Kaltura, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial statements are unaudited; dollar amounts below are in U.S. dollars unless noted. Kaltura provides a video experience platform and reports two segments: Enterprise, Education and Technology (EE&T) and Media and Telecom (M&T).
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $43.0m | $30.6m | $122.3m | $85.3m |
| Gross profit / margin | $27.8m / 65% | $18.1m / 59% | $75.9m / 62% | $51.5m / 60% |
| Operating loss | $5.9m | $4.4m | $20.2m | $7.2m |
| Net loss | $25.2m | $6.4m | $43.4m | $22.4m |
| Net loss per common share, basic and diluted | $0.26 | $0.38 | $1.00 | $1.26 |
| Adjusted EBITDA, non-GAAP | $(2.3)m | $1.7m | $(4.6)m | $2.8m |
- Q3 revenue grew 40% year over year; nine-month revenue grew 43%. Subscription revenue was $37.7m in Q3 and $106.5m for the nine months, with the remainder from professional services.
- Q3 EE&T revenue increased 45% to $30.4m; M&T revenue rose 31% to $12.6m. For the nine months, EE&T grew 57% to $88.0m and M&T grew 18% to $34.3m.
- Q3 gross margin improved to 65% from 59%; nine-month margin rose to 62% from 60%. Management cited lower data-center spending and improved M&T margins, while cloud infrastructure costs continued to weigh on margins. M&T’s nine-month gross margin was 40%, versus 71% for EE&T.
- Operating expenses rose 50% in Q3 and 64% for the nine months, including substantial increases in R&D, sales and marketing, and G&A. Stock-based compensation was $12.9m for the nine months, versus $2.8m a year earlier.
Cash, debt and liquidity
- Cash and cash equivalents were $179.7m at September 30, 2021, compared with $27.7m at December 31, 2020; current assets were $220.5m and current liabilities $108.0m.
- Operating cash flow was negative $11.4m for the first nine months, versus positive $1.7m in 2020. Investing cash outflow was $3.8m; financing cash inflow was $166.9m, primarily reflecting the IPO.
- The July 2021 IPO, including the underwriters’ option exercise, raised $155.6m net. Preferred shares and warrants converted into common stock at the IPO. Kaltura paid $1.6m to an affiliate of an IPO underwriter under pre-IPO warrant/preferred-stock terms.
- Outstanding credit-facility principal was approximately $61.7m, floating-rate and secured; approximately $12.5m of additional revolving capacity was available. The company reported compliance with its ARR and minimum-liquidity covenants at quarter-end.
- Cash-flow commitments include $78.9m of non-cancelable cloud-hosting and other service purchases through 2026. Management also disclosed a separate commitment to purchase at least $40.0m of public-cloud infrastructure services over five years beginning in Q4 2021.
Outlook, commentary and risks
- No specific numerical revenue or earnings guidance is provided. Management said cash, expected operating cash flow and available revolving-credit capacity should cover operating, investing and financing needs for at least the next 12 months.
- Operating indicators were ARR of $151.7m, up from $107.3m; net dollar retention of 117%, versus 111%; and remaining performance obligations of $162.3m, versus $130.7m. The company expects to recognize 63% of RPO within 12 months.
- Management plans continued investment in product development, sales and marketing, international expansion, and public-company infrastructure, and expects related expenses to increase. It describes longer-term potential for M&T margin improvement, but notes near- and medium-term variability.
- Q3 net loss included $16.8m of warrant fair-value remeasurement expense. The warrants converted at the IPO, so management does not expect further remeasurement of those warrants. Nine-month results also included $1.7m of expense for forgiveness of certain director and executive loans, including tax gross-up, and a $0.8m gain on sale of data-center equipment. Q3 common-stockholder loss also included a $1.6m IPO-related preferred-stock redemption charge.
- The company has a history of losses and an accumulated deficit of $306.7m. COVID-19 drove increased video usage but also contributed to infrastructure costs; management cautioned that pandemic effects, customer usage, renewals, and demand remain uncertain. Other principal risks include competition, customer concentration, service reliability and cybersecurity, foreign-exchange exposure, and operations in Israel.
- Disclosure controls and procedures were assessed as ineffective at September 30, 2021 because of an unremediated material weakness in fair-value controls for stock compensation and warrant liabilities. Previously issued 2020 financial statements were restated; remediation was ongoing.
- The company reported no pending litigation it expects to have a material adverse effect. Ordinary-course legal proceedings remain possible. The filing also reports a customer accounting for 10.76% of Q3 revenue; Vodafone represented 9.7% and Amazon 9.4% of nine-month revenue.
Important facts for investors to verify
- Whether recurring-revenue growth, 117% net dollar retention and RPO convert into recognized revenue and operating cash flow.
- Whether higher cloud, infrastructure, hiring and stock-based compensation costs moderate, and how segment margins—especially professional services and M&T—develop.
- Progress and independent evidence of remediation of the material weakness, and the implications of the prior restatement.
- Debt-facility borrowing availability, covenant compliance, floating-rate exposure and the timing and economics of the cloud-purchase commitments.
- Customer concentration, renewal trends and the durability of demand that accelerated during the pandemic; assess the warrant-related and IPO-related items separately from ongoing operations.