WSFS Financial Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
December 6, 2023

There are 8 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Verint Systems Third Quarter Fiscal 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your first speaker today, Matthew Frankel, Investor Relations and Corporate Development Director. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon and thank you for joining our conference call today. I'm here with Dan Bodner, Verint's CEO Grant Highlander, Verint's CFO and Alan Roden, Verint's Chief Corporate Development Officer. Before getting started, I'd like to mention that accompanying our call today is a slide presentation. If you'd like to view these slides in real time during the call, please visit the IR section of our website at verint.com, click on the Investor Relations tab and click on the webcast link and select today's conference call.

Speaker 1

I'd also like to draw your attention to the fact that certain matters discussed on this call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of the federal securities laws. These forward looking statements are based on management's current expectations and are not guarantees of future performance. Actual results could differ materially from those expressed in or implied by these forward looking statements. The forward looking statements are made as of the date of this call and as except as required by law Verint assumes no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward looking statements.

Speaker 1

For a more detailed discussion of how these and other risks and uncertainties could cause Verint's actual results To differ materially from those indicated in these forward looking statements, please see our Form 10 ks for the fiscal year ended January 31, 2023, our Form 10 Q for the quarter ended October 31, 2023, when filed and other filings we make with the SEC. The financial measures discussed today include non GAAP measures as we believe investors focus on these measures comparing results between periods and among our peer companies. Please see today's slide presentation, our earnings release and the Investor Relations section of our website atverint.com for a reconciliation of non GAAP financial measures to GAAP measures. Non GAAP financial information should not be considered in isolation from, as a substitute for, or superior to GAAP financial information, but is included because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes. The non GAAP financial measures the company uses have limitations and may differ from those used by other companies.

Speaker 1

Now, I'd like to turn the call over to Dan. Dan?

Speaker 2

Thank you, Matt. I'm pleased to report that our Q3 revenue and non GAAP diluted EPS came in ahead of our expectations, and we are on track to finish the year strong with double digit revenue growth in the 4th quarter. Today, I will start with a review of our 3rd quarter results. Then I will discuss our key wins, AI trends and Verint's platform differentiation. And finally, I will provide a preview of our agenda for our Investor Day next week.

Speaker 2

In Q3, revenue came in at $219,000,000 and non GAAP diluted EPS came in at $0.65 In addition to our results coming in ahead of our expectations, we saw several positive trends driven by our AI platform innovation. 1st, in Q3, more than 50% of our SaaS bookings included AI powered bots, which is a significant increase from the prior year. 2nd, the vast majority of our new SaaS ACV bookings came in as bundled SaaS. This significant improvement from last year reflects demand for Verint AI, which is offered only in the Verint Cloud. We're pleased to see our bookings shifting to more bundled class as brands seek to leverage AI to increase CX Automation and adopt more AI from the Verint's platform.

Speaker 2

At our Investor Day next week, we'll discuss in much more detail how the Verint platform enables brands to build a workforce of people and bots working together and the positive impact that customer AI adoption is expected to have on our growth. Let me turn to Q3 wins and pipeline growth. In Q3, we continue to have significant wins across existing customers and new logos. We received more than 30 orders in excess of $1,000,000 TCV as large enterprises across the globe continue to expand and adapt more applications and AI for our platform. These orders included a large order in excess of $20,000,000 TCV from a leading entertainment services company in Europe, A $6,000,000 TCV order from a leading telecom company in North America and a $4,000,000 TCV order from a leading healthcare company in the U.

Speaker 2

S. I'm pleased that each of these 3 large orders included AI powered bots. In fact, 9 of our 10 largest bundled SaaS deals in Q3 included Verint Box. With respect to new logos, in Q3, we again added more than 100 new logos, including large brands such as CarMax, Louis Vuitton and Sky. Our objective with new logos is to have them expand in our cloud platform and purchase more bots over time.

