Good morning, everyone, and welcome to Kaltura's Third Quarter 2022 Earnings Call. Please note that this event is being recorded. All material contained in the webcast is the sole property 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 of the third quarter ended September 30, 2022, and the trends in areas of focus that are expected to impact the remainder of 2022. Yaron will then review in greater detail the financial results for the third quarter, followed by the company's outlook for the fourth 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 annual report on Form 10-K for the fiscal year ended December 31, 2021, and other periodic SEC filings, including the quarterly report on Form 10-Q for the quarterly period ended September 30, 2022, 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 a 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 at www.investors.kaltura.com. Now I'd like to turn the call over to Ron.

Thank you, Erica, and thanks to everyone for joining us on the call this morning. Today, we reported total revenue for the third quarter of 2022 of $41.1 million, down 4% year-over-year and subscription revenue of $37.9 million, up 1% year-over-year. Adjusted EBITDA for the quarter was negative $7.2 million. In our last earnings call, we made three important financial forecasts: an expected return to revenue growth in Q4, fueling a higher year-over-year growth rate in 2023; expected gradual quarterly improvements in adjusted EBITDA towards a single-digit loss next year; and an expected significant improvement in cash flow with a forecasted single-digit aggregate cash flow from operations loss in the second half of this year. Today, we are reaffirming all of these three forecasts. Regarding revenue growth, after a tough year that saw an initial quarterly decline in subscription and total revenues, followed by close to flat revenues, we are forecasting for Q4 a sequential revenue growth rate at a level that we have not seen since the first half of last year. Regarding profitability, while the effects of our recent cost reduction have only partially affected this quarter, we have already seen a reversal of the trend of our bottom line with an adjusted EBITDA loss that is lower than that of the last three quarters. The improvement in profitability is expected to continue in the coming quarters as we continue to execute on our plan to return to profitable growth. And regarding cash flow, we had positive cash flow from operations in the quarter. We expect that our aggregate cash flow from operations in the second half of this year would be a single-digit loss as previously forecasted. We remain committed to rebalancing the company's cash flow as we have done in 2019 and 2020 without requiring additional funding. In the third quarter, we closed new business across all of our segments, powering employee and partner communication and training, customer engagement, internal and external-facing events, student learning, and TV viewership. Companies are continuing to move their workflows online and value Kaltura's ability to cost-effectively provide them with a single, flexible, tightly integrated, and engaging enterprise-grade platform that can holistically power integrated on-demand, live, and real-time video experiences across multiple use cases. Today's challenging economic climate highlights the importance and advantages of Kaltura Solutions since customers seek more than before to reduce budgets and consolidate vendors. Among this quarter's new deals were several seven-digit transactions with a South American media company and an Asian bank that is a new customer. And we are the leading U.S. bank that is expanding the use cases for which it is utilized in Kaltura. Both banks have signed up now to use Kaltura to power their events. We're seeing growing demand for our Events offering across many industries beyond technology companies, which were the initial buyers, including as mentioned, financial services as well as consulting services, pharma, manufacturing, and education. While on the topic of Events, I would like to remind you that on November 15 and 16, we shall be conducting our second annual virtually live event where event professionals, marketing leaders, and digital experience creators will exchange thoughts on the state of the future of online and hybrid events. Those interested are invited to join us and the already thousands of registrants to listen to our incredible lineup of speakers, which include leaders from Accenture, Lenovo, AWS, SAP, Salesforce, Oracle, Adobe, Microsoft, Google, Cisco, IBM, Airbnb, VMware, and many, many more. On the product development front, the biggest news this quarter was the anticipated launch of the new version of our Webinars offering. Our new release includes the ability to launch many sites for each webinar with unique branding as well as advanced engagement options coupled with rich analytics. The new version also includes advanced recording options as well as automatic publishing for webinar recordings. Our new webinar solution is available for self-service or self-assisted purchase through our website, with packages available both for personal and team licenses. We also continued advancing our comprehensive event offering with a user-friendly orchestration and management layer to easily set up and manage branded events. Enterprises can leverage our platform to centrally manage large numbers of virtual and hybrid events for marketing, corporate communications, learning and development, recruitment, and more. During the quarter, we invested in simplifying event management, advancing our integration with third-party systems like Marketo, creating more user-friendly experiences for SMBs, and offering more advanced analytics. We also added richer functionality for the management of on-demand assets within Events. While we have a more robust and diverse product offering in the second half of this year, especially in the areas of Events and Webinars, which enable us to increase our addressable market and deal size, we're naturally also exposed to the current macroeconomic headwinds and are closely monitoring them. Beyond the negative impact on the foreign exchange rates, we are seeing more customers holding back on spending, being more risk-averse, and extending their valuation time. In summary, while the macro conditions continue to be challenging and have contributed to a delay in our return to growth, we are continuing to make progress in improving our bottom line and cash flow and are still expecting a return to revenue growth in Q4. We continue to believe that the growing need for advanced video solutions coupled with our robust and expanding product offering will bring us back to profitable growth. 