Kaltura (KLTR) Q3 2026 Earnings Call Transcript

DATE

Monday, Nov. 9, 2026

CALL PARTICIPANTS

• Co-Founder, Chairman, President and Chief Executive Officer - Ron Yekutiel
• Executive Vice President of FP&A and Interim Principal Financial Officer - Liron Sharon
• Investor Relations - Erica Mannion

TAKEAWAYS

• Total Revenue -- $47.3 million, growing 8% year over year and reaching a record quarterly level driven by strong subscription performance.
• Subscription Revenue -- $45.9 million, growing 9% year over year and representing record quarterly results for the company.
• Adjusted EBITDA -- $6 million, increasing 45% year over year and marking the highest third-quarter result in the company's history.
• Operating Cash Flow -- $7.6 million, reflecting the expected second-half seasonality of the company's cash generation.
• Net Dollar Retention -- 97%, increasing for the second consecutive quarter from 96% in the prior period.
• New Subscription Bookings -- more than doubled sequentially from the second quarter, making the third quarter the strongest bookings performance since 2024.
• High-Value Transactions -- 11 deals with total contract values of at least $100,000, including three seven-figure agreements, which is the highest number of seven-figure transactions since 2024.
• AI Transaction Value -- $3.8 million in total contract value, increasing from $1 million in the second quarter of 2026 and reflecting deals that included AI offerings alongside other platform products.
• AI Transaction Volume -- record 15 transactions signed during the quarter that included one or more AI offerings.
• Quantified AI Sales Pipeline -- $24 million in potential annual contract value, growing 40% sequentially and covering 45 opportunities with values of at least $100,000.
• AI Sales Pipeline -- 500 total opportunities including AI offerings, with new logos representing approximately one-third of the qualified pipeline by opportunity count.
• AI Proofs of Concept -- 80 active, planned, or being scoped evaluations, up from over 60 in the second quarter of 2026.
• EE&T Segment Revenue -- $36.9 million, growing 14% year over year and marking the segment's highest growth rate since 2021.
• EE&T Subscription Revenue -- $36.5 million, increasing 15% year over year.
• M&T Segment Revenue -- $10.3 million, decreasing 10% year over year primarily due to elevated gross churn throughout 2025.
• GAAP Gross Margin -- 72%, increasing 175 basis points year over year.
• GAAP Net Loss -- $1.5 million, or $0.01 per diluted share, improving from a net loss of $2.6 million in the prior year.
• Non-GAAP Net Profit -- $3.1 million, or $0.02 per diluted share, increasing from $2 million in the third quarter of 2025.
• Annualized Recurring Revenue -- $184.7 million, growing 9% year over year and reaching a record level for the second consecutive quarter.
• Remaining Performance Obligations -- $161.6 million, with 70% expected to be recognized as revenue over the next 12 months.
• FIFA World Cup Engagement -- 1.3 billion playback sessions, increasing 86% compared to the 2022 tournament and peaking at approximately 7 million concurrent sessions.
• Full-Year Adjusted EBITDA Guidance -- $19.5 million to $20.5 million, reflecting a third upward revision this year and exceeding the $18.6 million delivered in 2025.
• Fourth Quarter Total Revenue Guidance -- $46.2 million to $46.9 million, representing 1% to 3% year-over-year growth.
• Cash and Marketable Securities -- $41 million at the end of the quarter, increasing by $5.4 million from the prior quarter.
• Professional Services Revenue -- $1.4 million, decreasing 29% year over year as the company focuses on recurring subscription revenue.

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RISKS

• Sharon stated, "we are experiencing some near-term pressure from certain legacy contracts, including the anticipated roll-off of certain PathFactory customers and expect this to continue in the fourth quarter," noting that these headwinds were previously anticipated.

SUMMARY

Kaltura, Inc. (NASDAQ:KLTR) reported record quarterly revenue and improved profitability during its third quarter, driven by an acceleration in commercial activity and the expansion of its AI-powered product portfolio. Management reported a significant sequential increase in new subscription bookings and the highest number of seven-figure transactions since 2024. The company stated that it is successfully integrating recent acquisitions to create a unified Agentic digital experience platform, moving beyond standalone tools toward complete enterprise solutions. Management noted that commercial traction is expanding across diverse industries, including higher education, financial services, and media, with approximately half of the AI-related pipeline potential coming from new logo opportunities. The company indicated it remains focused on maintaining adjusted EBITDA profitability while investing in the development and commercialization of newer offerings that use conversational avatars and workflow automation.

