Kaltura Inc Q4 FY2021 Earnings Call

Good morning, everyone and welcome to the Kaltura Fourth Quarter and Full-Year 2021 Earnings Conference Call. All material contained in the webcast is the sole property and copyright of Kaltura, with all rights reserved. For opening remarks and introductions, I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Thank you, and good morning. With me today from Kaltura are Ron Yekutiel, Co-Founder, Chairman and Chief Executive Officer; and Yaron Garmazi, Chief Financial Officer. Ron will begin with a summary of the results for the fourth quarter and full year ended December 31, 2021 and the trends and areas of focus that are expected to impact 2022. Yaron will then review in greater detail the financial results for the fourth quarter and for the full year, followed by the company's outlook for the first quarter and full year of 2022. We will then open the call for questions. Please note that this call will include forward-looking statements within the meaning of the Federal Securities Laws, including, but not limited to statements regarding Kaltura's expected future financial results and management's expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Important factors that could cause actual results to differ 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 September 30, 2021, and other periodic SEC filings, including the annual report on Form 10-K for the year ended December 31, 2021 to be filed with the SEC. Any forward-looking statements made in 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 a non-GAAP financial measure, adjusted EBITDA during this call. For reconciliation of this non-GAAP financial measure to the most directly comparable GAAP metric, please refer to our earnings release, which is available on our website.

