Kaltura, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; unaudited. Unless stated otherwise, amounts below are U.S. dollars. Kaltura provides a video experience platform, primarily through SaaS and PaaS subscriptions, with additional professional services. Its reported segments were Enterprise, Education & Technology (EE&T) and Media & Telecom (M&T); the company announced plans after quarter-end to combine them.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $42.0 million | $41.6 million | $83.7 million | $79.3 million |
| Gross profit / margin | $26.7 million / 64% | $26.0 million / 62% | $53.0 million / 63% | $48.1 million / 61% |
| Operating loss | $15.5 million | $5.8 million | $30.2 million | $14.4 million |
| Net loss | $17.3 million | $2.7 million | $34.3 million | $18.3 million |
| Adjusted EBITDA, non-GAAP | $(8.5) million | $(1.0) million | $(16.9) million | $(2.3) million |
- Q2 revenue rose 1% year over year; first-half revenue rose 6%. Subscription revenue grew 4% in Q2 and 9% in the first half, while professional services revenue declined 22% and 17%, respectively.
- Operating expenses increased 33% in Q2 and 33% in the first half, led by higher sales and marketing, research and development, and general and administrative spending. Q2 net loss also reflects the absence of the prior-year $5.9 million warrant remeasurement gain.
- Subscription gross margin was 74% in Q2; professional services had a negative 38% margin. M&T gross margin improved to 52% from 42% in Q2 2021, while EE&T declined to 68% from 70%.
- Net cash used in operating activities was $42.1 million in the first half, versus $5.7 million a year earlier. Cash, cash equivalents and restricted cash fell $87.2 million to $57.2 million; the period included $38.4 million invested in marketable securities and $44.1 million of net investing outflows.
- At June 30, cash and cash equivalents were $55.7 million and marketable securities totaled $38.3 million. Long-term loans were $37.2 million; the $35 million revolving facility had no balance outstanding, subject to borrowing availability conditions. The company reported compliance with debt covenants.
- Total assets were $219.1 million and stockholders’ equity was $63.1 million. Current assets of $140.7 million compared with current liabilities of $97.5 million.
Changes, outlook and notable items
- Annualized recurring revenue was $151.0 million, up 4% from $145.4 million. Net dollar retention fell to 100% from 121%, indicating no net expansion in recurring revenue from the comparable existing-customer cohort.
- Remaining performance obligations were $172.7 million, including $53.4 million billed and $119.4 million unbilled; management expected to recognize 62% over the next 12 months.
- Management said available cash, operating cash flows and the undrawn revolver should be adequate for at least 12 months. No specific revenue or earnings guidance is provided in the filing.
- On August 7, 2022, the board approved a restructuring plan including a workforce reduction of about 10%, with expected annualized savings of approximately $18 million and roughly $1 million of pre-tax severance and related costs, expected in the second half of 2022. Management cautioned that savings and execution are uncertain.
- The company entered a new Israeli office lease, recorded a $19.6 million right-of-use asset and lease liability, and reported total operating lease liabilities of $23.4 million. Non-cancelable cloud and other service purchase commitments totaled approximately $62.0 million through 2026.
- A stockholder rights plan adopted after quarter-end provides for potential dilution if an unapproved holder reaches 10% ownership, or 20% for passive institutional investors; rights were set to expire August 6, 2023, subject to earlier termination or other provisions.
- Disclosure controls were deemed ineffective at June 30 because of an ongoing material weakness in controls over fair-value estimates for stock-based compensation. Remediation was underway but not yet demonstrated to be fully effective.
Risks and items to verify
- Assess the pace of cash use and whether operating cash burn, customer collections and available revolver capacity remain consistent with management’s 12-month liquidity assessment.
- Monitor customer retention and expansion, new-customer growth, and the trend in professional-services revenue and its negative gross margin.
- Verify whether the restructuring delivers projected savings without disrupting sales, product development, customer support or employee retention; compare actual costs with the estimated $1 million charge.
- Review debt covenant headroom and the $37.2 million floating-rate loan, including its January 2024 maturity and interest-rate exposure.
- Consider foreign exchange exposure: management estimated that a hypothetical 10% exchange-rate change would affect first-half results by $2.3 million for NIS and $2.1 million for euros, after NIS cash-flow hedges.
- Track remediation of the material weakness and effectiveness of financial reporting controls; the filing says remediation was not yet complete.
- Consider the rights plan’s potential effect on takeover proposals, alongside execution risks, competition, cybersecurity, international operations and export-control exposure. The company reported no pending legal proceeding expected to have a material adverse effect.