Speaker 2

In addition to these orders, I'm pleased to report that as of the end of Q3, our 12 month SaaS pipeline increased more than 20% year over year. While we've seen elongated sales cycles this year due to the macroeconomic environment, The demand for CX population is strong and customers' growing interest in AI is reflected by our expanding SaaS pipeline. Regarding fiscal 2024, we expect to finish the year with double digit revenue growth in Q4 And later, Grant will discuss our Q4 outlook in more detail. Next week, at Investor Day, We will review the completion of our SaaS transition over the last 3 years and discuss the next 3 years with our next chapter focused on CX Attilation leadership and growth acceleration. Here is a quick preview of the agenda we plan to cover at Investor Day.

Speaker 2

1st, We will review the last 3 years following the spin of our cybersecurity business. During this period, Our total revenue increased every year while executing a complex SaaS transition with large enterprise customers. Also as part of this SaaS transition, we invested in building a highly differentiated CX Automation platform, which was launched earlier this year and we can now shift our focus to execute our next chapter. The second topic of the agenda will focus on the AI opportunity driving our next chapter over the next 3 years. We will review our CX Automation platform and provide a deep dive into our AI differentiation, including the 35 AI powered bots available in the platform today.

Speaker 2

We will discuss our go to market and the AI opportunity with our large customer base. Verint has a large customer base of enterprise customers and we support 4,000,000 agents worldwide helping them to process 30,000,000,000 interactions annually. We believe we are well positioned to augment this 4,000,000 agent workforce in our base with our open platform and AI powered bots. As the market shifts to a workforce of people and bots working together, We have a significant opportunity in our large customer base and with new logos. The 3rd topic on the agenda is the positive economic impact of increased AI adoption.

Speaker 2

Going forward Verint is well positioned for the market shift to more bots and fewer people. Verint deploying more bot licenses with fewer agent licenses will increase our TAM overall and provide us the opportunity to accelerate SaaS revenue growth. To bring this to life, we will provide specific examples of how we monetize our AI capabilities and the resulting positive impact to our long term financial model. In summary, we're pleased to have overachieved revenue and non GAAP diluted EPS in Q3 and are on track to finish the year with strong double digits revenue growth in Q4. We're also encouraged by the increase in our pipeline, the addition of new logos and the increase in customer adoption of Verint Box.

Speaker 2

We're excited about our next chapter of growth driven by customer AI adoption and look forward to seeing you at our Investor Day. And now let me hand the call over to Grant. Grant?

Speaker 3

Thanks, Dan. Good afternoon, everyone. Our discussion today will include non GAAP financial measures. A reconciliation between our GAAP and non GAAP financial measures is available, as Matt mentioned, in our earnings release and in the IR section of our website. Differences between our GAAP and non GAAP financial measures include adjustments related to acquisitions, including fair value revenue adjustments, amortization of acquisition related intangibles, certain other acquisition related expenses, stock based compensation expenses, Separation related expenses, accelerated lease costs, IT facilities and infrastructure realignment, as well as certain other items that can vary significantly in amount and frequency from period to period.

Speaker 3

Now let me start with an overview of our Q3 results. Revenue came in at $219,000,000 $4,000,000 ahead of our guidance. Non GAAP gross margins came in strong at 71%, slightly above the prior year and up 180 basis points from Q2. We continue to be pleased with our gross margin expansion progress this year. The combination of our revenue overachievement and strong gross margins drove non GAAP diluted EPS of $0.65 $0.08 ahead of expectations.

Speaker 3

For Q4, at the midpoint of our annual guidance, we expect around $264,000,000 of revenue, representing 11% year over year growth, another quarter of sequential gross margin expansion and about $0.99 of non GAAP diluted EPS. As we discussed last quarter, Our large sequential revenue increase in Q4 is driven by significant expected growth of our unbundled SaaS revenue stream. For full year fiscal 2024, our guidance for revenue is $910,000,000 plus or minus 2 percent and $2.65 for non GAAP diluted EPS at the midpoint of our revenue guidance. I will discuss our guidance in more detail later, but first I would like to provide additional color on our Q3 performance. Starting with SaaS metrics, several important leading indicators came in very positive.

