Good morning everyone and welcome to the Kaltura Second 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..

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 second quarter ended June 30, 2023 and provide a business update.

Yaron will then review in greater detail the financial results for the second quarter of 2023 followed by the company's outlook for the third 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 June 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..

Thank you, Erica and thanks to everyone for joining us on the call this morning. Today, we reported total revenue for the second quarter of 2023 of $43.9 million, up 5% year-over-year and subscription revenue of $40.7 million, up 7% year-over-year. Adjusted EBITDA for the quarter was negative $1 million.

For the third 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 93% of total revenue compared to 90% in Q2 2022.

Given the results of the first half of the year, we are cautiously increasing our revenue guidance for the full year. We continue to focus on returning to profitable growth and achieved the lowest adjusted EBITDA loss of the last 8 quarters.

Given the results of the first half of the year, we're also cautiously increasing our adjusted EBITDA guidance for the full year. We are once again reaffirming our plans to achieve a positive adjusted EBITDA in 2024.

Regarding cash flow, we materially reduced our cash consumption from operations in this quarter to $4.1 million compared with $22.5 million in Q2 2022. This brings our total H1 '23 cash consumption from operations to $11.6 million compared to $42.1 million in H1 '22.

We expect to post positive cash flow from operations in the second half of 2023 and following our typical seasonal greater cash losses in the first half of next year, arrive at cash flow from operations breakeven with sufficient cash reserves.

As stated before, we were adjusted EBITDA and cash flow from operations profitable in 2019 and in 2020 and are committed to getting there again very soon independent of our top line growth.

Moving on to the business update; we landed this quarter a new Fortune 50 bank customer that is consolidating their video content libraries into a single platform and supporting interactive video for learning and training within the organization.

For a new global investment bank customer, we are powering all internal and external events in their internal video portal. Two Silicon Valley trailblazers have chosen Kaltura for the first time this quarter to power events and internal communications.

We were also selected by a leading global health care organization to provide live streaming and webinars for all their events by a newly signed European government institution to power their worldwide events and by an online learning company that is starting to use Kaltura to consolidate several video experiences previously powered by multiple video platforms.

While the industry headwinds that we have been reporting on persist and we are observing these translating into lower budgets, increased price pressure and elongated sales cycles, we are glad to see our leading demand indicators continue to grow.

We posted this quarter a sequential increase in the number of new qualified leads and the number of meetings set by our SDRs and in the number and size of our RFP submissions. The growth in all these parameters was also fueled by increased demand for our newer Event Platform and Virtual Classroom products.

We believe that these top-of-the-funnel demand indicators as well as our growing sales pipeline signaled that we are positioned well competitively, that our newer products are well embraced and that the market interest in Kaltura is growing.

This was also echoed this quarter with us winning industry awards, such as the Overall E-learning Solution of the Year category at the 2023 EdTech Breakthrough Awards and 5 awards at the Global Eventex 2023, including in the Best Events Technology, Best Virtual Event Platform and Webinar Software categories.

This quarter, we hosted Kaltura Connect on the Road 2023, a series of 5 exclusive events across New York, San Francisco, Atlanta, London and Berlin. These were the first Kaltura organized physical industry events held since 2020.

We were thrilled to have a speaker line-up of 24 top industry executives from global leading companies, including Kaltura customers such as AWS and SAP, Salesforce, VMware and IBM.

Hundreds of SMBs have the opportunity to network with industry leaders and visionaries and participate in hands-on workshops and interactive roundtables discussing the use of video experiences for marketing and learning and development.

The event focused on helping organizations achieve better ROI and meet their ESG goals through video-based digital engagement particularly in the context of widespread marketing budget cuts and reduction of in-person training sessions.

Speakers and attendees exchange insights about hybrid events, the role of artificial intelligence and video experiences, how online video experiences further diversity, equity and inclusion and the need to converge around a single video platform across multiple products and use cases.

All these aspects were also identified by speakers and attendees as areas where Kaltura brings great differentiated value, helping them to achieve their business goals. Lastly, on the product development front.

This quarter, we continue beefing up our events platform, enhancing event templatization and theme editing, registration management, user authentication, session moderation and content distribution.

We enhanced our video portal with a dashboard for content creators to track better engagement with their content and added better support from multi-language content.

