Kaltura, Inc. Price & Performance (KLTR)

Important factors that could cause actual results to differ materially from forward looking statements can be found in the Risk Factors section of Kaltura's quarterly report on Form 10 Q for the quarterly period ended 09/30/2024, and other SEC filings including the Annual Report on Form 10 ks for the fiscal year ended December 31, 2024 to be filed with the SEC. Any forward looking statements made during this conference call including responses to your questions, are based on current expectations as of today and Kaltura assumes no obligation to update or revise them whether as a result of new developments or otherwise, except as required by law. Please note we will be discussing non GAAP financial measures, adjusted EBITDA, and adjusted EBITDA margin during this call. For a reconciliation of adjusted EBITDA to the most directly comparable GAAP metric please refer to our earnings release, which is available on our website at wwwinvestors.kaltura.com. Now, I'd like to turn the call over to Ron. Thank you, Erica, and thanks everyone for joining us on the call this Today, we reported record total revenue of $45,600,000 dollars for the fourth quarter, up 3% year over year, and record subscription revenue for the quarter of 43,400,000.0 up 6% year over year.

We also achieved record ARR for the third consecutive quarter as well as record RPO for the second consecutive quarter. In short, all top line related KPIs were at record high levels. As for our bottom line, in the fourth quarter adjusted EBITDA was 2,700,000.0 representing our sixth consecutive quarter of adjusted EBITDA profitability and the highest quarterly result over the past four years. This was fueled in part by a record gross margin Cash flow from operations was $4,300,000 For the year, we reported subscription revenue, total revenue, adjusted EBITDA and cash flow from operations all above the guidance and forecast we provided. We are pleased with the progress we have made towards our goal to return to profit [indiscernible] including accelerating year over year growth rates in the second half of twenty twenty four. We have delivered on our goal of returning to adjusted EBITDA and cash flow from operations profitability in 2024 posting year over year improvements in these metrics of $9,800,000 and $20,500,000 respectively. We're looking forward to expanding these profitability metrics in 2025 and beyond. Moving on to the business update. New subscription bookings in the fourth quarter were at the highest level since the fourth quarter of twenty twenty two.

Over the last three quarters, this metric has been growing as we expected both sequentially and at increasing year over year rates, In the fourth quarter, it included four seven digit deals and twenty nine six digit deals. The highest combined number of six and seven digit deals since the third The portion of new subscription bookings that came from new customers also grew both sequentially and year over year in the fourth quarter. Including a seven digit deal with a leading global healthcare insurance company who licensed all of our enterprise products to par their digital campus training [indiscernible] and a seven digit deal with a European government entity that will be providing our suite of education products to over 35 universities. Most of our new subscription bookings came again from upselling to our existing customers, where we provided licenses for increased usage additional users additional solutions, additional use cases. Upsells included a seven digit upsell deal with a major U. S. Bank a seven digit European telco deal In several six digit deals with leading organizations across a wide array of industries, including technology, [indiscernible] [indiscernible] healthcare, education, [indiscernible] automotive, media and telecom. Customers that we can name that have closed new deals with us This quarter, include Adobe, HealthStream, Burlett and Connecticut State Colleges and Universities, growing user adoption usage and consolidating around Kaltura to power multiple products and use cases contributed in the fourth quarter to the continued growth of our average subscription revenue per customer which reached once again a record high level.

As we wrapped up 2024, we're encouraged not just from our recent booking momentum, but also by the size and nature of our sales pipeline which grew throughout the past year. We believe will support continued year over year new bookings growth in 2025. In addition to growth in new bookings, Gross retention in the fourth quarter continued to improve year over year. Enabling us to obtain our best full year growth retention rate of the past four years. The combination of increased new subscription bookings yielded for the first time since 2021 a third consecutive quarter with a year over year increase in net new subscription bookings which have been helping us fuel our year over year subscription revenue growth. Net dollar retention in the fourth quarter continued to improve from our increased gross retention and upsell bookings reaching 103% in the fourth quarter and closing the year at 100%. Moving on to the product front. Let's begin with our growing investment in AI. Zofera's AI infused video experience strategy is centered on integrating AI across every stage of the video lifecycle. Including content creation, discovery, distribution, engagement and analytics to deliver fully personalized data driven experiences. In the fourth quarter, we launched beta releases of two new AI infused offerings, ClassGenie and WorkGenie. As well as for trainers and trainees in the enterprise sector.