Speaker 3

The first indicator is bookings mix. New SaaS ACV bookings came in at $25,000,000 or an annual run rate of around $100,000,000 consistent with our expectations. Looking at the SaaS bookings mix in Q3, nearly 90% of our new SaaS ACV bookings were for bundled SaaS compared to 65% in the prior year. Also, more than 50% of our new SaaS ACV bookings included Box, representing a large increase in customer AI adoption from the prior year. Since today our bots are only offered in the Verint Cloud, which we report as bundled SaaS revenue, we expect our bot innovation to drive growth in our bundled SaaS revenue stream going forward.

Speaker 3

The second indicator is pipeline. We continued to see strong growth in our 12 month SaaS pipeline, which was up more than 20% year over year driven by our OpenAI platform and bots. Similar to the bookings mix trend, Our SaaS pipeline has also trended to bundled SaaS, which now represents nearly 90% of our SaaS pipeline and reflects the strength of our AI platform and bots. Turning to SaaS revenue. As we have discussed in the past, The revenue recognition for bundled SaaS and unbundled SaaS under ASC 606 are very different.

Speaker 3

Bundled SaaS revenue is recognized ratably over the term of the contract, whereas unbundled SaaS revenue is recognized predominantly upfront. Due to this difference in accounting treatment, unbundled SaaS revenue as well as the year to year growth rates can fluctuate significantly from quarter to quarter. Therefore, I will discuss the unbundled and bundled revenue streams separately and also share SaaS ARR that normalizes these accounting differences. As you can see from the table on the left, bundled SaaS revenue has been trending up quarterly and we had another quarter of sequential revenue growth in Q3. We expect bundled SaaS revenue to increase sequentially again in the Q4 and for the year we expect double digit revenue growth in bundled SaaS.

Speaker 3

From the table on the right, you can see our unbundled SaaS Revenue has fluctuated quarter to quarter and we expect a significant increase in Q4 to around $100,000,000 of revenue. While year over year growth in unbundled SaaS revenue can fluctuate quarterly, for the full year, we also expect double digit revenue growth for unbundled SaaS. Let me provide some more detail on what is driving the large sequential increase in unbundled SaaS revenue in Q4. 3 years ago, we started a new program under which we offered our customers multi year SaaS contracts that were recognized as part of our unbundled SaaS revenue. This program is ongoing and when these contracts come up for renewal, The value is predominantly recognized upfront in the quarter in which the contract is renewed.

Speaker 3

With respect to Q4, We have a significant amount of unbundled SaaS contracts coming up for renewal. In fact, when analyzing the 48,000,000 Sequential increase in Q4 unbundled SaaS revenue, dollars 40,000,000 of the $48,000,000 increase is driven by these renewals. Overall, it's important to note that quarterly fluctuations of unbundled SaaS revenue also drives quarterly fluctuations in our total SaaS revenue. Looking forward, we expect total SaaS revenue to increase around 25% in Q4, which brings our full year to about 15% year over year growth. Let me now turn to SaaS ARR, which is a way to look through the unbundled quarterly fluctuations.

Speaker 3

As a reminder, SaaS ARR normalizes all SaaS contracts to reflect a consistent and annualized ratable view and is becoming an important metric to understand our SaaS growth trends as customers shift to the Verint cloud and our revenue shifts to bundled SaaS. Q3 SaaS ARR growth came in at 11% year over year, reflecting our new SaaS ACV bookings and solid SaaS renewal rates. We just covered the unbundled and bundled revenue streams. And now I'd like to briefly discuss the other 2 software product related revenue streams, perpetual and support. Our perpetual revenue came in at $25,000,000 in Q3 and as we have completed our perpetual license to SaaS transition, we expect it to remain around $25,000,000 in Q4 and going forward.

