Gabriela Borges: Yes, thank you for the detail.
Ron Yekutiel: Thank you.
Operator: Our next question comes from Ryan Koontz with Needham & Co. Please proceed with your question.
Ryan Koontz: Thanks for question and welcome to John coming on board. On your guidance there for subscription for the year flat, how would you unpack that in terms of churn and down sell kind of negative impacts on your returning customers versus new logos or new customers as part of that guide? Thanks.
Yaron Garmazi: First of all, when you were saying about the declining guidance for Q1, actually, what you see is that, as Ron mentioned, we had some pressure on the year from booking and retention level which were lower than 2022, obviously. But at the same time, we do see an increase in Q4, both on retention rates and in booking rate. At this point, if you look on our forecast, obviously, we’ll see an improvement because we are comparing to Q4, which was much higher than what was expected before. So the basis was higher. So in effect, it’s a decline, but from our forecast and even compared to the numbers that you saw before, it’s not really a decline guidance for this year. And we do believe that as – hopefully, we will see continued increasing both retention rate and booking rate, you will see a situation that the second part of the year, it will start to improve.
And obviously, at this point, we are trying to be very thoughtful with our guidance. But what was the specific other question?
Ron Yekutiel: It was around downsell versus new logo. I could address that, if you’d like. Let’s start with the fact that we’ve not taken any assumptions that are not happening already over the past few months. So we’re not assuming any strengthening. We’re not assuming any change. We’re assuming that things would remain, albeit that we do expect and hope that things are going to get better. Meaning that if we’re looking at retention rates that we’re currently seeing, we’re expecting them to continue forward. We’re also expecting from a ratio of downsell versus full churn in the last quarter, only 12% of the churn of the loss that we’ve had of any dollar was associated with initial service or product. Most of it was budget issues, price issues and the majority was still done through not full departure of customers but through downsell.
And so we’re assuming an MDR that would continue the trends of what we’ve seen. We’re assuming productivities for both upsell and that are more or less aligned. And so everything is at this point, guided to flattish, which obviously, we’ve kept the necessary cushion for us, but we also want to be very, very thoughtful given the past of the year that we’ve seen. Is there any more specific questions that you have on this or you want me to address front?
Ryan Koontz: No. That was good, but I will follow up here, if I could, on the inside sales focus. Is that more on renewals? Or is this on more lead qualification for your inside sales hires?
Ron Yekutiel: So most of our customers have been managed by outside sales. The ARPU let’s look at the average MR. We have 1,000-ish customers and we have 175-ish million of revenues. So the typical customer here is being us around $170,000, that’s the average. But if you also look at the median, this is, by and large, large enterprise sales. What’s happened as of recent is over the last couple of years, as we’ve added the products that are enabling us to go to that market is that we’re targeting both small and medium enterprises as well as departmental sales. And by doing so, we’re going to be doing that through more blow touch inside sales. And therefore, because it’s a new corporate for us, it’s not so much renewal. It is more new.
And we have that coming from the top of the funnel, and we divide that based on the size of the opportunity between the different sales team. Now one other thing that we did do this year in order, to kind of double-click on the size of the opportunities because our big customers are quite big, coming back to my earlier statement about ARPU. We have a lot that have climbed, by and more in growth into multimillion-dollar opportunity, and we believe we could copy pace that again and again. So what we’ve actually done this year for the renewal side is have taken at this point, somewhere around one-third of our customers that are larger, and have moved them into a team that is more automated, that’s working on lower touch renewals in very structured approaches.
And if that works out, we are gradually going to do more and more and we’re going to leave the outside sales team to address the 80% of the revenue. Which usually is 20% of the customers and get that five times, 10 times growth and bring more and more multimillion or very high figure numbers. So we’re thinking — we’re very thoughtful about how to optimize efficiency in the sales force and how to maximize the output. But happy to talk more about that later, if you like.
Ryan Koontz: That’s great, Ron. Thanks color.
Ron Yekutiel: Thank you, Ron.
Operator: [Operator Instructions] Our next question comes from Austin Cole of Citizens JMP. Please proceed with your question.
Austin Cole: Hi there. Thanks for taking the question. Ron, I was just wondering if maybe you could talk about what some of your conversations have been like recently with regards to AI and kind of what those features are adding to your platform and what the response has been like from customers? Thanks.
Ron Yekutiel: Yes, thank you, Austin. Over the last quarter, we just mentioned that we expanded our AI assistant for even events. The quarter before, we mentioned how we did that for preparing events, and we said that we’re going to continue to add features that will be during the event in order to offer real-time recommendations and how to increase engagement. And we’ve added that, we’re seeing very good acceptance for that. We’re also working on a bunch of other features that we will announce when they come out. We, in addition to our in-house work, have worked on our accelerator program and have increased the number of customers and vendors there. We have a couple of dozen each. And so, we have more folks that are helping add value, because the virtue of Kaltura of how flexible and open it is, is that it could be a bus to connect to a lot of innovation from the ecosystem.
In addition, the customers that are in discussions with us, across a variety of industries are expressing a lot of interest around AI in all its fashion. It is not yet, and I said that at the beginning of the process, turning into immediate significant revenue. I think the entire industry understands that as we continue to add these things, we’re going to monitor what part of it will be baked into the existing costs, and prices and what part of it will be additive. And I think that over the year, we’ll gradually provide more and more info about how this is impacting growth in revenue. The one thing I will state is that for me, it’s clear and over time, hopefully, we could provide more statistics around it, that AI will cause for a lot more videos to be created and a lot more videos to be consumed in a more contextualized way.
So regardless of how one monetizes it, whether it’s a usage based, a user base, to value-based, the value of the system is going to increase in a material way. And we’re seeing folks echo that. A lot of customers, as I mentioned, quite significant across multiple industries are equine that. So we’re seeing continued trends. But as mentioned earlier, it’s not one of these things that you’d expect the next quarter are going to come and say, here’s the amount of revenue. This is how much it’s moving the needle for the company. It’s a multiyear move and we’re advancing there. That works for you, Austin? You guys still hear me?
Austin Cole: I appreciate that.
Operator: Thank you. We’ll move on to our next question, which is coming from the line of Michael Turrin with Wells Fargo. Please proceed with your question.
David Unger: Hi, guys. This is David Unger filling in for Michael Turrin. Thanks for taking the question. I just wanted to see if you could double-click on some of the demand trends. I know we heard some comments around geography, but I wanted to double click on what you’re seeing by geography? Anything specific in terms of vertical strength? Thank you.
Ron Yekutiel: Sure. On the geo side, we’re seeing stronger in North America and a bit weaker in Europe. It’s been consistent throughout the year, and it’s connected immediately to macro and the current geopolitical situation, et cetera. On the vertical side, it’s not so much just a demand issue. We’ve been, as mentioned, over the last couple of years, focused more on the enterprise, more so than EDU or median telecom, just by way of how quickly that could convert the size of the TAM and how quickly we could bring about our new technologies to market to bear. But we’re continuing to play across all of these. I mentioned earlier, we closed even to that extent, education opportunities in Europe, which are the two that I mentioned that are a bit less than the focus.
So we’re attacking it all. I can tell you, media and telecom. We increased a lot of users in Europe were in engaged in conversation with a bunch of customers that are generally outside of the U.S. But if I were to say given the macro situation, most of the focus and most of the upside is North America enterprise.
David Unger: Can you just talk about the biggest areas of focus as it relates to driving profitability of the business? Thank you.
Ron Yekutiel: Yes, first of all, I’m very content of the improvements that we’ve done over the last year. As you know, first of all, the last quarter, it was the second quarter in a row of adjusted EBITDA profitability and cash flow profitability, our cash flow ops, which is great, and the year has been a massive leap forward compared to the years before, not a big surprise because we said that we’re going to do this, and we have done this in the past. We’ve demonstrated it yet again. What I like is that we’ve done that at the same time that we have hit our revenue goals, and we are still growing faster than the industry. And so the reason was that we did not drop the ball and completing the big important moves that we have made in order to expand our TAM, our ARPU and our competitive positioning over the last few years.
So while we cut – I wouldn’t say flat, but we make sure that at the right time we reduce what we could reduce, we didn’t cut muscle and we’re able to move forward and continue to grow. Let me turn it to Yaron to give you a bit more thoughts about profitability and areas of focus, and maybe I’ll add a couple of words after.
Yaron Garmazi: Great. So two important points. First of all, regarding the gross margin, we are working very hard in order to continue to improve it. In the short-term, you should probably not see a significant improvement, but we will try to get a few more points here and there. In terms of the gross margin. Ron mentioned the fact that we are going to invest – start to invest back in sales and marketing based on the change that we see in the market under the assumption that it will continue to change. But as mentioned, we are committed by the end of the day to post both positive adjusted EBITDA and positive cash flow from operations for this year.
David Unger: Very much appreciate the detail. Thank you.
Operator: Thank you. We have reached the end of our question-and-answer session. So I’d like to pass the floor back over to Ron Yekutiel for closing remarks.
Ron Yekutiel: Yes. Thank you, everyone, for your great questions and for participating today. As mentioned, we’re feeling okay about the year that has passed. We achieved what we said that we would. And at the same time that we’re strengthening our capability to lead the market forward. It’s been a tough year. We believe there’s a good macro directions that are going to improve next year. We’re thoughtful with our guidance and beyond anything and everything. I want to thank, again, younger maze for his great partnership and work with the company. He’s still with us in month ahead helping us and to welcome John, quite excited about him joining the team, a lot of great things for us to do together this year. Thank you, everybody, and have a beautiful day.
Operator: Ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation, and you may disconnect your lines at this time.
