Good morning, everyone, and welcome to Kaltura First Quarter 2022 Earnings Call. All material contained in the webcast is 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, Sapphire Investor Relations. Please go ahead..

Thank you, and good morning. With me today from Kaltura are Ron Yekutiel, Co-Founder, Chairman and Chief Executive Officer; and Yaron Garmazi, Chief Financial Officer. Ron will begin with a summary of the results for the first quarter ended March 31, 2022, and the trends and areas of focus that are expected to impact 2022.

Yaron will then review in greater detail the financial results for the first quarter, followed by the company's outlook for the second quarter and full year of 2022. 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-end December 31, 2021 and other periodic SEC filings, including the quarterly report on Form 10-Q for the quarterly period ended March 31, 2022, 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 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..

first, by the evolution of our virtual event offering from catering exclusively to large flagship events that typically require significant event services to an event platform that caters to events of all sizes and that is managed by the customers independently, with minimal event services required, if any; second, the launch of additional low-touch and self-serve products and go-to-market vehicles for both EE&T and M&T; and third, by the continued ramp of our sales force.

I'd like to give you an update on these 6 factors, starting with our EE&T-related product services and sales cycles. In the first quarter, we continued to sell our Virtual Events offering for flagship events.

We're still benefiting from the significant professional services revenues that are attached to these deals, but our eyes are now set on our upcoming cross-enterprise event platform deals that power centrally all events of all sizes across the organization.

Though there will be less, if any, professional service revenues from these deals, there are many more such deals to be had and they command higher subscription revenues and greater stickiness.

To that end, we have a growing sales pipeline of existing customers and new prospects that are evaluating our new platform, including Fortune 100 and 500 companies. They come from a diverse array of industries, including tech, financial services, health care, professional services and education.

They're looking to use our platform for tens, hundreds, sometimes even thousands of events every year, catering both to customer and partner events to internal events and, in many cases, also through various signature flagship events.

Throughout the first quarter, we launched new innovative features advancing our Event Platform, and we continue to believe that this new product will contribute to the acceleration of our revenue growth in the second half of this year.

We also continued selling in the first quarter our core content management products to customers, including Fortune 100 and 500 companies, that use us externally for marketing and community engagement and internally for knowledge sharing, learning and development.

To that end, we're continuing to see increased demand for a unified platform that could address both internal and external use cases for both content management and events. This is a strong and unique selling point for Kaltura, so we believe we're very well positioned to capitalize on this market consolidation.

Moving on to our low-touch and self-serve products and go-to-market vehicles.

Following the initial release of our self-serve virtual classroom, webinar and media services offerings, we continue to optimize and scale our digital operations and to ramp up our inside sales team to cater to transactional sales, augmenting our main sales team that is focused solely on larger customers and deals.

We believe that several upcoming product enhancements will further drive growth coming from these initiatives in the second half of the year, especially from webinars, where our offering is expected to provide unique attributes and value around user experience, branding, live to on-demand flows and integrations.

In M&T, we're continuing to expand down-market from large telcos to mid-sized media companies, where we enjoy faster sales and deployment cycles by providing an easy-to-deploy, end-to-end streaming platform that includes a front-end user experience and monetization tools.

During the first quarter, we partnered with several technology providers to productize such an end-to-end offering and augment it with a marketplace of value-added services, and we believe it will also help to fuel our future growth. Regarding the major customer that reduced part of their business with us.

As previously mentioned, we have since renewed various existing projects and have partnered with us in new ones in the first quarter. So the impact of the reduction hit most strongly in the fourth quarter of 2021 and the first quarter 2022. Our business with this customer is picking up again, and we believe they will remain a major customer this year.

And regarding our sales force ramp, in the first quarter of 2022, we had over 30% more ramped enterprise sales reps and over 15% more account managers as compared to the first quarter of 2021.

So in summary, after certain headwinds, including those related to post-COVID shifts brought about close to flat revenues in the fourth quarter of 2021 and a reduction in revenue in the first quarter of 2022, the headwinds are starting to be offset by our growth engines.

Our guidance reflects an expected turnaround in the sequential quarterly growth trend line in the upcoming second quarter of 2022 as well as an increase in our year-over-year revenue growth rate in the second half of this year. With that, I'll turn it over to Yaron, our CFO, to discuss our financial results in more detail.

