Good morning everyone and welcome to the Kaltura Second Quarter 2023 Earnings 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 second quarter ended June 30, 2023 and provide a business update. Yaron will then review in greater detail the financial results for the second quarter of 2023 followed by the company's outlook for the third quarter and full year of 2023. 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, 2022 and other SEC filings, including the quarterly report on Form 10-Q for the quarter ended June 30, 2023 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 obligations 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 second quarter of 2023 of $43.9 million, up 5% year-over-year and subscription revenue of $40.7 million, up 7% year-over-year. Adjusted EBITDA for the quarter was negative $1 million. For the third quarter in a row, we posted record subscription revenue, and our year-over-year total revenue growth rate was the highest since the first quarter of 2022. Subscription revenue represented 93% of total revenue compared to 90% in Q2 2022. Given the results of the first half of the year, we are cautiously increasing our revenue guidance for the full year. We continue to focus on returning to profitable growth, and achieved the lowest adjusted EBITDA loss of the last 8 quarters. Given the results of the first half of the year, we're also cautiously increasing our adjusted EBITDA guidance for the full year. We are once again reaffirming our plans to achieve a positive adjusted EBITDA in 2024. Regarding cash flow, we materially reduced our cash consumption from operations in this quarter to $4.1 million compared with $22.5 million in Q2 2022. This brings our total H1 2023 cash consumption from operations to $11.6 million compared to $42.1 million in H1 2022. We expect to post positive cash flow from operations in the second half of 2023 and following our typical seasonal greater cash losses in the first half of next year, arrive at cash flow from operations breakeven with sufficient cash reserves. As stated before, we were adjusted EBITDA and cash flow from operations profitable in 2019 and in 2020 and are committed to getting there again very soon independent of our top line growth. Moving on to the business update; we landed this quarter a new Fortune 50 bank customer that is consolidating their video content libraries into a single platform and supporting interactive video for learning and training within the organization. For a new global investment bank customer, we are powering all internal and external events in their internal video portal. Two Silicon Valley trailblazers have chosen Kaltura for the first time this quarter to power events and internal communications. We were also selected by a leading global health care organization to provide live streaming and webinars for all their events by a newly signed European government institution to power their worldwide events and by an online learning company that is starting to use Kaltura to consolidate several video experiences previously powered by multiple video platforms. While the industry headwinds that we have been reporting on persist and we are observing these translating into lower budgets, increased price pressure and elongated sales cycles, we are glad to see our leading demand indicators continue to grow. We posted this quarter a sequential increase in the number of new qualified leads and the number of meetings set by our SDRs and in the number and size of our RFP submissions. The growth in all these parameters was also fueled by increased demand for our newer Event Platform and Virtual Classroom products. We believe that these top-of-the-funnel demand indicators as well as our growing sales pipeline signal that we are positioned well competitively, that our newer products are well embraced, and that the market interest in Kaltura is growing. This was also echoed this quarter with us winning industry awards, such as the Overall E-learning Solution of the Year category at the 2023 EdTech Breakthrough Awards and 5 awards at the Global Eventex 2023, including in the Best Events Technology, Best Virtual Event Platform and Webinar Software categories. This quarter, we hosted Kaltura Connect on the Road 2023, a series of 5 exclusive events across New York, San Francisco, Atlanta, London and Berlin. These were the first Kaltura organized physical industry events held since 2020. We were thrilled to have a speaker lineup of 24 top industry executives from global leading companies, including Kaltura customers such as AWS, SAP, Salesforce, VMware, and IBM. Hundreds of SMBs had the opportunity to network with industry leaders and visionaries and participate in hands-on workshops and interactive roundtables discussing the use of video experiences for marketing and learning and development. The event focused on helping organizations achieve better ROI and meet their ESG goals through video-based digital engagement, particularly in the context of widespread marketing budget cuts and reduction of in-person training sessions. Speakers and attendees exchanged insights about hybrid events, the role of artificial intelligence in video experiences, how online video experiences further diversity, equity and inclusion, and the need to converge around a single video platform across multiple products and use cases. All these aspects were also identified by speakers and attendees as areas where Kaltura brings great differentiated value, helping them to achieve their business goals. Lastly, on the product development front. This quarter, we continued beefing up our events platform, enhancing event templatization and theme editing, registration management, user authentication, session moderation, and content distribution. We enhanced our video portal with a dashboard for content creators to track better engagement with their content and added better support for multi-language content. We also upgraded our video conferencing rooms to improve production studio features such as room branding and lower thirds, storyboard capabilities that enable preparation of session segments and content in advance, a mirror integration for collaborative whiteboarding, and enhanced customization and branding capabilities. We also launched cloud regions for our global SaaS service to address regional requirements for data privacy and security and localized support. This also lays the groundwork for us to be able to launch additional specialized cloud services for highly regulated markets such as federal, health care, and financial services. We would also like to share our move into the world of generative AI, where we are already starting to collaborate with customers to boost our video-based experiences for marketing, communication, learning