Kaltura (NASDAQ:KLTR) Q3 2021 Earnings Call

0:01 Good morning, everyone, and welcome to the Kaltura third quarter 2021 earnings call. For opening remarks and instructions, I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

0:16 Thank you, and good morning. With me today from Kaltura are Ron Yekutiel, co-founder, chairman, and chief executive officer, and Yaron Gamazi, chief financial officer. Ron will begin with a brief recap of Kaltura's mission and market opportunity and with a summary of the business results for the third quarter ended September 30, 2021. Yaron will then review the financial results for the third quarter, followed by the company's outlook for the fourth quarter and full year of 2021. 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 future financial results and management's expectations and plans for the business.

1:04 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 could cause actual results to differ from forward-looking statements can be found in Risk Factors section of Kaltura's quarterly report on Form 10Q, for the period ended June 30, 2021, and other periodic SEC filings, including the quarterly report on Form 10-Q for the period ended June 30, 2021 to be filed with the SEC. Any forward-looking statements made in this conference call, including responses to your questions, are based on current expectations as of today, and Kaltura assumes no obligation to update or revise them Whether as a result of new developments or otherwise, accept as required by law.

1:57 All materials contained in the webcast is a sole property and copyright of Kaltura, with all rights reserved. Please note, this presentation describes a non-GAAP measure, adjusted EBITDA, which is not prepared in accordance with U.S. GAAP. For a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP metric, please refer to our earnings release. Now, I'd like to turn the call over to Ron.

2:23 Thank you, Erica, and thanks to everyone for joining us on the call this morning. We're excited to report quarterly earnings for the second time as a public company. We'll start this morning with just a few opening financial highlights from the third quarter. Then, because some of you may still be new to the Cultura story, I want to provide a brief recap of our mission and market opportunity, after which I will provide more details on the passing quarter. We reported a strong third quarter. Revenue for the quarter was $43 million, up 40% year over year, and above the high end of our guidance of $42.5 million. Subscription revenue for the quarter reached $37.7 million, an increase of 40% from the prior year, and represented approximately 88% of total revenue.

3:14 Our annualized recurring revenue grew to $151.7 million, up 41% year-over-year, and our net dollar retention rate was 117%, up from 111% one year ago. We also continued improving our gross margins across both reported segments and achieved a gross margin of 65% in the quarter. Our adjusted EBITDA was negative $2.3 million, also ahead of the high end of our guidance. As we look to the future of customer experiences, work, learning, and entertainment in a world reshaped by the pandemic, video technology and video experiences continue to emerge as a primary facilitator for change.

4:03 Video technology now serves as a foundation for remote work, remote learning, virtual events, and online entertainment, replacing travel, in-person meetings, Office Space, Classrooms, Event Venues, and much more, enabling everyone to participate from everywhere. Altura's mission is to power any video experience for any organization. Our video experience cloud drives communication, collaboration, learning, virtual events, and entertainment experiences for millions of people at work, at home, and at school. We cater today to four main markets. Enterprises from all major industries, including more than 25% of the US Fortune 100, to whom we deliver our video portal, town halls, video messaging, webinars, and virtual events, powering internal communication and learning, as well as digital marketing and customer experiences.

5:07 Education institutions. including more than 50% of the top US research educational institutions and seven of the eight Ivy League schools to whom we deliver video solutions for in-class and remote teaching and learning, including video extensions for learning management systems, a lecture capture solution, and a virtual classroom solution. Technology companies to whom we provide our media services, which are a broad set of on-demand live and real-time video APIs and experience components that enable them to launch new video products or add rich video workflows to their existing products. And lastly, media and telecom companies, for which we provide streaming media and cloud TV solutions for both subscription-based and ad-supported services.

6:00 We sell our solutions primarily through direct sales teams and account teams that are also organized based on these four customer markets and report based on two segments, the EENT segment, which combines the first three markets, and the M&T segment, which represents the last market, which often involves longer sales and deployment cycles. In recent years, we've been accelerating our revenue growth rates and I've also improved our adjusted EBITDA without materially increasing our sales and marketing spend. We achieved this through an increase in sales efficiency fueled by our growing product portfolio and by heavier adoption of video experiences across our markets. In recent months, we started expanding our sales force and expected to continue to fuel our future growth along with a planned increase in our marketing spend.

6:54 Our growth is also supported by the increased adoption of our most recent product releases, including virtual events, webinars, and virtual classrooms, and is expected to also be boosted by our plan move down market to power smaller organizations with low touch and self-serve products, coupled with an associated expected increase in sales through channel partners. We are pursuing an inspiring and timely mission. Believe we have unique sustainable advantages and are very excited for the future. I'm now returning to the third quarter of 2021. From a go-to-market perspective and starting with our E&T segments, in the third quarter, we continue to see an increase in the average ARL per customer and in the average size of new deals.