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 the GAAP to non-GAAP financials is included in today earnings release, which is available on our website at www.investors.kaltura.com.

Total revenue for the first quarter ended March 31, 2022 was $41.7 million, up 11% year-over-year. Subscription revenue was $37 million, up 14% year-over-year, while professional services revenue contributed $4.7 million, down 13% year-over-year.

The remaining performance obligations were $171.2 million, up 17% year-over-year, of which we expect to recognize 59% as revenue over the next 12 months. Annualized recurring revenue was $147.7 million, up 15% year-over-year.

Revenue growth continued to benefit from our net dollar retention rate, which was 107% in the first quarter compared to 116% in Q1 2021. Note that this quarter net dollar retention metric also incorporates the impact of the large customer that, as mentioned in our last earnings call, reduced some of its business with us in the fourth quarter of 2021.

This customer has since renewed various existing projects and at present partnered with us on new ones. With our EE&T segment, total revenue for the first quarter was $29.7 million, up 9% year-over-year. Subscription revenue was $27.6 million, up 15% year-over-year, while professional services revenue contributed $2.1 million, down 37% year-over-year.

Within our M&T segment, total revenue for the first quarter was $12 million, up 15% year-over-year. Subscription revenue was $9.4 million, up 12% year-over-year, while professional services revenue contributed $2.6 million, up 27% year-over-year.

GAAP gross profit for the quarter was $26.3 million, representing a gross margin of 63%, up from 59% gross margin in Q1 2021. Within our EE&T segment, gross profit for the first quarter was $20.8 million, representing a gross margin of 70%, up from 69% gross margin in Q1 2021.

Within our M&T segment, gross profit for the first quarter was $5.5 million, representing a gross margin of 46%, up from 33% gross margin in Q1 2021. R&D expenses for the first quarter were $14.9 million or 36% of revenue compared to 29% in Q1 2021.

The increase was driven by additional headcount and payroll expenses as we continue to invest in technology and innovation. Sales and marketing expenses for the first quarter were $14.6 million or 35% of revenue compared to 27% in Q1 2021.

This increase was driven by additional sales and marketing investments, including headcount and personnel-related expenses. G&A expenses for the first quarter were $11.4 million or 27% of our revenue compared to 21% in Q1 2021. The increase was driven by additional public company headcount and third-party-related expenses.

GAAP net loss in the quarter was $16.9 million or $0.13 per diluted share. Adjusted EBITDA was a negative $8.4 million, increasing from a negative of $1.3 million in Q1 2021. This result is in line with our plan to improve our spend in order to further fuel our growth as discussed earlier. Turning to the balance sheet and cash flow.

We ended the quarter with $119.5 million in cash and short-term investments. Net cash used in operating activity was $19.6 million in the quarter and $6.6 million in Q1 2021. I would now like to turn to our outlook for the second quarter of 2022 and for the fiscal year ending December 31, 2022.

In the second quarter, we expect the subscription revenue to grow by 1% to 3%, between $36.8 million to $37.6 million, and the total revenue to grow by 0% to 2% to between $41.6 million and $42.4 million. We expect our negative adjusted EBITDA to be between $8.5 million and $11.5 million.

For the full year, we continue to expect subscription revenue to grow by 10% to 13%, between $159.5 million and $163.8 million and total revenue to grow by 5% to 8% to between $173.3 million and $178.2 million. We continue to expect the full year negative adjusted EBITDA to be between $27 million and $32 million.

In summary, as Ron mentioned, our outlook reflects the expected turnaround in the sequential quarterly growth rate for the upcoming second quarter, and we continue to believe that our new products and larger sales force will enable us to increase our year-over-year revenue growth in the second half of 2022.

With that, we will open the call for questions.

Operator?.

[Operator Instructions] Our first question is from Gabriela Borges with Goldman Sachs..

Maybe for yourself, Ron, I'd love to hear a little bit more about what you're hearing from customers. We're about 3 months, 5 months in now to a year that feels more similar to a pre-COVID year.

So what are you hearing in terms of willingness to invest in communications technologies, virtual events technologies as we progress through the year? And how are those conversations compared to 3 months ago?.