We also upgraded our video conferencing rooms to improve production studio features such as room [ph] branding and lower thirds, storyboard capabilities that enable preparation of session segments and content in advance, a mirror integration for collaborative whiteboarding and enhanced customization and branding capabilities.

We also launched cloud regions for our global SaaS service to address regional requirements for data privacy and security and localized support. This also lays the groundwork for us to be able to launch additional specialized cloud services for highly regulated markets such as federal, health care and financial services.

We would also like to share our move into the world of generative AI, where we are already starting to collaborate with customers to boost our video-based experiences for marketing, communication, learning and training and entertainment and increase their return on investment.

The new capabilities are intended to leverage Kaltura's extensive content libraries and in-depth analytics to add enterprise-grade generative AI that will drive efficiency and reduce content production costs for our customers across learning, knowledge creation, marketing and entertainment use cases.

Kaltura's in-depth analytics enable optimization of the models as well as feedback loops for continuous learning. We plan to insert generative AI capabilities into a broad range of our products and cater to enhance content creation, search and discovery, interactivity and analytics reporting.

This includes, for example, using AI to create new assets from existing content, like repurposing event or webinar content into many highlight reels for highly targeted distribution across social platforms and for enriching our immersive and intelligent content search and discovery services with new interactive capabilities and for making content more widely accessible to help customers comply with regulatory requirements.

Building on our new generative AI capabilities, we also plan to launch a system event creation capabilities for event hosts that include auto generation of content and improved insights intended to streamline event creation, grow attendance, boost content discovery and reach end user experience and increase engagement.

As an open and flexible company and platform, we continue to harness innovation from across the tech ecosystem. Kaltura's partner program already includes generative AI providers that have integrated their solutions into our video experience cloud and are available to Kaltura customers.

As part of our partner program, we tend to launch a Kaltura AI accelerator program that will connect AI start-ups with Kaltura products while facilitating, brainstorming, knowledge sharing and value creation with Kaltura enterprise customers.

We are excited about the great promise that generative AI holds to create hyper-personalized, hyper-engaging experiences on the fly. We believe that this will significantly increase the creation, consumption and ROI from video experiences and that Kaltura and its customers would stand to benefit from it tremendously.

In summary, we continue to make progress towards our goal to return to profitable growth. We posted again record subscription revenue, continued to increase our year-over-year total revenue growth rate and further reduce our adjusted EBITDA losses and cash consumed from operations.

Despite the continued industry headwinds, we continue to be encouraged by leading demand indicators and are excited about the adoption of our newer products and about our continued innovation, especially around generative AI that has the potential to significantly grow the demand, usage and value of our solutions.

We are cautiously increasing both our revenue and adjusted EBITDA guidance numbers for 2023 and are reaffirming our plans to achieve a positive adjusted EBITDA in 2024.

We plan to post positive cash flow from operations in the second half of 2023 and to achieve 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?.

Thank you, Ron and good morning, everyone. As I review our second quarter results today, please note that I will be referring to a non-GAAP metric adjusted EBITDA. A reconciliation of GAAP to 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 second quarter ended June 30, 2023 was $43.9 million, up 5% year-over-year. Subscription revenue was $40.7 million, up 7% year-over-year, while professional services revenue contributed $3.2 million, down 21% year-over-year.

The remaining performance obligations were $174.3 million, up 1% year-over-year, of which we expect to recognize 59% as revenue over the next 12 months. After the close of the quarter, we had a customer reduced their 3 years' commitment by approximately $7 million, spread equally over the years.

We posted in the second quarter a record annualized recurring revenue of $163.4 million, up 8% year-over-year. Our net dollar retention rate was 100% the same as Q2 2022. Within our EE&T segment, total revenue for the second quarter was $31.2 million, up 2% year-over-year.

Subscription revenue was $30.3 million, up 7% year-over-year, while professional services revenue contributed $0.9 million, down 58% year-over-year. Within our M&T segment, total revenue for the second quarter was $12.7 million, representing a 10% year-over-year growth.

Subscription revenue was $10.5 million, up 8% year-over-year, while professional services revenue contributed $2.3 million, up 20% year-over-year. GAAP gross profit in the quarter was $28.6 million, representing a gross margin of 65%, the highest gross margin since Q1 2018.

Within our EE&T segment, gross profit for the second quarter was $23.1 million, representing a gross margin of 74%, up from 68% gross margin in Q2 2022. Within our M&T segment, gross profit for the second quarter was $5.5 million, representing a gross margin of 43% down from 52% gross margin in Q2 2022.

