Kaltura Inc (KLTR) Q2 2026 Earnings Call Transcript

Good morning, everyone, and welcome to the Kaltura Second Quarter 2026 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, Erica.

Thank you, Operator, and good morning. I'm joined by Ron Uckel, Kaltura's Co-Founder, Chairman, President, and Chief Executive Officer, and Leron Sharon, Executive Vice President of FP&A and Interim Principal Financial Officer. Leron will begin with a summary of the results for the second quarter end of June 30, 2026 and provide a business update. Leron will then review the financial results for the second quarter of 2026 in greater detail, followed by the company's outlook for the third quarter and full year 2026. 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, management's expectations and plans for the business, including execution on strategic transition and upcoming product launches, integration and expected benefits of our recent acquisitions our deal pipeline trends and customer engagement anticipated tailwinds and our expectations around capabilities and benefits of our products including AI technologies these statements are neither promises nor guarantees and involve risk 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, 2025 and other SEC filings including the quarterly report on Form 10-Q for the quarter ended June 30, 2026 to be filed with the SEC. Any forward-looking statements made during this conference call including responses to your questions are based on current expectations as of today and cal tour assumes no obligation to update or revise them whether as a result of new developments or otherwise except as required by law please note we will be discussing non-gap financial measures adjusted ebitda adjusted ebitda margin and non-gap gross margin during this call for reconciliation of these measures the most directly comparable gap metric please refer to earnings release which is available on our website at investors.caltura.com now I'd like to turn the