So we are seeing continued interest in the core products of the company. If you're asking if this is like the COVID days, it's not exactly like the COVID days. The cycles there were extremely short, 1/2 or 1/3 of the typical cycles. And a lot of folks had also acquired just usage, additional usage of the system.

So here, we're seeing more interest in additional products as opposed to increasing the usage. And the number one product in the enterprise side, as you know, is our Event Platform. And there's a lot of interest there. That pipeline has been growing.

I think the bigger issue was our availability of this product, which started at the beginning of the year and has built since. And we've seen an increase in the pipeline in that period compared to the beginning of the period where we were fresh and new with that product.

I think, generally, what we're seeing is that people are looking less to solve their problem for tomorrow morning and more to address a sustainable issue of using video to improve productivity, efficiency, sales, marketing, training, learning.

And so they're taking a more thoughtful approach on how to apply this across their entire organization, which works well towards our enterprise platform that caters to any and all events, not just the large events..

And the follow-up is for Yaron. Maybe comment a little bit on how your unit economics are evolving on LTV to CAC as you roll out the more light-touch, self-service go-to-market alongside the classic go-to-market.

So how does the LTV to CAC compare on the self-serve merchant relative to the client merchant?.

Obviously, we are not sharing the specific numbers around LTV to CAC, which we shared before the IPO, but a few comments that I can say.

First of all, definitely, we are not in the numbers that we had during COVID, which picked up significantly also because of the fact that shortened cycle in terms of investment in marketing, in sales and marketing and much faster booking days with customers. I can tell you that the gross churn numbers didn't change.

The booking in terms of closing deal is slower, so it put some pressure on the LTV to CAC. Obviously, we did mention that we have continued to increase our investment in sales and marketing, which also put some pressure on LTV to CAC. But to make a long story short, we are not in the numbers that we had during COVID.

And we believe that in the short term and also in the midterm, it's probably going to go to the same number around the same number that we had before COVID..

I'll add one more point about this self-serve question because obviously, it's one of the important moves that we're making. And I want to distinguish between the lower-touch to the self-serve.

We've already started at the beginning of the year with our EP product, the Event Platform product, to cater to more low-touch environments, where it's self-operated by the customers as opposed to using our professional services. But it is still sold with outside salespeople and not with a credit card on the Web site.

We have started launching the first versions of our complete self-serve during the beginning of the year, but we've always said that the impact of self-serve will be more in the second half of the year and that remains the theory. So we have more releases to come in the next few months.

I mentioned just a bit earlier that the webinar product, the webcasting product, is expected to continue to get extremely stronger throughout the next few months. So we expect to start seeing a lot more change and impact on LTV to CAC in the months ahead, and we'll share as soon as we have concrete information about that..

Our next question is from Matt Niknam with Deutsche Bank..

Just two, if I could. First, on the subscription revenue guide. So I think it's fairly clear, you've messaged sort of flattish 2Q subscription revenue. I'm just wondering, how confident are you in the implied revenue ramp in 3Q and 4Q? And is that -- I know you talked about some of the newer product offerings.

I'm just wondering, is some of that ramp-up tied to hiring that's already occurred? Or are there other factors driving this? And then maybe secondarily, tied to that. I think in the past, you talked about a little bit of a slower ramp in terms of sales force hiring.

Any updates you can share there in terms of where you're at today?.

Regarding the guidance for the subscription revenue, first of all, we did try to do a very thoughtful process right now in terms of guiding for the rest of the year, especially around the macro environment around us, post-COVID situation, et cetera.

But the situation is that, first of all, as you can see, there is a nice improvement in the sequential growth of both the overall revenue and the subscription revenue. This is one important point.

In terms of the subscription revenue going forward, one other important point is that, obviously we mentioned before that we are going to have some less professional services revenue and more subscription revenue. In the short term, we saw a trend that some of the virtual event deals, the big virtual event deals are still being signed.

And therefore, we get more professional services than we expected. Still, the professional services is declining compared to last year, but it's more than what we expected.

And regarding the overall development of the subscription revenue, I believe that the numbers that we put in place which are basically the same numbers that we gave before for the full year, are showing a nice sequential growth for the subscription revenue in Q2 going to Q3 and Q4. By the way, mostly in Q3, Q4.

If you do the math, you will see that the numbers that we get for Q2, if you take the balance, you see a very nice sequential growth both in return on revenue, in subscription revenue and in the overall revenue. And at this point, we believe that these are the realistic numbers for the year, but hopefully we will work very hard with the numbers..