• Management reported that 12 of the 15 AI-related transactions in the third quarter were expansions or renewals with existing customers, highlighting the opportunity to introduce new capabilities into the installed base.
• The company advanced its Dynamic UI technology, which allows AI agents to assemble personalized user experiences using video, avatars, and interactive charts in real time based on user intent.
• Management stated that AI creates value through direct product purchases and by increasing the intelligence and differentiation of the broader platform, supporting larger enterprise platform decisions.
• The company announced a partnership with Israel's Ministry of Education for Project 720, an AI-based STEM learning initiative launching as a pilot for approximately 2,000 students across 20 middle schools.
• Management indicated that approximately half of current AI sales opportunities have not yet been commercially quantified, which suggests potential upside to the reported $24 million potential ACV pipeline.
• CEO Yekutiel stated, "Our newer capabilities are beginning to participate in larger strategic transactions."
• Interim PFO Sharon noted, "This also marks the third consecutive quarter in which we exceeded our guidance and raised our full year revenue and adjusted EBITDA outlook."

INDUSTRY GLOSSARY

• EE&T: The Enterprise, Education, and Technology business segment.
• M&T: The Media and Telecom business segment.
• ARR (Annualized Recurring Revenue): A metric used to estimate the yearly value of recurring revenue from existing customer contracts.
• NDR (Net Dollar Retention Rate): A percentage that measures the ability to retain and grow revenue from an existing set of customers over time.
• TCV (Total Contract Value): The full value of a customer contract over its entire duration.
• ACV (Annual Contract Value): The revenue value of a contract over a 12-month period.
• POC (Proof of Concept): A trial or evaluation period where a customer tests a product to verify its value before committing to a full purchase.
• RPO (Remaining Performance Obligations): The amount of contracted future revenue that has not yet been delivered or recognized.
• Agentic Digital Experience: A platform that uses AI agents capable of understanding intent, engaging in conversation, and taking automated actions to personalize user interactions.
• Content Lab: An AI-powered solution within the Kaltura platform designed for automated content creation and adaptation.
• Dynamic UI: A user interface that assembles and updates its components in real time based on specific user intent and interactions.
• Agentic Avatars: Conversational AI entities represented by video-based avatars that interact with users for learning, sales, or support.

Full Conference Call Transcript

Operator: Greetings, and welcome to the Kaltura Third Quarter 2026 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Erica Mannion, Investor Relations. Please go ahead.

Erica Mannion: 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 third quarter ended September 30, 2026, and provide a business update. Liron will review the financial results for the third quarter of 2026 in greater detail, followed by the company's outlook for the fourth 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, our deal pipeline, 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, including the quarterly report on Form 10-Q for the quarter ended September 30, 2026, 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 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, non-GAAP gross margin, non-GAAP net profit and non-GAAP net profit per share during this call. For a reconciliation of these measures to the most directly comparable GAAP metrics, 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: Thank you, Erica, and thank you, everyone, for joining us today. We delivered another strong quarter, exceeding the high end of our guidance for total revenue, subscription revenue and adjusted EBITDA. Third quarter total revenue was $47.3 million, up 8% year-over-year, and subscription revenue was $45.9 million, up 9% year-over-year, both reaching record quarterly levels. Adjusted EBITDA was $6 million, up 45% year-over-year and representing our highest third quarter results to date. Cash flow from operations was $7.6 million, reflecting the expected second half seasonality of our cash generation and keeping us on track with our full year cash flow expectations. Net dollar retention also improved for the second consecutive quarter.

Beyond the financial results, I'm particularly encouraged by the acceleration we saw in our commercial activity and by the continued progress of our newer AI offerings. New subscription bookings more than doubled sequentially from Q2, making Q3 our strongest bookings quarter since 2024. We signed 11 transactions with total contract values of at least 6 figures, including 3 7-figure transactions, marking our highest quarterly number of 7-figure transactions since 2024. These larger transactions included significant expansions within our installed base as well as 2 new logo wins, including a 7-figure transaction with a new customer. The 11 deals span a broad range of industries, including technology, financial services, health care, energy, higher education and media.

