Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
You should read the following discussion and analysis of our
financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere
in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs
involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements
as a result of various factors, including those set forth in Part I, Item 1A, “Risk Factors” and other factors set forth in
other parts of this Annual Report on Form 10-K.
Overview
Our mission is to power any video experience, for any organization.
Our Video Experience Cloud powers live, real-time, and on-demand video for webinars, events, virtual classrooms, and video sites. We also
offer robust Application Programming Interfaces ("APIs") and Software Development Kits ("SDKs") for developers and industry solutions
for education and media and telecom. Our Video Experience Cloud is used by leading brands across all industries, reaching millions of
users, at home, at school and at work, for communication, collaboration, marketing, sales, customer care, learning, and entertainment
experiences. With our flexible offerings, customers can experience the benefits of video across a wide range of use cases, while customizing
their deployments to meet their individual, dynamic needs.
Our business was founded in 2006. We launched our Media Services
and Video Content Management System in 2008 and initially offered it as an Online Video Platform for online publishers and media companies.
Since then, we have capitalized on our flexible and extendable platform architecture to expand into new products, industry solutions,
and use cases:
• 2011: Released our Video Sites product and started selling to enterprises
• 2013: Expanded into live video
• 2017: Launched our Lecture Capture solution
• 2020: Released our Webinars, Events, and Virtual Classroom products
• 2021: Expanded the capabilities of our Events product
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We generate revenue primarily through the sale of SaaS and PaaS
subscriptions, and additional revenue from term license subscriptions. We also generate revenue through the sale of professional services
associated with the implementation of deployments for new and existing customers.
We organize our business into two reporting segments: (i) Enterprise,
Education, and Technology (“EE&T”); and (ii) Media and Telecom (“M&T”). These segments share a common
underlying platform consisting of our API-based architecture, as well as unified product development, operations, and administrative resources.
Reflected below is a summary of reportable segment revenue and
reportable segment gross profit for the years ended December 31, 2021 and 2020.
For the Year Ended December 31,
(in thousands)
Revenue
Gross Profit
Enterprise, Education & Technology $ 84,196 $ 58,539
1
Our consolidated financial statements have been restated. See Note 20 to our consolidated financial statements included in our prospectus
dated July 20, 2021. filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities
Act on July 22, 2021 (the “Prospectus”) in connection with our initial public offering (“IPO”).
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We benefit from a land and expand strategy in which our customers
increase their usage of our offerings and/or purchase additional offerings over time. Our ability to expand within our existing customer
base is demonstrated by our Net Dollar Retention Rate (as defined below). For the year ended December 31, 2021 and 2020, our Net Dollar
Retention Rate was 118% and 107%, respectively. We also grew our average annualized recurring revenue, or ARR, per customer by 29% in
the three months ended December 31, 2021, compared to the three months ended December 31, 2020, demonstrating our ability to land new
customers with higher spending levels and increase revenue from our existing customers.
For any given year, a large majority of our revenue comes from
existing customers, with whom we are in active dialogue and tend to have visibility into their expected usage of our offerings.
We focus our selling efforts on large organizations and sell
our solutions primarily through direct sales teams and account teams. We currently have four direct sales teams, grouped by offering type
and target customers, and we leverage reseller relationships globally to help market and sell our products to customers worldwide, especially
in areas in which we have a limited presence. We are investing in initiatives to more efficiently reach new customers and expand our partnerships
with existing ones. For example, we have launched the option to purchase our Webinars, Virtual Classroom, and Media Services offerings
directly from our website, allowing us to reduce our cost of customer acquisition, drive additional opportunities to our direct sales
team, reach smaller customers, and broaden our target market.
Impact of COVID-19
In December 2019, an outbreak of the COVID-19 disease was first
identified and began to spread across the globe. In March 2020, the World Health Organization declared COVID-19 a pandemic, impacting
many countries around the world, including where our end users and customers are located and the United States, Israel, United Kingdom,
and Singapore where we have larger business operations. As a result of the COVID-19 pandemic, government authorities around the world
have ordered schools and businesses to close, imposed restrictions on non-essential activities, and required people to remain at home
while instilling significant limitations on traveling and social gatherings.
In response to the pandemic, in the first quarter of 2020, we
temporarily closed all of our offices, enabled our entire work force to work remotely, and implemented travel restrictions for non-essential
business. In the second quarter of 2020 we reopened select offices, however most of our employees continued to work remotely, a majority
of whom continue to do so as of the date of this Annual Report on Form 10-K. The changes we have implemented to date have not materially
affected and are not expected to materially affect our ability to operate our business, including our financial reporting systems.
In the second quarter of 2020, we experienced an increase in
usage as people spent more time working and learning remotely due to the COVID-19 pandemic, thereby increasing demand from new and existing
customers for our offerings and contributing to an acceleration in our revenue growth when compared to prior periods. However, in some
cases because the agreements for certain of our solutions, primarily in education, do not limit usage or increase pricing for usage in
excess of a specified amount, the additional usage that we experienced in 2020 did not result in a corresponding increase in revenue.
Additionally, in order to meet the needs of our customers in 2020, we accelerated our existing plans to move from our own data centers
to public cloud infrastructure in order to provide required stability, reliability, scalability, and elasticity.