Matt, thanks for the question, and I'll answer the second one in a second. But just on the subscription side, a, we have larger, stronger pipeline. So it's not that we're waiting for additional sales force to come in.

We're seeing the continued move of the deals in the pipeline and expect the impact to continue to be able to affect our second half of the year. To remind you, our thesis was that the second half of the year is the expected growth, and so a lot of it is bottom up based on the actual pipeline of deals.

The second is that we do have some things that were already closed and are expected to contribute on the second half of the year. So that's backlog. Especially on the media and telecom side of the business, where some of the deals, and we said that for a while, are going to impact only on the second half of the year.

So some of the growth that we're seeing there is not based on future booking, it's already based on past booking. But would love just to add to what Yaron had stated about professional services.

While we were cautious and said that professional services will go down, and they have, year-over-year have come down, they're coming down a bit less than what we have forecasted. There's still flagship events that are taking place.

And so the blend between recurring and nonrecurring is still somewhat shifting, and we expect more and more of the recurring to come with the EP or the Event Platform. On the second half of your question, on the ramp in sales force, as I mentioned, we have a 30% year-over-year growth in sales rep and 15%-plus year-over-year growth in CSMs.

We feel that at this point, this is a decent contribution to what we need for the year. A lot of what's going to happen over the next few quarters is going to be more impactful for the follow-on year than the first year.

So I don't think that coming into the second quarter, there will be a significant change as to the number of people that are going to come insofar as the impact on the year. And we feel that we have what we need in order to obtain the numbers that we have communicated..

Our next question is from George Iwanyc with Oppenheimer & Co..

Ron, just following up on your sales comments recently.

Can you give us some perspective on the 30% hiring over the last year and how you're seeing sales productivity ramp as those salespeople start to get out and talk to customers?.

First of all, from a -- media and telecom is generally a clunky business. So it's hard to say from one quarter to another because these are relatively larger deals that are coming in and out. They're less so immediately impactful.

Just as I mentioned in the second half of this year, we're going to be benefiting from deals that came from deep into last year and before. So I'm going to put that aside, most significant change there.

From a sales rep productivity in the EE&T side of the business, it's still, as we said, somewhat lower, like it was in Q4 insofar as elongated sales cycles, but the pipeline is picking up and especially for our Event Platform products. There's a lot in. Some of them are paid POCs.

Some of them have already told us that they've chosen Kaltura, so it is moving forward. So to the best of our forecast going forward, the remaining of the year is going to become increasingly stronger. As for the new people that come in, historically, it's taken 6 months for an outside salespeople person to be fully ramped.

Given the somewhat elongated sales cycles now, it's probably a bit longer. So my comments are not so much in people that have joined over the last couple of months, it's more to the people that were here earlier and have been already contributing, i.e., 6 months plus in the company..

And following up on your pipeline comment. So it sounds like the customer generation is healthy.

But are you seeing any change in the type of conversations you're having from -- given the macro pressures? Or from a regional perspective, let's say, has anything changed in Europe?.

Not significantly. Again, it's hard to decipher how much of it would have changed because of the macroeconomic conditions and how much of it is the post COVID and how much of it is the issue of the shift in demand from the event -- general event for flagship to the Event Platform.

What I can say is that the degree of interest that we find is very significant, it's been building up. We have, just to give you examples, advanced stages with multiple large tech companies, financial institutions, professional services. We have a tech company that has been a top 20 Kaltura customer for more than 10 years.

They awarded us their event business for Tier 2 and Tier 3 events, for many, many events. We're working with one of the largest professional services networks in the world to standardize their global events, and they have indicated that they want to go ahead and conclude with us.

We have one of our top customers which is a Fortune 100 financial institution, that is an existing customer again, who's planning to expand their usage into the Event Platform; a top US health care provider which has been with us for years that's converting into using our events; a Fortune 200 global financial institution.

So the list is long and it seems to be rolling forward. And we're not hearing from them that they're pulling off because there's some sort of an economic slowdown or a macro condition issue.

Again, I think that the mission criticality that we're discussing here is significant around enough organization, especially as we continue to work remotely, that organizations are going to require this. And a certain good piece of our business is recession-proof. If you look at people going into universities and [indiscernible] launching more TV.