GAAP net loss in the quarter was $10.8 million or $0.08 per diluted share. Adjusted EBITDA for the quarter was a negative of $1 million, improving from a negative of $8.5 million in Q2 2022. Turning to the balance sheet and cash flow; we ended the quarter with $70.6 million in cash and marketable securities.

Net cash using operating activities was $4.1 million in the quarter compared to $22.5 million in Q2 2022. I would now like to turn to our outlook for the first quarter of 2023 and for the fiscal year ending December 31, 2023.

In the third quarter, we expect subscription revenue to grow by 5% to 7% to between $39.8 million and $40.6 million and the total revenue to increase by 4% to 6% to between $42.7 million and $43.5 million. We expect a negative adjusted EBITDA between $0.5 million and $1 million.

For the full year, we expect subscription revenue to grow by 5% to 6% to between $159.6 million and $161.7 million and the total revenue to increase by 1% to 2% to between $170 million and $173 million. We expect a negative adjusted EBITDA between $4.5 million and $5.5 million.

In summary, despite the macro environment and our industry headwinds, given the positive results of the first quarter and our leading demand indicator, we are cautiously increasing our revenue and adjusted EBITDA guidance for the rest of the year and expecting to generate a positive cash flow from operations in the second half of 2023.

We are encouraged by our continued progress towards a profitable growth and are reaffirming our commitment to positive adjusted EBITDA in 2024 and to achieving cash flow from operations breakeven by the second half of 2024 with sufficient cash reserves in dependence of top line growth. With that, we will open the call for questions.

Operator?.

[Operator Instructions] Our first question comes from DJ Hynes with Canaccord..

Ron, I wanted to ask about what you're seeing in terms of retention dynamics in the core EE&T segment. Look, I would have expected to see a bit more sequential growth there coming off of last quarter. Year-over-year growth ticked back down to 2% against an easier comp.

You mentioned this 3-year customer that is reducing its commitment by $7 million over the term of their contract.

Maybe just unpack gross retention dynamics as we think about how the model plays out over the next couple of years?.

Thanks for the question. Happy to do so. So first, from an NDR perspective, you've seen that it was 100%, slightly decreased to 102% last quarter, 100% quarter last year and aligned with our general expectation for the year. We expect that to be gross [indiscernible] around that same number but things are going to pick up again.

From a gross retention perspective, so the gross retention levels were somewhat lower compared to the recent quarters in this quarter. We had approximately 2/3 of the first half reduction in both Q1 and Q2 from parcel reductions. So that means that customers are still with us. And only 1/3 came from kind of full churn or nonrenewal.

So we're no longer working with the customers. So it's more kind of an uptick on parcel reduction because of price pressures or certain projects that people are doing less of -- even in the case of what we've mentioned on the RPO side of next quarter, this is a reduction.

It's not a complete departure of a customer and that's a separate one that we've announced on. The majority of the churn is due to kind of no longer requiring the product but it could sometimes be virtual events that turn physical. And so they're kind of stopping at this point in time. And then the second reason would be certain price pressure.

Only 5% of the reduction is due to, I'd say, product feature gap or service level issues. From a segment perspective question, on the M&T front, there was an improvement from last quarter actually better retention, still lower than usual. On the EE&T side, it was a bit lower than Q1. It's lower than usual.

But one thing to note is that we had a quarter with even lower EE&T retentions that we had this quarter in each one of the last two years. In fact, Q2 2023, the exact same quarter of the year before, was lower in EE&T. So it goes up and down from time to time.

We do expect next quarter to still be lower than usual and that's fueled in part by that customer that we had mentioned. But then in Q4, we expect given current forecast things to come back to usual levels.

And all in all, just to frame things in an overall kind of size, we forecast for this year to be a few percent lower than the usual retention rate. So, nothing much more drastic than that. We're not seeing a crazy reduction but it will be a few percent lower than the typical gross retention rate.

We think it's more than anything else to sign at the time, like we said, squeezing and stopping certain projects and then coming back.

Does that address your question?.

Yes, it sure does. I want to follow up maybe on the pipeline generation metrics. I mean, you sound pretty excited around qualified leads, RFPs, the meetings and all that sort of stuff.