call over to Ron thank you Erica and thank you everyone for joining us today we continued our strong execution in the second quarter exceeding the high end of our guidance for both revenue and adjusted EBITDA total revenue was 46.9 million up five percent year over year subscription revenue was $45.6 million, up 8% year-over-year. Adjusted EBITDA was $5.9 million, up 44% year-over-year, and representing our highest second quarter result to date. We also delivered a record non-GAAP gross margin of 75%. New subscription bookings grew sequentially and included 13 six-digital total contract value deals. Five of these were with new logos across the financial services, healthcare, and education industries. Beyond the strong financial results, the most important development during the quarter was the meaningful increase in the number of new deals that included our AI products. Given this transition is still just beginning, we want to provide more detail than we normally would about where we see adoption, which products customers are selecting, and the business problems they're beginning to address. During the second quarter, we signed a record 14 new deals that included one or more of our AI offerings, representing a doubling of our previous record. Nine of these 14 deals included our new Agentec Avatars product. Four had six-digit total contract values, and eight were with new logos. The deals reflect a broad range of industries and use cases. Four were with higher education institutions, ethnic companies, and publishers that collectively engage tens of thousands of students. These customers intend to use their products to deliver richer and more personalized teaching and learning experiences. Three were with real estate companies, including two subsidiaries of an organization with a network of hundreds of thousands of agents. One deal focused on personalized agent onboarding and training, while the other two focused on online property discovery, customer engagement, and lead qualification. Two were with technology companies, including a Fortune 10 company. One customer plans to use our technology for AI-enabled employee onboarding and training. The other plans to deploy a personalized customer concierge across its website and virtual events. Two were with global consulting and business process outsourcing leaders. Both are Fortune 500 companies with hundreds of thousands of employees. One is using our products for employee onboarding, learning and development, and the other for personalized customer marketing. Two were with financial services companies that each manage trillions of dollars in assets. One plans to use our products for personalized employee knowledge sharing and internal communications, while the other plans to use our products for interactive marketing and demand engagement. Finally, one was with media and telecommunications customers that intends to use our products for conversational advertising and point-of-sale experiences in large venues. All combined, these deals span six industries in a broad mix of employee, learner, customer, and audience-facing use cases, providing early evidence that adoption is not limited to one vertical buyer or workflow. From a revenue perspective, as expected, the contribution from these 14 deals remains The combined total contract value is approximately $1 million. We view these deals as initial footholds, then may expand over time to additional users, usage, business units, and use cases. Consistent with the outlook we shared last quarter, we continue to expect initial revenue contributions from our new products in the second half of 2026, followed by a more meaningful ramp in 2027. I would now like to provide more details about our growing pipeline across all products, the increasing role that AI products are playing within it, and why we remain confident in the opportunity ahead. Our current pipeline for new subscription bookings in the second half indicates the potential to book more than two and a half times what we booked during the first half of the year. This expected growth is being driven by both our enterprise education and technology business and our media and telecom business. Looking at our sales pipeline of deals that also include one or more AI products for the second half of 2026 and 2027, we currently have more than 500 opportunities at various stages of engagement. These opportunities currently represent in total approximately $17 million of total non-weighted potential annual contract value, ACV. it is important to put that figure in context this is a non-weighted pipeline number which includes the full value of all deals across pipeline stages while not all of these opportunities will convert to win it's worth noting that most of our AI products were launched very recently our go-to-market motion is still developing and many of these engagements remain an early stage of discovery and could grow in additional opportunities are expected to emerge we therefore view the current pipeline as an encouraging initial indicator rather than as a mature presentation of the longer-term opportunity. Let me provide more details about the composition of the current AI related pipeline. About a third of the number of these opportunities and of the potential ACV comes from new logos. By industry, more than one-third of potential ACV comes from educational institutions, ed tech companies, and publishers. About 25 percent comes from media and telecommunications companies. Approximately 40 percent comes from enterprises across a range of industries led by technology, financial services, healthcare and life sciences, professional services, and consulting in government. By product, the pipeline includes over 200 opportunities involving our agentic avatars and close to a hundred evolving our avatar video production studio it also includes over 60 proofs of concept that are either already active or currently being scoped we see similarly broad patterns when we examine the pipeline by use case but one-third of potential ACVs associated with personalized employee journeys these include employee onboarding learning and development compliance sales enablement, knowledge sharing, internal communications, practice, role-playing simulation. Another roughly one-third is associated with personalized learner journeys delivered by universities, ed tech companies, and publishers. Approximately one-sixth relates to customer and partner journeys. These include onboarding, education and activation, marketing and demand engagement, digital sales rooms, customer care and support. The remaining approximately one sixth relates to audience journeys delivered by media and telecommunications companies including interactive experiences for television viewers and audiences in physical venues. Together these patterns suggest that the opportunities developing across multiple industries and repeatable use cases with agentic avatars emerging as an important entry points into the broader Cultura platform. Turning to retention, we also delivered strong performance during the second quarter. The quarter represented our best gross retention results since the fourth quarter of 2022. We may experience some near-term pressure from certain legacy contracts, including an anticipated roll-off of certain past factory customers. However, over time, we expect the transition towards powering agentic digital experiences to support sustainable gross retention and gradually improve net dollar retention. As discussed previously, NDR will lag the improvement in gross retention. Let me now turn to product development. Using the three-layer framework we outlined previously, I will highlight the progress we made during the quarter across content creation, content management and intelligence, and interactive conversational experiences. On the content creation front, we enhanced our avatar production workflow with B-Roll and