So I think generally, I think we're going to be in a reasonable spot. I will say that we're monitoring everything, our ears and eyes are open and we'll adjust our plans accordingly. And as stated, we're a bit more slow and cautious as it pertains to additional spend on the sales and marketing side. So we're definitely listening.

But from the pipeline generation, it seems to be advancing nicely forward..

Our next question is from James Corey with Bank of America..

This is James. I work with Mike Funk at BofA. So I know you talked a little bit about your demand across verticals and things like that.

But can you talk a little bit about if you've seen any specific areas of weaknesses or strengths with demand across your verticals?.

Happy to provide a bit of angle here. So first of all, the new booking contribution has been from all segments. The only one actually in the first quarter that did not contribute was our tech OEM segment, which is where we enable third-party companies to build products using Kaltura. So that's been a bit lesser.

But otherwise, they're all contributing and growing. Again, from a product perspective, a lot of the interest in deals are around meeting-related activities. From a geo perspective, it's quite similar, the majority of the EE&T new bookings are still in North America, followed by Europe and then APAC.

From an M&T perspective, it's still outside of the US like EMEA. Channel-wise, we're still generating quite similar deals from a booking perspective, and it's still single digit at the high end. We expect that to gradually change as we become more and more low-touch and self-serve.

Like I said, from a demand for our services, the percentage of service out of our deals had a big jump back up compared to Q4. Per my note about additional flagship deals, we do expect a quarter-over-quarter reduction in this, by the way, on the revenue basis. It's somewhat ahead of what's going to happen on the bookings side.

But generally speaking, it's still remaining strong and there is an interest for that. So that's a bit more color, but all segments are contributing..

Our next question is from Patrick Walravens with JMP Securities..

And Ron, congrats on doing better than people thought. But look, so -- and Yaron, if I get this wrong, tell me, but you guys have $120 million in cash. You have $38 million in debt.

So you have $82 million that you burned $22 million in Q1? Why not derisk this and cut the burn? Like why continue to -- why continue on this plan? Your stock is trading at a level where it's -- people don't believe it anyway. So why not derisk it? I'm sure you talked about it a lot, but just share your thinking with us..

First of all, thank you for the question. It's a great question, and we are putting a lot of thoughts around it. And we're actually already taking the action based on -- around the area that you are discussing right now. First of all, the fact that Q1 we burned so much cash, a lot of it is related to seasonality that we have in our cash collection.

We have a very strong Q2 and Q3 on the universities and some of our major customers that pay us annual in advance when it's coming. We also had this short-term slowdown with a specific big customer which we mentioned last quarter, which is already behind us and they are increasing the volume of business with us.

But to your overall comment, yes, we are taking already the actions. We are definitely not going to be above the numbers that we presented and were even mentioned before by some of you guys.

And we are already considering some significant actions the rest of the year in order to take it to a better place in terms of our cash flow and our adjusted EBITDA. But at this point, for the short term, we didn't want to slow down.

To the midterm and to the long term, we are not changing our plan and we are going to get the company to a breakeven situation much, much before we get to the lowest part of our cash balance. So it's already in the move that....

And so I guess as a follow-up to that, and I understand you hope to beat this, but what does this negative $27 million, negative $32 million EBITDA imply for actual free cash flow? Like how much -- in this plan, how much do you expect to burn this year?.

We are not providing specific numbers. It's going to be a little bit more than the adjusted EBITDA because of some of the deferral expenses like the 606 impact, et cetera. But it's not going to be significantly more than this for the year.

And by the way, we -- and the most important part is that we are building our midterm and long term to a situation that we don't need to raise additional cash. So definitely, it's a plan that we have to balance the company at the end of this year, which in the last call we mentioned that we are going to do it next year.

It's still the plan, and we are going to accelerate the plan in order to get it to a better place. But the second part of the year, I can tell you it's not going to be any more 2 digits in terms of the negative cash flow. It's going to balance itself to 1 digit.

And the overall number that we discussed before is not going to be way above the adjusted EBITDA number. And we are going to work out to beat the numbers that we provided for the adjusted EBITDA. If you've seen, in the first quarter, we did do better than the $9 million to $12 million that we mentioned. Actually, it was $8.4 million..

Our next question is from DJ Hynes with Canaccord..