Recognizing that one size fits all rarely addresses diverse learning needs, Kaltura's Ginnys tailor content to each individual They create hyper personalized content experiences from video snippets interactive flashcards and quizzes, to podcast, video modules, learning paths and knowledge checks by drawing exclusively on relevant institutional data helping to precisely meet each learner's unique requirements. Our AI beta program for evaluating our working class Ginnys saw strong interest from dozens of large organizations including top universities, global Fortune 500 companies, and leading tech firms are interested in evaluating these products for both employee and customer experience use cases We also continued boosting our AI Fuse content lab which helps organizations repurpose content at scale. New and enhanced features include automated clip creation, automated quizzes, chapters and summaries. Content Lab is now integrated into our VCMS platform and video portal and is serving through them also our virtual events and webinars virtual classroom, LMS and CMS extensions, TV CMS platform and TV streaming apps enabling enhanced automation, interactivity AI powered content recommendation. Regarding our TV content management system and TV streaming apps, we enhanced our AI capabilities to further drive content discovery, engagement and monetization. Our AI powered recommendation engine now delivers more personalized user experiences while AI based chaptering and metadata tagging improved content accessibility and searchability.

We also introduced AI powered dubbing and subtitling enabled global reach and reduced translation costs for media providers. In the third quarter, at the International Broadcasting Convention in Amsterdam, our AI driven advancements received strong industry validation which subsequently led to starting POCs in the fourth quarter with three global media and telecom companies, that were in discussions to potentially onboard an additional five. Athera's AI innovations received additional industry recognition with our new Gen AI features for broadcast, streaming and media earning us a place in the Feed Magazine 2020 Honors List in the special recognition in AI category. Additionally, as you may have read in the press release we sent out in December, we published a new industry report called The Marketing Power of Video Based Experiences in AI in 2025. Serving 600 senior marketing professionals from companies with over 1,000 employees across The U. S. And Europe. The report confirms the growing impact of video based experiences the search for AI tools to augment them. [indiscernible] [indiscernible] one of our main product investment areas continues to be our virtual events and webinars product. To engage large audiences in managed events and digital marketing programs at scale minimal effort.

We launched a green room virtual studio for backstage preparation and a new bulk invite management tool to streamline the handling of participants and added new types of polls and quizzes to enhance interactivity during live sessions. With our video portal, which is used by more than 70% of our ENT we remain focused on helping our customers manage and engage with content at scale. We implemented additional channel moderation tools to give administrators better oversight of user generated content. We also introduced new chat and collaboration features for real time interaction right within the portal, promoting deeper engagement and teamwork. We're also continuing to reinforce our position as a leading enterprise video content management platform by integrating more deeply with modern workplace technologies. Enhance our Microsoft Team integrations, allowing seamless automated uploads of Teams recordings into Galtura vCMS alongside existing integrations such as Zoom and Webex Cisco. As we look ahead to the market in 2025 and beyond, we see a strengthening market for We anticipate it will be fueled by continued easing of budgetary constraints and increasingly hybrid global workplace reduced corporate travel costs and growing sustainability requirements and the rising influence of millennials and Gen Z professionals.

A workforce that is video native and AI savvy. In the Media and Telecom segment, we see demand for cloud TV, OTT streaming and AI powered automation accelerating as providers modernize infrastructure and enhance monetization. Across all industries, we expect companies to accelerate their move away from segmented non integrated point solutions in favor of unified platforms which offer deep workflow integrations and seamless cross enterprise functionality, In addition to anticipated improvements in market conditions, we believe there are five main growth engines that will fuel Toteur's continued regrowth. First, we believe our unified cross enterprise platform is the ideal alternative to multiple siloed video point solutions. From the outset, differentiated approach has been to treat videos as data types not just an application. Consequently, we built a flexible API first platform that runs both deep [indiscernible] highly integrated into business workflows and supporting use cases that run the gamut from employee communication and training to marketing, customer success and entertainment. One platform that does it all, effectively and affordably. Second, our newer products have reached maturity and are increasingly contributing to the continued re growth of our ARPU ARR per customer and market share. Over the past few years, we have successfully developed key offerings, including virtual events and webinars, virtual classrooms, our front end TV streaming apps.

These solutions are now in their prime enabling us to not only further expand the scope and value of our enterprise offerings, but also further the unique positioning of Kaltura's Video Experience Cloud as an ideal platform to centrally cater to all enterprise video needs and use cases. Third, the introduction of Gen AI capabilities into our platform is unlocking groundbreaking opportunities that change how video experiences are created, delivered and consumed. We're uniquely positioned to lead this transformation leveraging our deep business workflow integrations our highly engaging and interactive employee and customer experiences and the vast amount of video content metadata and analytics we manage for some of the world's largest organizations, In 2025 and beyond, we plan to continue expanding our AI infused capabilities including Agentic AI powered tools further amplifying the employee and customer engagement flywheels, and driving stronger retention and monetization. Fourth, our loyal high value customer base represents a significant expansion opportunity. Kaltura serves some of the world's largest and most influential enterprises including 24% of the top 50 financial institutions. 27% the Fortune 100 companies 30% of the top 50 technology companies over 50% of The U. S. R1 schools and leading telecom and media providers mainly across the MEN APAC.