Speaker 3

In Q3, Our support revenue continued to gradually decline as our support base shifts to SaaS over time. For Q4, we expect a decrease of approximately $1,000,000 At Investor Day next week, we will discuss trends for our 4 software product related revenue streams over the next 3 years. Turning to gross profit, I am pleased to report that our non GAAP gross margins continued to expand in the quarter, both sequentially and year over year to 71.3%. Year to date, our non GAAP gross margin came in at 70.2%, up 100 basis points compared to the same period last year. For Q4, we expect non GAAP gross margin to be around 73%, also up more than 100 basis points year over year.

Speaker 3

We believe our ability to increase gross margins reflects the strength of our AI innovation. CX Automation creates significant ROI for brands as it enables them to reduce costs, while at the same time elevating customer experience. Verint is able to capture a portion of these customer savings in the way we price our solutions, which benefits our gross margins. We will also discuss our improved economics due to AI adoption further at our Investor Day next week. Turning to our annual guidance.

Speaker 3

On a non GAAP basis, for revenue, we expect $910,000,000 plus or minus 2%. At the midpoint of our guidance in Q4, we expect $264,000,000 of revenue. We expect both gross margin and operating margin to increase around 100 basis points year over year. And for diluted EPS, we expect $2.65 at the midpoint of our revenue guidance. Regarding below the line assumptions for Q4, we expect interest and other expense of around 1,900,000 Net income from a non controlling interest of around $250,000 and for the full year, We expect around a 9.5% cash tax rate and around 74,000,000 fully diluted shares outstanding.

Speaker 3

Turning to our balance sheet. We continue to be in a very good financial position. Our net debt remains well under 1x last 12 month EBITDA and is further supported by our strong cash flow. I am pleased to report that GAAP cash from operations is up 19% year over year through the 1st 9 months. Regarding our previously announced $200,000,000 stock buyback program, To date, we have repurchased close to $150,000,000 worth of shares.

Speaker 3

This program was announced in Q4 last year as a 2 year program, but we now expect to complete it faster than planned. And looking forward, we expect to announce a new program once the current one is completed. In summary, we are pleased to have overachieved our revenue and non GAAP diluted EPS expectations in Q3. We are encouraged by the positive leading indicators in bundled SaaS bookings and SaaS pipeline mix and are on track to finish the year strong with double digit revenue growth in the 4th quarter. Next week at our Investor Day, we will provide a deep dive into our AI differentiation, review our financial model and discuss our next chapter of growth driven by AI adoption.

Speaker 3

With that operator, please open the line for questions.

Operator

Thank you. And at this time, we'll conduct a question and answer session. And our first question will come from the line of Joshua Reilly from Needham. Your line is open.

Speaker 4

All right. Thanks for taking my questions. Nice job on the quarter here. Maybe just starting off with a macro question. I noticed In the prepared remarks and in the press release, you didn't call out the elongated sales cycles, maybe to the degree that you had in the last couple of quarters.

Speaker 4

Can you just give us a sense of has there been a shift in terms of the sales cycles or anything on the macro front that led to

Speaker 5

a little bit better net new ACV?

Speaker 2

Yes. I think that what we're seeing is that no change. So, allocated sales cycles that we reported at the beginning of the year have not changed, but we've adjusted our forecast and our expectations to The market dynamics today, so we hope that We'll see better economic environment next year. But what's driving our growth next year is a lot of the bundle sales shift that is happening this year Because the revenue is lagging the booking and the shift is really the more important change that we are reporting now in Q3 And it's all driven by AI. As Grant explained, I touched on that.

Speaker 2

Aura Innovation, all the bots in the platform are offered only in the Verint Cloud, which drive the bundled SaaS revenue recognition. So as customers are adopting bots and very important quarter by the way because we announced our open platform in Q2 in the middle of Q2 and Q3 was our Q1 that we actually was in full motion in the market with our customers. And 9 out of the 10 large largest SaaS bundled SaaS deals came with bots. So obviously they came and bundled us because that's the way our customers will consume the AI from Verint. So that is a shift.