So Ron, I'm just trying to put into perspective the sequential decline in ARR. So my understanding was that the large customer attrition happened in Q4. So I guess, two questions there.

Like, one, have you had additional meaningful revenue turnover or loss in Q1? And then second, how much of an ARR headwind was the large customer loss that you talked about?.

So one thing, first, I want to remind everybody because ARR is reported differently for different companies. The way our ARR KPI works is it is pretty much similar to our subscription revenue for the quarter times 4. The only fix there is for term licenses that should be -- that are addressed differently with ASC 606. So that's the only difference.

So it's not a run rate, it's not a CRR, it's not a function of new bookings that happened in the quarter, it's just the recurring revenue. That's the one thing I want to be clear. It's always been like that. Within that, when we had this incident in Q4, we knew that it was impacting Q1. There's nothing new here.

We said that it's going to hit Q4, we said it's going to hit Q1 and that the hit later will be smaller. It's obviously a reduction in recurring revenue. So it doesn't disappear, but it doesn't continue to go down further materially and hopefully it starts to build up given the additional sale.

And so the reduction that was there in Q1 was already considered in our forecast. And as you've seen, we beat these forecasts, so nothing was surprising here. Per your question about gross retention, as Yaron has earlier stated, our gross retention remains strong.

It's actually better than last quarter, of course, from a perception of perspective of not losing this large customer. But on an ongoing basis, it's better than the run rate of last year. So we do not have any additional losses of customers that are material above our ongoing rate.

And as mentioned in the past, it is a strong, good rate of gross retention. So we're not seeing additional pressure. So I'll just say that the ARR is just a reflection of the loss. You had asked about the size of the loss, again, it's a large customer and we've lost part of their business.

It was a kind of a multimillion dollar impact on the year at the high level, but not -- but still the great majority of that customer is continuing forward and they're coming back to be a very significant customer..

And they are also signing new -- yes, they are not just renewing business, they are signing some significant new business with us, the same customer..

And then the second question, just what are you seeing in terms of retention of sales reps? I think we were up 40% and ramped up in Q4, 30% this quarter. And then the follow-up to that would be like last quarter, you talked about still we're on this path to 40% growth in sales capacity this year.

I understand you have what you need to hit this year's targets. And in your answer to Pat's last question, it seems like maybe you're reevaluating plans to kind of lower cash burn.

Are we still on this aggressive like half to 40% ramp in sales capacity this year?.

That's a great question, DJ, and these things are indeed connected. And we are with enough sales force to be able to address what we plan for this year. And we believe, given the amounts that we have and the productivities that are expected to come back up to where we want them, should be enough to generate some nice growth into next year.

But yes, we are keeping our eyes on the overall macro situation and our cash position and are delaying the rapid growth in the sales count. So if your question is, do we still think we're going to grow yet again by 40% this year? Not necessarily. It might be lower. It should not impact this year. And next year, we should still be very good to go.

So it really depends. But we will give you an update as this year advances. And as we look into both our cash position, productivity, deals that are closing, trends of the recurring revenue. As mentioned, we are thoughtful given the situation in the markets and our particular situation as well..

Our next question is from Michael Turrin with Wells Fargo..

This is Austin Williams on for Michael Turrin. I just wanted to touch on net dollar retention rate. It looks like that ticked down pretty meaningfully to 107% in the quarter.

I know there's the one customer that was called out, but could you give us any color on anything else that drove that expansion activity? And any thoughts on where that could go over the next year in the longer term?.

So yes, let me react to this. First of all, you're right, some of the impact came from this specific customer which had some meaningful impact on Q4 and then Q1. And it did put some pressure on the net dollar retention rate.

One thing that is very important and Ron already mentioned, the gross churn is definitely, at this point, is not under pressure if we are taking out of the equation this specific customer.

So we don't see any trend that really put significant pressure or any pressure at all, even there was some improvement in gross churn this quarter, the overall gross churn. So this will not put pressure on the short term.

But as you know, the fact that we are comparing now in the net dollar retention calculation a post-COVID situation to post COVID, definitely, we see the pressure on the environment and net dollar retention rate. And we believe that it will get back to something that is more closer to the rates that we had before COVID which were still strong.

So the customers are still growing very nicely. And even if you take out [the declaration], the impact of this customer, probably the number would be by a few points up above the number that we have right now.

