Kaltura, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited consolidated results; amounts below are U.S. dollars in millions unless stated otherwise. Kaltura provides video experience software and services, primarily through SaaS and PaaS subscriptions, across Enterprise, Education and Technology (EE&T) and Media and Telecom (M&T).
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $41.1 | $43.0 | $124.7 | $122.3 |
| Gross profit / margin | $26.4 / 64% | $27.8 / 65% | $79.3 / 64% | $75.9 / 62% |
| Operating loss | $14.9 | $5.9 | $45.0 | $20.2 |
| Net loss | $19.4 | $25.2 | $53.7 | $43.4 |
| Adjusted EBITDA (non-GAAP) | $(7.2) | $(2.3) | $(24.1) | $(4.6) |
- Q3 subscription revenue was $37.9 million, up slightly from $37.7 million; professional services revenue fell to $3.1 million from $5.3 million.
- For the first nine months, subscription revenue increased to $112.9 million from $106.5 million, while professional services declined to $11.8 million from $15.8 million.
- Q3 revenue declined 4% year over year, as M&T revenue fell 13% and EE&T fell 1%. Nine-month revenue rose 2%; EE&T increased 3% and M&T increased 1%.
- Operating expenses increased 22% in Q3 and 29% for the nine-month period, driven by higher research and development, sales and marketing, and general and administrative costs. Nine-month stock-based compensation was $17.8 million, versus $12.9 million.
- Q3 net loss was lower than the prior-year quarter, largely because 2021 included a $16.8 million warrant fair-value charge. Operating loss increased, reflecting higher operating expenses and lower quarterly gross profit.
- Net cash used in operating activities was $41.0 million for the nine months, versus $11.4 million in 2021. Investing used $49.2 million, principally reflecting $47.4 million of marketable-security purchases; financing used $0.1 million.
- At September 30, cash and cash equivalents were $52.6 million and marketable securities totaled $41.7 million. Loans totaled $36.5 million, including $5.0 million current; $35.0 million of revolving credit commitments was available, subject to borrowing conditions and borrowing-base limits. The company reported covenant compliance.
- Remaining performance obligations were $169.2 million, of which the company expected to recognize 65% as revenue over the next 12 months. ARR was $152.9 million versus $151.7 million; net dollar retention was 96% versus 117% a year earlier.
Material changes, outlook and risks
- Restructuring: The August 2022 plan targets a workforce reduction of approximately 10%. Kaltura recorded $0.9 million in severance costs through September and expected approximately $0.4 million more in Q4, with the plan substantially completed in 2022. Management cautioned that expected savings and benefits may not be achieved.
- Operating structure: Kaltura planned to combine EE&T and M&T into a single horizontal structure and report as one segment beginning in Q4 2022.
- Liquidity outlook: Management stated that cash, operating cash flows and available revolving credit were expected to meet operating, investing and financing needs for at least 12 months. However, operating cash use was significant, and the filing warns additional financing may not be available on favorable terms or at all.
- Debt and commitments: The term loan bears floating-rate interest, reported at 7.24% on September 30, 2022, and its remaining balance is due January 2024. Non-cancelable cloud and other service purchase commitments totaled $55.2 million through 2026.
- Business and market risks: Management cited customer contraction and renewal risk, currency exposure, competition, evolving markets, inflation and rising interest rates, and geopolitical and regulatory risks, including possible effects of Russia-related sanctions. NDR weakness partly reflected a major customer’s reduced business and currency headwinds. A hypothetical 10% currency-rate change was estimated to affect nine-month results by $2.3 million for NIS and $2.8 million for euros.
- Controls and contingencies: Disclosure controls were not effective at the reasonable-assurance level because of a previously identified material weakness in fair-value controls for stock compensation and warrants; remediation continued and was not yet fully validated. Kaltura reported no litigation expected to have a material adverse effect.
- Unusual governance item: A stockholder rights plan adopted in August 2022 may substantially dilute an unapproved holder reaching 10% ownership, or 20% for a passive institutional investor. Rights were scheduled to expire August 6, 2023, unless earlier terminated or changed.
Important facts for investors to verify
- Whether the workforce reduction and cost actions deliver savings without impairing growth, customer support or execution.
- Whether subscription growth, customer retention and renewals recover, particularly given 96% net dollar retention and Q3 revenue contraction.
- Whether operating cash burn improves and liquidity remains adequate, including the availability of revolving credit under its borrowing-base and covenant terms.
- Progress on the January 2024 term-loan maturity, floating-rate exposure, and the $55.2 million of purchase commitments.
- Whether the material weakness is fully remediated and the rights plan’s terms or status change.