7:47 We also continued with our global expansion with a greater portion of new bookings coming from EMEA and APAC compared to last quarter and last year though North America remains our largest market. We saw continued growth in the percentage of new business that is coming from channels as well as continued reduction in the proportion of both new professional services versus subscriptions as our new ENT offerings continue to mature and require shorter deployment cycles. We secured new customers, including Fortune 500 companies and universities that purchased a wider array of our products including our newest product and solution editions of webinars, virtual classroom, and virtual events.

8:35 Pertaining to our year offerings, this quarter Gartner issued their 2021 Magic Quadrant for Meeting Solutions and the 2021 Critical Capabilities for Meeting Solutions Companion Report, which included Kultura for the second time since we launched a real-time conferencing offering last year. We were excited to be recognized as a visionary in the magic quadrant and to be ranked fourth in the critical capabilities report in the external presentation use case and fifth in the webinars as well as the training and learning use cases. Altera has a unique approach to meeting solution markets. We address the complexities of meetings that go beyond the standard video call, which we refer to as meetings with purpose, such as virtual events, Webinars and Virtual Classrooms, using our powerful tools for content management and integration with enterprise workflows based on our underlying market-leading video content management platform.

9:35 Futura was previously named the leader in the Gartner Magic Quadrant for Enterprise Video Content Management research reports since 2013 for five consecutive times and ranked highest in all use cases in the last published critical capabilities for enterprise video content management reports. Gartner discontinued the publication of these reports by 2019. Our strength in addressing meetings with purpose helped us secure new customers and expand our business with existing customers in the third quarter, such as one of the largest global accounting firms in the world that replaced its existing solution with Kultura to power their remote employee training and development all across the globe. We also signed up new universities in the U.S.

10:21 and worldwide but sought to address their media content management and virtual classroom needs with a single platform. Our virtual event platform that builds on our broad video technology stack combining live, simulive, real-time, and on-demand video enables us to successfully power complex virtual events and become a leading central virtual events platform for enterprises for all of their events, large and small. We're continuing to onboard new customers and upsell to existing one in this very exciting market. While on the topic of virtual events, we are thrilled about our upcoming virtually live event on November 9th, where we will host a tremendous lineup of marketing executives from Microsoft, SAP, Oracle, YouTube, Accenture, DocuSign, Drift, HubSpot, NASDAQ, Atlesian, and many more. This virtual event will talk about the future of marketing and virtual events and also showcase the latest and greatest of Cultura's virtual event platforms.

11:31 Be sure to register and attend virtually live and to also read our State of Virtual Events 2022 report, which we're releasing tomorrow, covering user and buyer preferences in this market based on feedback from more than 1,200 responses to a survey we put out. Continuing with the ENT, Oracle announced in the third quarter that they are expanding the strategic agreement that they had signed with us in 2019 to add video capabilities into their products using our media services. This original OEM agreement with Oracle included only our video content management capabilities, and the extended agreement covers all of our capabilities, including live, semi-live, and real-time video experiences.

12:22 Oracle has been a customer of Kultura since 2012, using our video portal, AIM Town Halls, for internal employee engagement, as well as external customer education. As part of the partnership expansion with Oracle, we've also undertaken to host all of Oracle-related workloads on the Oracle Cloud infrastructure. This will enable Oracle salespeople to sell Kultura products and solutions hosted on Oracle Cloud. We're extremely excited about the huge potential of this partnership. We also plan to continue growing our strong partnership with AWS, our cloud provider and go-to-market partner that has been powering all of our SaaS customers. For example, we powered virtual events for a leading ATM platform, as well as a Fortune 500 consumer electronics company running on AWS.

13:13 In regards to our go-to-market efforts in the M&T segment, we're continuing our shift from mainly targeting larger telcos who are also targeting smaller telcos, broadcasters, and media companies with direct-to-consumer offerings. The majority of our new business in the third quarter came from these markets. It is a healthy shift because it increases our addressable market, shortens our sales and deployment cycles, and continues reducing the amount of required professional services. Also, the third quarter's new bookings come in from all regions, including a bigger part than usual from Latin America. M&T is still tracking to lead our segments in 2022 in terms of percentage of growth of uBookings compared to 2020.

14:00 But because of the lengthier deployment cycles, in some cases, the impact on our revenue will not be recognized until late 2022. For both ENT and M&T, we continued building up our sales force in the third quarter, including new sales reps, customer success managers, and sales support staff. We are slightly behind our internal hiring plan, but expect to catch up in the coming quarters. Our forecasted average productivity per salesperson for the year remains at the anticipated levels, which is great considering our growing sales force. From a technology development perspective, we are continuing to ramp up developers in order to accelerate our product roadmap.

14:47 Our five primary activities in the past quarter and near future are as follows. One, to launch our comprehensive second-generation virtual events platform that includes a user-friendly orchestration and management layer for marketers to easily set up and manage their events. This platform is well-suited for all marketers who nowadays need to execute on a large number of virtual and hybrid events of all sizes. This platform is designed to shorten our sales and deployment cycles and reduce required professional services in an effort to help increase gross margins. Two, to continue advancing our recently added real-time conferencing engine to best support our fast-growing meetings and event products in an effort to improve unit costs and gross margins.