Taken together, the acceleration in bookings, the greater contribution from 7-figure transactions and the combination of installed base expansion and new logo wins provide encouraging evidence of strengthening commercial momentum. Within this overall performance, our AI products and capabilities are also beginning to play a more meaningful commercial role, including within some of our larger strategic customer transactions. During Q3, we signed 15 transactions that included one or more of our AI offerings. Their combined total contract value was approximately $3.8 million compared with approximately $1 million in the prior quarter. As a reminder, these figures represent the full value of the transactions and should not be interpreted as stand-alone AI product bookings.

A substantial portion of the increase in total contract value came from the largest transaction, which was with a leading U.S. university and expanded this relationship with Kaltura through a 7-figure agreement supporting its digital accessibility requirements. Our new AI-powered workflow automation and metadata enrichment capabilities were the key reason the customer chose Kaltura for this expansion. These capabilities apply predefined policies to identify content requiring action, enrich the relevant metadata and automatically initiate the appropriate accessibility workflows across a large media environment. For large institutions, the challenge is, not simply making an individual asset accessible, but applying accessibility policies consistently across very large and continuously growing content libraries.

Given our significant education and public sector installed base, we believe this can become an attractive expansion use case. This also illustrates that AI has the potential to create value, not only through direct purchases of AI products, but by making the broader Kaltura platform more intelligent, automated and differentiated and helping drive larger platform decisions. Several additional aspects of the transaction mix also demonstrate the breadth of engagement. 12 of the 15 transactions were expansions or renewals with existing customers. This demonstrates the opportunity to introduce our newer AI capabilities into Kaltura's installed base where we already manage significant content libraries, support important workflows and maintain long-standing enterprise relationships. Adoption extended across multiple areas of our product portfolio.

Specifically, 9 transactions included Agentic Avatars or related Avatar capabilities and 8 included Content Lab with several customers adopting both. This demonstrates interest across conversational and avatar-based experiences, AI-powered content creation and adaptation and AI-enabled workflow automation. Higher education was particularly active with 6 transactions spanning instructional content creation, AI tutors, student practice and role play, alumni engagement and workflow automation. We also saw adoption across technology, financial services and other industries for employee learning and onboarding, enterprise knowledge sharing, marketing and customer engagement. After quarter end, we announced a partnership with Israel's Ministry of Education in their new AI-based learning initiative for schools called Project 720.

Because this is a Q4 transaction, it is not included in the Q3 AI-related transaction figures I just discussed. The initial 1-year pilot launched last week focuses on AI-based STEM learning for approximately 2,000 students across 20 middle schools using a rich conversational agent-led learning experiences. We believe the ministry can become an important channel for scaling the solution into additional subjects, grades and schools across Israel's education system. Internationally, we plan to pursue similar opportunities with other ministries of education, K-12 districts and schools alongside our continued work with higher education institutions.

More broadly, this deployment demonstrates how the same Agentic Learning & Enablement solution can also support employees, customers and partners in enterprise use cases, which remains a major strategic focus for us. Let me now turn to our pipeline and how it has evolved since last quarter. Q3 represented an important step towards the second half bookings growth potential we discussed on our previous earnings call with new subscription bookings more than doubling sequentially. Our current AI-related sales pipeline continues to include approximately 500 opportunities. These are opportunities that include one or more of our AI offerings and where assigned, their values reflect the opportunity as currently scoped, which, in some cases, also includes other Kaltura products.

These values should therefore not be interpreted as stand-alone AI product ACV nor as the full future revenue potential of the customer relationships. Roughly half of these opportunities currently have an assigned potential commercial value, representing approximately $24 million of non-weighted potential ACV, meaning annual contract value rather than multiyear total contract value. This quantified AI-related potential ACV pipeline increased by more than 40% sequentially from last quarter. It now includes 45 opportunities with potential ACV of at least $100,000, of which 11 are about $500,000 and 3 above $1 million. The remaining roughly half of the opportunities have not yet been commercially sized and therefore, contribute 0 to the $24 million today.

In addition, many opportunities begin with focused evaluations or initial deployments and may expand over time across additional users, use cases, business units or products. So while not all quantified opportunities will ultimately close, the currently assigned values also do not capture the potential for future expansion within those customer relationships. New logos represent approximately 1/3 of the qualified AI-related pipeline opportunities, but nearly half of their potential ACV. Learning-related opportunities remain the largest category by number, while customer-facing opportunities have become the largest category by potential ACV. This supports the opportunity we see in Agentic Revenue Engagement alongside our more established activity in Agentic Learning & Enablement. Moving on to AI-related proofs of concept, or POCs.