Speaker 2

And of course We're booking now is revenue next year. And the other thing which again we reported is the pipeline growth in Q3 and that's all very much 90% of the pipeline is bundled to us and AI driven. So no change in economic Environment and so on, but definitely behavioral change from our customers shifting more to AI and therefore shifting more to bundle sales.

Speaker 4

Got it. That's helpful. And then if you look at this concept of fewer agent licenses and more bots going forward, is this something being discussed with Customers today and are they already kind of planning their contact center headcount accordingly for technology shift with not only your AI products but other vendors? Or is this something that you think is still a few years out from impacting contact center agent headcount?

Speaker 2

We definitely are discussing this. I personally met with many CIOs over the quarter And this comes up in every discussion and the question is how fast it's going to happen and not whether it's going to happen. The desire our customers have is Definitely to increase CX Automation because that's the only way they can elevate the customer experience and at the same time Reduced costs. They just cannot continue to hire to elevate CX. And so that is definitely the Center of the discussion with our customers.

Speaker 2

And the way we do that in our platform is also very differentiated, because we provide An orchestration mechanism for our customers to orchestrate, kind of dial up and down how many people and how many bots they actually Wanna have in their workforce and that's why we call it a platform of 1 workforce people and bots working together. So next week in Investor Day, we're going And a lot of time demonstrating the technology, the power of the bots and also giving examples of what happened to the customer spend when they shift from people to bots and then what happened to the Verint, TAM and growth opportunity. And you will see with again very tangible examples that It's a win win. Our customer is going to save a lot of money. They will increase the technology spend, But the net decrease will be bigger because they will decrease much more the labor spend.

Speaker 2

So we expect as a vendor, we expect that as they increase the technology spend on buying On buying both licenses, the impact on variant is that the gain from this bot licenses is far greater than The loss on the agent license. And we will again, we'll bring that all into the economic impact and provide a model so you can Marvel that phenomena for the next few years. As and where we are now, just to complete the answer, I mentioned before that we currently support 4,000,000 agents. And when we look at our renewal rates, again, Good renewal rates in Q3. We have very loyal customer base that they're sticky because they like the product, they like The value that we bring to them, but when we see this renewal rate that that $4,000,000 number has not trended down yet.

Speaker 2

So while customers are buying more bots, it's mostly to avoid more hiring and we don't see yet that they are Reducing their agent headcount. At the same time, again, we are expecting that it's going to happen. We're expecting not only this increased capacity that BOSS is going to bring to the workforce is not going to only be used for Reducing labor cost is also going to be used for increasing customer experience and increasing revenue opportunity with customers. We will discuss and again Demonstrate all that. We're going to bring some customers and partner to talk about it next week.

Speaker 2

So that's going to be front and center to our discussion, How the industry is shifting to more AI, Verint is shifting to more bundled SaaS and our TAM is growing because we have a much larger AI opportunity In the future.

Speaker 4

Got it. Very helpful color. Thank you, guys.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Hugh Cunningham from Cowen. Your line is open.

Speaker 6

Hey, guys. Thank you for taking my question. From our side, let's say, We also want to say our thoughts and prayers are with you the members of the Verint family that are in Israel, that is still very much on the minds I have everyone here. In terms of the question that was just asked, Dan, Do you have a sense for your end customers? How many of them are focused on really enhancing their Competitive position by improving their customer service and not so focused on reducing cost by reducing contact center headcount.

Speaker 2

Yes. Thank you, Yiu, for your kind note. I would say that today in the current environment, customers are 1st and for all focused on reducing their costs, their labor costs. But at the same time, they can't keep hiring to introduce a better customer experience. So a lot of our customers are reporting that they know they need to hire people to elevate CX.

Speaker 2

They want to elevate CX because that's strategically important to them. But they're already spending a lot of money. They're already it's very hard to hire and retain an affiliate agent. So they're looking actually first to Stop the bleeding, which is increasing labor costs. I personally again had discussions with executive level that are thinking beyond that and understand the power of Customer loyalty and revenue generation over time increasing from better customer sentiment.