How are things progressing through the pipeline? Like what are you seeing in terms of time lines to get deals over the finish line?.

That's a good question.

So because we did indicate that we are seeing meetings set by SDR tick up and we are seeing kind of a year-over-year sequential growth in that and it was declining mid last year and we are seeing from an RFP submission continued year-over-year and sequential increase and also that was the decline in the second half of last year.

And also to the extent that the specific products that are looked at on RFP, there's a lot more requests for newer products, Event Platform, Virtual Classroom and that's also to continue to pull up the average opportunity side in RFP. So just to give you an example, the Event Platform responses were more than double compared to Q1 and Q4 last year.

So Q2 was like the sum of Q1 and Q4 and a bit more. So it's pulling up. So that's on the top side of the funnel that QBM meetings RFPs are pulling up. At the bottom side from a win rate, we continue to do well. In fact, it was record it was even better than the last x quarters and it's a really strong number. So that's not the issue.

But the bigger issue and that pertains to kind of the general headwinds of the industry of lower budgets, increased price pressure and longer the tail cycles is that they are getting prolonged. So they are taking longer to go through the funnel.

It's not that we're losing the deals and it's not that new opportunities are not opening up but they're taking longer to go through the process. And so for Q3 now, we have a pretty rich pipeline. And let's -- if it closes in Q3, it goes on in Q4 if delays continue.

But that's the biggest story around booking, not the top and not the bottom but the middle..

Our next question comes from George Iwanyc with Oppenheimer..

Maybe following up on the environmental answer that you just provided.

Can you give us a little bit more color on the pricing pressure you mentioned and the competitive dynamics? Are you seeing vendors be more aggressive to take share? Or is this more IT spend driven that your customers are just looking to be more cost efficient?.

It starts with the latter of the customers need to have less money -- to spend less money and that it does also affect competitors' willingness to reduce prices, both for new bids as well as existing customers, even more so existing.

The biggest story in Kaltura has been that over the years, we've received again and again the people want to switch to us and we still have quite a lot of switches. And that's both because the product is better and stronger but also because we could uniformly address multiple use cases across external, internal on-demand live.

And we also see a lot of that, a lot of consolidation. And so the question is when they do that? In a typical year, they jump on and say, look, we already want to do this. It saves us money. It's more efficient. It's great.

And the year like this, if existing vendors says, you know what I'll reduce our cost by 10%, just stick with us, then they might say, you know what, can we push that by year, we'll just continue with the existing vendor.

So we get more statements on bids that had interest to replace to us that they want to delay this a bit until it's a year to make such a switch. And so I'd say it's a combination of both of these aspects.

And like I said, from a retention perspective, the majority of the retention behavior are people that are reducing and a portion of that reduction is pertaining to price. It's not just a change in need, like a physical -- a virtual event moving physical but people say, you know what, let's just go to a more affordable option right now..

Then following up on the customer engagement with the platform. I know over the last year, you've been gradually adding more low-touch opportunities for customers to directly engage with the platform.

Can you give us an update on what you're seeing there?.

Yes, happy to do that. So as I said, the low-touch is divided to 2 parts. There's the enterprise offerings that are not complete self-serve credit card but you could have that and have less services.

And an example of that would be our Event Platform, our EP product which was a reincarnation of our original VE, Virtual Event solution that was rich with services that were required by Kaltura, that automated things, so you could do it yourself through templatization.

And then the second piece is complete self-serve which is credit card and that also lends itself more to departmental sales and even more so SMB and SME. So let me start with the first one which is lower touch. Yes, indeed, a lot of what's happening is increased sales that are using products that are more lower touch.

That's what I said earlier also, the demand that's growing for our EP product that's picking up. And you can see that the ratio of professional services over revenues continue to go down and there's continued to be nominal decrease in our professional services on a year-over-year basis and we expect that to do this year, et cetera.

From a complete self-serve, we're making good progress on optimizing the products. We've had more pickup of users. But I said earlier that this is not one of these things that's going to make a big change to this year's revenue.

And I'm not trying to over promote it until such time as we could tell you, look, this is now really moving the needle for us as a company and our bookings and growth. Are we making progress and deploying it? Yes.

But I wouldn't -- again, I wouldn't start talking about the revenue impact of this over the next few quarters until next year, it should be an impact..

Great. And last question for me. On the generative AI functionality that you're putting into platform.