Prior to the pandemic, the market demand for our solutions was
growing at a robust rate, with numerous tailwinds for long-term growth, and that demand accelerated as a result of the pandemic. We believe
that new and potential customers will continue to increase their use of video solutions across existing use cases such as remote working,
teaching, marketing, and customer care, as well as nascent but growing use cases such as tele-services.
While the potential economic impact brought by, and the duration
of, any pandemic, epidemic, or outbreak of an infectious disease, including COVID-19 and its variants, is difficult to assess or predict,
the widespread pandemic related to COVID-19 and its variants has resulted in, and may continue to result in, significant disruption of
global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.
For additional information, see Part I, Item 1A. “Risk
Factors—Risks Related to Our Business and Industry—The ongoing COVID-19 pandemic could adversely affect our business, financial
condition and results of operations.”
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Key Factors Affecting Our Performance
Expansion of our Platform
We believe our platform is ideally suited for expansion across
solutions, industries, and use cases. We have demonstrated this over time with the expansion of our platform across products, industry
solutions, and use cases. For example, in 2020, we entered the real-time conferencing market with the introduction of our Webinars, Meetings,
and Virtual Classroom products, focusing on learning, training, and marketing. In 2021, we expanded the capabilities of our Events product
to support a broader range of event types and use cases. We believe these products present a significant long-term opportunity, and we
intend to harness our growing presence with them. Additionally, we will continue to invest in new video products for training, communication
and collaboration, sales, marketing, and customer care, as we extend our platform into more industries. Following the success of our Media
& Telecom and education solutions, we intend to launch solutions for industries such as healthcare and financial services, among others.
We also intend to enhance our Media Services offerings with additional core capabilities and invest in areas such as content creation,
personalization and interactivity, content aggregation and syndication, AI, and smart monetization. We also intend to add these capabilities
into our existing and new products and industry solutions. Our results of operations may reflect sustained high levels of investments
to drive increased customer adoption and usage.
Acquiring New Customers
We are focused on continuing to grow the number of customers
that use our solutions. While over the last several years we have not materially increased our sales and marketing spend or number of
direct sales representatives, we have started to increase our investment in sales and marketing in order to grow our customer base going
forward. We intend to grow our base of field sales representatives and customer success managers, which we believe will drive both geographic
and vertical expansion. Additionally, we are investing in inside sales and self-serve offerings and distribution channels. We believe
this will enable us to efficiently acquire smaller customers across all industries – beyond enterprises into SMEs, beyond universities
into K-12 schools, beyond tier 1 media and telecom companies to tier 2 and 3 media and telecom companies, and beyond providing Media Services
to large technology companies to also addressing smaller technology firms and startups.
Increasing Revenue from Existing Customers
We believe we have the opportunity to increase sales within our
existing customer base through increased usage of our platform and the cross-selling of additional products and solutions. For the year
ended December 31, 2021, our Net Dollar Retention Rate was 118%, demonstrating our ability to expand within our existing customer base.
In order for us to continue to increase revenue within our customer base, we will need to maintain engineering-level customer support
and continue to introduce new products and features as well as innovative new use cases that are tailored to our customers' needs.
Continued Investment in Growth
Although we have invested significantly in our business to date,
we believe that we still have a significant market opportunity ahead of us. We intend to continue to make investments to support the growth
and expansion of our business, to increase revenue, and to further scale our operations. We believe there is a significant opportunity
to continue our growth. We plan to open offices internationally, hire sales and marketing employees in additional countries, and expand
our presence in countries where we already operate. We expect to incur additional expenses as we expand to support this growth. Further,
we expect to incur additional general and administrative expenses in connection with our transition to being a public company. We expect
that our cost of revenue and operating expenses will fluctuate over time.
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Key Financial and Operating Metrics
We measure our business using both financial and operating metrics.
We use these metrics to assess the progress of our business, make decisions on where to allocate capital, time, and technology investments,
and assess the near-term and long-term performance of our business. The key financial and operating metrics we use are:
Year Ended December 31,
(in thousands)
Net Dollar Retention Rate 118 % 107 %
Annualized Recurring Revenue
We use Annualized Recurring Revenue as a measure of our revenue
trend and an indicator of our future revenue opportunity from existing recurring customer contracts. We calculate ARR by annualizing our
recurring revenue for the most recently completed fiscal quarter. Recurring revenues are generated from SaaS and PaaS subscriptions, as
well as term licenses for software installed on the customer’s premises (“On-Prem”). For the SaaS and PaaS components,
we calculate ARR by annualizing the actual recurring revenue recognized for the latest fiscal quarter. For the On-Prem components for
which revenue recognition is not ratable across the license term, we calculate ARR for each contract by dividing the total contract value
(excluding professional services) as of the last day of the specified period by the number of days in the contract term and then multiplying
by 365. Recurring revenue excludes revenue from one-time professional services and setup fees. ARR is not adjusted for the impact of any
known or projected future customer cancellations, upgrades or downgrades, or price increases or decreases.
The amount of actual revenue that we recognize over any 12-month period
is likely to differ from ARR at the beginning of that period, sometimes significantly. This may occur due to new bookings, cancellations,
upgrades or downgrades, pending renewals, professional services revenue, foreign exchange rate fluctuations and acquisitions or divestitures.
ARR should be viewed independently of revenue as it is an operating metric and is not intended to be a replacement or forecast of revenue.