Speaker 2

So I think that is Personally, I think it's coming, but if I have to report what I see now in the market, the reason typically that currently they're buying is help me reduce my labor And because the ROI is also very quick and they don't have to deploy if you are a 10,000 agent connect center, The way we provide you the box consumption is you can have a volume based consumption. So you can start with 200 agents and just look at what does that does to increase capacity. And now that you've proven that in your own environment, if you want to expand, It's all in the Verint Cloud. It's really just changing entitlement and we're billing them for more bus consumption. So it's very Easy for them to look at, okay, I'm going to start, I'm going to stop the bleeding in terms of I can't hire people I need now to bring bots.

Speaker 2

But as I keep increasing the volume, I may want to start to use those bots for freeing up people to do more customer service and more Personal relationship building with customers. I personally think it's coming, but it's not yet.

Speaker 6

Okay. Thanks for that, Dan. And then one question on the bundled, unbundled mix. It would seem to me that the motivation To switch to the Verint Cloud and enter into a bundled agreement is compelling, particularly given That's the only way to access the bots and Verint AI. What am I missing on the other side?

Speaker 6

What's keeping and there's this strong renewal this quarter or expected in Q4 for unbundled. Why is there strength still in the unbundled side? Why isn't everyone going to bundle?

Speaker 2

Yes. So, first you remember that Verint is very much the high end of the market, mid to large enterprise customers. And if you look at kind of the industry reports, only 20% or under 20% of that end of segment of the market As move to cloud, well, Verint will already have the majority of our customers in the cloud, so from a revenue perspective. The way we did that is we know that our large customers did not want to be disrupted. Many of them have When you have thousands of people, it's not one contact center, it's multiple, they may be in different countries, they may be with different technologies.

Speaker 2

So these large customers really do not have the desire to just rip and replace everything and do one big transformation into the cloud. So the way we designed our platform is our bots only work in Verint Cloud, but you don't need to bring your legacy Verint solution to the Verint Cloud. So our bots work in the cloud with your on prem or we have many partners that are hosting Our software, so a bot's independent cloud can work with a partner cloud, can work with a customer cloud. What that did is It puts us in a position and when we look at the Q3 booking results that we have a lot of Bundles us booking from unbundled us customers. And when it comes time to renew, They're renewing unbundled because they're not ready to rip and replace what's working.

Speaker 2

But we gave them a path to consume AI in the VAM Cloud without the need to go through a big transformation. Now at some point in time, They're going to take the legacy and move it to the cloud as well. They're going to do it at their own pace. And we know that at that point we get some uplift, but We're not dependent on that transition from customers that only when they move to the cloud, they also buy variant bots. So we designed it that we decoupled the 2 things and that's why we will see in Q4 many unbundled renewals As Grant said that that's something we've been discussing now those renewals with from these customers For the last 6 months, that's typically when we start the renewal process and we know they're going to renew in unbundle.

Speaker 2

And some of them when they renew in unbundle, They're going to add new capabilities, new AI capabilities in bundle sets.

Speaker 6

Okay. Understood. Thank you, Dan.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Peter Levine from Evercore. Your line is open.

Speaker 7

Great. Thanks guys for squeezing me in here. Yes, maybe Grant, I think your comments was interesting to me on gross margin. You talked about You guys the leverage you're seeing is coming from the cost savings. So maybe just talk us through how that's getting calculated and how you're thinking about that as you plan for next year?

Speaker 3

Yes. What I mentioned, Peter, was the cost savings that our customers realize, the way we Price, right, our SaaS business, the AI, we're able to capture that, more of that because the ROI is very high. So that's what we see and why we look at this and The trajectory that we're on, as Dan mentioned, really driven on the back of the bundled SaaS, the bookings we did this year, driving some accelerated growth next And even with the scale on that, we see a path to expanded margins next here and as we continue into the future.