Believe that there is a significant opportunity for us to capture a larger share of our current customer spend primarily through selling more broadly to them across current product categories. Our internal analysis suggests that the full potential expenditure of these customers represent three times what they are spending with us now. As mentioned before, we believe these customers will consolidate their vendors and given our offering superiority and the great relationships that we already have in place, we believe we're ideally positioned to benefit from this vendor consolidation. Fifth, growing our sales force and ramping up our efforts to win new customers across all our industries, As we enter 2025, we are again starting to gradually grow our sales team to cater to the growing market demand And as we do so, we plan to gradually redirect them towards securing new customers. We entered 2025 with a robust product offering a clear strategic direction and a validated go to market thesis. With market conditions improving, enterprise spending recovering and new opportunities arising we believe we are poised to capture the increasing demand for video experiences. We believe that the improved market conditions and our five aforementioned growth engines customer consolidation around our platform, maturity of our newer products, exciting new Gen AI capabilities, growth potential within our great customer base, and regrowing our sales force will yield continued year over year growth in our new bookings.

As already recently demonstrated and supported by our growing [indiscernible] Lastly, supporting our guidance, we believe we have the right products and market positioning to enable a gradual and sustained acceleration of revenue growth. Being mindful of the market volatility in recent years, However, we are continuing to be thoughtful with our revenue guidance and have set it to represent similar year over year growth levels in '25 as in 2024. We also expect our gross margin to continue to improve in 2025 and therefore believe we will achieve in 2025 once again a year over year gross profit growth that is higher than our revenue growth. As for our bottom line, we are working to further expand our profitability alongside our growth acceleration and are guiding towards doubling our adjusted EBITDA profit margin in 2025. We're also keenly focused on continuing to grow our cash flow from operations to a similar level as our adjusted EBITDA. A majority of our operational cash flow is expected to be generated in the second half of the year consistent with historical seasonality. A final word about our longer term goals. Our goal is to double our adjusted EBITDA in 2026 and by 2028 or before to return to being a rule of 30 company.

Through a combination of an expected double digit revenue growth rate and adjusted EBITDA margin. We've achieved this goal before and we believe we can and will get back there again. With that, I'll turn it over to John, our CFO, to cover financial results and plans for 2025 and beyond in much more detail. Dot Thanks, Ron, and hello to everyone on the call today. Kaltura continued its strong and focused execution in the fourth quarter achieving growth in new subscription bookings, a sustained high gross retention rate, further monetization of our existing customer base and addition of new customers continued improvement in operating efficiency and reallocation of resource towards higher ROI opportunities and markets. Touching on a few highlights in the quarter that demonstrate this, New subscription bookings continued to grow both sequentially and year over year for the third consecutive quarter and professional services bookings were also up significantly. Both sequentially and year over year. Gross retention continued to be strong and showed improvement both sequentially and year over year. For the full year, we achieved our best gross retention since 2020 For the ninth consecutive quarter, total revenue grew year over year driven primarily by strength in our subscription revenue which has grown year over year in this and all past quarters.

Remaining performance obligations in ARR continue to grow. With both metrics at the highest level to date As Ron mentioned earlier, and achievement of our profitability targets, with gross margin at a record high level lower year over year operating expenses continued improvement in adjusted EBITDA, representing the sixth consecutive positive quarter, and first positive adjusted EBITDA for the full year since 2020, and a record cash from operations year. With that, let me move on to our results. Our results once again exceeded our guidance for both revenue and adjusted Total revenue for the quarter ended 12/31/2024 was 45,600,000.0 up 3% year over year and above the high end of our guidance range of $44,000,000 to $44,700,000 Subscription revenue was 43,400,000.0 up 6% year over year. This is also above the high end of our guidance range of $41,800,000 to $42,500,000 Professional services revenue contributed $2,200,000 for the quarter, and was down 40% year over year consistent with the expected trends we discussed on the second and third quarter earnings Remaining performance obligations were $203,400,000 up 8% sequentially and 10% year over year. Of which we expect to recognize 58% as revenue over the next twelve months. Consistent with what I mentioned last quarter, the increase in RPO is a result of our increased renewal bookings in the past two quarters as well as improvement in new bookings.