Our calculation of ARR may differ from similarly titled metrics presented by other companies.
Net Dollar Retention Rate
Our Net Dollar Retention Rate, which we use to measure our success
in retaining and growing recurring revenue from our existing customers, compares our recognized recurring revenue from a set of customers
across comparable periods. We calculate our Net Dollar Retention Rate for a given period as the recognized recurring revenue from the
latest reported fiscal quarter from the set of customers whose revenue existed in the reported fiscal quarter from the prior year (the
numerator), divided by recognized recurring revenue from such customers for the same fiscal quarter in the prior year (denominator). For
annual periods, we report Net Dollar Retention Rate as the arithmetic average of the Net Dollar Retention Rate for all fiscal quarters
included in the period. We consider subdivisions of the same legal entity (for example, divisions of a parent company or separate campuses
that are part of the same state university system) to be a single customer for purposes of calculating our Net Dollar Retention Rate.
Our calculation of Net Dollar Retention Rate for any fiscal period includes the positive recognized recurring revenue impacts of selling
new services to existing customers and the negative recognized recurring revenue impacts of contraction and attrition among this set of
customers. Our Net Dollar Retention Rate may fluctuate as a result of a number of factors, including the growing level of our revenue
base, the level of penetration within our customer base, expansion of products and features, and our ability to retain our customers.
Our calculation of Net Dollar Retention Rate may differ from similarly titled metrics presented by other companies.
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Remaining Performance Obligations
Remaining Performance Obligations represents the amount of contracted
future revenue that has not yet been delivered, including both subscription and professional services revenues. Remaining Performance
Obligations consists of both deferred revenue and contracted non-cancelable amounts that will be invoiced and recognized in future periods.
As of December 31, 2021, our Remaining Performance Obligations was $185.5 million, which consists of both billed consideration in the
amount of $53.6 million and unbilled consideration in the amount of $131.9 million that we expect to invoice and recognize in future periods.
We expect to recognize 57% of our Remaining Performance Obligations as revenue over the next 12 months and the remainder thereafter,
in each case, in accordance with our revenue recognition policy.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP,
we believe that Adjusted EBITDA, a non-GAAP financial measure, is useful in evaluating the performance of our business.
We define EBITDA as net profit (loss) before interest expense,
net, provision for income taxes and depreciation and amortization expenses. Adjusted EBITDA is defined as EBITDA (as defined above), adjusted
for the impact of certain non-cash and other items that we believe are not indicative of our core operating performance, such as non-cash
stock-based compensation expenses, abandonment costs, gain from sale of property and equipment, and other operating expenses.
Adjusted EBITDA is a supplemental measure of our performance,
is not defined by or presented in accordance with GAAP, and should not be considered in isolation or as an alternative to net profit (loss)
or any other performance measure prepared in accordance with GAAP. Adjusted EBITDA is presented because we believe that it provides useful
supplemental information to investors and analysts regarding our operating performance and is frequently used by these parties in evaluating
companies in our industry. By presenting Adjusted EBITDA, we provide a basis for comparison of our business operations between periods
by excluding items that we do not believe are indicative of our core operating performance. We believe that investors’ understanding
of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of
operations. Additionally, our management uses Adjusted EBITDA as a supplemental measure of our performance because it assists us in comparing
the operating performance of our business on a consistent basis between periods, as described above.
Although we use EBITDA and Adjusted EBITDA, as described above,
EBITDA and Adjusted EBITDA, have significant limitations as analytical tools. Some of these limitations include:
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Due to these limitations, EBITDA and Adjusted EBITDA should not
be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations
by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. Adjusted EBITDA includes an adjustment
for non-cash stock-based compensation expenses. It is reasonable to expect that this item will occur in future periods. However, we believe
this adjustment is appropriate because the amount recognized can vary significantly from period to period, does not directly relate to
the ongoing operations of our business, and complicates comparisons of our internal operating results between periods and with the operating
results of other companies over time. Each of the normal recurring adjustments and other adjustments described above help to provide management
with a measure of our core operating performance over time by removing items that are not related to day-to-day operations. Nevertheless,
because of the limitations described above, management does not view EBITDA, or Adjusted EBITDA in isolation and also uses other measures,
such as revenue, operating loss, and net loss, to measure operating performance.
The following table reconciles EBITDA and Adjusted EBITDA to
the most directly comparable GAAP financial performance measure, which is net loss:
Year Ended December 31,
Depreciation and amortization 2,412 3,708
Non-cash stock-based compensation expense 17,065 5,114
Abandonment costs (b) — 3,969
Gain on sale of property and equipment (c) (757 ) —
Other operating expenses (d) 1,724 —
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Components of Our Results of Operations
Revenue
Subscriptions
Our revenues are mainly comprised of revenue from SaaS and PaaS
subscriptions. SaaS and PaaS subscriptions provide access to our Video Experience Cloud which powers all types of video experiences: live,
real-time, and on-demand video. We provide access to our platform either as a cloud-based service, which represent most of our SaaS and
PaaS subscriptions, or, less commonly, as a term license to software installed on the customer's premises. Revenue from SaaS and PaaS
subscriptions is recognized ratably over the time of the subscription, beginning from the date on which the customer is granted access
to our Video Experience Cloud. Revenue from the sale of a term license is recognized at a point in time in which the license is delivered
to the customer. Revenue from post-contract services ("PCS") included in On-Prem deals is recognized ratably over the period of the PCS.