URL-to-video automation, expanded their multilingual capabilities, introduced richer enterprise templates and automated content pipelines, and continued investing in API-first capabilities. These enhancements are designed to allow customers and partners to embed AI-powered content generation directly into their own applications and workflows and to transform presentations, documents, websites, knowledge bases, and existing media into engaging avatar-led video experiences significantly faster than through traditional production methods. He also continued investing in enterprise governance, enabling large organizations to maintain brand consistency, approval processes, permissions, security, and compliance, while scaling AI-generated content. On content management and intelligence, we made significant progress integrating the Kulthura and PassFactory platforms. Content and workflows can now be synchronized across the two platforms, bringing together video, documents, webinars, learning content, events, knowledge bases, and customer engagement data. This creates a unified first-party signal layer that can help organizations understand which content performs best, which assets contribute to business outcomes, what users are speaking, and what should be recommended next. This Content Intelligence Foundation is becoming a core building block for the AI capabilities and solutions we developed. On interactive experiences, we continued embedding conversational AI across our product portfolio. This enables users to move beyond manually searching large content libraries and instead interact with intelligent agents that can understand intent, answer questions, recommend and present relevant information, coach users, and guide them towards successful outcomes. Our platform also continued to receive significant industry recognition during the quarter. Kultura was named a leader in both the Q2 26 Forrester Wave for virtual events management platforms and in the 26 Aragon Research Globe for enterprise videos. We were also recognized by ISG Research as an exemplary provider among emerging conversational AI providers and received the Best Event AI Technology Award, the EventX Award. Kultura also recognized Kultura in both its video platform services and meeting solutions market guides, and we were included in the 26th WealthTech 100 list, honoring the world's most innovative tech companies for wealth management. Our annual Enterprise Connect and Education Connect events also attracted record attendance and featured business and technology leaders from organizations including Morgan Stanley, Cisco, AWS, IBM, and Palo Alto Networks. Looking ahead to the second half of the year we have an ambitious development roadmap. On the avatar front we plan to expand beyond facial representation to incorporate richer gestures and emotional expression. We also intend to improve our personalization and context capabilities and develop real-time generative user interface experiences. Instead of presenting users with static identical and primarily text based experiences, these capabilities are intended to enable rich, personalized, and intent-based content journeys that are continuously generated and curated by multi-model conversational agents. We now have the core building blocks of our agentic digital experience platform in place. A major focus for the second half of the year is packaging these capabilities into two comprehensive solutions centered on large and strategic use cases, Agentec Revenue Engagement and Agentec Learning and Enablement. Building on the Revenue Engagement Suite we discussed last quarter, we package and showcase the first integrated version of our Agentec Revenue Engagement solution at the recent Adobe Summit, the Forrester B2B Summit, and Salesforce Connection. It combines video and rich media experiences, content intelligence, and conversational AI within an intelligent buyer engagement platform. The solution is intended to help organizations understand customer buying intent, create personalized buyer journeys, recommend the next best content, automate follow-up, support digital sales rooms, and introduce conversational AI throughout the customer lifecycle. We believe this position's cultura at the intersection of several important enterprise software categories, including content intelligence, digital sales enablement, account-based marketing, customer engagement, and AI-powered revenue technology. Our differentiation is our ability to combine rich engagement, journey orchestration, and real-time intent-based conversational experiences and enterprise-grade infrastructure within one platform. The adjacent categories addressed by this solution collectively represent an estimated market opportunity of more than 20 billion dollars and are growing at more than 15% annually these categories include conversational automation where that factory is already recognized as a leader by Forrester as well as marketing automation add-ons revenue enablement and personalization in our previous earnings call we discussed training and learning use cases for employees customers and partners and students separately we're now bringing these capabilities together within a single agentic learning and enablement solution, spanning employee skilling and reskilling, customer and partner enablement and certification, and teaching and learning within educational institutions. Traditional learning systems primarily deliver predetermined and relatively static courses. We see the future of learning becoming increasingly adaptive, conversational, and personalized. Our agentic learning and enablement solution combines AI-generated learning content, enterprise knowledge, conversational avatars, AI tutors, coaching simulations, skills development, assessments, and personalized learning journeys, all of it together. Rather than delivering the same experience to every user, organizations can dynamically create experiences based on each individual's roles, skills, progress, objectives, and business context. We believe this represents a significant evolution beyond traditional learning management systems. Learning management systems, learning experience platforms, revenue enablement, and customer education are increasingly converging around a common enablement layer. Collectively, these categories also represent an estimated market opportunity of more than $20 billion. Historically, they've often had separate budgets, buyers, and technology providers. AI is reducing some of those traditional boundaries because the underlying requirements are becoming increasingly similar. A shared content foundation, an intelligence layer, personalization, conversational interaction, and rich media delivery. We believe platforms that can support multiple learning and enablement use cases for a common content and intelligence layer to be increasingly advantaged. To summarize, we delivered a strong second quarter, exceeding our guidance for both revenue and adjusted EBITDA while continuing to expand non-GAAP profitability. More importantly, we're beginning to see measurable commercial evidence of our AI transition. We increased the number of deals that included our AI offerings across a broad range of industries and use cases. Our AI-related pipeline already includes more than 500 opportunities representing around 17 million in non-weighted potential ACVs. And while not all these opportunities will materialize, We expect many opportunities to grow and many others to be added. The revenue contribution remains limited at this stage, but the growth in bookings, groups of concept, and pipeline support our confidence in stronger second-half momentum and a more meaningful contribution in 2027. We enter the second half of the year with a stronger pipeline, a clearer solution focus, and increased confidence as reflected in our updated guidance. With that, I will turn the call over to Liron.

Thanks, Ron, and hello to everyone on the call today. As Ron noted, in the second quarter, we continued to execute well, exceeding the high end of our guidance for subscription revenue, total revenue, and adjusted EBITDA. We also posted a record non-GAAP gross margin of 75%, driven by a record non-GAAP subscription gross margin of 79%. Let me now walk through the quarter in more detail. total revenue for the quarter ended June 30 2026 was forty six point nine million up five percent sequentially and five percent year-over-year subscription revenue was forty five point six million up six percent sequentially and eight percent year-over-year professional services revenue was 1.3 million down 13 percent sequentially and 40 percent year-over-year consistent with our focus on recurring subscription revenue on a segment basis ENT total revenue was thirty six point eight million, up 11% year-over-year, and subscription revenue was $36.4 million, up 12% year-over-year, while professional services revenue contributed $0.4 million, down 43% year-over-year. within M&T total revenue was 10.1 million down 10% year-over-year and subscription revenue was 9.2 million down 6% year-over-year while professional services revenue contributed 0.9 million down 38 percent year-over-year that gross profit for the second quarter was 34.5 million resulting in gross margin of 74 percent up 300 basis points from Q2 2025 gap subscription gross margin was 78%, up 100 basis points from Q2 2025. The year-over-year improvement in gross margin reflects the continued benefit of our makeshift toward higher margin subscription revenue, operating efficiencies, and the impact of unit economics. Gap operating expenses for the were thirty five point three million compared to thirty four million in the second quarter of twenty twenty five an increase of four percent year-over-year this includes the impact of the ESL and past factory acquisitions integration costs continuous investment in our new product portfolio and FX ad wins of approximately 1 million dollars adjusted EBITDA for the quarter was 5.9 million an increase of 1.8 million from 4.1 million in the second quarter of 2025 and above the high end of our guidance range of 2 million to 3 million adjusted EBITDA margin was 12 percent an increase of 300 basis points year over year demonstrating our ability to expand non-gap profitability while continuing to invest in our AI roadmap product innovation and acquisition integration gap net loss for the quarter was 5.5 million or four cents per diluted share compared to a net loss of 7.8 million or five cents per diluted share in q2 2025 non-gap net profit for the quarter was 2.3 million or one cent per diluted share compared to a net profit of 2.5 million or one cent per the literature in q2 2025 remaining performance obligations or rpo were 164.3 million up six percent sequentially and down one percent year over year we expect to recognize seven to one percent of this amount as revenue over the next 12 months annualized recurring revenue for the second quarter was 184.6 million up 9% sequentially and 8% year-over-year net dollar retention for the quarter was 96 percent compared to 95 percent in the prior quarter and 101 percent in the same quarter last year as a reminder NDR is a legacy indicator and reflects prior period booking and retention dynamics at the same time this quarter we achieved our strongest gross retention performance since the fourth quarter of 2022 moving to the balance sheet and cash flow we ended the quarter with thirty five point five million in cash cash equivalents and marketable securities net cash use in operating activities in the quarter was 2 million compared to 2.7 million generated from operating activities in the second quarter of 2025 we expect to generate cash flow from operations in the third and fourth quarters of the year consistent with historical seasonality beyond the reported financial results the second quarter represents continued progress in our strategic evolution towards a broader authentic digital experience platform as Ron discussed our AI related new bookings and sales pipelines have materially grown in the passing quarter we have also made solid progress with the integration of past factory into our platform and go-to-market motions while continuing to remain disciplined in how we allocate capital and manage expenses i will now turn to our outlook for the third quarter of 2026 and for the full fiscal year ending december 31 2026. for the third quarter of 2026 we expect subscription revenue to be between 43.9 million and 44.6 million representing year-over-year growth of five percent to six percent total revenue to be between 45.8 million and 46.5 million representing year-over-year growth of 4% to 6% and adjusted dividend to be between 2 million and 3 million for the full year 2026 we are thoughtfully raising all our guidance numbers and slightly narrowing the revenue guidance ranges we now expect subscription revenue to be between 176.6 million and 178.6 million representing year-over-year growth of three to four percent total revenue to be between 183 million and 185 million representing year-over-year growth of one percent to 2% and adjusted EBITDA to be between 15.8 million and 17.2 million our guidance continues to reflect our goal of maintaining balance between investing in our strategic growth areas and maintaining adjusted EBITDA profitability and cash flow generation we expect enterprise education and technology to post a higher year-over-year growth rate compared with 2025 supported by the contribution from the test factory customer base and the early contribution from our new product portfolio in the second half of 2026 with a stronger impact in 2027 we continue to forecast M&T year-over-year revenue decline this year due to the elevated churn in 2025 but still expects to post both higher M&T new bookings and retention this year which are forecasted to regenerate sequential quarterly M&T revenue growth in 2027. We also continue to forecast a material year-over-year reduction this year in revenue from professional services in both EMT and M&T, aligned with our strategic focus on recurring subscription revenues. On the cost side, our guidance incorporates the expected costs associated with fast factory integration, continued investment in our new product portfolio, and the expected impact of Fx headwinds. To summarize, the second quarter demonstrated continued execution against both our financial and strategic priorities. We exceeded our guidance for revenue and adjusted EBITDA, achieved record growth margin, and delivered our strongest growth retention performance since the fourth quarter of 2022. While the revenue contribution from our newer AI offering remains early, the continuous increase in customer engagement, booking activities, proof of concept, and pipeline gives us confidence in the long-term opportunity add. We remain focused on disciplined execution and on balancing growth and profitability as we continue to advance our strategic transition and maximize long-term shareholder value. With that, we will open the call for questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question is from DJ Hines from Canaccord Genuity. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. Ron, nice to see some of the new logo activity in the quarter. You know, the avatar technology in particular seems to be getting you into some new markets. Can you just talk about distribution efforts there? How are you building the pipeline? How are you breaking into these new verticals? And where do you see the most interesting opportunities in the pipeline?

Yeah, DJ, thank you for that, and good morning to everybody. Yeah, exciting growth and opportunities coming within the AI space, as we expected. You had mentioned new logos. Indeed, there is a pickup, and the pipeline suggests there's 33% right now of the pipelines of new logos, and that's picking up and growing. And we knew because the historical industry we're at, the video industry, came to a point where a lot of the customers stuck to their existing vendors. And so it was really a fight in the trenches around, can you move places where you share with a different vendor, a customer, and you could take their piece, which we've done well, and to have some new logos. A lot of folks did not want to move even if we had and we did a better solution because of switching costs and just the headaches associated with that. Now, with the advent of the agentic offerings that we're offering, along with and together with the rest of what we're doing, people are excited to go ahead and make that move, and they're happy to make that move across both. So that's exciting. And, yeah, we have stated we have a building pipeline. We've got a couple hundred agentic avatar opportunities, about 100 avatar video production studio opportunities, 60-plus active in-scope POCs. And as I mentioned, the ACV is building up. It's still preliminary, but it's going there. You've asked about distribution of verticals. First, from a go-to-market perspective to be clear how we're actually doing this, we're still divided to industries. We have folks going into EDU and M&T separately. And within enterprise, we further segmented it to go between tech and healthcare and the rest of the other verticals that are gradually building up. So we have vertical separation. We still have geographic between Europe and the U.S. And by the way, we see some nice pickup across, but of course led by the U.S. And what's also interesting is we have some interesting channel opportunities that are building up. A lot of them are companies that are also looking to buy internally and then are saying, you know what, we like that. and we want to use that also as a distributor, which would be interesting. Again, these things would take a bit of time, and we're going to need to deploy first with them for them to see the success and then take this to market beyond. But we've said that before, this solution and these types of solutions have higher ROI but are also more self-serve in nature, more low-touch in nature, enabling not just more customers but easier deployment and therefore lend themselves well for distribution. Finally, insofar as how our salespeople are actually looking around and selling this, there's kind of four main go-to-market motions or engines. One is the conversational agents in which we put together Jamie and our agentic avatars and Chat Factory from Path Factory and our SDK into one conversational agent that is multi-model. And we're pushing that strongly forward. The second is AI content creation, which is content lab plus the avatar video production studio plus some other stuff that we've developed since around personalized videos. So we're taking all of that, which we have not done before. Again, just like conversational agent being new and exciting, the content creation piece is new and exciting. The third are cross-sales between PathFactory and Kiltura. We have a great pipeline that's building up and great opportunities to sell both Kiltura to PathFactory and vice versa. And the fourth is taking it all together into full bundle wins, mainly coming into competitors and the traditional industries we're at and saying, you know, we have all these exciting things that do move the needle for you, and we're happy to do this in a way that's financially appealing. So that's quite exciting for folks. So we're doing these four offerings across verticals, across regions, across channels, and across the journeys that we discussed, you know, between the customer journey, the employee journey, the learner journey, the audience journey. So there's a lot of exciting stuff.

Yeah, super helpful. If I could ask a follow-up on the ARR increase in the quarter. So I think it was up a little less than $16 million sequentially. Can you just help us unpack how much of that was M&A-driven, how much of that was organic, Kaltura-strengths? And I think you alluded also to the expectation for some potential fast-factory attrition. Is that assets integrated into the business? Can you just unpack that a little bit and what your expectations are there?

Yeah, happy to do that. And you asked about ARR. I think it's easier to answer by way of revenue because some of that is actually reported and stated within the PAC. So let's talk about Q2 revenue. So we had expected declines in M&T, so that's known. We also had ENT without past factories. Some declined, but that was expected because of one-time revenue in quarter one that was on-prem related and one-time related. So if you take that out, there was no decline. It was kind of flattish, if you may, without the past factory, which is kind of expected right now because it's seasonal. Coming out of Q1, the net bookings are traditionally not adding stuff. So if you take off the on-prem stuff, that kind of remains where it is. PathFactory contributed $4.9 million in revenue out of our $46.9 million in total. By the way, the same for subscription because it's all subscription there. So that's the amount that was there. It's higher than we expected to some extent. Of course, we were cautious because coming into an acquisition, you've got to be careful. But also we did say that there's some attrition, and a lot of that is built into what we've taken even before we're doing anything because the next two, three quarters are already built in. So we expect that number, albeit that it started where it did, to still come down from a past factory perspective over the next couple of quarters and then turn around with the other things that we're doing. So, again, if you're unpacking Q2, that's how it's at, kind of flattish and as expected. If you take out the on-prem for ENT, continued decline in M&T as expected not beyond in the path factory contribution if we think forward on the Q3 guide and beyond so we're guiding still a sequential decline again taking in the usual cushions that we have but when you unpack that what you're seeing is we're probably gonna have again still flattish on the ENT side plus conservatism so it could go up some headwinds on path factory that's expected again we over did revenue on the second quarter we expect some of these things to catch up in the third quarter and get that reduced and continued decline in M&T so kind of sharing the decline if you may between M&T and past factory again with hopefully cushions let's see we are getting for a little bit of a PS increase into the next quarter so that's what we're taking there but then as we look into the rest of the year kind of the Dean guidance we're in the half of the year so you can see what we're saying for the rest you kind of assume it's then starting to pick up. We still expect that factory maybe to have some headwind for its original base offering for the next few quarters until we turn it around. But the rest of Cotura between the growth and what we're seeing now in AI and the opportunities that are building up are going to overtake that. And then we're going to start seeing the sequential pickup there. And you can see that slight expectation coming into Q4 as this picks up. Again, not still big, as we said, As you see, for the year, we're increasing guidance. All in all, we're doing ahead of what we expected. It's the second time in a row that we're increasing guidance. If you look at expectations for the second half of the year on the subscription basis, they're definitely there a bit above. Again, if you look at the total, there may be some headwinds around PS that we are careful with. So all in all, we're moving in the right direction. No surprises. Hopefully, you're going to meet the expectations that are out there. And we're really excited about AI. Let's see if we could post some bigger wins and update you guys. Does that give you the color you wanted?

Yeah, it's perfect. More than I was looking for, and so I appreciate all the detail.

No, I appreciate that.

The next question is from Ryan Kuntz from Needham & Company. Please go ahead.

Good morning. Can you characterize kind of how that pivot is happening? Are you looking – are you doing retraining of your existing sales force? Are you hiring the new skills? How are you managing kind of the people and process side of rolling out your – Thank you so much, Ron, and looking forward to speaking at your event next week.

Thank you so much for having us. So, yeah, we're excited. A, as always, we're training. We're going again and again through many trainings. By the way, right now we're going for what we call a summer camp, which is a three-day training session started yesterday, next couple of days. Focus, by the way, even on what's coming next because what I said earlier, to DJ is everything we're doing right now, but we've also shared with you guys the two solutions that we're building around the agentic revenue engagement and around the learning and enablement, and we're now fully enabling everybody to go ahead and sell these full solutions. I'll get back to that. But generally speaking, the good news is this is an evolution, not a revolution. So the customers we're going after are the same customers, the buyers, the same buyers. In some cases, they're more. Where Kultura had a bit less talk about cx experiences and marketing that were covered now with more path factory and the companies are working great together have been onboarding uh you know leadership came together for multiple day sessions alignment working 100 within the different teams sales people go to market team developer teams everybody is working well so as indeed they're being trained it is not an earthquake and it is not suddenly needing needing to uh teach them something completely different. It's an evolution state of what we have done. So that's why the pipeline is building very nicely. Our existing customers, new logos. Are we hiring more people? Yes. Are we bringing in more talent that's diverse? Yes.

But our existing talent and the existing relationships we already have in place play very strongly towards what we're doing, both with the product mix that I mentioned earlier and the go-to-market motions I just answered, DJ, and in the two solution sets that we're now launching which i'm happy to tell you more about on the um you talked about maybe some churn coming on on the uh on the path side um you know what's what's driving that is that kind of roadmap repricing kind of refocus the r&d efforts around your kind of larger customer opportunities or what's what's driving some of that uh that that down selling on on the path

product yeah so first of all when we took that factory when we're asked you know what's the order magnitude of revenue we said that it's in the teens if you look at a 4.9 times five it's almost 20 but the reason is we left cushion because we're asked about the run rate and we knew the run rate might come down this we also said as we acquired the company that it was a declining revenue uh company not because it's not amazing technology and amazing customers but because of the positioning of the base core stand-alone path factory product as a layer for content and user intelligence that is enabling to create customer journeys it was kind of fighting between some other players out there doing a lot more doing better doing exciting things but being somewhat pushed out by some of the other guys the differences as we take them and we said that in the acquisition is we're not taking path factory just to sell path factory stand alone but more so and most importantly and number one is to turn that into the quote-unquote brains of our agentic motion where you're putting together their understanding of content and users and orchestration of journeys together with our content management and experience layers and content creation layers put together so now when we're pushing and promoting our agentic revenue platform we're talking about everything from taking organizational context to understanding buyer intelligence to creating engaging experiences to creating revenue activation and it's put together and that's why people love how it comes together into an end-to-end agent it's not just the brain it's the brain within the full experience and this is the great potential this is why we acquired the company not to take its existing exact go-to-market motion existing zapra that being said we're also seeing even within those that are just wanting to buy about factory there is a rejuvenated interest because it's now in a stronger company. We're doing this with more opportunities and more marketing with our existing customer base. So we absolutely are seeing folks that are just buying PATH Factory as is, which is a great product. But the expectation as we move forward is for it to somewhat glide given past relationships that have already come to bear, even past acquisitions that they've made that are going through migrations and some folks moving. And there is a certain conservatism also that we're factoring in. And as you've seen, we beat this quarter, and we hopefully continue to beat as we've done in the past. But while we expect the core product to be good and well and hopefully grow, but we're cautious, the combination is where we are really going on all four cylinders. Let me add, because I spoke about the agentic revenue engagement and the big part that they play there, plus the domain expertise in CX, it is the same brain around orchestration that is then being used towards our agentic learning and enablement solution to build the knowledge graphs and to build the content logic and understanding for training enablement which by the way does not go just for employees it's training enablement for customers and for partners that's also customer experience and these things are conversations we're already having in the market as we speak so to summarize for a path factory a turnaround on their core business because of the acquisition. Conservatism in some headwinds in the short term, which was baked in already, and we had assumed there was some pleasant surprise in Q2, we expect more of it. But the big bonanza is what we had always said, the combination into our agentic revenue solution and coming after that, the learning and enablement solution with the brains within our agents.

Really helpful, Ron.

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There are no further questions at this time i would like to turn the floor back over to ron yakutil for our closing comments yeah thank you everybody again as said i think a good solid strong quarter of achieving our numbers but really continue to keep our eye into the future as we could continue to build our ai offerings and move to become a full digital experience platform we have our pipeline showing for it we're showed i've shared a lot more than we usually do to start giving you a feel for where it's going. We said the impact is going to be in the second half of the year. We continue to expect that. We've increased numbers accordingly, but all eyes are in the future as we turn these opportunities into wins and share them with you in the next few quarters. And looking forward to the Canaccord event again next week. Thank you all for participating. Have a beautiful week.

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