Kaltura, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results, compared with Q1 2022. Kaltura provides video creation, management and collaboration products through SaaS and PaaS offerings, organized in Enterprise, Education and Technology (EE&T) and Media and Telecom (M&T) segments. Financial amounts below are in U.S. dollars.
Financial and operating performance
- Revenue: $43.3 million, up 4% year over year. Subscription revenue rose 9% to $40.4 million; professional services revenue fell 39% to $2.9 million.
- Segment trends: EE&T revenue grew 5% to $31.3 million and gross margin increased to 73% from 70%. M&T revenue was essentially flat at $11.9 million; gross margin declined to 38% from 46%, with lower professional-services revenue and higher production costs cited as factors.
- Profit and margins: Gross profit was $27.3 million, with a 63% gross margin, approximately unchanged from Q1 2022. Operating loss narrowed to $12.0 million from $14.7 million; net loss narrowed to $12.8 million from $16.9 million. Net loss per share was $0.09 versus $0.13.
- Adjusted EBITDA: Loss of $2.7 million versus a loss of $8.4 million in Q1 2022. This is a non-GAAP measure; stock-based compensation and restructuring charges are among the adjustments.
- Cash flow: Operating cash use was $7.4 million, improved from $19.6 million used a year earlier. Cash, cash equivalents and restricted cash declined by $3.1 million during the quarter to $42.8 million. Operating cash flow included a $9.6 million decrease in deferred revenue, partly offset by a $10.6 million reduction in trade receivables.
- Liquidity and debt: Cash and cash equivalents were $41.6 million and marketable securities totaled $35.4 million at quarter-end. Term-loan borrowings were approximately $34.4 million, at a disclosed current rate of 8.66%; the remaining balance is due January 14, 2024. The $35 million revolving facility had no balance outstanding and was available for borrowing, subject to its terms and borrowing base. The company reported compliance with its debt covenants.
- Other metrics: ARR was $159.6 million, up 8%; net dollar retention was 102%, down from 107%. Remaining performance obligations were $167.4 million, versus $171.2 million a year earlier; 58% was expected to be recognized as revenue over the next 12 months.
Material changes versus Q1 2022
- Subscription growth was partly offset by a sharp decline in professional services revenue, especially in M&T. EE&T added $1.6 million of revenue, while M&T revenue was nearly unchanged.
- Operating expenses fell 4% to $39.2 million, chiefly due to lower research and development and sales and marketing costs following workforce reductions. General and administrative expense rose 6%, including higher stock-based compensation.
- Financial results included $1.8 million of net financial income, compared with $0.2 million of net expense in Q1 2022, primarily reflecting exchange-rate differences and interest income.
- Share-based compensation expense increased to $7.2 million from $5.7 million. At March 31, the company had $48.8 million of unrecognized compensation cost expected to be recognized over approximately two years.
Outlook, commentary and risks
- Management outlook: The filing provides no specific quarterly or full-year revenue or earnings guidance. Management expects lower demand, customer spending and available budgets amid economic uncertainty, and does not expect the pandemic-era rapid growth trend to continue in 2023.
- Reorganization: A January 2023 plan reduced the workforce by approximately 11%. Management expects about $16 million of annualized cost reductions and substantial completion in the first half of 2023. The quarter included $0.9 million of related severance expense.
- Profitability: Management describes the changes as intended to improve efficiency and support a path to profitability. It also expects near- and medium-term reductions in research and development and sales and marketing expense, while continuing focused investment in growth.
- Key exposures: Risks include macroeconomic weakness and customer spending, competition and renewal or expansion performance, foreign-exchange movements, cybersecurity and privacy, and dependence on employees and operations in Israel. A hypothetical 10% currency movement was estimated to affect quarterly results by $0.9 million for the NIS and $1.2 million for the euro, after hedging where applicable.
- Debt and funding: The term loan’s January 2024 maturity and floating interest rate create refinancing and interest-cost risks. Management believes available operating cash, cash on hand and revolving-credit availability will meet needs for at least 12 months, but cautions that additional financing may be costly or unavailable. Cash deposits exceed insured limits.
- Commitments and contingencies: Non-cancelable cloud and other provider purchase commitments totaled $53.1 million through 2026. Operating lease liabilities totaled $22.2 million. The company reported no pending litigation it believed likely to have a material adverse effect.
- Controls: Management concluded disclosure controls and procedures were effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Assess the ability to refinance or repay the $34.4 million term loan due in January 2024, including covenant and revolving-facility availability.
- Track whether ARR growth converts into recognized revenue and cash generation, particularly given 102% net dollar retention and declining RPO.
- Monitor M&T gross-margin recovery and whether the professional-services decline reflects mix, timing or weaker demand.
- Evaluate execution and realized savings from the 2023 reorganization against its approximately $16 million annualized target, including effects on customer support and growth investment.
- Consider the scale of stock-based compensation and potential dilution: 39.4 million options and RSUs were excluded from diluted loss per share as anti-dilutive.
- Review customer concentration, including one M&T customer that represented 10.7% of Q1 revenue, and the company’s exposure to uninsured bank deposits and Israel-related risks.