Customer evaluation activity also continued to expand. We now have more than 80 AI-related POCs that are active, planned or being scoped compared with over 60 last quarter. Approximately 3/4 of the POCs are with existing customers, reinforcing the opportunity to introduce our newer capabilities across the Kaltura installed base. Approximately 1/4 are with prospective new customers, providing an additional revenue for new logo growth. As noted, the POCs are at different stages and will not all convert, but they provide validation as we refine our products and strengthen our go-to-market execution. Turning from bookings to retention.

As anticipated and discussed on our previous call, gross churn increased during Q3 due to several legacy contracts across both Kaltura and the acquired PathFactory customer base. We expect some of this near-term pressure to continue in Q4. Looking at the full year, however, we expect Media and Telecom gross retention to improve materially compared with 2025. In EE&T, we expect full year gross retention to normalize from last year's unusually strong level and remain in line with its multiyear average. Overall, we continue to expect consolidated full year gross retention to improve compared with 2025. Over time, we expect our transition towards more strategic Agentic digital experiences to support stronger retention and gradually improve net dollar retention.

Let me now briefly turn to product development. During Q3, we continued to bring Kaltura, eSelf and PathFactory together into one Agentic digital experience platform. This included embedding conversational avatars more deeply within our core products, enabling Content Lab workflows within PathFactory and allowing content engagement signals, identity and intelligence to operate increasingly across a common platform. This integration work is less visible than an individual product launch, but it is strategically important because it will help enable us to sell complete solutions rather than a collection of separate products. We also advanced the intelligence of our conversational agents.

They can increasingly use known context to personalize interactions, adapt their communication based on conversation and capture structured insights, for example, our buyers' priorities or learners' areas of understanding that can flow into the customer systems. One of our most important developments was Dynamic UI. Rather than requiring every user to navigate the same static interface, our agents can assemble rich, personalized experiences in real-time using conversation, video, avatar, images, charts and interactive elements based on each user's intent. This brings us closer to our vision of transforming static digital touch points into rich, personalized and interactive experiences generated in real-time around each person's intent. These capabilities are also strengthening our 2 strategic solutions.

In Agentic Revenue Engagement, we are connecting rich conversation and content intelligence directly to commercial workflows such as lead capture, meeting scheduling and next best content recommendations. In Agentic Learning & Enablement, we're building adaptive learning experiences designed to track progress, assess knowledge, support practice and role play and deliver personalized coaching. We also plan to enable books, curricula and other learning materials to be transformed into interactive agent-led experiences that remember each learner's progress and adapt over time. A major foundation we're developing for both solutions is our digital experience draft, which is intended to create a shared intelligence and memory layer of what each person watched, read, asked and did and the outcomes that followed.

This should allow revenue agents to carry buyer intent across interactions and learning agents to remember progress and adapt each learner's path. Our Media and Telecom business also demonstrated the scale and resilience of our platform during the 2026 FIFA World Cup, which concluded in the third quarter. Across the tournament, Kaltura-powered services supported more than 1.3 billion playback sessions and peaked at approximately 7 million concurrent sessions across roughly 40 million registered devices. Demand was approximately 86% higher than during the 2022 tournament. For the first time at this scale, AI agents also worked alongside our engineering teams to monitor and investigate live operations. Our progress also received important external recognition.

Gartner published a research report titled AI Vendor Race: Kaltura Is the Company to Beat for Video Platform Services AI, and Digiday named our Agentic Avatars Best Interactive Content Platform. We believe these recognitions validate our product leadership and our strategy of moving beyond AI that simply creates or narrates content towards agents that understand enterprise knowledge, personalize experiences and take action. To summarize, we delivered a strong third quarter with record revenue, continued adjusted EBITDA growth, positive cash generation and our strongest new subscription bookings performance since 2024. We are also seeing increasing commercial traction for our AI offerings. Our newer capabilities are beginning to participate in larger strategic transactions.

Our installed base is becoming an important channel for adoption, and our pipeline and customer evaluation activity continue to develop across both Learning & Enablement and Revenue Engagement. At the same time, we continue integrating Kaltura, eSelf and PathFactory into a unified platform and advancing our 2 strategic solutions, Agentic Revenue Engagement and Agentic Learning & Enablement. We have begun to see initial revenue contribution from our new AI-based offerings and are entering Q4 with stronger bookings momentum, broader customer validation and increased confidence in the opportunity for these products to contribute more meaningfully in 2027.