Thank you, Erica and thanks to everyone for joining us on the call this morning. We reported today that our revenue for the fourth quarter was $42.7 million, up 21% year-over-year and our subscription revenue for the quarter was $38.5 million, up 33% year-over-year and represented approximately 90% of total revenue. Our annualized recurring revenue or ARR for the fourth quarter was $150.8 million, up 29% year-over-year and our net dollar retention rate for the fourth quarter was 120%, up from 103% in the same quarter in 2020. We also continued improving our gross margins year-over-year, achieving 63% in the fourth quarter versus 60% in the same quarter in 2020 and our adjusted EBITDA for the fourth quarter was negative $7.7 million. This quarter wraps up a fiscal year where we grew our total revenue by 37% and our subscription revenue by 39%. We also posted 75% year-over-year growth and the number of customers with over $1 million ARR and 25% growth in the number of customers with over $100,000 ARR. Growth in 2021 was driven by our expansion from a leading position in the video content management market into the virtual event, webinars and virtual classroom market. This expansion was enabled by the recent addition of real-time conferencing and chat capabilities for earlier video on demand and live broadcast technology stack. It was also marked by a shift towards powering more external use cases in the enterprise, we’re seeing those as the buyers as well as an expansion down market that broadens our target customers to include SMEs and departments within larger organizations through more low touch and self-serve products. We're in the very early days of the strategic expansion to new product markets in the broad enterprise space. This adds to our vertical market activity currently in the education and media and telecom market, with key differentiators and strong initial demands for all of our new products. We aim to reach a leadership position in these markets. As video based experiences continue to drive critical interactions, the opportunity ahead of us is bountiful. But before we discuss further our plans and growth engines for 2022, I want to address our recent growth deceleration and why we expect this trend to reverse this year. In the second half of 2021, we experienced a slowdown in the growth of our subscription revenue and a decrease in our professional services revenue. The headwinds on both revenue sources continued also into Q1 ’22. The following are the three driving forces behind us. First, we experienced lower than planned EE&T new bookings. We kicked off a very strong 2020 and first half of 2021, which were fueled by higher levels of demand caused both by our newly introduced products and COVID. After a multi-year increase in our EE&T average sales force productivity, we started seeing a decline in productivity, mainly due to the lengthening of new business sales cycles. This softness that was felt across the industry is also underscored by organizations shifting from rapidly purchasing a Virtual Events product along with many professional services to conduct their few flagship events remotely during COVID to more slowly and diligently purchasing a low touch enterprise-wide platform that would cater to all of their future event, large and small, both virtual and hybrid. We were expecting this trend and recently launched the second version of our Events offering that caters to this broader need, which represents a bigger market opportunity. And in regard to the number of salespeople, while in Q4, we had over 40% more ramp quota carrying salespeople compared to the same quarter the year before, we were still below our plan. This is due to the very competitive hiring and retention environment. We discussed this in our last earning call, and I've been further accelerating our hiring process. But we expect that during 2022, we will see average sales force productivity increasing back up fueled also by the new version of our events offering as well as the continued material growth in the number of salespeople. Second, the need for less professional services. We've been modifying our offerings for both EE&T and M&P to be more transactional and require fewer professional services in order to appeal to more customers and accelerate our sales and deployment cycle. Part of this trend was already planned and expected with the expansion of our self-service EE&T offering and our shift in M&P from focusing primarily on large telcos to also targeting mid-sized media companies. This trend was however further accelerated with the recent evolution of our events offering that has consumed significant professional services into a low touch platform that requires far less of them. While this reduction in professional services slowed down our short-term total revenue growth, we believe it is beneficial in the longer term, as it helps boost subscription revenue growth rates and gross margins. It is also not expected to affect our longer-term growth rate as post this transition the proportion of professional services revenue of our total revenue is expected to settle down on the new lower level. Third, one of our major customers reduced part of their business in revenue with us during the fourth quarter of 2021. They have since renewed various existing projects and partnered with us on new ones, so our business with them is picking up again and they are expected to remain a major customer this year. Outside of this specific customer, our gross retention metric in 2021 was close to our historical average and as mentioned, our net dollar retention rates remained high in this quarter and in 2021 as compared to 2020. As we look into 2022, we expect the three factors that I noted to affect primarily the beginning of the year. We expect our growth to be fueled throughout the year and beyond by the following three main engines. First is our continued sales force ramp. Our plan this year is to continue ramping our enterprise sales force by more than 40% year-over-year. After many years of not growing our sales force, we will be able to enjoy the contribution of both the new recruits of 2021 and of 2022. The second is the expansion of our events platform capability. As mentioned during 2020 and 2021, we primarily focused on high-profile flagship events. We were ideally suited for this use case, as we power all types of video experiences on demand, live and real-time at great scale with tight integrations into other enterprise systems and workflows, great flexibility for customization and branding, unique engagement features and advanced analytics and tracking. Towards the end of last year, we expanded our events platform capabilities to address not just large flagship events, but all events of all sizes, allowing organizations to easily and rapidly create, manage and deliver virtual and hybrid events by using automated event templates and not by consuming Kaltura’s professional services. This easy-to-use platform still offers our unparalleled breadth of video experiences, engagement features, insightful analytics and a high degree of flexibility and branding. We've deployed Kaltura meetings and event solutions for many exciting customers in Q4, including Check Point and Lowe's. Lowe is now providing a Kaltura powered live virtual do-it-yourself workshop experience for customers called Lowe's DIYU, where Lowe’s experts provide live video instructions and engage in interactive Q&A in support of Lowe’s customers engaged in various DIY projects. Check Point, a leading software security company conducted its recent Check Point experience event series on Kaltura. The third driver is our low touch and self-serve products and go-to-market vehicle. For the end of last year, we finished developing our new experience for the self-serve purchase of our Webinar, Virtual Classroom and Media Services offerings through our website. We're not optimizing and scaling our digital operations to support efficient online sales and are continuing to improve these products and to add to the mix more self-serve products. We also recently started building an inside sales team for EE&T low touch commercial sales to augment our main sales team by also focusing on transactional sales for smaller organizations. In M&T, we're continuing to expand our market from large telcos towards lower touch mid-sized media companies with an easier to deploy end-to-end cloud TV platform that includes a front-end user experience and content syndication and monetization tools. In Q4, two such new media customers went live in the Swiss broadcaster CH Media and AMC Network channel. Both of these customers launched in only a few months are faster and with far fewer professional services than our typical large telco deployment. In addition to these three main growth engines, we're also growing our investment in our channel partners. We announced in 2021 our expanded relationship with partners like AWS and Oracle. We plan to continue to invest in these partnerships and others in 2022 and further grow our revenues from wholesale, resale and OEM partnerships. We're also launching this year, our new M&T deals from 2021, which was a record new booking year for M&T, due to their lengthy deployment time, many of these deals will contribute revenue only starting from the second half of 2022. Several other M&T customers from prior years have also planned expansion projects in 2022. Lastly, we're continuing to grow our strong presence in the education market and to expand to cater also to smaller institutions. So in summary, all of our offerings, including our newer events, webinars and virtual classrooms are growing in importance. Top brands are relying on each of our markets to engage our customers and users. Retention rates remain strong and we believe we're well positioned to increase our market penetration in all of our markets in the coming year and beyond. We were expecting a certain slowdown as we shift from growing sales force productivity to scaling the sales force. We did however encounter greater headwinds in the last few months, but we have industry-wide sales cycle slowness, delayed hiring and a partial loss of business from one customer, that's already going back. We also temporarily delayed our revenue growth by reducing our professional services and their associated revenue in order to increase our target markets, shorten sales and deployment cycles and increase our gross margins. While we're disappointed with our slower short-term growth, we are confident that the headwinds we encountered are short-lived and that they will soon be offset by our strong growth engines including the new products that we have brought to market and their modification to cater to lower touch and self-serve use cases, the ramp-up of our sales force, the strengthening of our go-to-market partnerships, and of course, the continued growth and success of our customers. With these engines, we expect to re-accelerate our revenue growth in the second half of 2022. With that, I'll turn it over to Yaron, our CFO to discuss our financial results in more detail.

Thank you, Ron and good morning, everyone. As I review the fourth quarter and our fiscal year results today, please note that I will be referring to a non-GAAP metric adjusted EBITDA, a reconciliation of GAAP to non-GAAP financials is included in today’s earnings release, which is available on our website. Total revenue for the fourth quarter ended December 31, 2021 was $42.7 million, up 21% year-over-year. Subscription revenue was $38.5 million, up 33% year-over-year while professional services revenue contributed $4.2 million, down 31% year-over-year. The remaining performance obligation was $185.5 million, up 32% year-over-year, of which we expect to recognize 57% of its revenue over the next 12 months. Annualized recurring revenue was $150.8 million, up 29% year-over-year. Revenue benefited from our continued year-over-year growth in net dollar retention rate, which was 120% in the fourth quarter compared to 103% in the fourth quarter of 2020. Within our EE&T segment, total revenue for the fourth quarter was $31 million, up 28% year-over-year. Subscription revenue was $29.7 million up 40% year-over-year, while professional services revenue contributed $1.3 million, down 60% year-over-year. Within our M&T segment, total revenue for the fourth quarter was $11.7 million, up 7% year-over-year. Subscription revenue was $8.8 million, up 13% year-over-year, while professional services revenue contributed $2.9 million, down 3% year-over-year. GAAP gross profit for the quarter was $26.8 million, representing a gross margin of 63%, up from 60% gross margin in Q4 of 2020. Within our EE&T segment, gross profit for the fourth quarter was $22.1 million, representing a gross margin of 71% compared to the same 71% gross margin in Q4 2020. Within our M&T segment, gross profit for the fourth quarter was $4.6 million, representing a gross margin of 39%, up from 36% gross margin in Q4 2020. R&D expenses for the fourth quarter were $13.3 million, or 31% of revenue compared to 26% in Q4 2020. The increase was driven by additional headcount and payroll expenses as we continue to invest in our technology and innovation. Sales and marketing expenses for the fourth quarter were $13.8 million, or 32% of revenue compared to 23% in Q4 2020. This increase was driven by additional sales and marketing investments, including headcount and personnel related expenses. We intend to continue to invest in our sales and marketing as we expand our sales force and marketing efforts to leverage our position in the market and capture the significant opportunity in front of us. G&A expenses for the fourth quarter were $12 million or 28% of revenue compared to 16% in the fourth quarter of 2020. The increase was driven by additional public company headcount and third-party related expenses. GAAP net loss for the quarter was $15.9 million or $1.2 per diluted share. Adjusted EBITDA was a negative of $7.7 million, decreasing from $1.5 million in Q4 2020. This result is in line with our plan to increase our spend in order to further fuel our growth as discussed earlier. And now for the full fiscal year results, total revenue for the year ended December 31, 2021 was $165 million, up 37% year-over-year. Subscription revenue was $145 million, up 39% year-over-year, while professional services revenue contributed $20 million, up 22% year-over-year. GAAP gross profit for 2021 was $102.7 million, representing a gross margin of 62%, up from the 60% gross margin in 2020. GAAP net loss in 2021 was $59.4 million or $0.95 per diluted share. Adjusted EBITDA in 2021 was a negative of $12.2 million, decreasing $4.3 million from 2020. Turning to the balance sheet and cash flow. We ended the quarter with $143.9 million in cash and short-term investment. Net cash used in operating activity was $10.7 million in the quarter and $22.1 million in 2021. I would now like to turn to our outlook for the first quarter and the full year 2022. In the first quarter, we expect subscription revenue to grow by 12% to 15% to between $36.2 million and $37.2 million. Total revenue to grow by 5% to 8% to between $39.6 million and $40.7 million. As Ron mentioned, these take into consideration an expected material decline in our professional services revenue. We expect the negative adjusted EBITDA to be between $9 million and $12 million. For the full year, we expect subscription revenue to grow by 10% to 13% to between $159.5 million and $163.8 million and total revenue to grow 5% to 8% to between $173.3 million and $178.2 million. Again, as Ron mentioned, we expect to accelerate our subscription and total revenue in the back half of the year and focus our revenue from professional services to remain around slate for the rest of the year. We expect for the full year a negative adjusted EBITDA between $27 million and $32 million. On the expense front, our investment plans and priorities for 2022 have not changed. We plan to continue investing across both R&D and sales marketing to drive growth and expect our gross margin to continue growing moderately towards achieving our long-term goal. In summary, as Ron mentioned, we believe that our new products and the strong retention rate will enable us to accelerate our revenue growth rate in the second half of 2022.

At this time, we will begin the question-and-answer session. Our first question comes from Gabriela Borges with Goldman Sachs. Please go ahead with your question.

Good afternoon. Thank you for taking my question. Ron, I wanted to revisit your comment regarding the changes in purchasing behavior among your customers towards enterprise-wide products that you believe will outperform the second generation of your events platform. Could you elaborate on the key indicators that lead you to think the expansion of your events platform will contribute to the company's growth in the second half? Additionally, how can you be confident that this will not pose an additional challenge from the competition? Thank you.

Thank you, Gabriela for the question and thank you everybody for joining the call. I'm going to give you a few examples of things that we've been seeing over the last quarter that support the notion of longer sales cycles. We had a top-tier company that's been a top 20 Kaltura customer for more than nine years with us that awarded us their event business for the Tier 2 and Tier 3 events, meaning the smaller and intermediate sized events, not the flagship events, but that's going to take them a while until they physically contract. We are already available and it goes through the motions and they expect that later in the year. Another example is a well-known technology company, that has not been our customer to date; they joined us, and they've done two smaller events with us. They find us as one of the two finalists to do other events; we’re discussing thousands of potential events and they go through a prolonged process as we go through these initial events to assess the quality of the product and make a final decision on where it's going to be deployed. By the way, the reason for the first one choosing us was the enterprise ability of our platform, the fact that we could address integrated workflows across the entire organization. The reason for the second lead position that we are right now is the fact that we could address complex event templates which could be easily replicated. For example, they run training events that require robust content management capabilities; we are the only platform that could support these needs. I could give you a couple of more examples of a new tech company that became our customer this past quarter; their annual customer event received their users the highest scores in five years for virtual event experiences, and that's for both physical and virtual events; the ratings were off the charts in the healthcare organization that's been a customer of ours for eight years. We are seeing a solid pipeline build and the need emerging, but the decision-making process for a platform that caters not only to the very large flagship events but also to many intermediate size events is just a longer process. So we are seeing that the market still recognizes that we have a very strong offering there and the interest is there; the sales cycles are just longer. Does that address your question?

Yes. Thank you. And maybe a little more detail on what you're seeing in the existing book of business. You mentioned one of the customers downsized their contract with you; are you seeing additional customers downsize their contracts with you as they figure out their longer-term plan because perhaps the nature of their events has changed in real-time? Maybe just a little more on whether you're seeing a downtick in existing customer spend or any other examples that parallel the one customer’s situation?

Yeah. Happy to address that. So first of all, we did discuss one of our major customers that reduced part of their business, as well as the revenue during the quarter. They've since renewed various projects, et cetera. I will say first and foremost that they have multiple projects and they are growing in other areas of their projects. So there were some projects that were canceled and the rest are ongoing. As for the other ones, as we did state, outside of this specific customer, our gross retention metrics in 2021 were close to our historical average, both in 2020 and in 2019. And the net dollar retention rate remains high. So we're not seeing any massive change in our gross retention or in the net retention behavior of those states that as it pertains specifically to going forward into the flagship event. Is there a possibility that some of the other clients that just use us for flagship might do a partial renewal? That's certainly possible, but that's not a huge part of our revenue and we are seeing the migration into additional bigger impactful projects as well. So we're not expecting a major change in our gross retention metric. Does that address your question?

Yes. Thank you for the color.

Hey, Ron. Hey, Yaron. Thanks for all the color on current trends. I appreciate the transparency. Ron, I want to ask, if you're seeing sales productivity declines within your existing team, what makes you think throwing more resources at the problem is the right solution now?

Yeah. So, great question and thank you, DJ. So first and foremost, this has not been a very prolonged process. I remind you that we've seen increasing productivities before COVID, during COVID and that sustained all the way through to the end of last year. We know Q4 was a bit of a different case, even through Q3, there was a mild reduction. We're just still forecasting for the year based on the actual pipeline that we should be fine for the year. So that change really was a few deals that slipped at the end of the year that just took longer, and most of them, almost all of them, the statement is absolutely doing this, you got a verbal agreement, it just takes longer. So we're not feeling that there is a slowness overall in the demand nor in the underlying market. The other one is that I mentioned, we've been adding the types of products would enable us to continue to address this trend and this change in the elongating of these deals and it's not that deals are stopping, just the closing of the deals takes more time. So bringing more salespeople to work on the likes of the deals that I mentioned, as well as many others is something that's absolutely worthwhile, it does not mean that it's going to translate into closing the business immediately. Last thing I would say is that even if you look at the productivity, we are still higher than 2019 on average for 2021. And even if you take the run rate on the second half of the year, it's the portion of that that's built from a kind of an LTV to CAC is still a favorable number on the second half of the year. And so we're not arguing that it's not an efficient operation, but we're keeping an eye very closely on it, and we're not going to add all the people in one day. As we ramp up throughout the year, we're going to continue to make decisions.

And one more point that I want to add, DJ, is that when we look at the pipeline, obviously, we are not sharing pipeline numbers, but I can tell you that even in the first quarter of this year, we definitely saw a very nice momentum in booking around this specific customer. So looking into the rest of 2022 and the conversion into revenue, we do feel that this customer is going to continue to be a very, very significant customer for us.

Okay. I appreciate the color. Thank you, guys.

Yes. Hi. Good morning. Thank you for taking the question. I wanted to go back to your comment about the sales cycle in that lengthening and just wondering if this is the new normal, in your view, or if it's a reflection of customers maybe shifting course mid-negotiation around uncertainty on kind of the product in the use cases and what they actually need. So I was trying to get a sense of what's driving that lengthening of the sales cycle and if this is the new normal?

Yeah. Michael, thanks for asking. So look, we always thought that post-COVID those cycles are going to be longer than during COVID, that's not the question because, again, a lot of it was spur of the moment decisions of people needed to have done very quickly. We are seeing now some of the cycles taking a bit longer than we would anticipate. I think part of that is that Q4 was coming out of this crazy year and some people taking more time off might be longer than usual, potentially macro situations around budgets. But I think beyond that, it's really a point of that transition of the type of product into a more thoughtful longer-term strategic decision around events for the entire organization. There are two things that are going to happen: number one, If the beginning – it gets delayed, it’s like a traffic jam; at the beginning of the year, once it starts rolling, then you'll have the flush of deals that we close now. So that interim period of that delay is creating a bigger impact than later on, even if sales cycles remain a bit longer. But I do expect that they're going to become quicker for various reasons. Number one, I think people are going to understand exactly what they're looking for; it's still a rather new shift. The second thing is that we are going to have more of that product available. We just launched it in Q4, the additions, the modifications and we're going to do more and more of it and more and more success stories, like I said, we have quite a few initial success stories. And I think we'll be in a position to sell these things quicker. I will note again that even if you look at productivity and where they're at, it's decent productivity, and so we're hoping that if it follows on what happened in the second half of the year, it's still going to do well. We're hoping it's going to do better. It's hard for us; we are a long sales cycle company, it's not a transactional F&B quick sale, albeit that we are coming down market. We cannot look at one specific quarter and be able to say for sure exactly how things are going. We're going to need to monitor this in the next few quarters and keep an eye on it.

Great. Just to clarify, I think you mentioned that although the sales cycles are lengthening, the deal sizes you are executing are larger as customers think about their core company needs. Is there any way to quantify that change in deal size? And is that just going to, to your point, add more potential lumpiness to quarters, but I'd like to peg in the pipeline once it works through, you end up at the same point at the end of the year; was that your point?

I hope that over the years, we've increased our ARPU and average ARR, and we've also seen a rise in the average recurring revenue per customer in the past year. We reported that the number of customers over $1 million and $100,000 grew by 75% and 25%, respectively, in the last year. As a result, we're securing larger deals. Some of the opportunities I mentioned involve thousands of events across various organizations, and they are quite substantial. Therefore, we expect this growth to continue. Additionally, it's not only about the deal sizes but also the shift in structure from recurring subscriptions to professional services. Our flagship events required significant non-recurring professional services, especially as we provided branding and closely collaborated on large deals, partly due to not having automated products to support those efforts. Now, we anticipate more recurring subscriptions and fewer professional services. I believe we will see a rebound toward faster sales cycles, increased demand as we enhance our product, larger deal sizes, higher gross margins, and quicker transactions with more transactional products. We will keep a close watch on this in the upcoming quarters and provide updates. Thank you, Michael.

Hey, guys. This is Austin on behalf of Michael. I just wanted to touch on RPO and CRPO. It looks like both were up double-digit sequentially but ARR was down sequentially. Could understand customers' downsizing might result in a downtick in ARR, but what's driving the divergence between those two metrics?

Yeah. First of all, the big increase in the RPO is mostly not just related to the fact that we added some of the big deals that we have in Media and Telecom, which are definitely contributing to the growth of RPO. By the way, some of these deals will be converted into revenue in the second part of the year 2022, but it's definitely going to push growth rate up. In terms of the sequential performance and what that means, in this quarter, the slowness that we saw in productivity and the specific reduction of this big customer, which as I mentioned, and Ron mentioned, is mostly for the short term and not so much for the rest of the year as these customers continue to renew and book more transactions during Q1. There was a short-term pressure that we felt in Q4 going into the beginning of the year on the RPO.

Okay. That's great. Thank you. And then just as a follow-up, just wanted to unpack the revenue performance on a geographic basis. Were there any call-outs related to specific geos that might have driven the lighter performance on revenue during the quarter?

No. Short answer is no. The trends are basically the same; North America is still our biggest region followed by Europe, and then Asia-Pacific. And there are some small tweaks and shifts, but it remains mostly the same.

Hey, guys. Thank you for taking the question. Maybe two, if I could. First on churn, could we get any more color on how customer churn is striking? I guess I'm more focused on customers within EE&T that may have joined sort of earlier on in the pandemic. So if there is any color you can give us in terms of how that cohort joined roughly two years ago; how churn is trending there? And then secondly, if we try to sort of unpack the revenue guide for subscription in 2022, is the implication here that subscription revenue growth is relatively flat in the second quarter and then sees a little bit more of a ramp into H2 as you start to see some more bookings from new salespeople? I'm just trying to sort of figure out the trajectory during the year. Thanks.

Yeah. Thanks, Matt. So on the churn side, again, we do not see any specific behavior that is significantly concerning other than that individual customer that we discussed. We don’t see any behavior that is significantly concerning, and as mentioned, it's aligned with the last couple of years and some of the departures are new, but I think a fair bit of them or not. At the end of the day, the gross churn number, albeit that we don't represent it and we don't discuss it as a KPI, we just do the net dollar retention; it's within the best practices for the enterprise. So we're not seeing it. I did put that caveat that we need to keep our eye open on what’s going to happen with these flagship events, like I said, there is a good potential for us to move from flagship to a full event platform. We are seeing some and in some other cases, it might change. We're going to keep our eyes open over the next few quarters.

As for revenue guidance for subscriptions, go ahead, Yaron. Yeah. As we say most of the headwinds that we felt, we felt it with an impact for the short term and this creates a pressure on the growth of subscription revenue, especially this specific customer that as we mentioned, we saw pressure on topline; but at the same time we are booking more and more with them. So we see the turnaround point happening as we speak. And at the same time, we believe that also most of the impact of productivity is going to turnaround in the second part of the year by adding more people. We do believe that we will see a very nice acceleration in the growth of subscription revenue going into the second half of the year.

That's great. Thank you both.

Great. Thanks for taking the questions here. I guess, just from a vertical perspective, is there anything to break down and what the demand environment looks like across each of the segments here, particularly on the EE&T side? I think it sounds like EdTech has been a little bit more impacted, based on just what we've heard in the market, but any kind of breakdown from a vertical perspective on what you're seeing out there?

Sure, Steve. So first of all, contribution was coming from all segments; the largest contributor continues to be enterprise. We spoke about geography. I mean, I can give you a few examples; for what you're asking about EdTech: we have a large multi-campus private university that serves over 20,000 students a year. They basically selected us from a highly competitive test out there around the different options. There is a round of world, a large university in the Netherlands that’s serving 35,000 students that took us to replace the full video technology stack. We've got another very large prestigious privately owned university in the Philippines serving 30,000 students that's leveraging our capabilities to do all of their on-prem or local and hybrid remote classroom work. We have upsells across our organizations; a large California-based engineering university doubled down on their transcription capabilities with us. So we're still seeing good action coming from education. Do I think that the tick up in education will continue at the same velocity that it jumped at during the height of COVID with some more consumption? It might be lower, but the good thing is that we have a good hedge across all the different elements. One example of that for example is Media and Telecom; you remember that in 2021, there was a record jump in booking; it grew by 100%, and in the second half of this year, we're going to get a lot of that benefit on the revenue side. So a good portion of the growth, by the way, is already in pocket with stuff that happened. So enterprise is running forward with events, and education is doing well; it might do another big jump. One of the things that we're looking at is selling the event platform for education. A lot of folks are coming to us and are saying they want to use it for various events; universities are using. So we're keeping an eye on that one.

I guess maybe asked a little bit differently, have we not seen impact on the EdTech space from classes going back in person or anything, anything on that front?

No, because we're not on a usage-based charge on that side. To remind you, the content management systems we've been selling for education for years including plug-ins to LMS and electric capture. We're in an FTE-based model. The more people use us, we don’t get paid more. So far as what’s happening if there is a bit less consumption after COVID doesn’t affect our revenue. Our universities are even clearer that they need to use the systems. Yes, one thing is that during COVID people needed to use this very quickly for emergencies, but they didn't rethink their strategy going forward for a full flip classroom experience where people could come to the campus to do their drills and training but really consume the actual lecture content back home; it’s called flipping the classroom. We are seeing more and more universities saying okay, we understand the new standard and we need to start preparing for more video capabilities in this new standard. So, no, I mean companies that really popped or consumption-based companies probably, they went up and they go down; we didn't have that in EDU. So that's not a problem for us. Did that address your question?

Yes. That's helpful. And then I guess just on the cloud go-to-market partnerships with AWS and Oracle, just any update on how those are ramping versus your expectations and kind of new contributions at those in the quarter?

Yeah. Happy to address that. So we're continuing forward with both partnerships, both with Amazon and with Oracle. To remind you, Amazon has been a long-term partner for us and we are in their marketplace and working on selling more. We have a fair bit of deals that are coming and opportunities that are coming through the Amazon partnership and they’re continuing forward. I'd say on the Oracle front, we made that extended partnership earlier this year, which was first and foremost around moving our OEM relationship into OCI. We're making headway on converting and enabling our OEM relationship in OCI and doing more things, but we have go-to-market together. So I think that the impact will be building up throughout the year of 2022. I think that towards the latter part of the year once the OEM and OCI are running stronger, we could expect a lot of good things to start from there as well.

Okay. Perfect. Thanks for taking the questions.

Hey. Good morning, guys. On the timing of your large customer churn, was that more of an impact to Q4 or Q1? How should we think about that kind of step down there and that impact on the numbers?

In terms of revenue, we have an annual contract related to this specific situation, but the majority of the impact occurred in the fourth quarter and the first quarter. We expect things to improve as we are signing and closing more deals with this customer. Ultimately, the most significant impact is during the first and fourth quarters of this year. Looking ahead to the second half of the year, we anticipate this customer will start ramping up, and they will remain a very important customer for us.

I'd just say that from a professional services revenue perspective, the bigger reduction was in Q4, albeit that there is a nice reduction in Q1. And from a subscription perspective, because it kind of builds up from the end of Q4, the bigger impact was in Q1 than it was in Q4.

The run rate on subscription revenue that we see with this customer, the second half of the year is basically at the levels that we had before this specific situation.

Thank you, Ryan.

Got it. I understand the longer sales cycles, but can you provide some insight on your hiring plans and headcount productivity? How do you feel about your current position and how much more progress do you need to see? Ron, any additional information you can share would be appreciated. Thank you.

Sure. So we ramped and we noted more than 40% year-over-year growth in the total count of ramp salespeople from Q4 ‘20 to Q4 ‘21. We're expecting to do the same this year. When we count that ramp, it takes at least six months for salespeople and four months for customer success managers. Obviously, at this point, given the longer sales cycles, it does mean that they are not 100% yielding already and for sure revenue comes in gradually after because this is the beginning of booking. That 40% is a nice increase; for years it's been at zero, and then within one year, it grew by 40%, but it's under the number that we were planning and we're catching up on that delta. I think that in the coming year 2022, we're going to enjoy both. The increase that we had in 2021 is going to bear fruit because they are going to be in place for longer, they're going to be addressing all these cycles that they're sitting on now selling against. But we're also going to have the new hires that are coming in 2022. Last thing I'd say is that we've launched also the inside sales commercial sales initiative and ramping people there to address low touch products as well. So that's supposed to help us as well. Thank you.

Great. Thank you. Actually, I have two. Ron, first of all, I guess I wonder if the hybrid world is playing out sort of the way you thought it would? For example, in my kid's schools, I would have expected that they have a classroom set up so that if you have to stay home, you can still watch class. But in fact, that's not what they're doing in the public schools; they went all the way back to in-person. Likewise, if you look at our industry, a lot of these investor conferences, you would have thought would have been hybrid, but a lot of are actually going back full in-person. So they're either all hybrid or all virtual or all in-person. So I just wonder if maybe our expectations around hybrid were overblown. What do you think?

That's a good question. Firstly, I assume you're referring to K-12 schools when you mention your child's school. K-12 education typically takes longer to evolve compared to higher education, which is changing more rapidly. In terms of major events and investor gatherings, the current trend is not so much about a hybrid model; rather, people are consuming content regardless of their location, often without physically attending. It’s not just one format or the other; it’s both. I believe there will be a solution that allows for a seamless experience, where whether someone is attending in person or at home, they can access the same content. You might participate in one day from home and attend the next day, and all elements like networking, engagement, and follow-ups will be available to everyone equally. That is how I envision the future. While there's uncertainty around how many people will choose to visit in person versus shopping online, we shouldn't rule out those who prefer not to attend. I think this is the way forward, but it may take some time. We are close to this change, but it is definitely underway.

Okay. My second question is about the valuation of 1.5 times EV to revenue. Clearly, there will be significant interest from potential buyers. What key points would you like to share with investors regarding your response to this interest and your perspective on the strategic interest from those who may want to acquire your company?

Got it. Look, I mean the reason, and I'm not going to get into price and what's the fair price or not, I don't think that this necessarily is in line with our forecast and where we're going, and definitely not for the strategic value of the company. We've been growing and bringing certain business; there is a certain shift for a short period and then it's going to change yet again. I think it's more reacting to the very short-term quarter next quarter, but pertaining to your general question about reaction to strategic interest, we'll be sitting with folks and having whatever discussions we need to do to best represent a value for shareholders. But we are absolutely looking forward and what this company is worth, not in this quarter, not next quarter, but in the quarters to come. It has nothing to do sometimes with the short-term situation. We're very bullish and very excited about the general direction of video and about the general direction of the company and there is a lot of growth drivers in place to support our growth. Thank you very much.

Our next question comes from Param Singh with Oppenheimer. Please proceed with your question.

Hi. Thank you. Yeah. This is Param Singh on behalf of Ittai Kidron and thank you for taking my question. And thank you so much for all the color and sorry to beat a dead horse. But I really want to understand the dynamic in the subscription revenue when I just look at your guide, it looks like you're 12% to 15% in 1Q is higher than your full-year 10% to 13% and given all the color that you've given. One would expect that it would pick up through the year and accelerate, so why this type of guide and what is the dynamic that we are missing here? And how do you reconcile your productivity and hiring with the headcount coming back with this type of subscription growth that is decelerating?

Thank you, Param. It's important to note that this isn't necessarily a decrease. We should focus on sequential growth rather than just year-over-year rates. Although we have seen a decline sequentially, we also had a positive impact from the departure of certain projects with a customer who is actually increasing their business with us and is on the path to growth again. While we experienced a partial slowdown, our expectations for the rest of the year indicate a gradual increase. So, we are not slowing down; rather, when comparing this to last year's revenue and performance, we might observe various growth levels. The start of the year may show some year-over-year deceleration, but we anticipate a significant increase later on. It's crucial to keep an eye on our sequential growth. Yaron, would you like to contribute anything?

Yeah. I will not get into specifics because obviously, we're not going to give guidance for the second part of the year. Definitely, we see a very nice acceleration in the sequential growth based on the fact that as you can see, the first part of the year is basically flat, almost split, and therefore the second part is definitely accelerating quarter after quarter on the sequential basis.

Ladies and gentlemen, we have reached the end of the question-and-answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.