Professional Services
Our revenue also includes professional services, which consist
of consulting, integration and customization services, technical solution services and training related to our video experience. In some
of our arrangements, professional services are accounted for as a separate performance obligation, and revenue is recognized upon rendering
of the service.
In some of our SaaS and PaaS subscriptions, we determined
that the professional services are solely set up activities that do not transfer goods or services to the customer and therefore are not
accounted for as a separate performance obligation and are recognized ratably over the time of the subscription.
Cost of Revenue
Cost of subscription revenue consists primarily of employee-related
costs including payroll, benefits and stock-based compensation expense for operations and customer support teams, costs of cloud hosting
providers and other third-party service providers, amortization of capitalized software development costs and acquired technology and
allocated overhead costs.
Cost of professional services consists primarily of personnel
costs of our professional services organization, including payroll, benefits, and stock-based compensation expense, allocated overhead
costs and other third-party service providers.
The costs associated with providing professional services are
significantly higher as a percentage of related revenue than the costs associated with delivering our subscriptions due to the labor costs
of providing professional services. As such, the implementation and professional services costs relating to an arrangement with a new
customer are more significant than the costs to renew an existing customer’s license and support arrangement.
Cost of revenue increased in absolute dollars from the year ended
December 31, 2020 to 2021. For the years ended December 31, 2021 and 2020, our cost of revenue was $62,314 and $47,665, respectively.
Gross Margins
Gross margins have been and will continue to be affected by a
variety of factors, including the average sales price of our products and services, volume growth, the mix of revenue between SaaS and
PaaS subscriptions, software licenses, maintenance and support and professional services, onboarding of new media and telecom customers,
hosting of major virtual events and changes in cloud infrastructure and personnel costs. In particular, the gross margins in our M&T
segment are negatively impacted due to the resources required for implementation of our TV Solution and Media Services for TV experiences,
which generally exceed those of our other offerings, resulting in a longer period from initial booking to go-live and a higher proportion
of professional services revenue as a percentage of overall revenue. Additionally, a higher proportion of revenue comes from customers
who choose to license our offerings through private cloud and on-premise deployments, which also impacts our gross margin. In the long-term,
we expect the margins for this segment to improve due to the following: increasing the ratio of subscription revenue to professional services
with scale, improved efficiencies of both production and professional services costs, and an increase in the proportion of revenues from
media customers, which generally entail simpler deployments compared to telecom customers. However, in the near and medium term, our gross
margins in our M&T segment will vary from period to period based on the onboarding of new customers, as well as the timing and aggregate
usage of our solutions by such customers.
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For the years ended December 31, 2021 and 2020, our gross
margins were 62% (72% for subscriptions and (12)% for professional services) and 60% (73% for subscriptions and (17)% for professional
services), respectively.
For our EE&T segment, gross margins for the years ended December 31,
2021 and 2020 were 71% (78% for subscriptions and (5)% for professional services) and 73% (81% for subscriptions and (33)% for professional
services), respectively.
For our M&T segment, gross margins for the years ended December 31,
2021 and 2020 were 40% (56% for subscriptions and (19)% for professional services) and 36% (51% for subscriptions and (8)% for professional
services), respectively.
Beginning in the second quarter of 2020 and continuing through
the third quarter, we experienced an increase in usage as people spent more time working and learning remotely due to the COVID-19 pandemic,
thereby increasing demand from new and existing customers for our offerings and contributing to an acceleration in our revenue growth
when compared to prior periods. However, in some cases because the agreements for certain of our solutions, primarily in education, do
not limit usage or increase pricing for usage in excess of a specified amount, the additional usage that we experienced in 2020 did not
result in a corresponding increase in revenue. Additionally, in order to meet the needs of our customers in 2020, we accelerated our existing
plans to move from our own data centers to public cloud infrastructure in order to provide required stability, reliability, scalability,
and elasticity. The combination of the increase in usage for certain of our solutions as described above, along with the migration from
our own data centers to public cloud infrastructure, contributed to a decrease in gross margins in 2020 to 60% from 63% in 2019.
Research and Development
Our research and development expenses consist primarily of costs
incurred for personnel-related expenses for our technical staff, including salaries and other direct personnel-related costs. Additional
expenses include consulting and professional fees for third-party development resources. We expect our research and development expenses
to increase in absolute dollars for the foreseeable future as we continue to dedicate substantial resources to develop, improve, and expand
the functionality of our solutions. We also anticipate that research and development expenses will increase as a percentage of revenue
in the near and medium-term. Subsequent costs incurred for the development of future upgrades and enhancements, which are expected to
result in additional functionality, may qualify for capitalization under internal-use software and therefore may cause research and development
expenses to fluctuate.
Sales and Marketing Expenses
Our sales and marketing expenses consist primarily of personnel
related costs for our sales and marketing functions, including salaries and other direct personnel-related costs. Additional expenses
include marketing program costs and amortization of acquired customer relationships intangible assets. We expect our sales and marketing
expenses will increase on an absolute dollar basis for the foreseeable future as we continue to increase investments to support our growth.
We also anticipate that sales and marketing expenses will increase as a percentage of revenue in the near and medium-term.