15:39 Three, to continue development towards launching our self-serve media services, webinars, and virtual classroom offerings in the first half of next year. This move is expected to increase our target market to include small and medium enterprises, smaller schools, and startups, and also to reduce required professional services, again, in an effort to increase gross margins. Or, to enable our services and products to run an OCI as discussed previously. And lastly, five, for the M&T sector to continue working on a more simplified end-to-end version of our offering for media companies and smaller telcos that would enable us to launch services quicker and without the need to procure separately individual tech stack components.

16:30 This is expected to broaden our target market and reduce required professional services, again, in an effort to increase gross margins. Our product investment areas are aligned with important market trends related to the adoption of video technology across all of our products and use cases, and we're excited about our upcoming launches and continued market disruption. In summary, we had a great quarter with strong growth, retention rates, and growth margins, and we're already hard at work on the next quarter. We're continuing to increase our sales and marketing spend and to ramp up additional sales staff, We continue to be excited about the strong traction that we're seeing for our recent new product and solution releases and are excited to launch important enhancements and additions to these offerings, including lower touch and self-serve products that we expect will open up our target market to include also small organizations to which we could sell and deploy faster with less services and at higher gross margins.

17:34 With that, I'll turn it over to Yaron, our CFO, to discuss our financial results in more detail. Yaron.

17:43 Thank you, Ron, and good morning, everyone. As I review our third quarter results today, please note that I will be referring to a non-GAAP metric, adjusted EBITDA. The reconciliation of GAAP and non-GAAP financial is included in today's earnings release, which is available on our website. Total revenue for the third quarter ended September 30th, 2021, was 43 million, up 40% year-over-year. Subscription revenue was 37.7 million, up 40% year-over-year, while professional services revenue contributed 5.3 million, up 43% year-over-year. The remaining performance obligations were 162.3 million, up 24% year-over-year, of which we expect to recognize 59% as revenue over the next 12 months. Annualized recurring revenue was 151.7 million, up 41% year-over-year.

18:49 Revenue benefited from our continued year-over-year growth in net dollar retention rate, which was 117% in the third quarter compared to 111% in Q3 2020. Within EENT segment, total revenue was $30.4 million, up 45% year-over-year. Subscription revenue was $28 million, up 41% year-over-year. while professional services revenue contributed 2.5 million, up 99% year-over-year. Within M&T segment, total revenue was 12.6 million, up 31% year-over-year. Subscription revenue was 9.7 million, up 37% year-over-year, while professional services revenue contributed 2.9 million, up 15% year-over-year.

19:45 Gross profit in the quarter was $27.8 million, representing a gross margin of 65%, up from 59% gross margin in Q3 2020. Within EENT segment, gross profit was $22.2 million, representing a gross margin of 73%, up from 72% gross margin in Q3 2020. Within M&T segment, gross profit was 5.7 million, representing a gross margin of 45%, up from 32% gross margin in Q3 2020. R&D expenses was 12.4 million, 29% of revenue, compared to 24% in Q3 2020. The increase was driven by additional headcount, and Preyron Extensive as we continue to invest in technology and innovation.

20:43 Sales and marketing expenses were 11.3 million or 26 of revenue compared to 22% in Q3 2020. The increase was driven by additional sales and marketing investment including headcount and personnel related expenses. We intend to continue to invest in sales and marketing as we expand our sales force and marketing efforts, leverage our position in the market, and capture a significant opportunity in front of us. G&A expenses was 10.1 million or 23% of revenue compared to 28% in Q3 2020. The decrease was in G&A in a result of a one-time expense related to an abundant of Data Center Equipment in Q3 2020.

21:38 It is offset by IPO related expenses and increase in ad count and increase in stock based compensation expenses. Gap net loss in the quarter was 25.2 million or 0.26 per diluted share. Adjusted EBITDA was a negative 2.3 million, decreasing from 1.7 million in Q3 2020. This result in line with our plan to increase our spending in order to further fuel our growth as discussed earlier. Turning to our balance sheet and cash flow, we ended the quarter with 179.7 million in cash and short-term investment, reflecting preliminary net proceeds from our July public offering of approximately 160.4 million.

22:31 Net cash used in operating activity was 5.7 million in the quarter. I would like now to turn to our outlook for the fourth quarter and the full year of 2021. For the fourth quarter, we expect revenue to be 41.2 million to 43.2 million, with a negative adjusted EBITDA of 7.5 million to 9.5 million. For the full year, we expect revenue of $163.5 million to $165.5 million with a negative adjusted EBITDA of $14.1 million to $12.1 million. These are both up from our previous guidance. In summary, we believe our new products, strong pipeline, elevated net dollar retention rate, and increasing sales and marketing resources will enable us to continue to support a robust recurring revenue growth and our increased growth margin are in line with achieving our long-term goals.

23:34 With that, we will open the call for questions. Operator? Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. Please limit yourself to one question and one follow-up. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. The first question is from Koji Ikeda from Bank of America. Please go ahead.

24:16 Hey, thanks, guys, for taking my questions. Great quarter. Wanted to ask you a question about 2022 for a bit here. You know, we're at the end of 2021. and specifically about your EENT segment, the Enterprise Education and Technology. Maybe could you talk about which one of those three you're most excited about as a growth factor heading into 2022?

24:37 Yeah, Koji, thank you so much, and thank you all for joining. And by the way, one slight correction that I've noticed after that I misrepresented, I said that M&T continues to lead our segment in 2022 in terms of percentage of growth versus 2020. Obviously, it's 2021, so that's one small fix. For your question about 2022, what we're excited about, you know, across all our four areas, we're very excited because they've all been growing very nicely. There's a lot of demand. We've already mentioned that M&T is on its way to grow in the highest percentages here. So we're going to enjoy growth both at the end of next year and the following one. There's some delay on this. But so far in market demand within the E&T sector, I'd say all three are very strong.

25:23 Net dollar retention is generally led by By Tech OEM, followed by Enterprise. But I'd say that the most explosive one by way of overall market size opportunity is the enterprise subsector within ENT. It is the largest one by way of booking right now. It's the largest one by way of revenue within ENT. And it is one that with all the new products that we've started launching and the great demand that we see for them, we expect significant growth in. And to remind you, we're also going to go down market towards the SME markets. with more self-serve products for virtual events and learning. And so we expect that to continue to push. So I'd say they're all exciting from a size and overall potential I'd say enterprise would be at. Does that answer your question, Koji?

26:08 That's perfect. Thank you. And just one follow-up here, if I may. I wanted to double-click on the hiring plan. You stated that you're slightly behind, and I wanted to dig in a bit more on that. Could you quantify or maybe talk about qualitatively about your current sales capacity and how we should be thinking about any sort of catch-up there in sales and the ramp from here heading into 2022? Thank you.

26:33 Yeah, happy to do that. So, you know, we don't report specific numbers around sales force size and ramp, but I can say that we've been growing our team very, very nicely, and ENT Our RAM salespeople and customer success managers grew by 50% in quarter three compared to quarter one. So it's a huge jump. And in M&T, the combination of sales and CSN grew by 20% in quarter three compared to quarter one. So it's a significant growth that was planned. When we say that we're slightly behind, it's kind of a single digit type of a lag. We expect that to be covered over the next few quarters with a lot more growth that we're putting in place. And it's important to remind everybody, We anticipated that towards the end of the year, we're going to need to pass the baton from growth because of increased efficiency that we've seen over the years to growth also because of more salespeople that are rent. And that's something we're starting to see now by way of bookings.

27:29 We're going to see in Q4 and definitely entering 2022. So that reacceleration, if you may, is ahead of us, and we're seeing early signs, and we're excited about it. Ron, do you want to add anything here?

27:41 Yeah, first of all, as Ron mentioned, the most important point that the increase in our sales force since the beginning of the year is significant. It's like, as we mentioned, it's between 30 to 50% of the sales force. And we believe that by adding the people that we are adding and catching up during Q4 and getting into Q1, we will have the right amount of people to support the growth for next year. And at this point, as Ron also mentioned, we see that productivity level still remain very high. So we definitely don't see erosion in productivity. So by adding the people, we believe that we will see a very nice increase going into next year.

28:27 Got it. Thank you, guys. Thanks for taking my questions.

28:29 Thank you. The next question is from DJ Hines from Canaccord. Please go ahead.

28:36 Hey, Ron. Hey, Ron. Great to see the 40% growth across the board. Congrats. I want to ask about the bookings environment and execution in the quarter. I mean, the qualitative commentary obviously sounded pretty upbeat. If I look at the amount of net new ARR you added in the quarter, it's the lowest we've seen in more than a year. So can you just double-click on what you saw in the quarter? I mean, is it the last couple quarters benefited from some of those chunky kind of M&T deals dropping in? Or maybe just talk about So close rates and what the pipeline looks like at A&E Q4.

29:09 Yeah, happy to do that, DJ. So a bit more color. So segments-wise, we have contributions for all segments. The largest contributor, as I mentioned earlier, continues to be enterprise. From a product perspective, the large majority of the E&T deals are meetings-related, so they include live and or real-time conferencing. I'll say that from a concentration perspective, in the past, we've had much more push in both booking and revenue coming from a single few very large customers. That's not the case now. Concentration, you've seen that in our comments, are coming down. You'll see that in the thank you as well. Vodafone year-to-date is under 10% versus last year there was a 12%. Amazon came down to single digits. Top 10 customers are sliding down from Q2, so that's good. From an ARPU perspective, the E&P New Deal ARPU grew to the highest level this year.

30:03 and so we're seeing this mainly driven by the new products. Virtual events and virtual classrooms for large companies are a bigger ticket item. So we're seeing bigger and bigger deals come in. We already mentioned from how we close the deals insofar as productivity. They have been as forecasted for 2021. They continue to be strong. They continue to be as planned. We don't report LTV to CAC, but I can tell you that it's still very strong. We did tell you that we've grown our self-force in the numbers that we've said. It's just a question of catching up a bit slightly more. And then I can give you examples. In New Logos and Enterprise, we give a lot of meetings-related stories, just a couple of non-meeting examples. We had two Fortune 500 companies, one a very large retail company, the other a very large shipping and business service company, both into Kultura to manage all of their externally-facing videos on their website to support marketing and e-commerce workflows.

31:00 In EDU, we're seeing folks purchasing solutions that are combined between content management together with the new virtual classroom and also integrated with things like Microsoft Teams and Zoom. In media, we saw more media companies like the biggest kids channel in European country launching with a new ad-based direct-to-consumer offering and a bunch of upsells. On the virtual event side, one of the largest chip manufacturers just conducted their second virtual event with tens of thousands of folks One of our biggest customers that has been using us extensively has added a bunch more events, smaller ones with our platform that supports both large and small. I mentioned earlier a very big accounting firm that joined us and they've replaced an existing vendor for learning development.

31:47 There's a lot of great, we did mention Oracle for the Tech OEM expansion. There's a lot. So I think it's a good quarter, very rich, very well diversified. I wouldn't take too strongly on some shifts between this quarter and the other by way of bookings. That's what we don't report on it. It catches up. Q4 is generally a very, very strong quarter. Q2 was also strong because of one mega large deal in M&T. Sometimes they take a while and they come a bit after. So these are some of my thoughts. Yaron, you want to add anything?

32:17 Yeah, and you asked about the fact that you see a slow growth in the ARR for this quarter. So in general, we are focusing from the beginning of the year, we were focusing that the growth slowdown for the second half will be some slowdown. And this is because of the fact that we have maximized the effect of improving the sales for productivity. and now it's mainly the turnaround which we discussed from day one is coming from the fact that we are adding more and more people and we will see the impact going into Q4 booking and the beginning of next year and as Ron mentioned, typically Q4 is a very strong booking and with the new sales people that we are adding we believe that it will create a very interesting effect going forward At the same time, we are not reporting on a specific deal, but we are negotiating some big deals that hopefully we'll be able to close.

33:12 So to make a long story short, we guided this kind of slowdown in the ARR growth from day one almost, but we are taking all the actions in order to re-accelerate it again. It was always from the plan, and we see that it's going the right way.

33:30 Yeah. Okay. Very helpful, Kalar. One follow-up, Ron, I'd love to get your thoughts on kind of the efforts to drive more self-serve buying. I mean, just maybe you could talk about what you're doing to make that happen, right? You talked about some of the products that make sense, but how do you layer that into the go-to-market motion, right? I feel like we often see folks layer direct sales efforts on top of self-serve, but it's less common to see it go the other way. So I'd love to get some color there.

33:59 Yeah, so we've been talking about this for a while, working on our self-serve solutions that are expected to launch in the first half of next year. They're both SaaS and PaaS solutions, both solutions for internal use for learning and development and external for webinars, virtual events, et cetera, as well as the platforms of service for developers. The main work we need to do is adding the right internal workflows that are tying all the way from marketing and registration and and some self-support, self-care and stuff like that. We're hard at work on that. We expect that to launch. We're not going to go all the way down to SMVs. We're definitely not targeting consumers. It's expected to be SMEs. In the world of media, it will come to intermediate-sized media companies. In the world of developers, it will be startups.

34:44 But we expect that to be a material change for what we're doing. We feel very confident about this move. One of the things that we started doing more this quarter, we're going to do a lot more next quarter. Start working on more spend on marketing. You're going to see the whole funnel all the way from the top of the funnel on digital campaigns that are promoting our brand and promoting our solutions. We brought people that are experts in this from other companies. We're putting funding towards this even a bit in advance of the actual launch of these products. And we feel that we are going to be well equipped to do that. And to be clear, Part of it is also making departmental sales for the larger organizations that we're working with anyway, as opposed to coming as a unified sale from a CIO perspective with full FTE coverage.

35:32 And definitely we have a strong pursuit on that. Does that address your question?

35:37 Totally. It makes sense and, again, very helpful. Thank you, guys. Okay. Thank you, DJ. The next question is from Michael Turin from Wells Fargo. Please go ahead.

35:50 Hey, guys. This is Austin Williams. I'm from Michael. Thanks for taking our question. So it looks like the revenue growth in the quarter grew 3% sequentially, but the guide implies it's down roughly about 3% sequentially at the midpoint, despite it being a 4Q. So what are the drivers of that sequential step down? And is there any color you can give on the split between subscription and professional services?

36:12 Yeah, it's a good question. Thank you for asking it.

36:16 Yes, we stated before in the previous calls, and we are saying it again,

36:20 Because of the fact that we had a significant non-recurring revenue in previous quarters related to the fact that some of the big virtual events were a significant part of non-recurring revenue, it's not going to happen this quarter. We said it before. So this is one of the reasons for the decrease. Hopefully, we will work out to beat these numbers, but I already elaborated on the fact that we are hitting more and more people, so the impact on the coming quarters is definitely going to change from this direction.

37:08 Other than that, I don't think that I have anything to add, but There is also some big deals that we are negotiating right now that also can contribute for the future growth. So to make a long story, the main point is obviously the non-retiring revenue that was very significant and it's not going to be this quarter. And when we are looking on it on a recurring revenue, the fact that we are adding the people, the fact that we are going to beat the numbers and some of the big deals that we have, we believe that the acceleration of the growth will continue into the future.

37:47 Yeah, I'll just add, and thanks for the good question, that other than the fact that we've been saying this since the beginning of the year because we knew the non-recurring fees for Q4 is not going to come back, and the fact that there's a certain expected slowdown that's going to be catapulted by salespeople is that what we've guided for Q4 revenue numbers is equal to what we've done kind of before. So we're maintaining kind of the deans at mid-range if you kind of run the annual expectations that we put earlier and you kind of run what Q4 would have meant. That hasn't changed. We're maintaining Q4. We just increased the range a bit to allow for swings up and down. But otherwise, we haven't changed. And for the full year, we increased the full range by a million dollars. So we basically upped the full range for the year and maintained Q4. And let's see where it takes us.

38:32 We always want to be cautious.

38:35 Okay. That's helpful, Keller. And then just as a follow-up, it looks like the gross margin improved pretty nicely over the prior quarter and the prior year. I just wanted to unpack that a little bit. Was usage and impact here driving the improvement, or were there any other major drivers to call out in either segment?

38:54 No, no, the main driver, the main driver, as we told everybody before, we are going to focus heavily in improving the system, especially post-COVID. So I don't think it's related so much to the market impact, but some of the actions that we are taking, and you can see that, by the way, in the enterprise education and tech OEM, we made some mileage in the way of improving the numbers, but we are still not where we want to be, which is the number pre-COVID. So there is still room for improvement, despite the fact that we improved gross margin of enterprise, the ENT, from 70 to 73%. The big change was in media and telecom. We always say that there is a lot of room there for improvement. We improved it from 42% to 45%, and when you look compared to the quarter last year, it's from 32% to 45%.

39:53 And by taking some of the other action, including reduction of the size of the non-recurring revenue, we believe that we will still have the room to grow. Most of the actions are related to what we did in the company to improve and to continue to improve. We are not committing that right now it will continue to be for the short term again the 65%, because obviously when we discussed before it was the high 50s, low 60s, and now we are at 65% after we had 62% in last quarter. But we are definitely going to see a continuing curve above the low 60s going into the rest of the year and especially for next year. And we will provide more detailed guidance when we get to the beginning of next year.

40:41 I'll just add that, you know, one of the good things that we're seeing and we've been targeting and we're building our products for that is a continued reduction of the percentage of professional services. So a reduction in non-recurring is both in media and telecom. and in enterprise education and tech. And the other one is the growth in usage-based pricing that's coming together with the new products and also a shift of post-pandemic, which is great. And obviously, in general, a growing scale introduces lower IS pricing and improved economy of scale. So we're definitely expecting to continue to go towards our long-term goals with the parentheses, as Yaron had said, but we do expect to see some jumps and fluctuations in gross margin in the short term. So we would not necessarily expect to see better gross margins. It could come back down again in Q4 before it continues to go up.

41:30 We're very optimistic and working hard towards improving gross margins.

41:37 Great. Thanks for the call, guys. Thank you. The next question is for Matt Nicknam from Deutsche Bank. Please go ahead.

41:47 Hey, guys. Thank you for taking the questions. One on bookings from Channel. I'm just curious, I guess, where you are today. What percent of new business is actually coming from sort of non-direct sales? And then where you envision this going over time with some of the expanded efforts both in Channel and some newer self-serve products? And then maybe as a follow-up to the gross margin question – How do you think about migrating more workflows beyond Oracle-specific ones onto the Oracle Cloud or other, maybe, public cloud partners beyond AWS? And then, you know, would that be sort of a meaningful tailwind for gross margins over time? Thanks.

42:28 Yeah, thank you. So, first and so far, as percents of business coming from channels – It's continuing to go up. ENT is actually at the highest recent level that we were. It went beyond 10%. Typically, it's on a mid and single digit, so that's going well. M&T is not really a channel business in most cases. Sometimes we do have some channel business coming in, so I would focus on ENT there. So channel is building up. The biggest jump is going to be when we launch our self-serve products, and that's next year, and we expect that we'll be able to push more things easily through the channel partners that we have. So we're optimistic and it's going in the right direction. And so far as your question about Oracle and maybe at large, we're excited about the relationship. As mentioned, they're a very valued customer since 2012.

43:17 We announced the OEM agreement with them in 2019. We've now announced the next step of that, which enables both the live and the real time, which enables to push it into more products and a lot of big plans. So that's exciting. Yes, we are putting stuff running on OSPI to support that and we are enabling Oracle salespeople to offer Cultura products to Oracle customers. That's not in order to improve gross margin, and it's not in order to migrate them from AWS. We continue to be a very, very good partner to AWS. They're important for us. We have ongoing engagements with them. They're going to be important for us in the future. So the point here is not to reduce or change or move rather than create incremental additional business that's going to enable us to flourish across our partners that are associated with us. Does that address your question?

44:09 That's great. Thanks, Ron. Congrats on the quarter. Thank you. The next question is from Steve Enders from KeyBank. Please go ahead.

44:22 Okay, great. Thanks for taking the question. I want to ask a little bit more on just the hiring environment that you're seeing now. I think I've been hearing a bit about You know, great resignations and people quitting and also a lot of movement just in the hiring market today. But just how are you finding the ability to bring in new talent and how competitive are a lot of these engagements today?

44:50 Yeah, thank you for asking. I mean, it's in the heart of what we're all trying to do, right? At the end of the day, it's all about people. And yeah, it is a bit more competitive than it was in the past, for sure. But So Turr is a very exciting company. I mean, we're definitely in a lot of different markets, many of which are extremely appealing to folks all the way from powering TV at home, to education, to enterprise. I think people love the breadth of what we do, but also that it's not a back office type company that supports kind of technology in the hospice of the CIO, but something that touches end users. And you can take pride in how this actually helps people around the world. And people relate to that. I think the culture of the company is a big draw, the fact that we're open, flexible, collaborative, and this is not just a matter of words, but actions, how our strategy goes and how we're perceived within our industry.

45:38 Being a public company is really helpful by way of portraying our potential to grow and accelerate both on innovation and a go-to-market, but also in providing new public company comp, which is exciting for the folks. So, yeah, it's a bit harder than it would have been a year or two or three ago, given the amount of companies that are hiring. but we see great excitement from folks to join the company.

45:59 Okay, great to hear. And just to follow up on the non-recurring piece as we kind of think about the impact of the model here, I mean, is this primarily coming on the services side or is there, you know, a usage component that's coming in here that's beginning to roll off? I guess I should just kind of think about the mix there.

46:25 Pure services. When we refer to the non-recurring, we're referring to lower margin work that is done and you're done. So it's bespoke development in order to customize, integrate, or build specific solutions for specific customers. And historically, I mean, it's high in media and telecom, but it's been higher in E&P ever since we launched a new product last year because we ran to customize them for specific large customers. That's often the case in the cycle of new products. And so when we came with our virtual event platform, We charge an awful lot initially on professional services because it just wasn't ready yet. And so we kind of loaded it on the customers to customize it to what they need. Now we've created more automated capabilities that enable that within the product. So we've pushed more revenue from non-recurring to recurring, and we've accelerated sales cycles and deployment cycles and improved gross margin in the process.

47:18 But it does hurt our professional services revenue, and it's a good thing. We've seen a declining of the booking. We've seen a declining of the revenue. It's coming down. and it's actually a very good thing for the company.

47:30 Again, perfect. Thanks for taking the question.

47:33 Thank you. The next question is from Ryan Kuntz from Neidem and Company. Please go ahead.

47:42 Hi, thanks for the question. I wanted to ask maybe a little bit different way about the professional services aspect. Sounds like the ramp there is a challenge of ramping new wins and converting to revenue. So in addition to the transition to self-service for the low-end sector, do you have any other strategies there to reduce that dependence or add hires or make it just – is there kind of any medium ground there in the professional services aspect to get customers onboarded faster? Any color there would be helpful. Thank you.

48:15 Yeah, thank you. I mean, the work that we've been doing across our product has always been geared towards accelerating cell cycles and deployment cycles. And we've done that over the years, as years go by. It's just that when you have a new set of products, you know, you cannot come with a minimal viable product that has everything tailored, especially when the claim to fame and what's very unique about our ability is to offer enterprise-grade capabilities with a lot of branding and integrations. I mean, that's the power of Futura. There's a bunch of vendors out there that cater to very small initiatives and projects which are not coming with a degree of enterprise ability, if you may, as we do. And so it's not necessarily an evil. It's something that goes well with our offering.

49:01 But we've been working hard last year, this year, next year to find that middle ground on one end, enabling all these integrations, customizations, one platform fits all, At the other hand, not to go too deep into creating all this by way of PS, but enabling our customers to do so. So it's an ongoing effort that has been going for years. We're not waiting for the self-complete self-serve. And look at the percentages. We're 88% recurring revenue at the moment for the company. We expect it to continue to go and cross the 90%. So we're not that heavy. And when you look at E&T, you'd note that E&T is much better, and it has always been. It's M&T that takes it down. On both cases, I think we're in a good place and continuing to improve.

49:43 Okay, great. And just a quick follow-up on the education sector. We've seen a couple of ed tech misses in the last couple weeks with the reopening, and it sounds like it's more K-12, but what kind of color can you share with us on kind of the impact of the reopening on your education goals? Thank you.

50:04 You're saying misses insofar as lower software revenues and bookings, or?

50:09 Yeah, yeah. So it was mostly K-12 and those sort of things.

50:16 Yeah, so as you know, first of all, the majority of our business is not K-12, it's higher ed, albeit that we are coming down to also address K-12. And so we definitely have seen continued demand and interest on the education front. It's true that in the height of the pandemic, a lot of folks that didn't have anything had to run and quickly get things done within a day or two. and also that there were significant upsells by way of usage that might not necessarily continue into the future. But A, we are a content management platform. That means that it's not just the right now type of a class that's happening, but the storage of all of your content and the management of all of your metadata. And so that is accumulative. And so we still need to cater to that and universities and schools still use that with a higher volume because it needs to be carried into the future. The second is that I think we are in the second inning of EdTech really for video. Because what happened very quickly in the pandemic was to offer a very quick solution for folks to join remotely and to manage the content, but not truly be the first class citizen of teaching and learning with video.

51:22 If you're thinking if it's connected to your scorecards or to your analytics, it's still not 100% there. So the next move is to have an end-to-end solution that looks at teaching and learning first remotely, then second in campus. By the way, not just for the purpose of folks that are never coming to campus, but even if it's just flipping the classroom so you could actually deliver the lectures remotely and then come to classroom to do the actual homework. I think that the best is still ahead of us. And Kultura is best situated for it given the degree of integrations, APIs, connections into the LMS, into the classroom software, now our virtual classroom. So I'm very optimistic for the future for education, and we're not seeing more churn or a very significant softening in education.

52:09 Got it. Thanks, Ron.

52:12 Thank you, Ron. The next question is from Itay Kidron from Oppenheimer. Please go ahead.

52:19 Thanks. Well, some of my questions have been answered, but I guess, Ron, maybe you can talk about meetings and what has been progress there. Yeah, so when we launched real-time conferencing, we said clearly that we're not targeting kind of the regular meetings that a Zoom or a Teams would be, but what we like to call meetings with a purpose. And this is exactly where we've advanced. If you look at Gartner reports, there's an eco to that showing how we've grown year by year in scores and positioning. We're right after Microsoft Zoom and Teams. and Cisco Webex in most of these reports in an area that we have not been in and they've been in for the last 10 plus years as very strong players. But that is in places where there's a combination of our content management system together with our real time. And this is where we're focused.

53:09 So we've advanced in two ways. One is to harden our classic RTC capabilities by way of quality, by way of scale, and also unit economic by way of efficiencies. And we're putting a lot of smart people to get that done. But I think even more importantly is how do you harness that capability within virtual classroom, within virtual events? They're not separated. There's a very significant convergence in the market, and we're leading that convergence. And the demand for these solutions is huge, and we are ousting existing big vendors because of that very unique combination of content management in real time. So this is our focus, and we're excited about it.

53:47 Got it. I guess maybe as a follow-up, if I'm tying that up with your – SalesRamp, with your ability to kind of unleash the self-serve model early next year, as you've talked about it, and there's a strong backlog that you have. Should we anticipate 22 to be an acceleration year from a revenue and ARR growth standpoint? Yeah, thanks for the question. Obviously, we're not yet providing guidance for the year. We will definitely provide guidance. There's a lot of things that get thrown into the mix as we kind of put it all together. All the plans that we've had before are still the plans that we have now. We've spoken about self-serve and we intend to continue to do that. It was planned to be launched next year and it's still planned to be there. I think there's very, very strong engines behind the company.

54:34 and we're excited to next year, but we'll wait a bit with guidance. Yaron, do you have any specific words?

54:39 No, I think that what you heard in this call and what you see in the numbers is that we are continuing to build the infrastructure for a strong number going forward. At this point, we will try to continue to plan, but hopefully we will be able to deliver some good numbers when we will be ready to do it.

55:01 Very good. Good luck, guys. This concludes the question and answer session. I would like to turn the conference back over to Ron Yekutiel for any closing remarks.

55:15 Yep. Thank you all for making time for your great questions. And for those who were just listening in, thank you for listening in. Hopefully everybody is safe and sound and continue to be healthy. Thank you for your time and attention. It's been another great quarter across our markets fueled by continued strong productivities and retention rates. And This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.