Can you give us some perspective on timing? Is this something that you look at as primarily driving customer stickiness and potential expansion? Or do you see some price changes also or new products that could fall out of the efforts [ph]?.

Yes. So we started to collaborate already with customers to boost our experiences with AI. Broadly, the AI plans are divided into, I'd say, 3 buckets. There's the video analysis and metadata enrichment. So it's not creating video but it is around the video. And that's where our rich [ph] media asset is enhanced with AI.

So for example, if you're adding better ASR which is transcription, using, for example, Whisper open-source project or are we doing better OCR in understanding the -- what's inside the video, or we doing speaker identification, what's called diarization, that you can actually understand who's talking when in the video or titling or chaptering or keyword identification or summarization of the text or post creation.

So, all these is expected to happen over the next few months. There's already pilots out there running with customers and we're excited about that. The next step after is content creation when it's the actual video creation and editing. And here too, I divided it into 2 parts.

There is a part where there is existing video and all you doing is repurposing. It's more like clips or highlight reels and that's going to come in sooner. And then there is the more robust full generation of videos, so you insert text, you insert audio and images and you get a video in an automatic way.

That's not in the immediate short future plans but we do expect to get there.

I'd say, by and large, the big opportunity that AI introduces is compressing 2 things that used to have been separate which is production and distribution and the ability to have that on the fly and highly personalized so that each person gets the video and the right content, the right context at the right time to maximize the actual engagement is really, really interesting.

And then on top of creation of video, there's image generation for social posts, like thumbnails that are creating on the fly. And then the third category, I said there is three, there's the big analysis [indiscernible]. There's content creation.

The third is just general AI-powered features that are not related to video but are touching the experience. So for example, assistance for the events or wizard for automatic generation of events and webinars, so you basically insert what you want to do and it creates you the webinar. That third piece is also advancing in parallel to the first one.

So it's less video-centric but it is experience-centric. So it's all going to happen over the next few months but pieces of it are going to take longer. It's a multiyear strategy. As I said earlier in my script, we are also banking on partners and we are historically known to do that really well and we expect to do that.

And yes, we're excited about AI but it's -- we're in an interesting place because we have the content, we have the experience and we have a lot of data and we own the data horizontally in the enterprise for users for a lot of different use cases. So if you add the AI on top of that, that's going to be quite powerful..

Our next question comes from Ryan Koontz with Needham & Company..

Ron, sounds like you're relatively pleased with the sales execution here. And I wonder if you could reflect on what you can share in terms of color on organizational strategy, process changes you've made to improve your predictability and productivity. I mean, despite, obviously, some of the headcount cuts you guys have turned it around here.

So -- what can you reflect that you've made some changes to -- in the organization that you think is having results?.

a, further train and enable our staff to grow from internal to external and to do CMO sales together; b, enable our team to work better in lower touch product environments and more product-led growth where people could start playing with the product and then getting the sale done, even if it's an enterprise sale, not complete self-serve sale and how to support that from product marketing through sales but also earlier than that from product and marketing and the whole organization is aligned to do so well.

And I'd say that by doing so, we've also gotten other competitors that we have done less work against in recent years. And I think we're doing better in being able to tell the story and why Kaltura and how we're better situated. We're getting a lot of folks that are interested in making these switches.

And I think you're going to see a lot more of that in the quarters to come. So these are some of the improvements that we've made..

That's great. I wonder if you could comment at a high level kind of what you see strategically happening in the industry. We saw kind of the Brightcove, Yahoo announcement, I don't know if you saw this morning but Hopin was acquired by RingCentral. It's a little bit of a stretch for them. I don't think they know much about events and such.

But what are your thoughts on the industry consolidation, collaboration? Are there strategic channel relationships? We've discussed in the past, do you think can come to bear for Kaltura and any thought on industry, I'd appreciate..

Yes, great question. Starting with Brightcove and Yahoo, that's not a channel, nor a strategic kind of statement. It's a customer, it's a bigger customer for them which is great but it's not a strategic shift. They've focused on media companies and the classic kind of OVP, online video platform.

As you know, in the media and telecom, we've put a bit more focus on the TV rate delivery which are more mission-critical and could yield greater stickiness and less commoditization, better gross margins ultimately. So there's a bit of a different direction. We are coming down market to also larger media companies.