Reflecting our year-to-date execution and outlook, we are raising our full year guidance for subscription revenue, total revenue and adjusted EBITDA for the third time this year. As a reminder, at the onset of 2026, our initial adjusted EBITDA profitability outlook incorporated the estimated cost of integrating eSelf and PathFactory. At that time, we said we may outperform that initial outlook and aimed to approach the adjusted EBITDA level we delivered in 2025. We are pleased that our full year adjusted EBITDA is now expected to exceed the $18.6 million we delivered in 2025, while we continue to invest significantly in post-merger integration and in the development and commercialization of our new products and solutions.

With that, I will turn the call over to Liron.

Liron Sharon: Thanks, Ron, and hello to everyone on the call today. As Ron noted, in the third quarter, we continued to execute well, exceeding the high end of our guidance for subscription revenue, total revenue and adjusted EBITDA. Total revenue, subscription revenue and ARR all reached record levels, and we delivered our highest third quarter gross margin, adjusted EBITDA and adjusted EBITDA margin to date. This also marks the third consecutive quarter in which we exceeded our guidance and raised our full year revenue and adjusted EBITDA outlook. Let me now walk through the quarter in more detail.

Total revenue for the quarter ended September 30, 2026, was a record $47.3 million, up 8% year-over-year, the highest growth rate since the first quarter of 2022 and 1% sequentially. Subscription revenue was a record $45.9 million, up 9% year-over-year and 1% sequentially. Professional services revenue was $1.4 million, down 29% year-over-year, consistent with our focus on recurring subscription revenue and up 8% sequentially. On a segment basis, EE&T total revenue was $36.9 million, up 14% year-over-year, which was the segment's highest growth rate since 2021. Subscription revenue was $36.5 million, up 15% year-over-year, while professional services revenue contributed $0.4 million, down 20% year-over-year.

Within M&T, total revenue was $10.3 million, down 10% year-over-year and subscription revenue was $9.4 million, down 7% year-over-year, while professional services revenue contributed $0.9 million, down 32% year-over-year. GAAP gross profit for the third quarter was $33.9 million, resulting in gross margin of 72%, up 175 basis points from Q3 2025. GAAP subscription gross margin was 77%, a bit higher than Q3 2025. GAAP operating expenses for the quarter were $34.6 million, representing a 7% year-over-year increase and a 2% sequential improvement compared to $35.3 million in the previous quarter. This includes the impact of the eSelf and PathFactory acquisitions, integration costs, continued investment in our new product portfolio and FX headwinds.

Adjusted EBITDA for the quarter was $6 million, reflecting an improvement of approximately $1.9 million from $4.2 million in the third quarter of 2025. Adjusted EBITDA margin was 13%, a record for third quarter and an increase of 325 basis points year-over-year. For the first 9 months of the year, adjusted EBITDA reached $17.5 million, up 42% year-over-year. GAAP net loss for the quarter was $1.5 million or $0.01 per diluted share compared to a net loss of $2.6 million or $0.02 per diluted share in Q3 2025. Non-GAAP net profit for the quarter was $3.1 million or $0.02 per diluted share compared to a non-GAAP net profit of $2 million or $0.01 per diluted share in Q3 2025.

Remaining performance obligation, or RPO, were $161.6 million, up 1% year-over-year and down 2% sequentially. We expect to recognize 70% of this amount as revenue over the next 12 months. Annualized recurring revenue for the third quarter was $184.7 million, up 9% year-over-year and a record level for the second consecutive quarter. Turning to retention. We continue to see positive momentum in net dollar retention, which improved to 97% this quarter from 96% in the prior quarter and 95% in the quarter before that. NDR was 97% also in the third quarter of last year.

As we noted last quarter, we are experiencing some near-term pressure from certain legacy contracts, including the anticipated roll-off of certain PathFactory customers and expect this to continue in the fourth quarter. Despite this, we expect full year 2026 gross retention rate to be better than that of 2025. Over time, we expect the transition towards powering Agentic digital experiences to support sustainable gross retention and gradually improve net dollar retention. Moving to the balance sheet and cash flow. We ended the quarter with $41 million in cash, cash equivalents and marketable securities, up $5.4 million from the end of the prior quarter.