Speaker 7

Your guidance of the $100,000,000 of the unbundled SaaS in Q4, You said that's I think dependent on the number of deals that are coming up for renewal. Maybe talk us through where we are in that cycle, meaning 50%, 60%, 70% of those deals have closed. Are you still expecting that? Meaning, how derisked that over?

Speaker 3

Yes. What you're asking is what kind of visibility do we have? It seems like a big number, right? And that's the important Point and one of the reasons why I wanted to share here of that $148,000,000 sequentially, right, up from Q3 and that's where $40,000,000 of that growth comes from this renewal volume that we have, whereas the $8,000,000 of additional growth comes from new. The renewal business tends to have less risk.

Speaker 3

We tend to see that because customers already have the software deployed. We begin discussions on the renewals with them 6 months in advance. We know funding typically is secured. So it's a different sales dynamic for this volume of renewals. It's really just that the timing of when these renewals have come up, More of them are here in the Q4 and that's what drives a bit of that revenue dynamic.

Speaker 3

But looking at it across the year, right, has a little bit more natural dynamic along with the SaaS ARR that we're seeing.

Speaker 7

Perfect. If I could squeeze one last one and maybe just a follow-up from an earlier question. Is it a way that you can quantify for us, Yes, we talked about some of the deals that pushed out of the first half into the second half. Can you quantify what you So in Q3 perhaps like I got pushed into Q4 and then perhaps what getting pushed into call it the first half of next year?

Speaker 2

Yes. I think that what we did after Q2 and we saw again Q1 The Q1 slipped deal pushed to Q2 and then there was Q2 we just adjusted our focus, right? We came in Q2 and said we're going to lower The guidance for the year based on our reality of the deal cycle is just longer. So we applied that what we saw in Q2 into Q3 and we were pretty much where we expected to be. So I think we're reading the market.

Speaker 2

There was the question before, are things getting worse? No, they're not getting worse. I don't think they're getting better, but I think we have adjusted our view. And that's why we got $25,000,000 ACV in Q3. We're expecting A sequential increase and then a year over year increase in Q4, dollars 25,000,000 to $30,000,000 is kind of my range.

Speaker 2

And we think this is adjusting to the elongated sales cycles already. Okay. And will we

Speaker 1

get any color into fiscal 2025 Numbers or the guidance for fiscal 2025 and next week?

Speaker 2

So We will discuss the next 3 years next week, right? That's why we have Investor Day. So I think we're going to give you a lot of Information about how to think about the opportunity that Verint has and how to model Verint for the next few years. I would say that First, we expect next year the revenue to grow and improve growth rates because of the bundled sales booking this year. So That increase in bundled subs this year will drive increase in revenue next year.

Speaker 2

So obviously we discussed that. We'll discuss the next year The trends in detail, but the most important thing for us right now as we think about acceleration of growth rates next year and beyond It's of course the industry that we're in is very labor intensive and it's ripe for automation. And We are at the early stage of this and we know that our customers are buying bots, but it's still very early stage. I think that's going to drive the growth. So you'll see next week that the biggest growth driver for Verint next year and beyond is going to be Bundle SaaS.

Speaker 2

And we because that because all our innovation has moved into Bundle SaaS, we're still innovating in unbundled. It's not that we are telling our customers that they have to Moving away from legacy, we're absolutely giving them updates software updates on everything that is in unbundled. But if they want to buy AI, there is no AI available from Verint in unbundle. All the AI has to buy in the Verint cloud and that's The bundle starts and that's what's going to be the main driver. So let's kind of wait for next week.

Speaker 2

You'll see As we dissect each one of the revenue streams that Grant mentioned before, bundled SaaS, unbundled SaaS, support, perpetual, We'll take all these streams and we today we kind of review them for the last 3 years and we're going to review them for the next 3 years.

Speaker 7

Thank you very much for the color guys.

Operator

Thank you. One moment for our next question. Our next question will come from the line of Samad Samana from Jefferies. Your line is open.