But Yahoo is in the bull's eye of the focus that Brightcove had always been in. And so far as the acquisition of Hopin, congrats. It just tells that there will be continued consolidation in the space. Hopin are an off -- product that's geared and fitted to the low end or smaller companies, not the large enterprises.

It's kind of the classic self-serve load touch all the way to SMB, SME and not large enterprise. And so it will be interesting to see what the make of it. We don't compete with them much in the market where we are today. And even in the places we did go for complete self-serve.

It was more towards webinar and less towards the event size and the event size, we're doing work with the bigger folks. But it is yet another example of more consolidation that will continue to happen. Do we believe in consolidation? The answer is, yes. And I'm sure we're going to take place in consolidation in whatever form.

The good thing about Kaltura is that we are very horizontal. We're in multiple markets. We're with multiple products. And we are an open architecture that enables to scale and grow and add to a lot of different components. So we could be a very strong consolidator in the market. Insofar as your comment about channels, yes, channel is really important.

Historically, we've had 5% to 10% bookings from channels and it's remained consistent this quarter as well. And I said a few quarters ago that I expect that as part of our expansion into real-time conferencing power products and move into SME, we'll be able to provide more channel sales and that's still the case.

We're working on a few deals right now that will be quite interesting. Hopefully, we'll be able to announce and they are channels that will go to market together with us and our products. So yes, the future will be more channels and more consolidation..

That's great, Ron. Thanks for really thorough response, appreciate that..

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

You got Michael Berg, on for Michael Turrin. Congrats on the quarter. I just have follow-up question around the customer who downgraded by $7 million in the quarter.

Anything to point to across the rest of your large key customers? How is the positioning, whether it's expansion downwards? Anything to point to in color in relation to that $7 million customer you referenced in the script [ph]?.

Yes. First of all, as you saw, we mentioned this customer reduction around the RPO numbers. You saw that RPO numbers jumped nicely in this quarter on a sequential basis. And the main reason for this is the fact that it was a very good season of renewal for us.

And the reason that I mentioned this customer is not because it's such a material customer for the quarterly or even for the annual revenue of the company just because of the fact that it's a $7 million, approximately $7 million impact on the future RPO. So we will report, for example, next quarter.

On an annual basis, as we mentioned, it's basically roughly 1/3 of it going to impact us on the next 12 months. This customer is still a major customer; it's important customers. Actually, we are discussing with them some other deals and they are still paying us a big chunk of money.

So the bottom line is that there will be a short-term impact on the RPO. We don't believe that the RPO will go below the levels that we saw earlier this year. But at the same time, we do not anticipate it to continue to grow significantly in the coming quarter..

Yes. And in the case of this specific customer, it's a reshift in their strategic direction that caused them to do something a bit different. And as I said earlier, about different reasons for churn not related to our product, not related to competitors, it's not related to service level.

It's related to a decision that we've made to do a bit -- something a bit different..

And in the next 12 months, the impact is immaterial to the business..

Our next question comes from Gabriela Borges with Goldman Sachs..

This is Jake Titleman, on for Gabriela. Ron, you've talked about customers consolidating all of their video content on Kaltura.

It would be great to get a little bit more detail on how that typically increases your deal sizes? And maybe try and quantify what the upsell and cross-sell opportunity looks like within the installed base?.

Yes, happy to do that. So there's a nice large Silicon Valley company that's been speaking at our conferences that's been sharing their story of 12 different instances and 6 different vendors, that they've consolidated into Kaltura, including the names that you all know.

And their view is that they've broken workflows otherwise and it's a lot more costly. And this -- you can also get unified analytics across the enterprise and much better ROI if you move to one platform and so they started replacing many of them and it's a repeated theme for us. And so what the motion is usually from an upsell and cross-sell.

It varies. I mean historically, we've entered through the internal use case and more VOD, call it the video portal or video content management layer, working with the CIO or with the HR or L&D department, learning and development.

And then the expansion would be there more and more instances across different groups or would be moving out to also include marketing groups through events or external use cases with similar products. So when you think about the video portal, it could serve internally, they could also service externally.

And so what we increasingly see is that the CIO was tasked with owning all video workflows on behalf of the CMO and others. Of course, they're involved in the purchasing decision but they're trying to get to a point where there's one platform that get us to all that.