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 first quarter results, please note that I will be referring to a non-GAAP metric, adjusted EBITDA. A reconciliation of GAAP to non-GAAP financials was included in today's earnings release, which is available on our website at www.investors.kaltura.com. Total revenue for the third quarter ended September 30, 2022 was $41.1 million, down 4% year-over-year. Subscription revenue was $37.9 million, up 1% year-over-year, while professional services revenue contributed $3.1 million, down 41% year-over-year. These figures also embody an approximate revenue reduction of $0.4 million as a result of currency headwinds that occurred during the third quarter. These headwinds are forecasted to continue and reign on our revenue during the fourth quarter as well. The remaining performance obligations were $169.2 million, up 4% year-over-year, of which we expect to recognize 65% of the revenue over the next 12 months. Annualized recurring revenue was $152.9 million, up 1% year-over-year. The remaining performance obligations and annualized recurring revenue metrics also reflect the impact of the currency headwind that occurred during the third quarter. Our net dollar retention rate was 96% in the third quarter compared to 100% in Q2 2022. Though our gross retention rate remained in line with our long-term historical levels, even higher than that of the last three quarters. Note that this quarter's net dollar retention metrics incorporate the full impact of the large customers, as I mentioned in our last earnings call, who reduced some of their business resulting from the fourth quarter of 2021. This customer has seen significant engagement with us and partnered with us on new ones, including in the preceding quarter. The net dollar retention metrics also incorporate the impact of the currency headwinds that occurred during the quarter. While downward pressure on net dollar retention has been seen, we expect it to gradually improve next year. Within our EE&T segment, total revenue for the third quarter was $20.1 million, down 1% year-over-year. Subscription revenue was $28.7 million, up 3% year-over-year, while professional services revenue contributed $1.4 million, down 44% year-over-year. Within our M&T segment, total revenue for the third quarter was $11 million, down 14% year-over-year. Subscription revenue was $9.2 million, down 5% year-over-year, while professional services revenue contributed $1.8 million, down 38% year-over-year. GAAP gross profit in the quarter was $26.4 million, representing a gross margin of 64%, down from 65% gross margin in Q3 2021. Within our EE&T segment, gross profit for the third quarter was $21.2 million, representing a gross margin of 71%, down from 73% gross margin in Q3 2021. Within our M&T segment, gross profit for the third quarter was $5.2 million, representing a gross margin of 47%, up from 45% gross margin in Q3 2021. R&D expenses for the third quarter were $13.9 million or 34% of revenue compared to 29% in Q3 2021. The increase was driven by additional headcount and personnel-related expenses associated with developing our new products. Sales and marketing expenses for the third quarter were $15 million or 27% of revenue compared to 26% in Q3 2021. This increase was driven by additional sales and marketing investments, including headcount and personnel-related expenses that support the go-to-market efforts around the new products. G&A expenses for the third quarter were $11.4 million or 28% of revenue compared to 23% in Q3 2021. The increase was driven by additional headcount and third-party related expenses related to being a public company. GAAP net loss in the quarter was $19.4 million or $0.15 per diluted share. Adjusted EBITDA was negative $7.2 million, decreasing from a negative of $2.3 million in Q3 2021. This resulted from our former plan to increase our spend to further fuel our growth. Turning to the balance sheet and cash flow, we ended the quarter with $94.3 million in cash and marketable securities, providing us with a good cushion to continue to invest in our business through the current macro cycle. Net cash provided by operating activities was $1.1 million in the quarter compared to a negative $5.7 million net cash used in operating activities in Q3 2021 and compared to a negative $19.6 million and negative $22.5 million in Q1 2022 and Q2 2022, respectively. The improvement was driven by seasonality, strong momentum in accounts receivable collection, and the initial impact of our cost reduction. We are still expecting an aggregate single-digit net cash flow loss from operations in the second half of 2022. I would now like to turn to our outlook for the fourth quarter of 2022 and for the fiscal year ending December 31, 2022. In the fourth quarter, we're expecting subscription revenue to grow by 0% to 3% to between $38.5 million and $39.5 million and total revenue to increase by 1% to 3% between $43 million and $44 million. We expect a negative adjusted EBITDA to be between $6.5 million and $5.5 million. For the full year, we expect subscription revenue to grow by 4% to 5% to between $151.4 million and $152.4 million and the total revenue to grow by 2% to between $167.7 million and $168.7 million. We expect the full-year negative adjusted EBITDA to be between $30.5 million and $29.5 million. In summary, as Ron mentioned, we continue to forecast a return to growth this quarter, in line with our original forecast of acceleration during the second half of this year, albeit softer and delayed within the second half because of this year's macro conditions. The cost reduction and the reorganization that we have conducted are helping us return to profitable growth, and our cash flow is improving. We continue to focus on achieving a single-digit pro forma operation loss in the second half of this year. With that, we will open the call for questions.

Your first question comes from Gabriela Borges at Goldman Sachs.

This is Jake Tilman on for Gabriela. Ron, you mentioned that Q4 will grow sequentially at a level that we haven't seen since the first half of 2021. Are you assuming that the macro environment improves to achieve that level of growth in Q4? Or do you currently have enough visibility into revenue to be confident in that guide?

Jake, thank you for your question. No, we're not assuming and we have enough confidence to support the guide. We've long stated that in the second half of the year, we saw acceleration. We said earlier that we were hoping for it to be Q3, and it got pushed into Q4. Indeed, Q4, we already have the numbers in pocket that support that.

Got it. And then for my follow-up, last quarter, you talked about how bookings rebounded to the highest level since, I think, Q3 of last year. How did Q3 of this year compare to Q2, and did trends improve or worsen on a monthly basis going through the quarter?

Thanks for that. Let me give you some color on the quarter. So first to your question. Q3 bookings were somewhat below Q2, but they were still better than Q1 and Q4 of last year. The singles with sales force productivity on average were conducted more or less a similar amount of ramp salespeople as the quarter before. Maybe a bit more color as we look at the trends. Most of the booking was, as usual, from enterprise, then followed by EDU and M&T at the same level, but enterprise was by far the strongest pool. Same split between upsell and use, same geo, same channels and a bit less services in line with recent trends over the year in which it's more and more low-touch and less and less services. There were some good tailwinds that continued forward. First is the overall underlying shift of workstreams online, digital transformation, but now even more as we get into the economic situation, saving money by reducing travel costs. So that's good. We are seeing customers who are looking to improve budget efficiency and consolidate vendors. Kaltura is one of the only vendors that could really support any type of event plus internal use case, etc. We're seeing more opportunities open up for events. And by that, I don't mean large conference events, but any event of any size, internal, external, and the percent of the event deals from our total bookings continue to grow. We are seeing that expand beyond tech into multiple verticals, initially, ed tech and now we have banking, business services, pharma, and manufacturing. In general, financial services continues to be really strong for us. EDU, we've seen very strong win rates continue. We're seeing our Event platform enter that market. We're seeing increased work in K-12 and increased success in Europe. And in M&T, we're seeing mainly expansion of existing customers. Now touching on some of the headwinds that are affecting behaviors. So one, we're still seeing, of course, the devaluation of the euro and that continues to affect us because we have a fair bit of our revenue coming from the euro, and that's affecting our financials in Q3 and also Q4 and earlier. We haven't seen this in the second quarter, but we are seeing customers starting to hold back on their spending and talking about them being more risk-averse. We are seeing budgetary constraints affecting some demand, with dropping of prices by competitors. Albeit that we're still holding our win rates against these competitors, we are seeing that behavior in place. We're seeing RFPs that are coming in lower than before. We're seeing the number of deals that are converted from the top of the funnel into actual meetings come down compared to the first half of the year and compared to last year. We're seeing organic usage come down a bit. In EDU, North America, we're seeing a bit softer in M&T, and we're seeing less new deals. So the difference, I guess, from Q2 to Q3, it's still better than Q1 and Q4, and we're still having all these directional pushes with everything we're doing. But we do see some more of that macro impact land in Q3 behavior. Does that address your question, Jake?

Next question comes from Matt Niknam with Deutsche Bank.

I want to clarify my understanding of adjusted EBITDA. If you're finishing the year with an implied EBITDA loss of $6 million, and Yaron mentioned that for next year, the expectation is still a single-digit million EBITDA loss for 2023, could you assist in outlining how we might achieve that? Additionally, regarding the net dollar retention rate, I appreciate the insights shared. Could you elaborate on where you are experiencing significant pressure? I believe you indicated that there's an expectation of continued pressure in Q4 before improvements next year. Are there specific segments or areas where this pressure is more pronounced?

Thank you very much for the question. So regarding the first question on the adjusted EBITDA, you're right. If you just take the Q4 adjusted EBITDA multiple by full, you do not get to the previous targets that we gave that we do believe that next year is going to be a single-digit adjusted EBITDA. Obviously, you need to take also the growth that's going to happen from the top line even if you take just the current run rate of the revenue for this quarter and take it with no additional net bookings, then you get to a very similar growth rate for next year, but we believe that the number will be higher, which will help us to balance the expense base. At the same time, I can tell you that there were some one-time expenses that we incurred in Q4, which are not going to impact the rate next year based on our current plan. The third line item is that we didn't materialize all the savings that we planned for this year, meaning some of the cuts that we did because of notice periods, etc., will impact mostly Q1 numbers. So the full impact is not yet embedded in the numbers. We still believe and we are planning the company in a very thoughtful way in the P&L to achieve the adjusted EBITDA single-digit negative for next year. And we do believe that we have time to do it. By the way, even if at the end of the day we see that top line is not behaving as we planned that it's going to behave right now. So we still have room to play. And the plan is still the same plan. Regarding the net dollar retention rate, one thing that I can tell you, which is very encouraging, is that the net dollar retention rate, which obviously went down this quarter, the one reason that is not impacting the net dollar retention rate is the gross churn. Actually, the gross churn for this quarter was a bit better than the previous quarter. So we don't see significant pressure coming from current customers, including definitely not from specific customers. We are taking into account the full impact right now with the major customer that reduced the revenue with us last year. Now we are comparing the full quarter that was last year to a current quarter that takes into account the reduction of this specific customer. And by the way, the customer is already renewing business and hopefully, it's going to increase in the coming few quarters. It's still a very significant customer. Yes, we did have some impact coming from the currency exchange, which impacted most of the top-line KPIs and also this quarter, we do believe that there will be some additional pressure in this quarter into Q4. So maybe it can go down by one or two points. But we definitely see the situation turning around, especially as we will start to compare quarters which are post-COVID. So in our forecast for the beginning of the year, we do see the numbers getting closer to where it was before the last few quarters. Does that answer your question?

It does, it does.

And just two more points, Matt, on your questions for myself, Ron. One, on the adjusted EBITDA, and you've heard there's stuff in pocket that's going to probably hopefully bring us better than currently guided. But beyond that, we'll continue to do better next year. But I just want to note again that we were profitable in 2019. We were profitable in 2020. Remember that, it was the single most asked question when we built the company and why did we do that? And we said we fundamentally believe in that, and we worked hard to get there, so we know how to get back there. We've proven that in the past, and we're proving it time. We'll continue to. The second, on NDR and Yaron addressed our gross retention that indeed has always been good and continued and is even better this past quarter, and that there's a gap and the impact between that because NDR looks trailing 12 months looks at historical gross retention but also looks at the comp here being a tough year with COVID and also looks at FX. One data point that I'll throw out there, if you take into consideration both the single customer reduction that we had mentioned, the large one that is coming back and growing and already turning around to be growing on a sequential basis, and if you take off the FX impact, we would have been at about 100% plus. So it's obviously not enough. We'd like it to be higher again back into the comp year that we're looking at, but it is a few points higher if you would have taken these factors out.

Next question comes from DJ Hynes with Canaccord Genuity.

So Ron, I want to double click on some of the corrective actions that you've taken internally. I think I would have expected to see a little bit more EBITDA margin improvement in Q4. I think I understand based on your explanation that this is still a work in progress. So maybe talk about where you are in terms of implementing some of these changes? And then more interestingly, to me, what are the biggest risks you're keeping an eye on from an operational standpoint as you consolidate business units inside of Kaltura and lean out the organization?

Sure, DJ. Thanks for the question. So first of all, to remind us when we made the cuts, there was a 10% reduction in both our fully ramped full-time employees as well as consultants and otherwise, so on both accounts, both for the part-time and full-time folks. We did that swiftly and effectively, by the way, employee morale has improved. If you're asking about one important thing to keep an eye on, that would have been voluntary departure rates. They've been kept and actually seen less voluntary departure recently. I think it's not just the economy of what's happening around us. It's the very concrete plans that we've had and the clarity in the company about what we're trying to achieve and the overall engagement rate of employees in the company as always. The majority of the cost savings haven't impacted yet Q3. Most of it is going to come into Q4. To give you a feel, the impact in Q3 was $1.7 million a quarter. The impact on Q4 is going to be $2.7 million more, bringing it close to the full $4.6 million impact. So there's more impact that's coming in Q4 than there was in Q3 materially, and that's going to help us from an adjusted EBITDA perspective. And I will note again that we're trying to be thoughtful about the numbers. There's also some one-time stuff in Q4. So various reasons mentioned, we're hoping to do better, and we definitely expect to do better later on. So that's a bit about the changes. As far as the reorg, I mean, we discussed that last time that there were various things that we streamlined. We moved to have one marketing team instead of marketing being split between the business units, one professional services team that's addressing all of it, and one support team. Again, there are some internal divisions within it, but more efficiency for the scale that we're operating in and for the type of behavior of the different divisions that we're behaving with, because historically, there was a bigger split in behavior. Now given the complexities of some of the EE&T stuff that are getting closer to M&T, and you see the gross margins even getting closer, it makes sense. So far, I have to say that the biggest risk was to make sure that this works, that people are able to come in, not just stay in the company, but work effectively, that the move across all the different departments is working. And so far, it is absolutely working. From a reorg perspective, I think we're good. From an overall profitability goal into the future per the earlier question, we need to continue to monitor the macro behavior, and we will continue to adjust as required in order to achieve our profitability and cash flow goals. As mentioned, we've done it in the past. We know what to do. There are more areas if we need to apply levers, but right now, we're advancing forward. Does that address your question, DJ?

Yes. No, it's super helpful color. Maybe a follow-up. Look, we're hearing from others in the virtual event space that it's pretty tough out there. We've seen a significant shift back towards in-person activity. You're highlighting virtual events as a bright spot for Kaltura. What are you seeing that others aren't? And why do you think that's playing out?

That's a great question. So a few things. First, when we discussed this earlier this year, we've been less focused on catering to large flagship events, the ones that come with a lot of services, also known as kind of a Tier 1 event. Instead, we launched this year and have been beefing up our event platform offering, which is self-operated and powers small to medium-sized events. These are the types of events that are putting together tens or hundreds of people at times. They could also be thousands, also known as Tier 2 and Tier 3, as opposed to just Tier 1. So we're not really talking about powering virtual conferences. If you hear about some of the folks out there that are talking about the huge events that are online that are now becoming hybrid and moving more physical. That's the big, big events. But we do run the gamut from internal to external, from marketing to customer education, sometimes even full-blown conferences, but it's more training, executive communications, and small digital gatherings. So it's not just the large stuff. The unique element about us is that we are the one product that addresses all these use cases. So while the COVID effect has come down and companies are still seeking to engage ways to bring together their employees, partners, customers online, actually into this macroeconomic environment, the argument is that online gatherings are even more important because of travel savings and improved efficiencies, and also obviously, given the distributed workforce and work-from-home policies. So I don't think anybody expects suddenly that everyone is going to work in the office and everybody is going to fly all over the place; it's just that the mega conferences are not 100% remote, and that's not what we have been focused on. So like I said, we're continuing to sell a bunch of other things, but the percentage of our events related, again, not multinational conferences, but event-related activity has gone up. It's now more than 50% of our E&T booking and a material part of our total company booking. Our pipeline is growing. It includes seven-digit deals. I mentioned earlier that it's grown in various areas. We're quite unique in our ability to offer one global stop for all things, including content management. Now the other point I would just note is that when we're speaking holistically about Events, it does also include the concept of Webinar. Webinar is basically a tool for events, but it's just a single session event as opposed to a multi-session, multi-track event. Now we've brought the power of our development of events into the realm of Webinars this quarter. So the improvements that we have done there on the Webinar tool that we had historically are now offering a simplified creation and management process for webinars, much more engaging experience for employees. So we now have a very, very strong webinar offering. We think the combination of both of these that are focused not on the mega events, but on activities that people need to do online is relevant now, it's relevant next year, and for sure, is going to be continuously relevant into the future. Does that address your question, DJ?

Next question, Michael Turrin with Wells Fargo.

This is Austin Williams on for Michael Turrin. I just wanted to follow up on DJ's question and touch on competitive positioning and the pricing side of things. I think you mentioned that there was some pricing compression from other vendors in response to a previous question. So I guess just can you provide an update on how the competitive landscape is evolving and just if you're seeing any pricing compression on your side as a result?

Yes, happy to do so. I mean you've heard some of the other earnings calls, and you've seen that most of the other folks out there, all of them are talking about headwinds. They're showing sequential decreases. They're talking about a reversal of growth somewhere around the middle of next year. Some of them are providing or not providing guidance for Q4, but it is looking like a sequential decline. On the other hand, in our case, there is some degree of earlier turnaround, given the nature of what we're doing. You also heard from some of them that they're talking about the power of the enterprise sale, which is what we have always been doing with large enterprises; however, we're not doing SMB. One clarification, when we are getting even into Webinars, it is more product-led growth type initiatives aimed at the SMB market, small and medium enterprises—not small, medium businesses, definitely not consumer. It’s more of a departmental sale and the ability to just quickly in a more streamlined fashion penetrate the enterprise. I think we are very much aligned with what's working out there. I think we have a very strong offering given the financial situation and people looking for one solution to address multiple use cases, which we have more than others. Statistics don’t show that we have any issues compared to other competitors. Our close rates and win rates are maintained at very high levels.

Next question comes from Ryan Koontz with Needham & Company.

I was hoping you could walk me through your progress in the self-service model and what your kind of updated thinking is there? It sounds like you're moving toward a lower touch model and maybe you could just kind of walk us through some of the nuances there between self-service and low-touch and what you've learned since you've launched some of your new products?

Thanks, Ryan. So in general, and I just mentioned that we came from the content management world where it was a CIO-type sale, long sales cycles, large enterprise, very sticky. As we've expanded—not replaced, but expanded—also into CMO use cases with additional products that we launched over the last couple of years including the virtual classroom, webinar, and events, we started getting into areas that could cater to smaller enterprises, but also to faster deployment cycles, which is important for us. The very first product there was more of the EP product, the event platform product, which is low touch in the sense that people could immediately get events going; they don't need to have a lot of professional services. Again, that part of our revenue has come down, but we've built our products to better support that, requiring less professional services. So that was the first part. Additionally, we’ve established our commercial sales team that's increasingly selling against these lower-touch opportunities as opposed to the outside sales team. However, what we've done now with this release of webinars is to enable more complete online sales for self-service. As I stated earlier, it’s tailored for product-led growth still catering to SMEs and departmental sales. We’ve simplified the creation and management of webinars for the organizers and made the experience more engaging for SMBs. Just a few quick examples: We have automatically generated landing pages now that users can customize with their logos and images, headshots, and automatically generate a beautiful landing page for a registration. We have many sites that are easy to operate where the branded mini-sites in the virtual room include the organizer's information, topic, and everything else. So we now have a very strong webinar offering, and I believe that this trend has started to positively affect our revenue this year. Some of the deals that have closed around events are centered around our EP as it pertains to the webinar. Although we just launched the products available on our website, we’re going to start marketing it now in Q4; the impact is going to be more next year than this year.

Next question comes from James Corey with Bank of America.

This is James Corey on for Michael Funk. Last quarter, you guys talked about churn levels being in line with historic levels. And I guess they were a little bit lower this quarter. But can you talk a little bit about where you expect those levels to be heading into '23, especially as the macro worsens? And a follow-up to that would be what additional levers can you guys pull if the macro has worsens to ensure you reach your EBITDA targets?

I'll take the first one and let Yaron address the other one. I mean, yes, gross retention remains strong, and it was actually the best we've had in the past year since Q3 2021. Again, they're all best practices for large enterprise-type sales. I'll throw you it's above 90% gross retention on an annualized basis if you run it over the quarter, so it's great. It was a good number, by the way, for both M&T and EE&T, both of them working very well. What do we expect next year? I mean we don't see a reversal of this trend. Could there be some more downward pressure on this due to reduced pricing from existing customers? That could be the case. To be clear, when we talk about retention rates, obviously, it's inclusive of gross churn as well as any price reduction that's baked into that number. So there might be a bit more pressure given the financial situation. But again, we're not seeing indications. Right now, as we look into Q4, we see a similar or maybe even better situation compared to what we said. So we'll keep you abreast as we finish next quarter and continue looking forward. I'll let Yaron talk about levers for adjusted EBITDA.

Yes. So obviously, this year based on the guidance that we provided, we feel very comfortable. We will end the year with a negative adjusted EBITDA of around $30 million, which the second part of the year is definitely going in the right direction. This trend is going to continue going into Q1 with the actions that have already been taken. What we are doing right now, obviously, we are not just waiting to see if the market or the macroeconomics go to their own place. We are continuing a very thoughtful planning process, considering some other options we still have available that we can implement at the beginning of the year if and when we decide to do so to meet our targets. We feel comfortable that we will achieve the single-digit negative adjusted EBITDA for next year, which will create a situation that by 2024, we'll also be positive in the cash flow. This means we will be able to continue to run the company and still show solid growth numbers while basically eliminating the loss on an adjusted EBITDA basis.

One small clarification. I just want to make sure because I noticed that when I referred to gross retention, I said single-digit; obviously, it was the opposite, which is the gross churn. What I meant is that it's above 90% gross retention, if it were a single digit, and is therefore still very strong gross retention.

Your next question comes from Tom Blakey with KeyBanc Capital Markets.

A lot has been discussed already in terms of what I would characterize as continuing to be a relatively difficult environment that you guys are managing your way through well. As we look out to calendar '23, I'm not asking for guidance, but just like a framework around how incremental, I think a couple of other questions have asked about this. The macro is we talked about past pandemic headwinds and customer churn, Ron. Now we seem to be adding extra pressure here, and ARR has flattened out in the quarter. Is there any incremental color you can provide in terms of the pipeline, the strong bookings you talked about? I have a follow-up for Ron, but I'll just leave it at that.

In a few words, I'll pass it over to Yaron. First thing to clarify that the way we count the ARR is based on the actual subscription revenue anyways; it just clears up for ASC 606 issues and for perpetual licenses and stuff like that. But it's really not looking into the future. It's not a run rate of bookings; it's effectively the subscription revenue for the quarter. Since we know that Q4 is going up, if one would have used kind of a CRR or an end-of-quarter, it would have been growing and I'm putting aside the exchange rate impact. So it is in decline because Q4 is expected to be an up quarter, and we have that in our pocket. Again, it's not a function of Q4 bookings because Q4 bookings will affect the future in our Q4. Just to be clear, we continue to grow. I believe that in our industry, we are the only company that shows this behavior as soon as Q4 this year. Furthermore, if you look at the numbers that are projected, given the guidance range we've put, it essentially turns this into a record quarter in the sense of revenue because at the beginning of the year, we had downs due to a single customer and then flat due to the behavior of this year. Now it's coming up and has been guided to be actually the top record revenue quarter compared to Q3 last year, which was our last record. We’re coming back to higher revenue. The question remains, will that continue into next year? And what's the graph looking like? It's early to say, and it's early to provide guidance. We're looking at the tailwinds and the headwinds. We've said there’s both. We are armed with great products and additional things that we’ve added this year that are building a stronger pipeline. I just mentioned that the majority of our E&T sales are added through the types of events that we are referring to and growing, and the pipeline is indeed expanding. I think that, to some extent, we're recession-proof in that we can replace multiple vendors around addressing multiple use cases, including education, media, and telecom, not just in enterprise. Overall, I'm encouraged by how things are progressing. I’m also happy that gross retention is holding up, and while there is short-term pressure on NDR given the comp here, I expect it to turn around. But it's still too early for us to jump to conclusions; it's been a very tough year, and the results we have right now are not indicative of the results we're hoping, planning, and expecting to have in the future. However, we are managing it one day at a time and ensuring that we're balancing the company, balancing profitability, and balancing cash flows. Go ahead, Yaron.

Yes. I think that in terms of looking forward to next year, the encouraging part, as Ron mentioned, is the fact that gross retention is still strong, and we don't see too much pressure on this line item. Also, I'm not sure what's going to happen with the currency exchange; for the last 3 or 4 quarters, it played a negative impact on us due to the fact that we have a significant part of our revenue coming from regions like media and telecom in Europe and since the euro started at 1.15 a year ago, now it's around 1. This was a concern by the way and closed out the quarter much below. At least going into Q4, we see some improvements being made. The big question is obviously, if the growth we are seeing in Q4, the sequential growth—how much of it will continue into next year. If it stays flat, it will essentially represent a similar year in terms of the growth rate. Can we assume that bookings will not generate additional revenue for next year? That’s a conservative assumption, and maybe that's going to happen. But at the same time, any additional booking will start pushing the numbers above where we closed this year. We have yet to see what happens with the currency exchange and obviously, with gross retention, which is still strong. Overall, it’s a mixed bag situation, but we do feel that the conservative scenario is where we see it now. Obviously, yet to be seen, and we will be very thoughtful and strategic in our operations as we aim to meet our targets.

Yes, that's a perfect segue, Yaron. In terms of my follow-up, you were very clear on your guide for a single-digit loss of EBITDA into 4Q '23, and you just added clarity to your prudence on the top line. That’s loud and clear, and strong relatively. How is gross margin looking? We haven't had an update, I don't think, on this call about—we talked about in prior calls, mix shifts, scale, and M&T. Obviously, I don't know how new self-service offerings would impact gross margin. How should we expect gross margin to trend into next year as we look ahead?

Yes. So obviously, you saw that in E&T, it was flat gross margin in this quarter. Despite the fact that we had pressure on the top line, which impacts gross margin, primarily related to the top line currency exchange impact. In M&T, we saw some pressure in gross margin. Some of it came from the fact that we had a one-time drop in revenue in M&T, and looking into Q4, it's going to balance itself and should turn around. You'll see the same level of expenses there, but we had this short-term decline in Media and Telecom which, by the way, relates to the fact that some of the revenue recognition line items in Media and Telecom are project-based, and we had some catch-up in Q2. It went a little bit down in Q3, and we already see the situation returning. Additionally, most of the impact from the currency exchange is in Media and Telecom, so we should expect to see some pressure on the top line, which creates a pressure on gross margin. However, looking ahead to next year, we expect to see a continuing improvement in gross margin, which will come mostly for Media and Telecom. I don't see significant improvement at this point in EE&T. We said all along that we started as a public company in the low 60s; now it's in the mid-60s. We do believe we will be able to take it all the way to the 70s in the long term.

We've come to the end of our Q&A session. I will now turn the call over to Ron for closing remarks.

Thank you all for making time and for your great questions. Looking forward to a strong quarter ahead of us. Be well and stay healthy. Take care. Bye-bye.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.