Net cash generated from operating activities in the quarter was $7.6 million, reflecting a significant sequential improvement of $9.6 million. In the third quarter of 2025, we generated $9.3 million from operating activities. We expect to continue generating cash flow from operations in the fourth quarter of the year, consistent with historical seasonality. Also pertaining to balance sheet and cash, we are in the process of refinancing our credit facility prior to maturity with a new 3-year term agreement, which we expect to close in Q4. Beyond the reported financial results, the third quarter marked continued progress in our strategic evolution toward a broader Agentic digital experience platform.

As Ron discussed, new subscription bookings more than doubled sequentially from Q2, fueled also by AI-related bookings, making Q3 our strongest booking quarter since 2024. Our AI-related pipeline and POCs also grew meaningfully during the quarter. This gives us increasing confidence in our commercial momentum and in the continued progress of our newer AI offerings. At the same time, we remain disciplined in how we allocate capital and manage expenses as reflected in our adjusted EBITDA profitability and cash generation this quarter. I will now turn to our outlook for the fourth quarter of 2026 and for the full fiscal year ending December 31, 2026.

For the fourth quarter of 2026, we expect subscription revenue to be between $44.3 million and $45 million, representing year-over-year growth of 4% to 5%. Total revenue to be between $46.2 million and $46.9 million, representing year-over-year growth of 1% to 3%, and adjusted EBITDA to be between $2 million and $3 million. For the full year 2026, we are raising our full year guidance numbers across subscription revenue, total revenue and adjusted EBITDA, while further narrowing the guidance ranges. We now expect subscription revenue to be between $179 million and $179.7 million, representing year-over-year growth of 4% to 5%.

Total revenue to be between $185 million and $185.7 million, representing year-over-year growth of 2% to 3%, and adjusted EBITDA to be between $19.5 million and $20.5 million. Our adjusted EBITDA outlook incorporates FX headwinds and investment in post-merger integration, new products and solutions. To summarize, the third quarter demonstrated strong business results as well as continued execution against both our financial and strategic priorities.

We exceeded the high end of all our guidance ranges and delivered record total revenue, subscription revenue and ARR, generated cash from operations, improved NDR for the second consecutive quarter and most importantly, achieved, as expected, material growth in our new bookings and sales pipeline, driven by growing demand for our exciting new AI-powered products and solutions. Looking ahead, we remain focused on disciplined execution, balancing investment in our AI-driven Agentic platform with continued adjusted EBITDA profitability and cash generation. While the revenue contribution from our newer AI offering is still early, our results to date give us confidence that it will become more meaningful in the quarters ahead. With that, we will open the call for questions. Operator?

Operator: [Operator Instructions] Our first question is from Ryan Koontz with Needham & Company.

Ryan Koontz: Terrific results, guys, and great to hear about the bookings inflection. Ron, I know you have a lot of comments around your subscription ARR there. Maybe you can dumb it down for me a little bit relative to the renewals that are going on? Are you seeing some price impacts there on renewals and down-sells? You had some churn out of legacy contracts. I'm sure you have some new logos coming on. But can you maybe just qualitatively describe how we should think about the trajectory of your subscription revenue here?

Ron Yekutiel: Yes, I appreciate that. Thank you, Ryan. Thanks for the great question. So, yes, we're seeing on one hand, the booking on the other hand, some churn. We already said that the yearly churn is not going to be worse than last year. It's actually going to be better than last year. We are seeing improved in M&T. We're seeing some headwinds in EE&T that are short term, and we expect them to turn around. But when you throw it all together, churn is not higher. If you think about bookings, well, we've given you a lot of what's happening there.

And if you look at the 6-, 7-digit deals, if you look at the cross-section of industries that are wide between financial services being the higher and then higher education and media and technology driving our big bookings growth. So we got more than double, not just sequential, but also more than double year-over-year growth, and it's the highest booking quarter since 2024. It's across geo. We had half and half between EMEA and APAC and North America and a little bit in APAC. And we had some very large deals with 3 7-digit deals at the beginning of this year. We had 0 in quarter 2. We had 1 in quarter 1.

Now we have 3, which is the highest that we had since 2024. So that's picking up. And also when you think about the AI-related deals, it's a record 15 deals, and it was a large TCV, $3.8 million versus $1 million in quarter 2, and that's without the MOE deal. 12 of the 15 were expansions and renewals. So it's going strong at the same time from an industry perspective, also very wide, like 6 for higher ed, forward tech. We have energy, financial services, also a good geo dispersion. So we look all these things plus the AI pipeline, we still have 500 ops. But as noted, it grew from $17 million to $24 million.

It's a 40% growth. And some of them are quite large and growing. And a lot of them are also new logos. Half of them are now new logos, used to have been only 1/3. And that part of new logo grew 100% sequentially quarter-over-quarter. So there's a lot of pull there that's hopefully pushing towards growth in bookings. POCs also support that. So we're excited. Let's see where it goes. Again, it's early days, but we're in the right direction.

Ryan Koontz: That's great. Maybe dig a little deeper there. In terms of your selling process and obviously, you have a very focused team on able to move pretty nimbly here. But how -- where would you say the company is in terms of maturing your kind of broader portfolio selling motion now relative to kind of stand-alone siloed legacy companies?

Ron Yekutiel: Yes. Everybody is enabled to the "newer product." There's not one single salesperson or customer success person or customer care person or marketing person that has to do solely with legacy. And our products touch -- the new products touch all journeys, all use cases, all industries, and they're all selling well and are fully enabled. It's really just a question of how quickly one goes through the process and how the pipeline advances and the time it takes to go through this because a fair bit of the POCs, albeit that they're growing, are still ahead of us because it takes a bit of time to go through this whole thing.

And we all know that large enterprise sales take time, new AI products take time. We do have the advantage of it being sold to existing customers. So they have the relationship with us as it pertains to contracts, as it pertains to trust, as it pertains to integration into the workflows, and we have 1,200 of these. So we have a leg up. And yes, like I said, we have a balance between the fact that, that's a major portion. But when you think about the pipeline, the AI-related pipeline, as just noted, the biggest growth there is new logos.

So I think we have a good balance between pushing forward with speed with existing customers while filling up our coffers with new logos, which we have not had before in recent years in the pure video. So coming back to your question, people are selling, and it's evident by the pipeline growing. Deals are closing. They know how to do this. It's just going through the motion that takes a bit of time.

Ryan Koontz: Great color. And one last, if I could, around AI inference token costs and gross margin. And do you feel like you have a good handle on that? Are costs coming down, costs going up? I mean, how should investors think about your trajectory of your AI costs in terms of tokenization?

Ron Yekutiel: Yes, that's a good question. And so, look, we've been monitoring AI costs. They have a little bit of impact on our gross margin, but not materially. So it's a few points, whether it's 1%, 2%, it's definitely not something that we feel would be dramatically more. So they have some weight on us a little bit as it builds up. But that being said, it's not the only thing. So for example, on a production cost perspective, we've just re-upped our AWS agreement for a multiyear agreement that has certain elements and costs in it. So yes, we still, from a longer-term perspective, continue to expect seeing our gross margins grow.

We have shown very nice growth in gross margins in recent years, picking up a lot. That trend, we believe, will continue. Could there be a short-term opposite effect to the tune of a couple of points, 1 or 2 points or the other direction? It might be the case. But that's going to be a rich man's problem because that means that we're going to have a lot more AI and AI is driving top line. So we'd be happy to have that issue.

Operator: Our next question is from James Kisner with Water Tower Research.

James Kisner: Congrats again on a solid quarter. So, Ron, you described Agentic Avatars as kind of the entry point to the broader platform. Just as the first waves of proofs of concepts mature, what are you learning about how customers move from pilot production? What kind of tend to tip them over into full production?

Ron Yekutiel: Yes, James, thank you for that great question. So I kind of noted a little bit about that earlier. So when you think about the POCs, we got now about 80, and we had 60 before, and they're picking up. But when you think about all their plans and scope and all that, there's a certain portion of them that are still ahead of us. So a lot of them are still going to take time. So activity continues to expand. That's consistent also with the 40% sequential growth that I said earlier. But the majority, again, of the POCs are still in planning or scoping mode and have been reached. So large enterprises, it takes a bit of time.

They need to work through AI governance. They need to work through security. They need to work through privacy, they need to go through legal. And these agents, they're mission-critical, and they're touching everybody. So what tends to move in quicker into production within all that parentheses is obviously when you have a clear business use case, if you have an owner that can measure up the value, if you have integrations into the customers' knowledge, content and workflows, and that's where we actually shine because our installed base really, really helps there. And I mentioned earlier about 3/4 of our POCs are with existing customers. 12 of our 15 Q3 AI-related transactions were expansions or renewals.