and training, and entertainment and increase their return on investment. The new capabilities are intended to leverage Kaltura's extensive content libraries and in-depth analytics to add enterprise-grade generative AI that will drive efficiency and reduce content production costs for our customers across learning, knowledge creation, marketing, and entertainment use cases. Kaltura's in-depth analytics enable optimization of the models as well as feedback loops for continuous learning. We plan to insert generative AI capabilities into a broad range of our products and cater to enhance content creation, search and discovery, interactivity, and analytics reporting. This includes, for example, using AI to create new assets from existing content, like repurposing event or webinar content into many highlight reels for highly targeted distribution across social platforms and for enriching our immersive and intelligent content search and discovery services with new interactive capabilities and for making content more widely accessible to help customers comply with regulatory requirements. Building on our new generative AI capabilities, we also plan to launch a system event creation capabilities for event hosts that include auto generation of content and improved insights intended to streamline event creation, grow attendance, boost content discovery and reach end user experience, and increase engagement. As an open and flexible company and platform, we continue to harness innovation from across the tech ecosystem. Kaltura's partner program already includes generative AI providers that have integrated their solutions into our video experience cloud and are available to Kaltura customers. As part of our partner program, we intend to launch a Kaltura AI accelerator program that will connect AI start-ups with Kaltura products while facilitating brainstorming, knowledge sharing, and value creation with Kaltura enterprise customers. We are excited about the great promise that generative AI holds to create hyper-personalized, hyper-engaging experiences on the fly. We believe that this will significantly increase the creation, consumption, and ROI from video experiences and that Kaltura and its customers would stand to benefit from it tremendously. In summary, we continue to make progress towards our goal to return to profitable growth. We posted again record subscription revenue and continued to increase our year-over-year total revenue growth rate and further reduce our adjusted EBITDA losses and cash consumed from operations. Despite the continued industry headwinds, we continue to be encouraged by leading demand indicators and are excited about the adoption of our newer products and about our continued innovation, especially around generative AI that has the potential to significantly grow the demand, usage, and value of our solutions. We are cautiously increasing both our revenue and adjusted EBITDA guidance numbers for 2023 and are reaffirming our plans to achieve a positive adjusted EBITDA in 2024. We plan to post positive cash flow from operations in the second half of 2023 and to achieve cash flow from operations breakeven by the second half of 2024 with sufficient cash reserves. 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 our second quarter 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 at www.investors.kaltura.com. Total revenue for the second quarter ended June 30, 2023 was $43.9 million, up 5% year-over-year. Subscription revenue was $40.7 million, up 7% year-over-year, while professional services revenue contributed $3.2 million, down 21% year-over-year. The remaining performance obligations were $174.3 million, up 1% year-over-year, of which we expect to recognize 59% as revenue over the next 12 months. After the close of the quarter, we had a customer reduce their 3 years' commitment by approximately $7 million, spread equally over the years. We posted in the second quarter a record annualized recurring revenue of $163.4 million, up 8% year-over-year. Our net dollar retention rate was 100%, the same as Q2 2022. Within our EE&T segment, total revenue for the second quarter was $31.2 million, up 2% year-over-year. Subscription revenue was $30.3 million, up 7% year-over-year, while professional services revenue contributed $0.9 million, down 58% year-over-year. Within our M&T segment, total revenue for the second quarter was $12.7 million, representing a 10% year-over-year growth. Subscription revenue was $10.5 million, up 8% year-over-year, while professional services revenue contributed $2.3 million, up 20% year-over-year. GAAP gross profit in the quarter was $28.6 million, representing a gross margin of 65%, the highest gross margin since Q1 2018. Within our EE&T segment, gross profit for the second quarter was $23.1 million, representing a gross margin of 74%, up from 68% gross margin in Q2 2022. Within our M&T segment, gross profit for the second quarter was $5.5 million, representing a gross margin of 43%, down from 52% gross margin in Q2 2022. GAAP net loss in the quarter was $10.8 million or $0.08 per diluted share. Adjusted EBITDA for the quarter was a negative of $1 million, improving from a negative of $8.5 million in Q2 2022. Turning to the balance sheet and cash flow; we ended the quarter with $70.6 million in cash and marketable securities. Net cash used in operating activities was $4.1 million in the quarter compared to $22.5 million in Q2 2022. I would now like to turn to our outlook for the first quarter of 2023 and for the fiscal year ending December 31, 2023. In the third quarter, we expect subscription revenue to grow by 5% to 7% to between $39.8 million and $40.6 million and total revenue to increase by 4% to 6% to between $42.7 million and $43.5 million. We expect a negative adjusted EBITDA between $0.5 million and $1 million. For the full year, we expect subscription revenue to grow by 5% to 6% to between $159.6 million and $161.7 million and total revenue to increase by 1% to 2% to between $170 million and $173 million. We expect a negative adjusted EBITDA between $4.5 million and $5.5 million. In summary, despite the macro environment and our industry headwinds, given the positive results of the first quarter and our leading demand indicators, we are cautiously increasing our revenue and adjusted EBITDA guidance for the rest of the year and expecting to generate a positive cash flow from operations in the second half of 2023. We are encouraged by our continued progress towards profitable growth and are reaffirming our commitment to positive adjusted EBITDA in 2024 and to achieving cash flow from operations breakeven by the second half of 2024 with sufficient cash reserves in dependence of top line growth. With that, we will open the call for questions.

Our first question comes from DJ Hynes with Canaccord.

Ron, I wanted to ask about what you're seeing in terms of retention dynamics in the core EE&T segment. Look, I would have expected to see a bit more sequential growth there coming off of last quarter. Year-over-year growth ticked back down to 2% against an easier comp. You mentioned this 3-year customer that is reducing its commitment by $7 million over the term of their contract. Maybe just unpack gross retention dynamics as we think about how the model plays out over the next couple of years?

Thank you for your question. I'm pleased to address it. From an NDR perspective, we've observed a 100% retention rate that slightly decreased to 102% last quarter, while remaining at 100% from the previous year, which aligns with our expectations for this year. We anticipate gross retention to be around the same figure, but we expect improvements moving forward. This quarter saw gross retention levels dip compared to recent quarters, largely due to significant reductions in the first half of this year in both Q1 and Q2 from parcel reductions. This indicates that the majority of our customers remain with us, with only a third of the reduction attributed to churn or nonrenewal. The reductions are primarily related to price pressures and decreased project engagement, rather than complete customer loss. In some cases, we have noted that customers are ceasing to require our product due to shifts from virtual to physical events or specific price challenges. Only a small percentage of the reduction—around 5%—is linked to shortcomings in product features or service levels. Addressing retention by segment, we saw improvement in M&T from last quarter, resulting in better retention, although it remains lower than usual. In the case of EE&T, retention was lower than Q1 and below our typical rates. However, it's noteworthy that we experienced even lower EE&T retention during the same quarter over the past two years. In fact, this quarter in 2023 had lower EE&T retention than Q2 2022. Retention can fluctuate periodically; we expect it to be lower than usual next quarter, partly due to the aforementioned customer. Nonetheless, we anticipate a return to normal levels in Q4 based on current forecasts. Overall, we project this year's retention rate to be a few percentage points below our typical figures. We're not witnessing significant reductions but rather a slight decrease in retention rates. This appears to be influenced by project delays and customer adjustments, followed by a return to regular activity. Does this answer your question?

Yes, it sure does. I want to follow up maybe on the pipeline generation metrics. I mean, you sound pretty excited around qualified leads, RFPs, the meetings and all that sort of stuff. How are things progressing through the pipeline? Like what are you seeing in terms of timelines to get deals over the finish line?

That's a great question. We have noticed an increase in meetings set by our Sales Development Representatives, showing year-over-year growth after experiencing a decline last year. We're also seeing a continued increase in RFP submissions compared to the previous year, following last year’s decline in the second half. Many of the RFPs are for newer products like the Event Platform and Virtual Classroom, which is helping to boost the average opportunity value in RFPs. For instance, the responses for the Event Platform were more than double compared to the first and fourth quarters of last year. The second quarter's responses reflect the combined total of the first and fourth quarters, plus some additional growth. On the upside, both meetings and RFPs are improving. Regarding our win rate, we are performing well, achieving record numbers even exceeding the previous quarters. However, the larger challenge relates to the broader industry headwinds, including reduced budgets, increased pricing pressure, and longer sales cycles. The process is taking more time to move through the funnel, but we are not losing deals or lacking new opportunities; they are simply taking longer to finalize. For the third quarter, our pipeline looks strong. If contracts are not finalized in Q3, they may carry into Q4 due to these delays. This delay is the main issue regarding bookings, positioned in the middle rather than at the top or bottom of the funnel.

Our next question comes from George Iwanyc with Oppenheimer.

Maybe following up on the environmental answer that you just provided. Can you give us a little bit more color on the pricing pressure you mentioned and the competitive dynamics? Are you seeing vendors be more aggressive to take share? Or is this more IT spend driven that your customers are just looking to be more cost-efficient?

It begins with the need for customers to spend less money, which also influences competitors' willingness to lower their prices for both new bids and current customers, especially existing ones. A key narrative for Kaltura has been that, over the years, we have consistently seen interest from people wanting to switch to us, and we still have a significant number of those transitions. This is due not only to the superiority of our product but also because we can effectively meet various needs across external, internal, on-demand, and live formats. Additionally, we observe considerable consolidation. Typically, when organizations decide to switch, they see it as a way to save costs and improve efficiency. However, in a year like this, if current vendors propose a 10% cost reduction to retain clients, those clients may choose to delay switching for another year and stay with their existing vendor. As a result, we're seeing more inquiries concerning bids to replace us being postponed. Therefore, it’s a mix of both these factors. Regarding retention, most retention behavior involves clients reducing their spending, with a portion of this reduction relating to price. It's not only about changing needs, such as moving from physical to virtual events; customers are also opting for more affordable alternatives at this time.

Then following up on the customer engagement with the platform. I know over the last year, you've been gradually adding more low-touch opportunities for customers to directly engage with the platform. Can you give us an update on what you're seeing there?

Sure, I'm happy to provide that update. Our low-touch strategy is split into two categories. The first includes enterprise offerings that aren’t fully self-service but offer reduced services, such as our Event Platform, which evolved from our original Virtual Event solution. This update allows for more self-service through templatization. The second category is fully self-service, which often uses credit cards and is more suitable for departmental sales, particularly in small and medium-sized businesses. Starting with the lower-touch offerings, we are indeed witnessing an increase in sales from customers utilizing these products. The demand for our Event Platform is rising, and the ratio of professional services to revenue is decreasing. We anticipate this trend will continue into the current year. On the fully self-service side, we're making strides in optimizing our products and attracting more users. However, I want to emphasize that this will not significantly impact our revenue this year. I’m cautious about promoting these developments until we can confidently say they are substantially contributing to our bookings and growth. We are making progress, but I wouldn’t expect to discuss the revenue implications over the next few quarters until next year.

Great. And last question for me. On the generative AI functionality that you're putting into platform. Can you give us some perspective on timing? Is this something that you look at as primarily driving customer stickiness and potential expansion? Or do you see some price changes also or new products that could fall out of the efforts?

We have begun collaborating with customers to enhance our experiences with AI. The AI initiatives are generally categorized into three main areas. The first area involves video analysis and metadata enrichment, which focuses on enhancing existing video content rather than creating new video. This includes improvements like better automatic speech recognition for transcriptions using projects like Whisper, enhanced optical character recognition, speaker identification to determine who is speaking at any given time, as well as features for titling, chaptering, keyword identification, text summarization, and post creation. We anticipate seeing progress in these areas over the coming months, with ongoing pilots already running with customers. The next phase involves content creation, which pertains to actual video production and editing. This can be split into two parts: one focuses on repurposing existing videos into clips or highlight reels, which will come sooner, while the second is a more comprehensive generation of new videos that can be created automatically by inserting text, audio, and images. Although this robust video generation is not part of our immediate plans, we aim to reach this capability eventually. Overall, the significant opportunity AI presents lies in merging production and distribution, allowing for highly personalized video experiences. Each viewer will receive the right content at the right moment to enhance engagement. Additionally, we see opportunities for generating images for social media posts like thumbnails on demand. The third area consists of general AI-powered features that enhance user experiences beyond video. This includes tools that assist in event planning and automatically generate webinars based on user inputs. Although this is less focused on video, it progresses alongside our other initiatives. We expect these developments to unfold over the next few months, with some taking longer as part of a multiyear strategy. We are also committed to leveraging partnerships, which we have historically executed well, and we’re enthusiastic about AI. Given that we have content, experience, and a wealth of data across various use cases within the enterprise, the integration of AI into these elements holds significant potential.

Our next question comes from Ryan Koontz with Needham & Company.

Ron, it seems you are quite satisfied with the sales execution. Could you share your thoughts on the organizational strategy and any process changes you have implemented to enhance predictability and productivity? Despite the headcount reductions, you’ve managed to turn things around. What changes have you made within the organization that you believe are contributing to these positive results?

I appreciate that. I'm very happy with our performance in the market and believe we are outperforming our competitors. While there are challenges affecting our execution and bookings this year, we anticipate significant improvement going forward. I'm pleased with our outreach efforts and our successful expansion from internal use cases to both internal and external applications, driven by our marketing initiatives. This is enabling us to increase our average revenue per user and strengthen our unique positioning as a comprehensive platform for various video use cases in the enterprise, which is quite powerful. Additionally, our win rates are holding steady and even improving, which is positive news. In terms of changes we've implemented, there hasn't been a major overhaul this quarter. We've focused on planning and execution strategies over multiple quarters. The general trends include further training our staff to transition from internal to external sales and facilitating collaboration on marketing sales, and enabling our team to operate effectively in lower touch product environments that favor product-led growth. This allows users to engage with the product before finalizing sales, even in enterprise scenarios, with support from product marketing and the broader organization. As a result, we've also outperformed some competitors with whom we have not engaged much in recent years. We are communicating our story more effectively and demonstrating why Kaltura is favorably positioned. We are attracting more interest from potential clients looking to make transitions, and I expect to see even more of this in the upcoming quarters. These are some of the improvements we've made.

That's great. I wonder if you could comment at a high level kind of what you see strategically happening in the industry. We saw kind of the Brightcove, Yahoo announcement, I don't know if you saw this morning but Hopin was acquired by RingCentral. It's a little bit of a stretch for them. I don't think they know much about events and such. But what are your thoughts on the industry consolidation, collaboration? Are there strategic channel relationships? We've discussed in the past, do you think can come to bear for Kaltura and any thought on the industry, I'd appreciate.

Yes, great question. Starting with Brightcove and Yahoo, that's not a channel, nor a strategic kind of statement. It's a customer, it's a bigger customer for them which is great but it's not a strategic shift. They've focused on media companies and the classic kind of OVP, online video platform. As you know, in the media and telecom, we've put a bit more focus on the TV rate delivery which are more mission-critical and could yield greater stickiness and less commoditization, better gross margins ultimately. So there's a bit of a different direction. We are coming down market to also larger media companies. But Yahoo is in the bull's eye of the focus that Brightcove had always been in. And so far as the acquisition of Hopin, congrats. It just tells that there will be continued consolidation in the space. Hopin are an off product that's geared and fitted to the low end or smaller companies, not the large enterprises. It's kind of the classic self-serve low touch all the way to SMB, SME and not large enterprise. And so it will be interesting to see what the make of it. We don't compete with them much in the market where we are today. And even in the places we did go for complete self-serve. It was more towards webinar and less towards the event size and the event size, we're doing work with the bigger folks. But it is yet another example of more consolidation that will continue to happen. Do we believe in consolidation? The answer is yes. And I'm sure we're going to take place in consolidation in whatever form. The good thing about Kaltura is that we are very horizontal. We're in multiple markets. We're with multiple products, and we are an open architecture that enables to scale and grow and add to a lot of different components. So we could be a very strong consolidator in the market. Insofar as your comment about channels, yes, channel is really important. Historically, we've had 5% to 10% bookings from channels, and it's remained consistent this quarter as well. And I said a few quarters ago that I expect that as part of our expansion into real-time conferencing power products and move into SME, we'll be able to provide more channel sales and that's still the case. We're working on a few deals right now that will be quite interesting. Hopefully, we'll be able to announce, and they are channels that will go to market together with us and our products. So yes, the future will be more channels and more consolidation.

That's great, Ron. Thanks for a really thorough response, appreciate that.

Our next question comes from Michael Turrin with Wells Fargo.

You got Michael Berg, on for Michael Turrin. Congrats on the quarter. I just have follow-up question around the customer who downgraded by $7 million in the quarter. Anything to point to across the rest of your large key customers? How is the positioning, whether it's expansion downwards? Anything to point to in color in relation to that $7 million customer you referenced in the script?

Yes. First of all, as you saw, we mentioned this customer reduction around the RPO numbers. You saw that RPO numbers jumped nicely in this quarter on a sequential basis. And the main reason for this is the fact that it was a very good season of renewal for us. And the reason that I mentioned this customer is not because it's such a material customer for the quarterly or even for the annual revenue of the company, just because of the fact that it's a $7 million, approximately $7 million impact on the future RPO. So we will report, for example, next quarter. On an annual basis, as we mentioned, it's basically roughly 1/3 of it going to impact us on the next 12 months. This customer is still a major customer; it's an important customer. Actually, we are discussing with them some other deals and they are still paying us a big chunk of money. So the bottom line is that there will be a short-term impact on the RPO. We don't believe that the RPO will go below the levels that we saw earlier this year. But at the same time, we do not anticipate it to continue to grow significantly in the coming quarter.

Yes. And in the case of this specific customer, it's a reshuffle in their strategic direction that caused them to do something a bit different. And as I said earlier, about different reasons for churn not related to our product, not related to competitors, it's not related to service level. It's related to a decision that we've made to do something a bit different.

And in the next 12 months, the impact is immaterial to the business.

Our next question comes from Gabriela Borges with Goldman Sachs.

This is Jake Titleman, on for Gabriela. Ron, you've talked about customers consolidating all of their video content on Kaltura. It would be great to get a little bit more detail on how that typically increases your deal sizes? And maybe try and quantify what the upsell and cross-sell opportunity looks like within the installed base?

Yes, I'm happy to provide more detail. There’s a significant Silicon Valley company that has been sharing their experiences at our conferences, highlighting 12 different situations and 6 different vendors they've consolidated into Kaltura, including many well-known names. Their perspective is that they've disrupted workflows otherwise, making them more costly. By transitioning to one platform, they achieve unified analytics across the organization and a much better return on investment. They have started to replace many tools, which is a recurring theme for us. Typically, our upsell and cross-sell motions vary. Historically, we've begun with internal use cases focused on video on demand, such as video portals or content management solutions, collaborating with CIOs or HR and learning and development departments. The expansion usually involves adding more instances across various teams or extending to marketing groups for events or external applications. The video portal can serve both internal and external purposes. We're increasingly seeing that CIOs are responsible for managing all video workflows on behalf of CMOs and others. They are involved in procurement decisions, aiming for one platform that addresses all needs. There will always be a separate conferencing system for productivity and collaboration, but everything else is consolidating under a single vendor. Notably, most competitors haven't pursued a consolidation strategy. We've been advocating this for some time, aligned with our foundational belief in the necessity of a singular, integrated Lego kit for the enterprise that supports workflows in a horizontal and interoperable way. Regarding how this impacts our average revenue per user, we’ve seen consistent growth in ARPU over time. We don’t disclose this quarterly but mention that it is rising annually. New deals are increasing average monthly revenue per customer, resulting in larger contracts. At the same time, we are also engaging more small and medium enterprises and will eventually support smaller customers on a self-serve basis. However, the scale of deals with large clients is substantial. For instance, we have established partnerships with 6 leading banks in the U.S., which started with training and expanded into webcasting and events, now also being used for critical functions in wealth management through video. Accounts have evolved from a few hundred thousand dollars to multimillion-dollar contracts, reflecting a 5x growth potential, and we believe it could reach 10x in some accounts, which will boost our ARPU. While this year has been challenging, especially post-COVID with the current financial climate prompting companies to proceed more cautiously, we anticipate a rebound that could elevate us to not only historical ARPU levels but possibly even higher. Moreover, as we move towards content creation rather than just content management, we think this could lead to a more usage-based revenue model, potentially increasing our ARPU further. However, we prefer to evaluate this on a quarterly basis as we progress.

Yes, that makes sense. And then I guess just a follow-up on that. What needs to happen to get Kaltura back to 10% growth? And how much of that is in your control versus depending on the overall spending environment needing to improve?

That's a good question. So let's start from the other side of it, by the way. Nothing needs to happen for us to be profitable. We are on the way to do that. We've always promised that. We're executing on that cash flow profitability, that's done. Insofar as growing, as you can see, we're doing better than the other companies out there that are guiding down, that are reducing revenue, we are not. Not to say that we're celebrating because this is a far cry from what should happen but it's a very, very tough couple of years for the industry. I think that what keeps us more optimistic is the fact that we're seeing, a, the type of companies, the logos are great, big leaders, top blue chip customers that are signing with us, including popped up tech companies that are choosing nothing but the best. And that we've landed, we've stuck the landing around expansion into the new markets that we are entering now as we've done historically because we've entered for the first time many markets and have done so well. And so I think that what needs to happen other than continue to optimize and finesse what we're up to is for the markets to start turning around for budgets to start being more available for the squeeze to start coming down. Now is it the same that until markets don't flourish, we're not going to get to north of 10%? No, that's not the case. We do believe that the second half of the year, given all the deals that have come into our pipeline, albeit taking more time, will come to fruition. But it's hard to say, honestly, in our industry, how quickly that will take place. We're very, very confident that ultimately, we're going to do that much better than that, because we've always been on the top of the heap of companies in our industry and we're going to come back to that.

Our next question comes from Mike Funk with Bank of America.

A couple if I could. I think earlier you mentioned you expect churn to remain elevated for the remainder of the year. Just curious, extension of that. Does that imply you expect it to improve next year? And I guess, if so, why? Or was that comment is more about your forecast period for the calendar 2023 year?

Yes, one correction. I'll let Yaron to answer this; he is jumping to answer. But before, just one comment. I mentioned that we expected to still not be amazing next quarter but that in Q4, it will already improve, not next year. Go ahead, Yaron.

Yes. As Ron mentioned, we believe there will be a turnaround in Q4, not having to wait until Q1 next year. One reason we still expect to see a decline next quarter is due to a specific customer whose reduction took place in July rather than in Q2, which will affect the retention number for Q2. If that customer had not been a factor, the situation would look different. Additionally, we project that the net-dollar retention rate will remain at the same level for next quarter. Even though we anticipate lower retention, the net dollar retention rate is still quite stable. The situation regarding retention is expected to improve based on our current observations for Q4 this year.

Okay. Thank you for the clarification on that.

Yes. I just want to say that we have decent visibility because these are large enterprises. It's not SMBs or SMEs and it's not something that's kind of flooding all our different customers in specific cases which we see and we know. So that's where we're at. Yes. Go ahead. You had another question.

Sure. One more quick one. You also mentioned pricing pressure earlier. I mean it seems that the industry has been relatively competitive for some time. And obviously, competitors willing to discount from the bundle or a discount to win deals. Can you just give us some more detail on the intensity of the pricing pressure? Has it increased recently? Are there signs there might be some maybe improvement in pricing? Any kind of comments around pricing and the dynamics there would be helpful.

Yes. Overall, the price pressure we are experiencing for renewals is around 10% to 15%, not 20%, 30%, or 40%. More contracts have reached their renewal phase as time has passed. Some quarters are more affected than others, but I can't specify the tactical differences for any particular quarter. What I can say is that this pressure is expected to gradually ease. The key takeaway is that many companies are interested in making the switch to our services. The decision often hinges on when they feel comfortable diversifying their budget for a solution that is more efficient in the long to mid-term. When they make that shift, they choose Kaltura. However, if they focus solely on immediate concerns for 2023, they may opt for other options, and they are open about that. I can't predict the timing of when their perspective will change, but history shows that it will. When that shift happens, we will be in an even stronger position. It’s important to highlight that we are executing more effectively than our competitors, as evidenced by our growth rates and the positive impacts of retention and booking limitations. We are continuing to navigate through this.

So it's all very helpful.

Our next question comes from Austin Cole with JMP Securities.

So I'm just wondering about the plan, looks like there's still the $33 million in debt that's current on the balance sheet. If you could comment on that?

Yes. This debt will mature early next year, and we are in the final stage of negotiation to refinance it. The net impact on our cash levels will essentially be zero, and we expect to complete the refinancing this quarter. We have a few proposals under consideration, which are better than our current terms. Therefore, there will be no impact on our cash, and it may even lead to a positive impact on our cash levels.

Great. And then if I could just throw in a quick follow-up for Ron. Just to follow up on the Gen AI topic. You guys mentioned some of the new features, sounds pretty intriguing. Can you comment, is there any new talent you guys are bringing aboard there? Any testing you guys are doing? And then how can we think about any incremental revenue in the out years?

Yes, we are definitely bringing in talent and exploring various partnership options. We have a history of building through partnerships and are currently focused on expanding in this area. There are many exciting developments, and we hope to provide you with updates soon. Regarding incremental revenue, it's too early to determine specific impacts, but we believe there will be a positive effect, and platform demand and usage should increase. Currently, our forecasts remain unchanged. We have raised our guidance for the year, and our Q2 results exceeded expectations. For Q3, we are also ahead of projections. Overall, we have cautiously increased our annual numbers, keeping in mind potential challenges. Importantly, we are not factoring AI into these assumptions; that remains potential upside, and we are confident it will materialize.

That concludes our question-and-answer session. I would like to turn the call back over to Ron Yekutiel, Chief Executive Officer, for any closing remarks.

Yes. I'd like to thank you all for your great questions and continued support. As I mentioned, I think it was a good quarter and a lot of good signs into the future in the parentheses of the market that we're all in, but we're excited about the top of the funnel trends that we're seeing as well as with additional developments, including AI and other stuff and are excited to see how this year continues to unfold. Have a wonderful day. Stay safe, be well.

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