released some of the people, and it's really a question of are we seeing better quarters? There's some upsets in Q4. We're seeing a lot of interesting demand. There's some interesting deals. We're very cautious, and obviously we don't forecast bookings, we forecast revenue, but by the end of Q4, we'll be in a position to tell you what's happening to booking. We have some reasons to be cautiously optimistic about Q4, maybe being different. But let's wait and see.

Patrick Walravens

Okay. And I mean, under what circumstances would you say, okay, this is time to consider our strategic alternatives and consider selling the company?

Ron Yekutiel

I think it's always been a reasonable, legitimate option, like it is for any single company in Earth. I don't know that we've ever said that we're not, or that we are. Our responsibility is to take care of our shareholders, and we listen to them closely, and we've been in touch and continue to be in touch with different players. If and when an offer that makes sense would come our way, then we will reconsider it. But this has never been a yes versus no. It's always been devil's in the detail, in the right time and the right place, the deal could happen. We said that. The same answer I've said time and time again by the way.

Patrick Walravens

Yes. Okay. And then lastly on a positive note, I really -

Ron Yekutiel

And I do want to just mention one thing in macro, because it's easy to kind of - the whole industry right now is where it's at. You can listen to all the other players in the industry, three of which have already reported. What you're hearing here is different. We're looking at a situation where there are some headwinds that are continuing by way of demand and by retention and pressures. This is happening to everybody. I must admit that most of the other folks out there that are public and you see their numbers have been declining aggressively this year. We're not. And so, we're not as out of place as the others are. Is this a great year for us? Definitely is it. Is there a lot more to hope for? Yes.

Are we meeting the numbers that we've set at the beginning of the year? We are. We're doing better than the numbers, both on adjusted EBITDA and revenue. And so, the direction is as guided for the year, but we're hoping that next year is going to pull up. We need to wait patiently like all the other folks in our industry. And like I said, we do see top of the funnel activity that looks good. And we do see continued strategic interest in moving to Kaltura. And we hear a lot of folks talking about moving to Kaltura when things are better, because when you talk about consolidation and the interest to have one single platform for everything, a lot of them are saying, listen, for the immediate short term, it's an investment that we don't want to make. But for the mid to long-term, it's a savings that we want to have, and it's a better product that we want to have.

And so we keep on hearing this. The question is, when are we going to click on it? And again, we're doing better than the other folks, but I think that when things turn around for the industry, we're going to continue to be on top. And that's going to mean, I think it's going to mean decent returns that we've not seen over the last couple of years for sure. Not us more than the industry. Sorry, Pat, just needed to add this color.

Patrick Walravens

That's fine. Thank you very much.

Operator

Thank you. And the next question comes from Michael Turrin with Wells Fargo.

Austin Williams

Hey, this is Austin Williams on for Michael Berg. Just wanted to ask on the EBITDA breakeven target, it's good to hear that that's restated for next year. But looking into 2024, where are you expecting the biggest areas of operating leverage to emerge?

Ron Yekutiel

Yaron, you want to take it?

Yaron Garmazi

Yes. First of all, the one comment that I made in my statement is that this trend of getting back to a positive bottom line adjusted EBITDA-wise, is going to happen anyway that the revenue will develop into next year. We said all along that at least for the short-term, the gross margin will continue to be in the low to mid-60s. And I think it's a very solid statement right now. In the long term, it's definitely going to go more to the 70%. If we will be able to do it all over the next year, I'm not sure, but we are doing some major efforts around production costs and major agreement that we signed with one of our cloud providers, which give us much better unit economics.

At the same time, we believe that in terms of our expense base, we don't need to increase significantly our sales and marketing and our R&D in order to push revenue and to start seeing re-acceleration of the revenue. So bottom line, keep the gross margin as it is right now, increase - keep the rest of the balance sheet, the expenses around the same levels, and get back to growth next year. It will enable us at least to be in a positive territory going into the beginning of the year.

Austin Williams

Okay, got it. And I also wanted to ask on the new AI assistant and some of the new AI features. What are you expecting this to open up from a monetization perspective and how is this changing the expansion discussion with customers? Thank you.

Ron Yekutiel

Sure, I'll take this one. Thanks for the question. It's early to say, for us and for everybody. We do know that a residual effect of this is a dramatically greater amount of videos that are created and consumed in a higher ROI for wherever the videos are used. Will the immediate value come from a higher subscription for the feature or will it come from the greater use of the platform? That's a question. If you ask me, I expect it to be more the latter than the first, but it's so early days around that to be able to provide a clear enough answer.

At this point of time, we're still in initial deployment time, but the focus is on creating value as opposed to optimizing and maximizing revenue. I believe that over the next few quarters that will take shape and then we'll be able to provide you a good answer. And by the way, this is the same answer for every single company in our ecosystem. It's still too early.

Operator

Thank you. And the next question comes from George Iwanyc with Oppenheimer.

George Iwanyc

Thank you for taking my question. Ron, maybe following up on your comments about the sales productivity progress you're seeing. Can you give us some perspective on the lower touch parts of the platform that you put in place and the traction you're seeing there?

Ron Yekutiel

Yes, I'm happy to do that. Look, we said that throughout the year that this is not the bigger focus, especially given our need to focus on the different aspects of the business, especially in a year like this. Now, we've improved our messaging framework and updated it in order to have better flow around webinars. Some of the signs have grown by about 180% quarter-over-quarter. In part, by the way, we've inserted AI into that. And we've also seen that the number of webinars that are created in the platform have increased 100% month-over-month. And so the KPIs that we're currently looking on are more adoption, user conversion that are not yet revenue KPIs for this year. And we said that throughout the entire year.

I expect that next year at a certain point we'll be able to point on it. But I was clear as the year went by, we said, the number one revenue generator for a company has been the higher touch, larger enterprise deals. And in between the different verticals, between enterprise education, media and telecom, it had been enterprise. And in a year like this, where everybody is required to focus more and not less, this is the number one place that we put most of our effort to complete this significant expansion into real-time conferencing and into the new products being the event platform, the webinars for larger companies, and the virtual classroom as well as the move to a new buyer from a CIO into a CMO for smaller companies, from very large into a bit lower touch into SMBs, and even applying more distribution channels, as I mentioned, are working on.

So that took a first step more so than doing the complete self-serve credit card, small, small company type of sales. But we are advancing and we are seeing better and better results, and I do expect that the cavalry will arrive and that will become an increasing part of our revenue in the years to come. It's just not an immediate impact, and it was never forecasted to be, even before things turn around a bit for the year.

George Iwanyc

All right, thank you for that. And then, Yaron, maybe just a question for you. With the stability that you saw in the net expansion rate this quarter, what are your assumptions and guidance? What type of visibility do you have into the early part of next year from an expansion perspective?

Yaron Garmazi

Yes, as Ron and myself mentioned before, we do see a very solid scenario that the trend of decline revenue in Q4 is not going to go with us into next year. It's too early to see what's going to be the trend in terms of getting back to re-acceleration, but it's definitely based on the deal that you already closed in the last three quarters in the beginning of Q4. We see that the trend of declining revenue in Q4, which by the way we focused it from the beginning of the year almost when we get the guidance, is not going to continue into next year. It's too early to say when it's going to re-bump back and start to re-accelerate again. We have to close the quarter to get a better visibility in terms of the booking, and hopefully we'll be able to deliver better numbers going into next year.

Ron Yekutiel

Let me add a comment about NDR for a second. This quarter we're still lined with the general direction that we set it for the year, and we still forecast the year to be at around 100% NDR for the year, which is well throughout the year we kind of said it's going to be. It could, given what we just said about gross retention and where they are in the last couple quarters, is expected to dip a bit for Q4 before graduates starting to turn back again. It's not going to be lower than earlier numbers posted by us, so there's nothing extra dramatic in the dip. But given the gross retention situation this year, which I mentioned earlier, it will dip a bit lower, but we made it at 100% for the year, and we expect it to be 100% and hopefully plus for next year.

George Iwanyc

Thank you.

Operator

Thank you. [Operator Instructions] And the next question comes from Matthew Niknam with Deutsche Bank.

Matthew Niknam

Hey guys, thank you for taking the question. Just one for me, on the competitive backdrop, can you just talk about what you're seeing there, whether there's been any change in dynamics over the last quarter, and if that's a factor that may be weighing in addition to macro on some of the bookings of gross retention trends? Thanks.

Ron Yekutiel

Yes, thanks for the good question. The answer is no, it's not weighing because our wind rate does not come down, and it's a very high number, but that's higher than last year and higher than most years. So it's not that we're losing accounts to our competitors more so than ever before, and we're not seeing any player that's coming in and taking significant deals from us. And even from the gross retention statement that I said earlier, by and large, most of them are reductions, as I said earlier, as opposed to full-on departures. And when they are a reduction, it's just because they have less money and/or are pressuring to have a bit lower price. On the contrary, what we're seeing is takeaways from competitors. As I mentioned earlier, one of the big financial services is yet another big takeaway from a competitor around the webinar/external/marketing use case that as far back as a year ago, we weren't able to do at all. This is an expansion for our product and we're able now to take away. It adds up to a few other big customers that we've taken from that particular competitor. Because again, we're just entering the pearly gates of being able to do that that we weren't able to do before. So no, we're not seeing any of the competitors out there win more business compared to us. We're just seeing a general pressures of the industry that are causing everybody to be a bit slower. That's all.

Matthew Niknam

Very helpful. Thanks, Ron.

Ron Yekutiel

Thank you.

Operator

Thank you. And this concludes the question and answer session. I will turn it over to Ron Yekutiel for any closing comments.

Ron Yekutiel

Yes, I want to thank you all for your questions and also for those that have commented on the situation in Israel. We also are heartbroken and send our big hugs to all the Kalturans that are working there. But we are a global company and plowing forward and doing well. I'd say from a macro perspective, again, there's a lot of discussions here about the industry headwinds. I think by and large, we're delivering on the numbers that we've committed to at the beginning of the year.

We've achieved adjusted EBITDA earlier, positive earlier than said, and cash flow positive. And we are seeing a lot of top of the funnel trends that are taking us to the right direction. I think we have a place for some hopeful good news around Q4 bookings. And the general direction for next year hasn't changed for us. So we're looking forward to what's to come. I want to thank you again for your continued support and have a great reminder of the week. Take care. Bye-bye.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

For further details see:

Kaltura, Inc. (KLTR) Q3 2023 Earnings Call Transcript
Stock Information

Company Name: Kaltura Inc.
Stock Symbol: KLTR
Market: NASDAQ
Website: kaltura.com

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