Now forever, there will be a stand-alone separate conferencing system for the productivity and collaboration stack and these would be kind of the usual suspects. But everything except that is consolidating to be provided by a single vendor. And you'd note that most other, if not all other vendors have not even taken the approach of consolidation.

This isn't something we started talking about this or last year. This goes back to our origin that we've stated, we believe there's a need for one Lego kit that goes across the enterprise that is tightly integrated, so it could power workflows but also horizontal and interoperable.

Insofar as how that's affecting ARPU, we'll look at the company, I mean, we've consistently grown and grown and grown our ARPU. We don't report on that on a quarterly basis.

We talk more about it on an annualized basis, just state that it's growing but it's the new deals they're going up and the average MR per customers pulling up and we're just getting bigger and bigger deals.

Obviously, that works to the other direction that in parallel, we're also getting into more SMEs and ultimately will self-serve smaller customers but that's my choice. But if you think about the size of deals with large customers, this is very big. So if you take a bank, we are in 6 of the leading banks in the U.S. as a vendor.

They may have started with training and then it moved into webcasting and then it moved into events and are now using also for mission-critical empowerment of their wealth managers to offer video for wealth management. And they've grown from accounts that were worth a few hundred thousand into accounts that are in the multimillion.

So it's anywhere between a 5x. We ultimately believe it could be a 10x growth in these accounts and that's going to pull up our MDR.

So we're seeing the beginning of it because this year is a tough year in the last couple of years coming out of COVID and then getting into this financial situation is causing a lot of these companies to say we're going to do it more gradually. We're going to wait it off. We want to do this.

But at the moment, it hits, it's going to pull us back up, we believe, into not only the historical MDR rates but even higher rates.

The last thing I'd say is that a lot of these things, because they're moving into the world of content creation, not just content management, could lend themselves to be more usage-based and therefore, could even have even higher MDR and could be the gift that keeps on giving.

And we believe that the model could change for more FTE base into more usage base as we continue to progress. But let's take it one quarter at a time and see how this hits..

Yes, that makes sense. And then I guess just a follow-up on that.

What needs to happen to get Kaltura back to 10% growth? And how much of that is in your control versus depending on the overall spending environment needing to improve?.

That's a good question. So let's start from the other side of it, by the way. Nothing needs to happen for us to be profitable. We are on the way to do that. We've always promised that. We're executing on that cash flow profitability, that's done.

Insofar as growing, as you can see, we're doing better than the other companies out there that are guiding down, that are reducing revenue, we are not. Not to say that we're celebrating because this is a far cry from what should happen but it's a very, very tough couple of years for the industry.

I think that what keeps us more optimistic is the fact that we're seeing, a, the type of companies, the logos are great, big leaders, top blue chip customers that are signing with us, including popped up tech companies that are choosing nothing but the best.

And that we've landed, we've stuck the landing around expansion into the new markets that we are entering now as we've done historically because we've entered for the first time, many markets and have done so well.

And so I think that what needs to happen other than continue to optimize and finesse what we're up to is for the markets to start turning around for budgets to start being more available for the squeeze to start coming down. Now is it the same that until markets don't flourish, we're not going to get to north of 10%? No, that's not the case.

We do believe that the second half of the year, given all the deals that have come into our pipeline, albeit taking more time, will come to fruition. We do expect that we will continue to grow and accelerate. And we expect that after a certain period, we will reach that milestone.

But it's hard to say, honestly, in our industry, how quickly that will take place. We're very, very confident that ultimately, we're going to do that much better than that, because we've always been on the top of the heap of companies in our industry and we're going to come back to that..

Our next question comes from Mike Funk with Bank of America..

A couple if I could. I think earlier you mentioned you expect churn to remain elevated for the remainder of the year. Just curious, extension of that.

Does that imply you expect it to improve next year? And I guess, if so, why? Or was that comment is more about your forecast period for the calendar '23 year?.

Yes, one correction. I'll let Yaron to answer this, he is jumping to answer. But before, just one comment. I mentioned that we expected to still not be amazing next quarter but that in Q4, it will already improve, not next year. Go ahead, Yaron..

Yes. So as Ron mentioned, the most important point that we do see it turning around in Q4 and not even waiting for Q1 next year.

And one of the reasons that we are still pointing to the fact that maybe next quarter, it's still going to be down is mainly because of the fact that we mentioned this specific customer that actually -- the actual reduction happened in July and not in Q2. So it will impact the retention number in Q2. Without it, it will be different.