And if you consider what can happen in the next quarter and going into the rest of the year, it's probably going to continue to go down to the -- around the levels that we had before COVID and you have the numbers.

But we don't believe that we -- if we take out of the equation this specific customer, it's going to be much below this number because the net impact of the gross churn, it didn't change. Actually, it's very strong.

And by the way, we may see also some deals that are signing with our current customers around the Event Platform, so it also can improve the number going forward..

One thing to remember is that the gross retention number is a bit more important than net dollar retention in the sense that it looks what's happening right now in the quarter. The dollar retention looks like the cumulative impact from a year back to now, as mentioned, for a certain period, there was a whole COVID up.

But then after that, there was also a particular change again with that customer. I will say that while the majority of the recurring revenue had come down already from this change, the net dollar retention is in the lag. So if you take, for example, next quarter, it's going to compare Q2 versus Q2 last year.

So a big portion of that analysis wouldn't be what's happening now between this quarter to next but what happened a year ago between Q1 and Q2.

So if we indeed grew a lot last year, which we did, it will put downward pressure on our MDR as we move into next quarter, not because of anything that happened right now, but because of something that happened a year ago. So the net-net is, as Yaron has said, we are coming down to more pre-COVID levels.

We expect in the midterm that it will probably rise beyond with additional product upsells. But from a gross term, which is the most important one, we continue to be strong..

I just have one follow-up on RPO and the backlog. It looks like RPO was down sequentially, mid- to high single digits on both RPO and current RPO.

Is there anything else besides that large customer that you would point to that's driving the backlog down as well?.

No, three points. The major customer, we discussed it, so I will not repeat it. There is a seasonality in terms of booking our deals and renewing some of our previous year deals, which take place in Q2 and Q3. So it's put some short-term pressure on Q1.

Other than that, in some cases, and we discussed it before, there was a slower pace of closing deals in the last couple of quarters which we hope that it's going to change nicely based on the development of the pipeline. But compared to last quarter, I don't see any major change. It's the same factors that impact previous quarter still a year.

And the only thing that I can say that there is some nice improvement even in the pipeline, which we hope that it will enable us to put much stronger numbers in terms of the RPO going forward, especially in the second part of the year..

[Operator Instructions] Our next question is from Ryan Koontz with Needham & Company..

Most of them might have been answered, but I wanted to ask, are you seeing much customer interest in moving from your high-touch product to your newer low-touch products? Can this help with retention, expansion of existing accounts? And then what are the economics for you in that, if it's possible, apart from lower professional services reps?.

Yes, we are seeing folks that have looked or physically taken from us the event solution for the flagship events, looking at the holistic solution for their entire company.

In fact, even the newer ones that are coming around and are starting off with 1 or 2 events are already considering and testing and looking into addressing what's called their Tier 2 and Tier 3 events, not just their Tier 1 event. So there's definitely an opportunity to do that.

But that being said, I think that the bigger opportunity here is not to replace existing low-touch but to come on top and in addition to that, because most of our business historically have been video content management, right? Up until 1.5 years ago, most of what we did was internal learning and development, collaboration, communication, some external use cases.

But now most of what we come and support our external use cases for marketing and sales, albeit that some of the events are also internal.

But the bigger opportunity that's here is to materially increase the upsell opportunity, to increase the average MR, increase the average ARPU and that will drive up net dollar retention because it will fill up the size of the customers. By and large, if you look at COVID being an opportunity, a lot of the growth was usage-based.

Universities have needed more storage, delivery, corporates have needed to increase their licenses. Now given the new product bases that we're discussing, a lot of it could be product upsell, which is more strategic. It enables us to be stickier.

It puts us in a better competitive advantage given that we're a horizontal platform that addresses multiple things. And if we're talking about the signs of slowing down of the market, it is a more cost-effective solution.

So the fact that we're consolidating multiple solutions into one vendor enables us to offer a cheaper, more affordable solution to our customers. So for multiple reasons, this should be interesting for the market, and this should enable us to improve our net dollar retention..

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Ron for closing comments..

Yes. I want to thank you all for your time, everybody, that's been listening in, in addition to the great questions. And I know some of us are still impacted by the virus, so I'm hoping everyone good health. Be well. Thank you..

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation..