Kaltura, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unless otherwise noted, amounts are in U.S. dollars; financial statement amounts are in millions. Kaltura provides video creation, management and collaboration services through subscription and platform offerings, reported in Enterprise, Education and Technology (EE&T) and Media and Telecom (M&T).
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $41.7 | $37.7 | +11% |
| Gross profit / margin | $26.3 / 63% | $22.1 / 59% | +19%; +4 percentage points |
| Operating expenses | $40.9 | $30.7 | +33% |
| Operating loss | $(14.7) | $(8.6) | Loss widened |
| Net loss | $(16.9) | $(15.6) | Loss widened by $1.4 |
| Adjusted EBITDA (non-GAAP) | $(8.4) | $(1.3) | Loss widened |
| Cash used in operating activities | $(19.6) | $(6.6) | Use increased $13.0 |
Subscription revenue rose 14% to $37.0 million; professional services revenue fell 13% to $4.7 million. EE&T revenue increased 9% to $29.7 million, while M&T increased 15% to $12.0 million. Overall gross margin improved, led by higher subscription mix and operational efficiencies, particularly in M&T. Professional services remained loss-making in both segments in Q1 2022.
Research and development, sales and marketing, and general and administrative expenses rose 36%, 44%, and 44%, respectively, primarily reflecting increased staffing and related costs; G&A also rose with public-company costs. Revenue growth was outweighed by higher operating expenses, increasing operating and net losses. The year-ago period included $1.7 million of unusual operating expense for director and executive loan forgiveness, and $4.2 million of warrant fair-value expense. Lower warrant-related financial expense in 2022 partly offset the higher operating loss. Q1 2021 net loss per share is also affected by preferred-stock accretion and a much lower weighted-average share count, so per-share comparison is not directly like-for-like.
Liquidity, debt and cash flow
- Cash and cash equivalents were $119.5 million at March 31, 2022, down from $143.9 million at year-end; cash, cash equivalents and restricted cash totaled $120.0 million.
- Current assets were $156.8 million and current liabilities $92.4 million. Deferred revenue totaled $50.5 million, including $48.8 million current.
- Long-term loans totaled $37.9 million, including $3.5 million current. The term loan bears interest at 4.50% as of quarter-end, with remaining principal due January 2024. The $35.0 million revolving commitment had no borrowings outstanding and was available subject to borrowing conditions and borrowing-base limits. The company reported compliance with its debt covenants.
- Operating cash outflow of $19.6 million reflected the net loss and working-capital outflows, including lower deferred revenue and higher receivables. Investing cash outflow was $4.1 million, including $1.8 million of capitalized internal-use software and a $1.9 million short-term bank deposit; financing cash outflow was $0.8 million.
- Management said cash on hand, operating cash flows and revolving-credit availability should cover operating, investing and financing needs for at least the next 12 months. It noted future funding needs could require additional borrowing or equity financing, which may not be available on favorable terms or at all.
Operating metrics, outlook and notable items
- Annualized recurring revenue (ARR) was $147.7 million, up from $128.6 million a year earlier. Net dollar retention was 107%, versus 116%; average ARR per customer increased 15% year over year.
- Remaining performance obligations were $171.2 million, including $50.5 million billed and $120.7 million unbilled. The company expects to recognize 59% over the next 12 months.
- No numerical full-year revenue or earnings guidance is provided in the filing. Management expects continued investment and higher absolute spending on research and development, sales and marketing, and general and administrative functions; it anticipates these expenses may also rise as a percentage of revenue in the near and medium term. It expects M&T margins to vary with customer onboarding and usage, while describing longer-term potential for improvement.
- New commitments included $68.9 million of non-cancelable third-party purchase obligations through 2026. On April 6, 2022, Kaltura signed a lease for a new Israel property; expected payments over the initial term and first extension period total approximately $26.4 million, with commencement expected in Q2 2022.
- The company adopted lease accounting on January 1, 2022, recognizing operating lease assets and liabilities; adoption was not material to results or cash flows. It also began hedging forecast NIS payroll costs; derivative assets were $0.5 million at quarter-end. A hypothetical 10% exchange-rate movement was estimated to affect results by $1.8 million for NIS and $1.1 million for euros, after NIS hedges.
- Key stated risks include continuing losses, ability to sustain growth and customer retention, competition and changing markets, customer concentration, cybersecurity and service performance, foreign-exchange exposure, and geopolitical conditions. The filing added risks relating to export controls and sanctions, including potential effects of the Russia-Ukraine conflict on customer service and payments.
- Disclosure controls and procedures were deemed ineffective at March 31, 2022 because of a previously identified material weakness in controls over fair-value estimates for stock-based compensation and warrant liabilities. Management reported remediation work but had not concluded that the weakness was fully remediated. No pending litigation was identified as likely to have a material adverse effect.
Important facts for investors to verify
- Whether subscription growth and ARR expansion can be sustained while net dollar retention remains below the prior-year level.
- Whether expense growth and operating cash burn moderate, and how much liquidity remains available under the revolver after borrowing-base restrictions.
- Debt repayment capacity and covenant headroom, particularly with the term-loan balance due in January 2024.
- Execution and financial impact of the new Israel lease and the $68.9 million purchase commitments.
- Progress and eventual effectiveness of remediation for the material weakness in financial reporting controls.
- Potential exposure to foreign-exchange movements, sanctions/export-control changes, and other disclosed business risks.