The other point that I mentioned regarding that we are still projecting that the net-dollar retention rate is going to be in the same level for next quarter. So despite the fact that we see lower retention, we do see a very balanced situation in the net dollar retention rate.

And as mentioned, the situation around the retention is going to turn around based on what we see right now in Q4 this year..

Okay. Thank you for the clarification on that..

Yes. I just want to say that we have decent visibility because these are large enterprises. It's not SMBs or SMEs and it's not something that's kind of flooding all our different customers in specific cases which we see and we know. So that's where we're at. Yes. Go ahead. You had another question..

Sure. One more quick one. You also mentioned pricing pressure earlier. I mean it seems that the industry has been relatively competitive for some time. And obviously, competitors willing to discount from the bundle or a discount to win deals.

Can you just give us some more detail on the intensity of the pricing pressure? Has it increased recently? Are there signs there might be some maybe improvement in pricing? Any kind of comments around pricing and the dynamics there would be helpful..

Yes. I think by and large, it's to the tune of 10%, 15% type of price pressure when you're looking at renewals, it's not 20%, 30%, 40%. I think it's just more companies -- more contracts have come to renewal as the more time it passed in the situation. And so it's -- there are some quarters that are more affected than others.

I can't tell you that tactically, we're seeing in quarter, exit [ph] quarter why a big, big difference. But I can tell you that it's still there. And we do expect that to gradually ease. Like I said, the bigger issue or the interesting part is that people do want to make the switch.

And so it's just a question of when they're not going to care that much about in their budget that they're going to say, you know what, this is more efficient for the mid- to long term, this is a better solution. We're now raising our eyes beyond the immediate term and are doing what's right for our company for the midterm.

And when that happens, then they chose Kaltura. When all they look at is myopically at 2023, then they choose otherwise. And they're honest about that. And so I just -- I cannot tell you do they change their perspective in this or that quarter, I can tell you that it will change. It has changed. Every time in the past, the cycles like this have occurred.

And when it does, we're going to be even more in a better position. And again, I got to take you back and again to the point that we are executing better than the other folks out there. And you could see the growth rates and the impact that both retention as well as booking limitations have on them. We're still doing that..

So it's all very helpful..

[Operator Instructions] Our next question comes from Austin Cole with JMP Securities..

So I'm just wondering about the plan, looks like there's still the $33 million in debt that's current on the balance sheet.

If you could comment on that?.

Yes. This debt will mature early next year but we are in the final stage of negotiation on refinance of the whole thing. So the net impact on our cash level is going to be -- it's basically going to be zero and we believe that this quarter, we'll be able to refinance it.

We have a few proposals on the table and the proposal by the way, are better than what we have right now. So no impact on our cash and it's going to be renewed and maybe even we'll have some positive impact on our cash level..

Great. And then if I could just throw in a quick follow-up for Ron. Just to follow up on the Gen AI topic. You guys mentioned some of the new features, sounds pretty intriguing.

Can you comment, is there any new talent you guys are bringing aboard there? Any testing you guys are doing? And then how can we think about any incremental revenue in the out years?.

Yes. So we are absolutely bringing in talent and looking at different options of -- we've always been a build by partner and we are looking at more partnerships in this space and there's a lot of great stuff and hopefully, we could update you in the near future. And so far, as incremental revenue, too early to say that.

I mean, for sure, it's going to impact and it's going to do well. I think demand and usage of the platform is going to go up. But at this point, it's not changing. I mean coming back to showing that we have increased guidance for the year. We are -- we've done okay for Q2 versus expectations. We beat them. And also for Q3, we're coming ahead of Street.

And for the year, we've increased all numbers cautiously and we're doing that bearing in mind that there's still the headwinds and we're taking them into consideration. So yes, we're not inserting AI into these assumptions. This is all upside and we believe that the upside will come..

That concludes our question-and-answer session. I would like to turn the call back over to Ron Yekutiel, Chief Executive Officer, for any closing remarks..

Yes. I'd like to thank you all for your great questions and continued support.

As I mentioned, I think it was a good quarter and a lot of good signs into the future in the parentheses of the market that we're all in but we're excited about the top of the funnel trends that we're seeing as well as with additional developments, including AI and other stuff and are excited to see how this year continues to unfold.

Have a wonderful day. Stay safe, be well..

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