And we got all these existing customers as a big advantage. But like I noted earlier, at the same time, we have this good balance because we have the broadening of our installed base with new logo opportunities, about half the ACV and roughly, that was 1/3 last quarter. So that grew doubled from a nominal value on a quarter-over-quarter. So we're pleased by the funnel being broadened. By the way, it's also broadened by the employee learner journeys that were originally the bigger ones now customer pull to be the bigger ones and audience is still growing. So the pipeline is, not just larger, but also becoming more diversified across both customer type, industries and use cases.

So kind of when you put it all together, there is a certain process to go by that's taking them to get over the hump and make a decision. There's more ahead to make these come true and bring them to life, but we're headed in the right direction.

James Kisner: That's helpful. Maybe talk about the competitive situation. You have a competitive Agentic Engagement deal, like what are you seeing across the table these days? And where is kind of the video-first conversational experience really sort of win or hunt well against perhaps a text-only solution from a CRM or a chat vendor?

Ron Yekutiel: So, James, we see there's Avatar specialists. We got horizontal AI agent platforms. We do have CRM and customer engagement vendors. Sometimes you got customers considering also to build internally. But I would not frame this simply as video versus text. Text works very well for many transactional interactions, but our differentiation is strongest where the interaction is involving other human beings. So think about nursing student role playing with a patient or a law student participating and practicing with a client or sales training or management coaching or onboarding or a customer trying to understand complex projects and products. So these experiences generally benefit from realistic conversations. They need rich media. They need personalized Dynamic UI.

They need the ability to take action. And to that end, when you consider some of the other options out there, we bring much more than just the Avatars, right? We provide a market-leading platform for enterprise content creation and management with the user intelligence and the journey orchestration. We have the cutting-edge experiences like our video portal and the LMSs and the virtual events and the webinars and the Cloud TV. And then we have years and years of expertise in learning and training and more recently with PathFactory also marketing and buyer journey. So our thesis is that, it's really about the rich multimodel engagement layer that sits on top of systems like CRMs and not replace them.

So when you put it all together, we feel relatively well. And I can tell you that the fact that things are taking a bit of time is less so from a competitive standpoint and more so from just going through the motions, which I said earlier.

James Kisner: That's a great clarification. Just last one, just maybe an update on the channel strategy. How is that going? And what does the channel look like compared to direct one in general?

Ron Yekutiel: We're making good progress with channels. I mean, definitely, we see them more as a second wave opportunity after the first wave of direct. As a company that's been historically almost only direct. This is what we do. But given that the AI products are not only new for us, but they're also new for the world, it doesn't make a lot of sense immediately to start with channels, but we need to first land them directly and then establish successful deployments after that, kind of learn where it's exactly there and then start working with the partners. And even then, you need to sell together with them and then train them and then ultimately enable them.

So it takes a bit of time. So we do expect channels to become much more meaningful in '27. This, by the way, touches also on our PLG motion because the simpler the products are going to be, the easier they're going to also be sold with channels, albeit the PLG is also to go down market and also to sell departmental, but that's going to be helpful, and that's around the corner, and that's that. But I will say, and I just mentioned earlier in our conversation, the Israeli Ministry of Education, that's a channel. And they helped us deploy across 20 schools, approximately 2,000 students, and it's only starting with STEM education.

We believe it's going to grow to other subjects. It's going to go to other students, it's going to go to other schools. And of course, this is just in one country. We expect that we're going to work in other countries and also obviously, other industries because the learning and enablement is far, far beyond education. So channels are coming. The beginning is already here now, and we just started talking about it in MOE, there's going to be more of it.

Operator: This concludes our question-and-answer session. I would like to hand the floor back over to Ron Yekutiel for any closing remarks.

Ron Yekutiel: Thank you all, everyone, for joining us today. We're pleased with the progress we made this quarter, both from a financial performance, also in the growing commercial traction, especially with our new AI offerings. We said that bookings were expected to grow in the second half. We're seeing that happen. We're seeing POCs grow. We do remain very much focused on executing through the end of the year and then building on that momentum as we head into 2027. So we want to thank you for your continued support, and we do look forward to updating you again next quarter, and have a wonderful great week. Thank you all.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.

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