Annualized recurring revenue was $173,900,000 up 3% sequentially and 6% year over year. This is the highest ARR we have achieved to date and is reflective of increased subscription revenue in the quarter. Our net dollar retention rate for the quarter was 103% an improvement from 101% last quarter and 98% in the previous three quarters. It is also consistent with our expectations for improvement in the second half of twenty twenty four that we mentioned in the two previous earnings calls. This result has been driven by improved gross retention in 2024 versus 2023 and the sequential and year over year increase in new subscription bookings over the past three quarters.

GAAP gross profit for the fourth quarter was $32,300,000 up 9% sequentially and 13% year over year. Gross margin was 71% which is up from 64% in Q4 twenty twenty three and subscription gross margin was 77% which is up from 73% in Q4 twenty twenty three. Total operating expenses in the quarter were 36,100,000.0 compared to $37,500,000 in the fourth quarter of twenty twenty three a reduction of 4% year over year. Adjusted EBITDA for the quarter was $2,700,000 an increase of $1,900,000 from $800,000 in the fourth quarter of 'twenty three This result along with our improving expense and margin profile highlights our continued focus on improving our operating efficiency over time. GAAP net loss in the quarter was $6,600,000 or $0.04 per diluted share. This is an improvement of $5,500,000 year over year. And now for our 2024 fiscal year results. Point seven million dollars up 3% year over year, while professional services revenue contributed dollars $11,000,000 down 11% year over year. Our net dollar retention rate was 100% in 2024 compared to 101% in 2023. The small year over year decline was primarily due to the lagging impact of the lower booking and gross retention level in 2020 Great.

As I mentioned in relation to the quarter, we ended 2024 at a higher level than in Q4 'twenty three, was 98%. GAAP gross profit in 2024 was $119,100,000 representing a gross margin of 67%. Up from a 64% gross margin in 2023. Subscription gross margin was 75% up from 73% in 2023. Adjusted EBITDA in 2024 was $7,300,000 a significant improvement from negative $2,500,000 in 2023. GAAP net loss in 2024 was $31,300,000 or $0.21 per diluted share. Moving to the balance sheet and cash flow. We ended the fourth quarter with $84,700,000 in cash and marketable securities. Net cash provided by operating activities was $4,300,000 in the quarter compared to $1,600,000 net cash provided by operating activities in Q4 twenty This represents an improvement of $2,700,000 For the full year 2024, net cash provided by operating activities was $12,200,000 compared to $8,300,000 net cash used in operating activities in 2023. This represents an improvement of $20,500,000 for the full year. I would now like to turn to our outlook for the first quarter of twenty twenty five. And for the fiscal year ending 12/31/2025. In the first quarter, we expect and to be between $43,400,000 and 44,200,000.0 and total revenue to range from an increase of 2% to 4%, to be between 45,700,000.0 and $46,500,000 We expect an adjusted EBITDA between $2,500,000 and $3,000,000 We are also expecting to continue to post positive cash flow from operations in the quarter.

For the full year, we expect subscription revenue to range from an increase of 2% to 3%, and to be between $170,400,000 and $173,400,000 and total revenue to range from an increase of 1% to 2% to be between 179,900,000.0 $182,900,000 As Ron mentioned earlier, we are being thoughtful with our overall guidance. Which also takes into consideration the potential impact from macroeconomic environment as well as potential related FX fluctuation. Regarding our revenue guidance and consistent with historical quarterly trends, we expect second quarter revenue to grow year over year but to decline sequentially. This is due to the typical lower level of bookings in the first quarter disproportionate recognition of on prem revenue in Q1. This year, we expect to see a more pronounced decline due to higher Q1 on prem an increased M and T churn the first half of the year, including delayed churn from last year, 2024 was a record gross retention year for M and T and the average expected M and T gross retention level across both 2024 and 2025 remains healthy. As in the past, we expect revenue growth to reaccelerate in the second half of the year. We expect an adjusted EBITDA between $12,700,000 and $14,000,000 This would effectively result in a doubling of our adjusted EBITDA margin from 2024.

We are also expecting to continue to post positive and improving cash flow from operations to a similar level as our adjusted EBITDA for the full year in 2025. With the majority of our operational cash flow This compares to $12,200,000 in 2024 negative $8,300,000 in 2023 and negative $46,800,000 in 2022. In summary, 2024 was a solid year and positioned us well going forward. While we will need to manage through some of the delayed churn in M and T in the first half of twenty twenty five, We expect to achieve a better result in EENT, and at a consolidated level gross retention remains strong. I mentioned last quarter that our overall outlook on the business is brighter and the results this quarter have only reinforced This view We believe the company has enhanced its position in 2024 to benefit from emerging tailwinds that we are seeing of spend consolidation to a single vendor digital and AI transformations, and the hybrid workplace that is continuing to drive demand for video based offerings. As we move into 2025, we will continue to target both revenue growth and sustained and improving adjusted EBITDA profitability consistent with our guidance. We believe our results demonstrate that we are on the right path to achieving these objectives and to drive consistent returns to our shareholders.