Speaker 5

Hi, good evening. Thanks for taking my questions. I guess maybe, one, Dan, on the 4,000,000 agents, I think you'd said that the majority of the like the revenue is in the cloud, but I was just just of those 4,000,000 agents that are Using the software on a daily basis today, how many of those are accessing it via cloud deployment versus an on premise deployment? I'm just trying to see maybe what the opportunity there is to continue pushing the actual users to the cloud side. So just

Speaker 2

That we have completed the SaaS transition. So let's be clear about what that is. So in terms of new perpetual license revenue, As we said, we are at $25,000,000 run rate this quarter. We expect it next quarter. We expect it going forward.

Speaker 2

So We have a certain amount of customers that are on prem and will remain on prem and that's going to be about $100,000,000 of revenue annually. Most of these customers by the way are Financial Services and for a variety of reasons they're not moving to the cloud anytime soon. So that's kind of one class of customers that are still buying in perpetual license, okay? Everyone else It's buying in a SaaS model, but we still have about $140,000,000 That our support this is support stream, right? And these customers are paying maintenance for support and therefore they're still on They are still they're not buying anything new in perpetual license, but they have not converted yet to a SaaS license.

Speaker 2

So that's $140,000,000 And then when you look at our bundled SaaS, it's all in the current cloud. And unbundled SaaS, Roughly, you can say about half of the unbundled running in the in a partner cloud, not in the Verint cloud, so that's why they are unbundled, There are approximately half is running in some Verint partner cloud And the other half is running at the customer choice, whether it's on prem or in their choice of cloud hosting provider. So I can't tell you exactly the number is, but you can see that more than 50%, if you add the numbers and we're Happy to walk you through that math, but if you have this number you'll see that more than half of our customers are running in multi tenant cloud somewhere either in Verint Cloud or in a partner cloud. And the remaining are either on prem or they are in some sort of a SaaS subscription model, but not yet in the Verint Cloud or in the Verint Partner Cloud. Is that

Speaker 5

okay? Can

Speaker 2

I help you?

Speaker 5

Yes, Definitely. Appreciate that. And then maybe just thinking about the different partners that you work with. I know we talked about sales cycles by customers and kind of how those elongated. Are you seeing a change in the partners that you work with demand from them or anything that's kind of idiosyncratic that we should be aware of from some of your larger partners that use Verint to provide WFO to their end customers?

Speaker 5

And is that something that's also How much visibility do you have into that for the Q4?

Speaker 2

Yes. We see definitely a change. All our partners Want to resale Verint bought. So it's no longer WFO. I mean they're still selling WFO, which is our legacy product, but they all are being asked by the end customer, hey, I saw Verint has this thing, can I get it?

Speaker 2

So they need to buy it in the Verint Cloud. So all our partners almost without any I would say all, but there's always exceptions, but the vast majority Are now reselling in the Verint Cloud or in the process of onboarding themselves to resell in the Verint Cloud so they can have access to the Verint Got it. Appreciate it. We see that as an additive business. We're not Again, we are fully supporting our legacy products, W4 products, they're all available in the platform, But we have enhanced legacy product with bots, we've created new bots, we have 35 bots in the platform and obviously that's the next Chapter of Verint and our partners want to differentiate their offering, so they want to leverage what Verint can offer.

Speaker 2

And because we are an open platform, we announced open SICAS back in June, we basically allow all partners Free access to our platform, so they can choose anything they want and resell. And we're definitely in the process of onboarding them. And we'll see that that shift from unbundled booking to bundled booking is going to happen also in our partner ecosystem.

Speaker 5

Great. Thank you so much.

Operator

Thank you. And I'm not showing any further questions at this time. I would now like to turn the back To call back over to Matthew Frankel for closing remarks.

Speaker 1

Thanks, Victor, and thank you to everyone for joining us today. We hope you can join us next Wednesday at our Investor Day. Have a good night.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

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Earnings Conference Call
WSFS Financial Q3 2024
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