General and Administrative Expenses
Our general and administrative expenses consist primarily of
personnel-related costs for our executive, finance, human resources, information technology, and legal functions, including salaries and
other direct personnel-related costs. We expect general and administrative expense to increase on an absolute dollar basis for the foreseeable
future as we continue to increase investments to support our growth and as a result of our becoming a public company. We also anticipate
that general and administrative expenses will increase as a percentage of revenue in the near and medium-term.
We allocate overhead costs such as rent, utilities, and supplies
to all departments based on relative headcount to each operating expense category.
Financial Expenses, Net
Financial expenses, net consists of interest expense accrued
or paid on our indebtedness and the change in the fair value of warrants to purchase the Company’s preferred and common stock, net
of interest income earned on our cash balances. Financial expenses, net also includes foreign exchange gains and losses. We expect interest
expenses to vary each reporting period depending on the amount of outstanding indebtedness and prevailing interest rates.
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We expect interest income will vary in each reporting period
depending on our average cash balances during the period and applicable interest rates.
Upon the closing of our IPO, warrants to purchase preferred and
common stock were converted to common stock and therefore, no fair value remeasurements are expected with respect to such warrants in
future periods.
Refer to Note 12 of the notes to our consolidated financial statements
included in this Annual Report on Form 10-K for further information regarding the impact resulting from the remeasurement of the warrants
prior to conversion.
Provision for Income Taxes
We are subject to taxes in the United States as well as other
tax jurisdictions or countries in which we conduct business. Earnings from our non-U.S. activities are subject to local country
income tax and may be subject to current U.S. income tax. Due to cumulative losses, we maintain a valuation allowance against our deferred
tax assets. We consider all available evidence, both positive and negative, in assessing the extent to which a valuation allowance should
be applied against our deferred tax assets. Realization of our U.S. deferred tax assets depends upon future earnings, the timing and amount
of which are uncertain. Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we
earn in those jurisdictions, as well as non-deductible expenses, such as share-based compensation, and changes in our valuation
allowance.
Results of Operations
The following tables summarize key components of our results
of operations for the periods presented. The period-to-period comparisons of our historical results are not necessarily indicative of
the results that may be expected in the future.
Year Ended December 31, Period-over-Period Change
(in thousands, except percentages)
Revenue:
Operating expenses:
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Segments
We manage and report operating results through two reportable
segments:
Comparison of the Years Ended December 31,
2021 and 2020
Enterprise, Education & Technology
The following table presents our EE&T segment revenue and
gross profit (loss) for the years indicated:
Year Ended December 31, Period-over-Period Change
(in thousands, except percentages)
Enterprise, Education & Technology revenue:
Enterprise, Education & Technology gross profit:
Enterprise, Education & Technology Revenue
Total EE&T revenue increased by $38.5 million, or 48%, to
$118.9 million for the year ended December 31, 2021, from $80.4 million for the year ended December 31, 2020. Approximately $6.6 million
of this increase is attributable to revenue from new customers and the remaining $31.9 million is attributable to growth from existing
customers.
EE&T subscription revenue increased by $34.4 million or 46%,
to $108.8 million for the year ended December 31, 2021, from $74.5 million for the year ended December 31, 2020.
EE&T professional services revenue increased by $4.1 million,
or 69%, to $10.1 million for the year ended December 31, 2021, from $6.0 million for the year ended December 31, 2020.
Enterprise, Education & Technology Gross Profit
EE&T gross profit increased by $25.7 million, or 44%, to
$84.2 million for the year ended December 31, 2021, from $58.5 million for the year ended December 31, 2020. This increase was mainly
due to a $38.5 million increase in revenue, offset in part by a 2% decrease in gross margin to 71% for the year ended December 31, 2021
from 73% for the year ended December 31, 2020. The decrease in gross margin was attributable primarily to an increase in cloud-related
costs and the cost of third-party solutions driven by higher consumption and our migration to public cloud infrastructure.
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EE&T subscription gross profit increased by $24.2 million,
or 40%, to $84.7 million for the year ended December 31, 2021, from $60.5 million for the year ended December 31, 2020.
EE&T professional services gross loss decreased by $1.5 million,
or 75%, to $0.5 million for the year ended December 31, 2021, from a gross loss of $2.0 million for the year ended December 31, 2020.
Media & Telecom
The following table presents our M&T segment revenue and
gross profit for the years indicated:
Year Ended December 31, Period-over-Period Change
(in thousands, except percentages)
Media & Telecom revenue:
Media & Telecom gross profit:
Media & Telecom Revenue
M&T revenue increased by $6.1 million, or 15%, to $46.1
million for the year ended December 31, 2021, from $40.0 million for the year ended December 31, 2020. Approximately $2.7 million of this
increase is attributable to revenue from new customers and the remaining $3.4 million is attributable to growth from existing customers.
M&T subscription revenue increased by $6.5 million, or 22%,
to $36.1 million for the year ended December 31, 2021, from $29.6 million for the year ended December 31, 2020.
M&T professional services revenue decreased by $0.4 million,
or 4%, to $10.0 million for the year ended December 31, 2021, from $10.4 million for the year ended December 31, 2020.
