Kaltura, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited financial figures below are in U.S. dollars; amounts are shown in millions unless noted. Kaltura provides video software and services through Enterprise, Education and Technology (EE&T) and Media and Telecom (M&T) segments.
Financial results
| Metric | Q2 2021 | Q2 2020 | Change |
|---|---|---|---|
| Revenue | $41.6 | $28.7 | +45% |
| Subscription revenue | $36.5 | $25.0 | +46% |
| Professional services revenue | $5.1 | $3.8 | +36% |
| Gross profit / margin | $26.0 / 62% | $18.0 / 62% | +45% gross profit |
| Operating income (loss) | $(5.8) | $1.1 | Turned to loss |
| Net loss | $(2.7) | $(11.0) | Loss narrowed |
For the six months ended June 30, revenue rose 45% to $79.3 million and gross profit rose 44% to $48.1 million; gross margin was 61%, unchanged year over year. Operating loss was $14.4 million versus $2.8 million, and net loss was $18.3 million versus $16.0 million. Operating expenses increased 89% in Q2 to $31.8 million, including research and development of $11.8 million, sales and marketing of $10.5 million, and general and administrative of $9.4 million.
Q2 revenue increased 61% in EE&T to $30.2 million and 14% in M&T to $11.4 million. EE&T gross margin declined to 70% from 74%; M&T gross margin improved to approximately 43% from 40%. The company attributed margin pressure principally to cloud infrastructure and third-party costs; M&T professional services remained loss-making.
Cash, debt and liquidity
- At June 30, cash and cash equivalents were $29.8 million; cash, cash equivalents and restricted cash totaled $30.2 million.
- Six-month operating cash use was $5.7 million, compared with $3.2 million in 2020; investing cash use was $2.3 million, and financing cash provided was $9.8 million.
- Long-term loan principal was $62.0 million, including $22.4 million outstanding under the revolving facility and approximately $12.5 million of additional revolver availability. Debt is floating-rate, secured, and due in 2024. The company reported compliance with its financial covenants at June 30.
- Current assets of $65.8 million were below current liabilities of $101.8 million. Current liabilities included $59.1 million of deferred revenue.
- After quarter-end, the IPO generated reported net proceeds of $155.4 million. Preferred shares converted into 76.3 million common shares, and warrants were exercised for 7.1 million common shares. A $1.6 million payment to an affiliate of an underwriter was also made in connection with the IPO.
Changes, outlook and notable items
- Management reported Q2 annualized recurring revenue of $145.4 million, up from $99.6 million a year earlier; net dollar retention was 121%, versus 105%. Remaining performance obligations were $156.3 million, with 65% expected to be recognized over the following 12 months.
- No formal numerical revenue or earnings guidance is provided in the supplied filing text. Management expects continued investment in product development, sales and marketing, international expansion, and public-company costs; it expects R&D, sales and marketing, and G&A expenses to rise in the near to medium term.
- Management expects infrastructure scaling costs to weigh on margins in 2021. It notes that pandemic-driven usage supported demand but that some customer contracts do not increase fees for usage above specified levels. COVID-19 effects and the durability of demand remain uncertain.
- Q2 net loss benefited from a $5.9 million warrant fair-value gain. After the IPO, the company recorded a further $16.8 million warrant remeasurement expense, expected in Q3 2021; the warrants then converted into common stock.
- Six-month results included $1.7 million of other operating expense related to forgiveness of loans to certain directors and executives, including tax gross-up costs. The company also disclosed a material weakness in controls over fair-value estimates for stock compensation and warrants, which contributed to a restatement of 2020 financial statements. Remediation was in progress; disclosure controls were deemed ineffective at June 30.
- Risks highlighted include ongoing losses, competition and uncertain market growth, customer concentration and renewal risk, cloud-service reliability and cost, cybersecurity and privacy exposure, foreign exchange and interest-rate exposure, and operations in Israel. No pending litigation was identified as likely to have a material adverse effect. The filing also disclosed a post-quarter commitment to purchase at least $40 million of cloud hosting services over five years.
Key facts for investors to verify
- Whether rapid revenue and ARR growth can continue, and whether the 121% retention rate and contracted obligations convert into recognized revenue and cash collections.
- Whether cloud and hosting costs, particularly in EE&T and M&T professional services, allow gross margins to hold or improve.
- Post-IPO cash and debt balances, the use of IPO proceeds, and the effect of the warrant remeasurement and $1.6 million payment.
- Progress in remediating the material weakness and controls over fair-value accounting, given the disclosed restatement.
- Customer concentration, renewal trends, and exposure to usage growth without corresponding price increases.