KLTR - Kaltura Sees Scant Revenue Growth For 2023

2023-08-02 12:39:25 ET

Summary

• Kaltura provides a video streaming and distribution platform for organizations worldwide.
• Management has projected full-year 2023 revenue growth to only about 1% while continuing to generate significant operating losses.
• My outlook on KLTR stock remains Neutral until management can reignite revenue growth while meaningfully reducing operating losses.

A Quick Take On Kaltura

Kaltura ( KLTR ) went public in July 2021, raising approximately $150 million in gross proceeds from an IPO that priced at $10.00 per share.

The firm provides a video capture and streaming platform for organizations worldwide.

With slowing topline revenue growth ahead and continued substantial operating losses, my outlook on KLTR is Neutral [Hold].

Kaltura Overview And Market

New York, New York-based Kaltura was founded to develop a unified horizontal technology offering for powering real-time, on-demand video applications across the enterprise.

Management is headed by co-founder, Chairman and CEO Ron Yekutiel, who was previously co-founder of VisualGate Systems, a video surveillance company.

The company's primary offerings include:

• Video Portal

• Town Halls

• Video Messaging

• Webinars

• Virtual Events

• Meetings

• Learning Management System

• Lecture Capture

• Virtual Classroom

• TV Solution

The firm acquires customers across a variety of industries including financial services, technology, education, healthcare, telecom, media and the public sector.

According to a recent market research report by MarketsAndMarkets, the global market for enterprise video applications was estimated at $19.8 billion in 2022 and is expected to reach $31.4 billion by 2027.

This represents a forecast CAGR of 9.7% from 2023 to 2027.

The main drivers for this expected growth are a growing demand for video streaming and communicating across distributed workforces.

Also, North America was estimated to have the largest market share in 2020 and is forecast to remain the largest market size of the major global regions.

The Asia Pacific region is expected to grow at the fastest rate through 2027.

Major competitive or other industry participants across all of the platform's functionalities include:

• Microsoft

• Amazon

• Twilio

• Cisco

• Zoom

• Adobe

• Intrado

• Hopin

• Synamedia

• MediaKind

• Comcast Technology Solutions

Kaltura’s Recent Financial Trends

• Total revenue by quarter has risen at a slow rate; Operating income by quarter has remained substantially negative.

• Gross profit margin by quarter has been flat year-over-year; Selling, G&A expenses as a percentage of total revenue by quarter have dropped in recent quarters.

• Earnings per share (Diluted) have made some progress toward breakeven.

(All data in the above charts is GAAP)

In the past 12 months, KLTR’s stock price has fallen 17.2% vs. that of Brightcove’s ( BCOV ) drop of 32.9%, as the chart indicates below.

For the balance sheet, the firm ended the quarter with $76.0 million in cash and equivalents and $34.4 million in total debt, all of which was categorized as the current portion due within 12 months.

Over the trailing twelve months, free cash used was $36.3 million, during which capital expenditures were $1.6 million. The company paid $25.1 million in stock-based compensation in the last four quarters, the highest trailing twelve-month figure in the past eleven quarters.

Valuation And Other Metrics For Kaltura

Below is a table of relevant capitalization and valuation figures for the company.

(Source - Seeking Alpha)

As a reference, a relevant partial public comparable would be Brightcove; shown below is a comparison of their primary valuation metrics.

(Source - Seeking Alpha)

The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.

KLTR’s most recent unadjusted Rule of 40 calculation was negative (27.6%) as of Q1 2023’s results, so the firm remains heavily negative in its performance in this regard, per the table below.

(Source - Seeking Alpha)

Commentary On Kaltura

In its last earnings call (Source - Seeking Alpha), covering Q1 2023’s results, management highlighted growth in its subscription revenues and a reduction in its professional services revenue due to improved productization of its platform.

The firm continues to focus on reducing costs through an ‘evolution to low-touch products.’

Bookings improved despite fewer RAM quota-carrying salespeople, indicating increasing efficiency in the sales process.

The company’s dollar-based net retention rate was 102%, the highest since the first quarter of 2022.

Total revenue for Q1 2023 rose 3.8% year-over-year and gross profit margin remained unchanged.

Selling, G&A expenses as a percentage of revenue dropped by 6.7% year-over-year, while operating losses fell by 25.2%.

The company's financial position is moderate, with plenty of liquidity, but all its debt due within the next 12 months and significant free cash used in the past 12 months.

KLTR’s Rule of 40 performance has remained substantially negative due in large part to little revenue growth.

Looking ahead, management guided full-year 2023 revenue to $170.5 million at the midpoint of the range, or only 0.9% annual growth.

If achieved, this would represent a drop in revenue growth versus 2022’s growth rate of 2.36% over 2021, indicating a declining revenue growth trajectory.

Also, leadership indicated they expect to reach operating cash flow breakeven in 2024.

From management’s most recent earnings call, I prepared a chart showing the frequency of key terms mentioned (or not) in the call, as shown below.

I’m most interested in the frequency of potentially negative terms, so management or analyst questions cited ‘Challeng[es][ing]’ once, ‘Macro’ two times and ‘Drop’ once.

Analysts questioned company leadership about bookings and sales activities and management said it is seeing more consolidation deals, larger deal sizes as companies seek to reduce vendor bloat and complexity.

Regarding valuation, in the past twelve months, the firm's EV/Sales valuation multiple has been flat, as the chart from Seeking Alpha shows below.

The primary business risk to the company’s outlook is a slowing sales cycle environment, reducing revenue growth results as businesses exert greater scrutiny on new deals.

With slowing topline revenue growth ahead and continued substantial operating losses, my outlook on KLTR is Neutral [Hold].

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