Media & Telecom Gross Profit
M&T gross profit increased by $4.3 million, or 30%, to $18.5
million for the year ended December 31, 2021, from $14.2 million for the year ended December 31, 2020. This increase was mainly due to
a $6.1 million increase in revenue, and a 4% increase in gross margin to 40% for the year ended December 31, 2021 from 36% for the year
ended December 31, 2020. The increase in gross margin was attributable primarily to the increased proportion of subscription revenue of
total Media & Telecom revenue, improvement in production costs and higher efficiency of our operations teams leading to lower compensation
costs as a percentage of revenue.
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M&T subscription gross profit increased by $5.3 million,
or 36%, to $20.4 million for the year ended December 31, 2021, from $15.1 million for the year ended December 31, 2020.
M&T professional services gross loss increased by $1.1 million,
or 132%, to $1.9 million for the year ended December 31, 2021, from $0.8 million for the year ended December 31, 2020.
Operating Expenses
Research and Development expenses
Year Ended December 31, Period-over-Period Change
(in thousands, except percentages)
Research and development expenses increased by $18.8 million,
or 64%, to $48.4 million for the year ended December 31, 2021, from $29.6 million for the year ended December 31, 2020. The increase was
primarily due to a $15.4 million increase in compensation which mainly related to higher headcount and increased stock-based compensation
expenses.
Sales and Marketing expenses
Year Ended December 31, Period-over-Period Change
(in thousands, except percentages)
Sales and marketing expenses increased by $16.3 million, or
55%, to $45.8 million for the year ended December 31, 2021, from $29.5 million for the year ended December 31, 2020. The increase was
primarily due to a $11.0 million increase in compensation related to higher headcount and a $2.9 million increase in amortization of deferred
commission expenses driven by higher bookings.
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General and Administrative expenses
Year Ended December 31, Period-over-Period Change
(in thousands, except percentages)
Abandonment of data center equipment — 3,969 (3,969 )
Gain on sale of property and equipment (757 ) — (757 )
General and administrative expenses increased by $17.3
million or 78%, to $39.5 million for the year ended December 31, 2021, from $22.2 million for the year ended December 31, 2020. The increase
was primarily due to a $15.4 million increase in compensation related to higher headcount and increased stock-based compensation expenses.
The increase was partially offset by $4.0 million due to a one-time expense related to the abandonment of data center equipment during
the year ended December 31, 2020, and a $0.8 million one-time gain from the sale of such data center equipment during the year ended December
31, 2021.
Other Operating Expenses
Other operating expenses were $1.7 million during the year ended
December 31, 2021, and mainly related to the forgiveness of loans to certain of our directors and executive officers immediately prior
to the public filing of the registration statement for our IPO, including related tax gross-up amounts payable by us to such directors
and executive officers. We did not incur other operating expenses during the year ended December 31, 2020.
Financial Expenses, net
Financial expenses, net decreased by $26.6 million, or 57%, to
$20.1 million for the year ended December 31, 2021, from $46.7 million for the year ended December 31, 2020. The decrease was primarily
due to a $26.5 million remeasurement of warrants to fair value.
Provision for Income
Taxes
Provision for income taxes increased by $3.0 million, or 85%,
to $6.6 million for the year ended December 31, 2021, from $3.6 million for the year ended December 31, 2020, primarily due to increased
tax liability related to income generated by our subsidiaries organized under the laws of Israel and the United Kingdom.
Liquidity and Capital Resources
Overview
Since our inception, we have financed our operations primarily
through net cash provided by operating activities, equity issuances, and borrowings under our long-term debt arrangements. Our primary
requirements for liquidity and capital are to finance working capital, capital expenditures and general corporate purposes. Our principal
sources of liquidity are expected to be our cash on hand and borrowings available under our Revolving Credit Facility. During December
2021, we repaid in full the outstanding principal balance under our Revolving Credit Facility. Therefore, as of December 31, 2021
we had no balance outstanding under the Revolving Credit Facility and the total revolving commitment of $35.0 million is available for
future borrowings.
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We believe that our net cash provided by operating activities,
cash on hand, and availability under our Revolving Credit Facility will be adequate to meet our operating, investing, and financing needs
for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue growth, the timing
and extent of investments to support such growth, the expansion of sales and marketing activities, increases in general and administrative
costs and many other factors as described under Part I, Item 1A. “Risk Factors” and “—Key Factors Affecting Our
Performance.”
If necessary, we may borrow funds under our Revolving Credit
Facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary
to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through
the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however,
such financing may not be available on favorable terms, or at all. In particular, the widespread pandemic related to COVID-19 and
its variants has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability
to access capital. If we are unable to raise additional funds when desired, our business, financial condition and results of operations
could be adversely affected.
Credit Facilities
In January 2021, we entered into a new credit agreement (as amended,
the “Credit Agreement”) with one of our existing lenders, which provides for a new senior secured term loan facility in the
aggregate principal amount of $40.0 million (the “Term Loan Facility”) and a new senior secured revolving credit facility
in the aggregate principal amount of $10.0 million (the “Revolving Credit Facility” and, together with the Term Loan Facility,
the “Credit Facilities”). In June 2021, we entered into an amendment to the Credit Agreement (the “First Amendment”)
to, among other things, increase commitments under the Revolving Credit Facility to $35.0 million, and make certain other changes to certain
covenants and definitions. The amount available for borrowing under the Revolving Credit Facility is limited to a borrowing base,
which is equal to the product of (a) 800% (which will automatically reduce to 350% on the date the Term Loan Facility is repaid in full),
multiplied by (b) monthly Recurring Revenue for the most recently ended monthly period, multiplied by (c) the Retention Rate (in each
case, as defined in the Credit Agreement). The Revolving Credit Facility includes a sub-facility for letters of credit in the aggregate
availability amount of $10.0 million and a swingline sub-facility in the aggregate availability amount of $5.0 million, each of which
reduces borrowing availability under the Revolving Credit Facility.
