Earnings Call Transcript - KLTR Q1 2026

Operator, Operator

Good morning, everyone, and welcome to the Kaltura First 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 now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead, Erica.

Erica Mannion, Investor Relations

Thank you, operator, and good afternoon. I am joined by Ron Yekutiel, Kaltura's Co-Founder, Chairman, President and Chief Executive Officer; and Liron Sharon, Executive Vice President of FP&A and Interim Principal Financial Officer. Ron will begin with a summary of the results for the first quarter ended March 31, 2026, and provide a business update. Liron will then review the financial results for the first quarter of 2026 in greater detail, followed by the company's outlook for the second 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 our strategic transition and upcoming product launches, integration and expected benefits of our recent acquisitions, trends in customer engagement, anticipated headwinds and our expectations around capabilities and benefits of our products, including AI technologies. 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, 2025, and other SEC filings. Any forward-looking statements made during this conference call, including responses to your questions, are based on current expectations as of today, and Kaltura assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. Please note, we will be discussing non-GAAP financial measures, adjusted EBITDA, adjusted EBITDA margin and non-GAAP gross margin during this call. For a reconciliation of these measures 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.

Ron Yekutiel, Co-Founder, Chairman, President & CEO

Thank you, Erica, and thanks, everyone, for joining us today. We delivered a strong start to 2026, exceeding the high end of our guidance across revenue and adjusted EBITDA and generating for the first time in our history positive cash flow from operations in a first quarter. Total revenue was $44.6 million, down 5% year-over-year. Subscription revenue was $43.2 million, down 4% year-over-year. Adjusted EBITDA was $5.7 million, up 37% year-over-year and our highest first quarter result to date. These results reflect continued operating discipline, improving retention trends and steady progress as we execute on our strategic transition. New subscription bookings in the first quarter followed our typical seasonal pattern with encouraging deal quality across both new logos and expansions. We closed one seven-digit deal, 14 six-digit deals and three new AI-related deals. New logos included a global content delivery network, a leading health care system, two U.S. universities and a major APAC broadcaster. As in prior quarters, the majority of bookings came from expansions within our existing enterprise customer base across technology, financial services, health care, education and media. Gross retention improved to its highest level in the last five quarters. Net dollar retention continued to reflect the lagging impact of elevated media and telecom churn in 2025, which we expect to improve over the course of this year. During the quarter, we continued to expand our AI capabilities across both content creation and user engagement. We announced the general availability of our conversational Avatar technology, along with developer tools that enable integration into enterprise workflows. We also launched a beta version and last week moved to general availability of our Avatar Video Production Studio, which enables automated creation of avatar-based video content from text and other materials. These capabilities build on our existing AI tools such as Content Lab and Genie, extending them into more interactive and conversational use cases. Importantly, we also achieved ISO/IEC 42001 certification for Artificial Intelligence Management Systems during this quarter, reinforcing our commitment to responsible enterprise-grade AI deployment. We also completed the acquisition of PathFactory on April 1, following the signing of the definitive agreement during the first quarter. PathFactory adds content intelligence and journey orchestration built to enable enterprises to better understand user intent and dynamically deliver personalized digital experiences. Since closing, we have moved quickly to integrate teams and align product and go-to-market efforts. We're already jointly presenting our combined platform in the market and seeing encouraging early engagements. With the combination of Kaltura, eSelf and PathFactory, we believe we now have the core building blocks to evolve from a video platform into an AI-powered rich Agentic digital experience platform. Kaltura provides enterprise-grade video experiences and rich media infrastructure, eSelf adds multimodal conversational avatar technology for Agentic real-time and on-demand interactions, and PathFactory adds content intelligence and journey orchestration. Together, these capabilities are designed to allow enterprises to move from static one-size-fits-all digital experiences to more personalized, interactive and outcome-driven journeys. Now I will spend some time discussing how customers are engaging with us across the four journeys we power: customers, employees, learners and audiences, as this is where we are seeing the most meaningful early validation of our strategy. First, customer journeys. Customer-facing use cases are the most advanced and showed the strongest early traction. We are seeing growing interest in our revenue engagement suite, which brings together video, AI-powered content creation, conversational avatars and journey orchestration into a unified solution for marketing, sales and customer engagement teams. Discussions with both new and existing customers are shifting from deploying video tools to broader conversations around improving lead conversion, scaling personalized engagement and augmenting sales and customer success teams. We are in proof-of-concept discussions with large enterprises, including Fortune 500 organizations across technology, financial services, health care and media and telecom. These include use cases such as personalized content journeys and microsites, AI-powered conversational interfaces across websites and events, automated creation and scaling of targeted video content, 24/7 digital agents supporting customer and partner engagement and onboarding and AI-powered SDR agents. In several of these engagements, we are progressing from initial proof of concept to broader platform discussions, reflecting growing confidence in the combined value of our offerings. Importantly, these conversations increasingly involve multiple business stakeholders, including marketing, sales and customer success leaders, expanding our buyer base beyond IT. Second, employee journeys. Across employee-facing use cases, we're seeing strong interest in leveraging AI to improve productivity, training and knowledge access. Customers are engaging with us around four primary themes: extending workforce capacity through AI-assisted interactions, accelerating content creation and internal communications, turning large content libraries into interactive knowledge bases and enhancing training through more personalized and interactive experiences. We're seeing adoption of tools such as Content Lab and Genie expand within large enterprises, including global financial institutions, pharmaceutical companies and professional services firms. These deployments are creating a strong foundation for future expansion into more advanced conversational and avatar-based use cases. For example, a large global professional services firm is expanding its use of our AI tools to scale internal communications and knowledge access across hundreds of thousands of employees, while a major financial institution has begun transforming support content into interactive, self-serve learning experiences using our Genie platform. We also see growing interest in our avatar-based offerings for content creation, knowledge discovery and role play simulations for sales training, enablement and field support. Third, learner journeys. In education, discussions are increasingly centered around how AI can enable more personalized and interactive learning experiences. Use cases include AI-powered teaching assistants and tutors, personalized learning paths, automated content creation and adaptation and improved accessibility. We're engaged in discussions with universities around using our Avatar Video Production Studio to generate rich instructional content. We're also in discussions with institutions regarding the use of our Agentic Avatars as academic tutors, role play simulation tools and support agents for administration and admissions. Our modular architecture and integrations with learning systems position us well in these conversations, and we're seeing continued engagement from both existing institutions and new prospects. Fourth, audience journeys. In media and telecom, we're discussing how AI can enhance audience engagement and monetization. These discussions include more advanced content discovery and recommendations, personalized viewing experiences, new monetization models and the introduction of interactive and conversational interfaces. These discussions range from AI-powered content recommendation and avatar concierge experiences to broader applications such as digital signage and customer engagement in large venues. It is worth noting we're also seeing growing interest from media and telecom companies to leverage our platform beyond traditional entertainment use cases, including customer journeys such as marketing and customer care and employee journeys such as sales enablement. In summary, the increasing depth and breadth of these engagements reflects the progress we're making in our transition. As we evolve from powering video experiences to powering end-to-end rich Agentic digital experiences, our focus in 2026 is on integrating eSelf.ai and PathFactory, packaging rich Agentic solutions around clear use cases and driving early adoption. We are seeing early signs of momentum in customer engagement and pipeline activities and continue to expect revenue contribution from our new product portfolio to begin in the second half of the year with a more meaningful impact in 2027. Before I close, I also want to highlight our upcoming Kaltura Connect on the Road 2026 events. We will be hosting events in New York, San Francisco and London this week and next, bringing together customers and partners to discuss the evolution toward more personalized AI-powered digital experiences. We are pleased to have participation from leading organizations, including AWS, Cisco, IBM, MetLife, Morgan Stanley and Palo Alto Networks. These events provide an important opportunity for customers and prospects to engage directly with our platform and road map, and we view the strong participation as further validation of the relevance of our strategy. Early feedback and participation levels are exceeding our expectations with strong engagement from both existing customers and new prospects. We're invited to register for in-person or virtual participation through our website. To summarize, we delivered a strong Q1, exceeding expectations across revenue and adjusted EBITDA and achieving a key milestone with positive first quarter operating cash flow. We launched new products based on the eSelf acquisition and completed the PathFactory acquisition and are progressing well on integration. We've been expanding our platform capabilities and seeing encouraging early validation across all four journeys we support and are headed into the rest of the year with increased confidence reflected in our updated guidance. With that, I'll turn it over to Liron.

Liron Sharon, EVP FP&A & Interim Principal Financial Officer

Thanks, Ron, and hello to everyone on the call today. As Ron noted, in the first quarter, we once again exceeded the high end of our guidance across all metrics: subscription revenue, total revenue and adjusted EBITDA, and generated for the first time cash flow from operations in the first quarter of the year. Let me now walk through the quarter in more detail. Total revenue for the quarter ended March 31, 2026, was $44.6 million, down 2% sequentially and 5% year-over-year and exceeding the high end of our guidance range of $42.6 million to $43.4 million. Subscription revenue was $43.2 million, up 1% sequentially and down 4% year-over-year and also exceeding the high end of our guidance range of $41.2 million to $42 million. As discussed during our last earnings call, this year-over-year decline was fueled by the elevated media and telecom churn experienced in 2025, which we forecast will improve this year as well as by a large EE&T customer that shifted from conducting large virtual events to many smaller ones that are planned to be conducted later in the year. Professional services revenue was $1.4 million, down 50% sequentially and 31% year-over-year, consistent with our increased multiyear focus on recurring subscription revenue. On a segment basis, EE&T total revenue was $34.2 million, down 1% year-over-year and subscription revenue was $33.7 million, flat year-over-year, while professional services revenue contributed $0.5 million, down 42% year-over-year. Within M&T, total revenue was $10.5 million, down 17% year-over-year, and subscription revenue was $9.5 million, down 16% year-over-year, while professional services revenue contributed $1.0 million, down 24% year-over-year. GAAP gross profit for the first quarter was $32.1 million, resulting in gross margin of 72%, up 200 basis points from Q1 2025. Subscription gross margin was 77%, in line with Q1 2025. The year-over-year improvement in gross margin reflects the continued benefit of our mix shift toward higher-margin subscription revenue. GAAP operating expenses for the quarter were $33.3 million compared to $34.3 million in the first quarter of 2025, an improvement of 3% year-over-year, and that is despite incremental operating costs associated with the eSelf acquisition and FX headwinds. Adjusted EBITDA for the quarter was $5.7 million, an increase of $1.5 million from $4.1 million in the first quarter of 2025 and exceeding the high end of our guidance range of $2.3 million to $3.3 million. Adjusted EBITDA margin was 13%, an increase of 400 basis points year-over-year, which underscores our commitment to operational profitability also amid our strategic transition and investment in growth. GAAP net loss for the quarter was $3.8 million or $0.03 per diluted share compared to a net loss of $1.1 million or $0.01 per diluted share in Q1 2025. The year-over-year change in GAAP net loss reflects primarily noncash and nonrecurring expenses, including $3.8 million for noncash stock-based compensation and $1.9 million for acquisition costs and other strategic initiatives. Non-GAAP net profit for the quarter was $2.1 million or $0.01 per diluted share compared to $2.0 million or $0.01 per diluted share in Q1 2025. Remaining performance obligations, or RPO, were $154.5 million, flat year-over-year. We expect to recognize 67% of this amount as revenue over the next 12 months. Annualized recurring revenue in the first quarter was $168.8 million, flat sequentially and down 3% year-over-year. Net dollar retention for the quarter was 95% compared to 107% in the prior year period and 97% in Q4 2025. As a reminder, NDR is a lagging indicator and reflects prior period bookings and retention dynamics. As such, it has been significantly impacted by last year's heightened M&T gross churn, which we expect will materially improve this year alongside higher M&T and EE&T bookings. Moving to the balance sheet and cash flow, we ended the quarter with $61.8 million in cash, cash equivalents and marketable securities. Net cash generated from operating activities in the quarter was $0.7 million compared to $1.0 million used in operating activities in Q1 last year. This meaningful year-over-year improvement of $1.7 million also contributed to this quarter being our first Q1 with positive cash flow from operations. I will now turn to our outlook for the second quarter of 2026 and for the full fiscal year ending December 31, 2026. For the second quarter of 2026, we expect subscription revenue to grow 2% to 4% year-over-year to between $43.3 million and $44.1 million. Total revenue to grow between 2% to 3% year-over-year to between $45.2 million and $46.0 million and adjusted EBITDA to be between $2.0 million and $3.0 million. For the full year 2026, we are thoughtfully raising all our guidance numbers and slightly narrowing the guidance ranges. We now expect subscription revenue to grow 1% to 3% to between $174.5 million and $176.7 million. Total revenue to grow 1% to 2% to between $182.6 million and $184.8 million, and adjusted EBITDA to be between $13.8 million and $15.2 million. We continue to expect subscription and total revenue to pick up gradually throughout the year. We expect EE&T to post a higher year-over-year growth rate compared to 2025, fueled by contribution from the PathFactory customer base and our new product portfolio, which is expected to start contributing revenue in the second half of the year 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 expect to achieve both higher M&T new bookings and retention this year, which are forecast to regenerate sequential quarterly M&T revenue growth in 2027. On the cost side, our guidance continues to take into consideration the PathFactory acquisition and expected post-merger integration costs as well as the continued expected impact of FX headwinds. To close, Q1 marked a solid start to the year. We remain focused on disciplined execution, careful capital allocation and balancing growth with profitability to maximize long-term shareholder value. With that, we will open the call for questions. Operator?

Operator, Operator

Operator provided instructions. Our first question comes from Ryan Koontz with Needham & Company.

Ryan Koontz, Analyst, Needham & Company

Ron, I want to ask you about the expanded portfolio. It seems highly differentiated. Can you map how your customer engagements are going or give us some color relative to the different set of stakeholders you've traditionally sold to? How are you positioning the new portfolio to take a broader swath of engagement from your customers and help your customers improve engagement with their end customers?

Ron Yekutiel, Co-Founder, Chairman, President & CEO

Yes. I appreciate it, Ryan, and thank you all for joining today. Going back to the last couple of quarters and our move from powering video experiences to powering Agentic rich experiences that cover the entire journey of customers, employees, learners and audiences, I'll give examples of each. But before that, we've been enhancing our content creation, management and experience layer with more tools. On content creation, we have our VOD-based avatar, which enables automatic content creation with avatars. This runs on top of our Content Lab capabilities and additional creation tools we've developed. On content management, we have the PathFactory intent-based content analytics and content intelligence platform that understands users and delivers the next piece of content in the right context at the right time. On the engagement layer, we have our Agentic Avatars and role play simulation on top of that, plus the delivery of the traditional Genie products. These capabilities come together into a flywheel when content is created, managed and delivered in real time in conversational form. We have started closing initial deals. They are small at first, and we expect more significant contribution to revenue in the second half of the year. Initially, they are around customer journey proofs of concept for sales, marketing and customer support. They come from places like technology, real estate, hospitality, consumer goods, media and telecom and other sectors. If you look at our pipeline broadly, we have a few dozen opportunities mostly around the Agentic Avatars together with Genie, though there are already a few around the Avatar Video Production Suite. These opportunities are roughly half North America and half Europe, and split about half between upsells and new logos. We have more opportunities on the customer journey side, then employee, then learner, and the smallest is audience. From an industry perspective, we have the most coming from technology and media and telecom, followed by education, financial services, pharma, real estate, gaming, BPO, manufacturing, oil and gas and food. I'll give examples for each journey. Customer journeys: customers come to us for marketing, website personalization, customer outreach, ABM and tiers that create full personalized experiences through interaction with our platform. We have personalized event follow-ups, and a few customers are looking at using us for SDRs and basic sales on the website. We have customer training and customer care use cases, renewal enablement and partner enablement and support for companies with large partner marketplaces. These customer use cases move beyond providing video tools to fulfilling full tasks and roles, becoming agentic. The outcomes being measured are business metrics: pipeline growth, accelerated conversion and cost reduction. Buyers are expanding beyond marketing to include C-level stakeholders, revenue leaders and customer care leaders. Employee journeys: customers are looking at internal recruiting, communications, learning and development, onboarding, IT help desk, digital reception, sales enablement and field support. For example, an avatar plus our tools can train sales teams and deliver the right content at the right time, including snippets and documents together with Genie. Learner journeys: we have institutions looking for tutors and one-on-one teaching, role play simulations for nursing and negotiation classes, automatic content creation from slide decks or long videos, admissions assistance and community education. Historically, we had LMS integrations with video and rooms for classes; now it's about full teaching and learning with significantly more value. Audience journeys: use cases include recommendations, TV concierge, virtual assistants and applications for physical events, venues, points of sale and kiosks. This is a far broader set of interactions than in the past. Importantly, this is not a pivot away from video but the new way to use rich media; many of these capabilities are connected to our existing products. Customers are seeing this as additive to their existing websites, events and portals. I hope that provides color, Ryan.

Operator, Operator

Operator provided instructions. Our next question comes from DJ Hynes with Canaccord Genuity.

Analyst (Canaccord Genuity), Analyst, Canaccord Genuity

This is Ryan on for DJ. You've added a lot of new functionality to the platform with eSelf and now PathFactory. Do you anticipate any sales cycle elongation or a digestion period as the sales force gets up to speed with the new platform?

Ron Yekutiel, Co-Founder, Chairman, President & CEO

Thank you, Ryan. Not necessarily. Sales cycles have always been classic large enterprise cycles. Historically, telecom deals can run 12 to 18 months, and many enterprise sales cycles are long. I don't think these are further elongated; they remain typical long sales cycles. We've already had inbound interest and proof-of-concept requests at the beginning of this year that we expect to convert in the second half of the year. So while some deals may be long, they are not uniformly longer due to the new functionality.

Analyst (Canaccord Genuity), Analyst, Canaccord Genuity

Okay. Makes sense. If I could sneak one more in: you opened the platform to AI coding agents recently. How often are customers building AI-led digital experiences internally or off the Kaltura platform? Are you able to monetize this third-party access?

Ron Yekutiel, Co-Founder, Chairman, President & CEO

To be clear, we've enabled integration into Kaltura via code that customers can run. This is not us open-sourcing our core technology or core offering. The avatars and the main Kaltura platform remain our proprietary code. We find customers want to take our tools and integrate them flexibly into their workflows and the agents they build. Video and experiences are not islands; they need to be connected to databases, third-party systems and enterprise workflows. We want to enable the lowest barrier for customers to customize and embed our tools into their environments. This is especially important when these tools tie into key KPIs. We're seeing customers consider their own agent factories and existing agent logic, and they want the rich end-user experiences provided by our Agentic interface connected natively to their retrieval-augmented generation workflows, the LLMs they use and the applications they develop. That is what we've enabled, and we're seeing increased interest from tech companies and beyond to connect our offering into their broader agentic logic.

Operator, Operator

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to hand the conference over to Ron Yekutiel, the CEO, for the closing remarks.

Ron Yekutiel, Co-Founder, Chairman, President & CEO

Yes, I appreciate that, and thank you all for joining. We are on track and seeing interest in the new capabilities we've brought in. As stated, we have our events around the corner in New York, San Francisco and London with great attendance. We're inviting all of you to register online. We're also going to be at the Needham 21st Annual Technology Conference and invite you to meet us there. As noted in our earnings release, we've included in our quarterly investor deck a conversational Agentic Avatar that walks you through the presentation. You can ask it to explain slides and address additional questions. It's one demonstration of many things we can and will do with our new technology. We're excited and looking forward to what's ahead. Have a beautiful day and a beautiful week, and thank you for your time.

Operator, Operator

Ladies and gentlemen, the conference call of Kaltura has now concluded. Thank you for your participation. You may now disconnect your lines.