We are encouraged by the increased adoption of our products highlighted by our increase in new bookings and deals in our pipeline that we believe could yield continued strength in bookings and by growing industry tailwinds as we move into 2025. We are also confident that this sets us up for a modestly accelerated revenue adjusted EBITDA profitability and cash flow from operations growth profile beyond 2025. Our target is to achieve double digit revenue growth and a rule of 30 combination between revenue growth and adjusted EBITDA by 2028, or sooner As Ron mentioned, Caturra has achieved this goal in the past and we firmly believe that we are on the right path achieved it again Before moving on to questions, I would like to highlight our upcoming investor event scheduled for Wednesday, March 12. We look forward to providing more insights into our products, customer use cases and our financial results. For more information, please go to the Investor Relations page on our website that Eric has cited upfront. With that, we'll open up the call for questions. Back to you, operator. Thank you. We will now be conducting a Thank you. The first question is from Michael Turrin from Wells Fargo.

Please go ahead. Hi, this is Richard Polin on for Michael Turrin.

Thanks for taking my question. I guess to start, I just want to give you an opportunity to just kind of elaborate a little bit on the on premise commentary in Q1. Just want to make sure we fully kind of unpack what's going on there from Q1 to Q2 next Sure. Good morning, Richard, and hello, everyone. So on premise represents less than 5% of our revenues, somewhere around 2%. And yet when it is recognized, it's recognized within a given quarter. It is not spread. When we look at our ARR, then we correct that in order to look at the ARR itself. So it does not represent the fast recognition. According to the rules of accounting, if you have that renewal and or new deal happening in a given quarter, then the full year revenue is recognized within that quarter. So Q1 has a few things going for it. One of it is that it has a bit more prem than others and it had become a bit more pronounced with one of the deals that again that's a very small minority of what we do. But if you look at last year also, there was a sequential decline between Q1 and Q2.

The other reason is not just the on prem is the fact that generally most of our bookings are coming at the latter part of the year with an emphasis on Q4 and on Q2. So Q1 is the weaker one. And so generally, there is a low sometimes negative net booking if you take away churn from gross booking. We also have that M and T stuff. So the combination of all these things what's creating downward pressure in Q2, which is quite typical for us. That address your question?

That was perfect. Appreciate that. And then we think about some of these new AI features and products, I know you announced a couple in the quarter and it's early days in beta. But when we think about that in the context of that 3x upsell opportunity you've seen in the base, how are you thinking about kind of monetizing some of the AI opportunity they And kind of how should we think about that, both as we think about next year, but also in just kind of beyond years?

Yes.

Thank you for that. Good question. We're Sounded by AI. It's one of the big drivers we believe of the industry and of Kaltura and specifically we're in the best situation we believe to capitalize on that opportunity because the companies who would best benefit from AI are those who are sitting already on the content and we have a treasure trove being the leading content management platform for many, many years, Bob. If you look at Gartner reports, so we're sitting on half of the content of half of the R1 schools in The U. S. Many of the Fortune 100 and others, We've been atomizing the content there, learning it so that we could best deliver it. In a hyper personalized, hyper contextualized way. That delivers great results. So we have an unfair advantage. The other point there is that the more you control all of the content of the users and the organization, the more insights you could generate. And a big advantage of Kaltura is that we've been consolidating multiple use cases, multiple products So the entire employee and customer journey running on Kaltura. That means that the metadata, the content, the analytics around the entire journey is in one place.

So if we need to understand how you could best monetize on a lead or how you could best engage and teach, learn, train, upscale an employee, we have all that data. So with that, a few words about what are the things we're doing with AI.

We recently launched the AI content lab and that's a piece that basically enables us to create clips to generate quizzes on the fly, to create text summaries and chaptering and highlight videos and stuff of that regard. So that's already live and out there and being used. The second piece of what we're doing is the genies, which we've released this quarter. We have both work, class and TV genie. These are agentic AI services that are fit to increase interactivity with the end users. What it does is that enables both proactively and reactively for users to get the exact pieces of information that they need in a highly engaging way in a very rich experience that is immersive that brings together video, together with flashcards and graphics and text. So you basically have an agent that sits there and you ask it any question that you want and the answers are free from any hallucination because it's 100% relying on the data within your organization. Something that's very exciting. We have dozens of folks that are already beta testing it and excited both on the education and the enterprise front.

Other piece is around AI enrichment. So we've already launched our own automatic speech recognition tool, which we used to have used third parties We're now launching OCR tools for optical character recognition. Moderation agents. We also have a whole TV experience that enables to create content and manage it in a much more effective way for TV. So there's just a lot of stuff there. By and large, we think that this is going to boost how much content is created. How much is consumed, how much value is generated and bringing together content creation and content distribution into a virtual circle, which is really, really exciting. So we believe there's a 10 to 100 growth percent growth opportunity for consumption of video. In organizations and we are in a great, great spot to be able to monetize on that.

Awesome. That's really helpful. Thank you, Richard. The next question is from Gabriela Borges from Goldman Sachs. [indiscernible] know we spoke a little bit about 2025 priorities last quarter.

And certainly you gave us some more color in the prepared remarks as well. I wanted to ask you this follow-up on what do you think is incrementally more important for Kaltura Kaltura year? Or where are you incrementally spending more of your time Clearly, the consistency on the execution you called out on the prepared remarks, you talked about the focus on growth and profitability. So would love to hear anything incremental this year versus last year? [indiscernible] So first, I mean, there was a question there and hello, Gabriela, and thanks for the question. There was We've highlighted five areas of growth. Right. We said first the market is regrowing put aside culture, demand and budget and the digital NAAI transformation and hybrid workplace and Gen Z in the workplace So that's great. So that's happening anyway. There is a focus that we have provided on consolidation around Cultura and putting together both internal and external for employee and customer. And that's been driving up our average ARR, our ARPUs and enabling us to have a stronger walk in. That has been really important. We'll continue to be. There's an element around maturity of our new product. We've put a lot of investments on our event platform, again, not for the high level events that used to have been physical, they moved to virtual, then many of which have come back to being physical.

We're talking about thousands of events that large organizations have every year departmental, internal, external that we manage. We're now firing a number four cylinders and able to sell this and compete against others. A market that we had not been in. So it's been an important focus for us to catch up on that, also aligned with shifting the focus from more EX to more CX. More customer experience and that's enabling us to do both. So that will continue to be a focus for us. There is the agentic AI features that we just discussed around hyper personalization And then just there's just a lot of opportunity across our existing customer As of recent, 75% of booking has come from upsells and not new logos. We've identified 3x white space of growth within our existing customers. Which we are tapping into, but there's going to be a lot more. We believe that as markets improve, more folks are going to be looking further and not going to be myopic about growth and they're going to choose the system that's better for them in the mid to long term, but also saving costs. Is Cultura. Lastly, we're growing our sales force because we are going to continue to bring a lot more new logos.

It slowed down for the entire industry because everybody stuck to their own guns. And a lot of folks have not jumped into whole new opportunities. But for this year and beyond, we believe there's going to be a lot more new things coming in. If I superimpose that on the product side, so other than Gen AI, which we've discussed how that's going to continue to push forward, Agentech AI, both EX and CX flywheels, There's the continued expansion from EX to CX, as I mentioned. To cater to sales, marketing and customer success. And again, not just, but both. And the consolidation of both. There is a move that we're going to continue to do towards content creation tools. To remind you, we came from content management are now moving not just to create content, but to make it hyper personalized. There is another move to go beyond video, which we've done over the years to manage text, photos, and not just be at the video side to enable full experiences around EX and CX. That are video first and AI infused, but they're full experiences. And lastly, continued move towards lower touch doesn't necessarily mean that it's for SMBs, but for example, to better move from telcos to media company. [indiscernible] what I'm most excited about is that none of the things that we said here are prerequisites for growth.

We've already laid the seeds for everything we're discussing in 2024 and before we've never fallen backwards as the industry had slowed down. We have done this amid expansion into new products, new markets successfully with great new logos. And we're now already reaping the success of that. Given that we're still growing, we've never declined. Year over year growth is there. Second half of the year had been accelerating. Profitability is there. So we'd love for it to be faster, bigger, quicker, and we're going to work towards that. I think we're in the right direction. John, you want to comment, please? Yes.

I mean, Ron pretty much covered it. But just to [indiscernible] moving forward, if you were to look at it from a financial perspective, I mean, we do see continued investment in the sales and marketing activity consistent with our desired revenue growth goals. We'll see from a as a percent of revenue expect slight decline in R and D, slight decline in G and A. But we also have a very, very flexible business If we see opportunities to accelerate revenue growth, we're going to take advantage of that. That's why we're going to have a relatively stable as I mentioned, consistent with revenue growth this sales and marketing as a percent of revenue because we need to continue to invest in the growth opportunities that we see in front of us that's it from a if you look more further more thoroughly at the P and L Yes, yes, absolutely. Well, thank you for all the comments. Follow-up for for Ron on AI. So maybe just talk to us about how much this conversation is a pull versus a push from customers? To what extent are customers kind of gearing up to adopt and know what they want to do versus the still in the exploratory phase where Kaltura can be a strategic partner to help educate them.

Maybe just share for us what those conversations look like. I think it's somewhere in the middle, Gabriella.

Some folks are still worried about the general concept of AI within the enterprise. The good news is that we are not training the models and we are definitely not sharing any of that across customers. There is a kind of Chinese wall, so there's no problem there. That regard and we're delivering all that great value. The other great thing is that the issue with AI is not so much what it can do, but how you actually bring it to the last mile place where you want the opportunity to be. And CULTREA is a great vehicle because we're connected into the workflows because we have all the metadata. We have all the content and because we run the experience itself. And so we have everything that's required, the last mile piece of it is to bring the core capabilities of generating videos on the fly, repurposing them or creating them for text and delivering that within the learning or working So people appreciate that. So what we've been seeing across dozens of organizations, both schools, corporations, across all industries is that they're absolutely interested They're intrigued by it. But they're not coming at it in most cases by saying this is exactly what we need.

But how can we think together about how this could disrupt and improve my business, but everybody is very, very attuned To that, excited about that. So we think it's going to be a big impact over the quarters. As I said and I'm repeating it, none of these things in and out themselves are required for us to continue to accelerate our business. That's all additional layers that are going to continue to fuel even faster the growth opportunity because the core business with everything else is still accelerating and growing nicely.

Excellent. Thank you.

Thank you.

Next question is from Patrick Walravens from Citizens. Please go ahead. Great. This is Austin Cole on for Pat Walravens.

A question for Ron. And just kind of broadly about this rule of kind of 30 goal by 2028. I mean, as you look at the market right now and You talked about kind of some of the positive momentum you're seeing Does Kaltura need to continue to see kind of an improvement in the market to achieve those goals or is it really just about capturing the opportunity as it stands right now?

Yes. Thank you for that. Short answer is no. We are already in the direction and we've reduced our sales force by 25% to where we are now. From the high and bringing it back to profitability and accelerated profitability The last three quarters have shown both sequential and year over year growth in bookings. And that's before increasing sales force and we expect And so we don't think that that's required to get things done. To remind you, we were there in the past. It's been very, very tough years for the industry. We've done better than the peers. And we've never come down and we're now reaccelerating at H2 as we have promised. So we think we'll get there. What combination will build the Rule of 30? Is it like a 30% grower and a 0% adjusted EBITDA? Or 20% to 10%? That's we said it's going to be double digit growth, but the combination and the exact timing remains to be seen. I think you've seen us We're very thoughtful. We're trying to be very careful about the expectations that we set and to over deliver and under promise and hopefully that's going continue to be the case.

John, you want to add?

I mean, no, you said it and I mentioned it in regards the last question. I mean, our goal is to have the most flexible business as possible. And ultimately, Right now, obviously, we have a plan in terms of how we're going to to get to the long term goals that we cited on the call. Importantly, we have been growing revenue quarters of growth in total subscriber always six consecutive quarters of positive adjusted EBITDA. And both of those areas, we've also been doing better each and every quarter and we expect that absolutely to continue. And we do have the flexibility to where we see if we see growth acceleration opportunities on the revenue front, we're going to certainly take advantage of that. [indiscernible] could we sacrifice a little bit of profitability? Sure. But we're still going to be profitable. We're still 100% committed to Great. That's helpful. Quick follow-up for John. Just looking at the gross margin in the quarter here, just wanted to dig a little deeper into kind of what's driving that and then just how to think about kind of those levels going forward?

So a couple of things.

First and foremost, if you look at the overall mix of the business, we have moved a little bit more towards Subscription versus PS, I mean, it's always been a strong part of our business, but that's we've moved it's become an even greater part of our business, number one. Number two, which obviously has a higher gross margin associated with it.

Number two, our E and T mix has also been higher overall, which also has a higher margin associated with it. And we've mentioned this believe it was a few calls ago, We've also had internally a very comprehensive process and team in place we've been looking at profitability by customer. Across E and T, across M and T, really going after it, where we see customers that effectively aren't where we feel need them to be, whether it's through management, we're managing all aspects of the business to help drive gross margin. To up into the right, which is obviously what you're seeing in our results. Longer term, moving that on a consistent basis, up and towards 70% certainly is within the realm of possibility. And not that we're necessarily going to be there 2025, but certainly we expect to continue to move that up into the right as we move it throughout the year and as we move throughout the next couple of years.

Just I'll add just one more piece. Just one more piece from my end. Have seen that we've grown from 2020 on a non GAAP basis from 61% to 67%. We IPO the company, we said we're going to be climbing towards 70% and we're definitely on track to do that and more. The one thing I will just say is that there could be jumps between quarters. It so happens Q4 also had some more short term credits that have come from AWS. So that sometimes it boosts things. So it could come down in Q1. We think it might come down a bit. But that being said, 2025 is expected as we've noted to be higher than 2024 as a year and that trend is continuing to grow into the future.

Okay. That's super helpful.

Thank you. Next question is from Ryan Koonce from Needham and Company.

Please go ahead.

Hi. This is Matt Cavanagh on for Ryan. Thanks for the question. With expectations for better market conditions next year, are there any verticals or geographies that are standing out versus others? Thank you, Matt, for the good question. I mean, maybe this is an opportunity to give you a color around what we've been achieving from a business perspective over the last quarter. We did say that it's been a very good quarter. It was the third quarter in a row of sequential near year growth in our bookings. And that actually was both in E and T and M and T that we're doing well. E and T had highest bookings since Q3 twenty twenty two. M and T had the highest bookings in Q2 twenty twenty three. And also the new businesses not just the upsell, but new business had been increasing both quarter over quarter and year over year, so it's just general. And I think we also noted the number of six and seven digit TCV deals. We had four accounts, the seven digit TCV deals versus two the quarter before, none one before that and one deal at the beginning. And so we also had the record number six digit deals.

So all in all things are pulling up. We've given you a few examples. I'm not going to get into them across both in cases where it was internal communication cases where it was external L and D, M and T, one that I didn't by the way add on top of those that we've mentioned like Adobe and Health Stream and Red Ad and Burlets and Connecticut State Colleges is also British Telecom as a channel, which is also interesting because they added some more customers. We had with them a interesting strategic partnership where they brought a global automotive brand. And in this quarter a couple of other logos around multinational in the automation world and global shipbuilding group and stuff like that. And business has grown to about 15% of our booking last year was about 5%. So it's definitely picking back up. We are seeing customers consolidate around Kaltura. We are seeing them as we've mentioned excited about AI. But to your question about geographies and verticals, It's been coming across the board, tax, financial services, professional services, automotive, health, more quicker ones to embrace new innovations like AI. So we expect that that will be somewhere that we could break maybe quicker.

On the AI front compared to others like government or education. From a geo tier question, it's been a relatively consistent trend. Our strongest region for E And T Continues To Be North America and our strongest region for M and T continues to be EMEA. I will say that when you think about the impact on the average ARR that we've said also earlier, it's been picking up and picking up. We have closed the year with 30 customers north of 1,000,000, which is is four more than the year before. And obviously, we didn't get much into retention, but this year was a great or 2024 great retention year. So net booking had been doing very, very well and it's picking up quarter over quarter time and time again. So the short answer to your question about both geos and verticals we've been successful in accelerating business both in EMEA and in North America and also restarting to open APAC more doing less work in Latin America. We'll probably get back to that in the future. It's still the same regions and verticals were successful across.

Great. That's helpful. And as a quick follow-up, are you seeing any changes in the time to close a deal And along with that, have there been any changes in the closure rate as you're going into '25?

No. Win rates have been holding very nice. This quarter was a good quarter. The one before was great as well. So it's strong. The time that it takes, I'd say it's still longer than it used to have been in the normal years. But it's definitely not getting longer. So I think seeing things getting better, where things get a bit quicker. I wouldn't say that there's been a dramatic shift in Q4 that we should talk about. Got it. Thank you. That's it for me. Congrats.

Thank you. This concludes the question and answer session. Would like to turn the floor back over to Ron Yuchatel, CEO for closing comments.

Yes. I want to thank you all for your great question, everybody for tuning in. We're pleased with our quarter four and fiscal year results. In line with what we had communicated prior around excited about 2025. We believe we're on track to continue growing both booking, accelerating revenue growth and increasing both our gross and net margins. We believe we're on track to, as we had stated, to be a rule of 30 company again. And we are happy of how we've been advancing towards that. And we look forward to talking to a lot of you guys on March 12. To remind you, we have our Investor Day, Investor Meeting. So please go into our Investors section on our website and register if and when you can. [indiscernible] You for your participation.