Borrowings under the Credit Facilities are subject to interest,
determined as follows: (a) Eurodollar loans accrue interest at a rate per annum equal to the Eurodollar rate determined for such day plus
a margin of 3.50% (the Eurodollar rate is calculated as described in the Credit Agreement, subject to a 1.00% floor, divided by 1.00 minus
the maximum effective reserve percentage for Eurocurrency funding), and (b) Alternate Base Rate (“ABR”) loans accrue interest
at a rate per annum equal to the ABR plus a margin of 2.50% (ABR is equal to the highest of (i) the prime rate and (ii) the Federal Funds
Effective Rate plus 0.50%, subject to a 2.00% floor). In addition to paying interest on the principal amounts outstanding under the Credit
Facilities, we are required to pay a commitment fee under the Revolving Credit Facility on unused amounts at a rate of 0.25% per annum.
We are also required to pay customary letter of credit and agency fees.
We are required to prepay amounts outstanding under the Term
Loan Facility with 100% of the net cash proceeds of any indebtedness incurred by us or any of our subsidiaries other than certain permitted
indebtedness. In addition, we are required to prepay amounts outstanding under the Credit Facilities with the net cash proceeds of any
Asset Sale or Recovery Event (each as defined in the Credit Agreement), subject to certain limited reinvestment rights.
Amounts outstanding under the Credit Facilities may be voluntarily
prepaid at any time and from time to time, in whole or in part, without premium or penalty. All voluntary prepayments (other than ABR
loans borrowed under the Revolving Credit Facility) must be accompanied by accrued and unpaid interest on the principal amount being prepaid
and customary “breakage” costs, if any, with respect to prepayments of Eurodollar loans.
The Term Loan Facility is payable in consecutive quarterly installments
on the last day of each fiscal quarter in an amount equal to (x) $250,000 for installments payable on March 31, 2021 through December 31,
2021, (y) $750,000 for installments payable on March 31, 2022 through December 31, 2022, and (z) $1.5 million for installments payable
on and after March 31, 2023. The remaining unpaid balance on the Term Loan Facility is due and payable on January 14, 2024, together with
accrued and unpaid interest on the principal amount to be paid to, but excluding, the payment date. Borrowings under the Revolving Credit
Facility do not amortize and are due and payable on January 14, 2024.
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Our obligations under the Credit Facilities are currently guaranteed
by Kaltura Europe Limited, and are required to be guaranteed by all of our future direct and indirect subsidiaries other than certain
excluded subsidiaries and immaterial foreign subsidiaries. Our obligations and those of Kaltura Europe Limited are, and the obligations
of any future guarantors are required to be, secured by a first priority lien on substantially all of our respective assets.
The Credit Agreement contains a number of covenants that, among
other things and subject to certain exceptions, restrict our ability, and the ability of our subsidiaries, to:
• repay, prepay, redeem, purchase, retire or defease subordinated debt;
• declare or pay dividends or make certain other restricted payments;
• make certain investments;
• enter into transactions with affiliates;
• enter into new lines of business; and
The Credit Agreement also contains certain financial covenants
that require us to maintain (i) a minimum amount of Annualized Recurring Revenue (as defined in the Credit Agreement) as of the last day
of each fiscal quarter (which minimum amount increases through the fiscal quarter ending December 31, 2023) (the “ARR Covenant”),
and (ii) Liquidity (as defined in the Credit Agreement) of at least $10 million as of the last day of any calendar month. We were
in compliance with these covenants as of December 31, 2021.
The Credit Agreement also contains certain customary representations
and warranties and affirmative covenants, and certain reporting obligations. In addition, the lenders under the Credit Facilities will
be permitted to accelerate all outstanding borrowings and other obligations, terminate outstanding commitments and exercise other specified
remedies upon the occurrence of certain events of default (subject to certain grace periods and exceptions), which include, among other
things, payment defaults, breaches of representations and warranties, covenant defaults, certain cross-defaults and cross-accelerations
to other indebtedness, certain events of bankruptcy and insolvency, certain judgments and Change of Control events. “Change of Control”
is defined as (a) any “person” or “group” (as defined in Sections 13(d) and 14(d) of the Exchange Act) becoming
the beneficial owner of 40% or more of the ordinary voting power for the election of our directors, (b) during any 24-month period, a
majority of the members of our board of directors ceasing to be composed of individuals (i) who were members thereof on the first day
of such period, (ii) whose election or nomination thereto was approved by individuals referred to in the foregoing clause constituting
at least a majority of such board, or (iii) whose election or nomination thereto was approved by individuals referred to in the foregoing
clauses (i) and (ii) constituting at least a majority of such board; or (c) at any time, if we cease to own and control 100% of each class
of outstanding capital stock of each guarantor free and clear of all liens (other than certain permitted liens).
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In December 2021, we repaid in full the outstanding principal
balance under our Revolving Credit Facility. Therefore, as of December 31, 2021, we had no balance outstanding under the Revolving
Credit Facility and the total revolving commitment of $35.0 million remains available for future borrowings.
Initial Public Offering
On July 23, 2021, in connection with our IPO, we issued and sold
15,000,000 shares of our common stock at a price to the public of $10.00 per share. On August 6, 2021, the underwriters in the IPO exercised
in full their option to purchase an additional 2,250,000 shares of our common stock at the offering price of $10.00 per share. The transactions
resulted in net proceeds to us of approximately $155.6 million, after deducting the underwriting discount, commissions, and offering expenses
payable by us.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Year Ended December 31,
(in thousands)
Net cash provided by (used in) operating activities $ (22,110 ) $ 5,804
Net cash used in investing activities (5,242 ) (2,746 )
Net cash provided by (used in) financing activities 143,368 (1,847 )
Net increase in cash, cash equivalents, and restricted cash 116,016 1,211
Cash, cash equivalents, and restricted cash at beginning of period 28,355 27,144
Cash, cash equivalents and restricted cash at end of period $ 144,371 $ 28,355
Net cash flows used in operating activities increased by
$27.9 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020.
Net cash used in operating activities of $22.1 million for the
year ended December 31, 2021, was primarily due to $59.4 million in incremental net loss, adjusted for non-cash charges of $43.1 million,
and net cash of $5.8 million due to changes in our operating assets and liabilities. Non-cash charges primarily consisted of remeasurement
of warrants to fair value of $15.0 million, depreciation and amortization of $2.4 million, stock-based compensation expenses of $17.1
million and amortization of deferred contract acquisitions and fulfillment costs of $8.1 million. The main drivers of net cash outflows
were derived from the changes in operating assets and liabilities and were related to an increase in deferred revenue of $6.3 million
and an aggregate increase in employees accruals, trade payables and accrued expenses and other liabilities of $10.0 million, partially
offset by an addition to deferred contract acquisition costs of $18.1 million, an increase in trade receivables of $1.1 million and an
increase in prepaid expenses and other assets of $2.3 million.
Net cash provided by operating activities of $5.8 million for
the year ended December 31, 2020, was primarily due to $58.8 million in incremental net loss, adjusted for non-cash charges of $58.8 million,
and net cash inflows of $5.8 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted
of remeasurement of warrants to fair value of $41.5 million, depreciation, amortization and abandonment costs of $7.7 million, stock-based
compensation expenses of $5.1 million and amortization of deferred contract acquisition and fulfillment costs of $4.2 million. The main
drivers of net cash inflows were derived from the changes in operating assets and liabilities and were related to an increase in deferred
revenue of $12.3 million and an aggregate increase in employees accruals, trade payables and accrued expenses and other liabilities of
$13.5 million, partially offset by an addition to deferred contract acquisition costs of $12.9 million, an increase in trade receivables
of $6.3 million and an increase in prepaid expenses and other assets of $0.9 million.
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Investing Activities
Net cash flows used in investing activities increased by $2.5
million for the year ended December 31, 2021 as compared to the year ended December 31, 2020.
Net cash used in investing activities of $5.2 million for the
year ended December 31, 2021 was related to $4.0 million of capitalized internal use software, $1.9 million in capital expenditures, and
$0.1 million in purchases of intangible assets, partially offset by proceeds of $0.8 million from the sale of property and equipment.
Net cash used in investing activities of $2.7 million for the
year ended December 31, 2020, was related to capitalized internal-use software of $1.8 million, capital expenditures of $1.1 million,
and a purchase of intangible assets of $0.2 million, partially offset by net cash acquired in a business combination of $0.4 million.
Financing Activities
Net cash flows provided by financing activities increased by
$145.2 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020.
Net cash provided by financing activities of $143.4 million for
the year ended December 31, 2021 was primarily due to proceeds from our IPO, net of underwriter discounts and commissions of $160.4 million,
proceeds from long term loans of $41.9 million, and $1.3 million of proceeds from the exercise of options by employees, offset by $51.8
million of loan repayments, deferred offering costs of $5.2 million, a $1.6 million payment associated with the conversion of Series F
redeemable convertible preferred stock, and principal payments of finance lease liabilities of $1.7 million.
Net cash used in financing activities of $1.8 million for the
year ended December 31, 2020, was primarily related to repayment of finance lease liabilities of $2.4 million, $1.7 million loan repayments
and payments of deferred offering costs of $0.1 million, partially offset by proceeds from long-term loans of $2.0 million and proceeds
from exercise of stock options of $0.3 million.
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Contractual Obligations and Commitments
The following table summarizes our contractual obligations and
commitments as of December 31, 2021:
Payments Due by Period
Less than 1 year 1-3 years 3-5 years More than 5 years
(in thousands)
Capital lease obligations3 147 — — —
We reported other liabilities of $4.5 million in our consolidated
balance sheet at December 31, 2021, which principally consists of unrecognized tax benefits (see Note 14 to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K). We have excluded these liabilities from the contractual obligations
table above. A variety of factors could affect the timing of payments for the liabilities related to unrecognized tax benefits. Therefore,
we cannot reasonably estimate the timing of such payments.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. Our management believes that the estimates, judgment and assumptions used are reasonable based upon information
available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities