Verint Systems Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 7, 2023

There are 8 speakers on the call.

Operator

Good day, and thank you for standing by, and welcome to Barron Systems Inc. Q1 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. Phone.

Operator

Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Matthew Frenkel, 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, I'd also like to draw your attention to the fact that certain matters These forward looking statements are based on management's current expectations and are not guarantees of future performance.

Speaker 1

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 is 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. For a more detailed discussion of how these and other risks and uncertainties These 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 April 30, 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 those measures and comparing results between periods and among our peer companies.

Speaker 1

Please see today's slide presentation, our earnings release in 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, We're superior to GAAP financial information, but it's 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. Now, I'd like to turn the call over to Dan. Dan?

Speaker 2

Thank you, Matt. I'm pleased with our 1st quarter non GAAP revenue and diluted EPS coming ahead of our guidance. Our results were driven by strong SaaS momentum and our differentiated open platform. Today, I will start with a review of our Q1 results, including our strong gross margin expansion driven by our SaaS revenue growth. Next, I will review our Opera platform and how we leverage the latest AI innovations to deliver CX Automation and significant customer ROI.

Speaker 2

Finally, I will review our guidance for this year and will discuss the expected benefits to our financial model upon completion of our SaaS transition next year. These benefits include accelerating revenue growth, higher gross margins and incremental cash generation. Let me start with reviewing our Q1 results. Non GAAP Q1 revenue came in at $2.70 ahead of our guidance and gross margin came in close to 70%, a strong 200 bps increase year over year. Our gross margin expansion is being driven by our ongoing shift to SaaS.

Speaker 2

Non GAAP diluted EPS came in at $0.53 also ahead of our guidance. SaaS revenue, which is our key growth driver, increased approximately 24% year over year on a constant currency basis. We are on track to complete our SaaS transition next year, which we define as the milestone where 90% of our software revenue comes from recurring sources. In Q1, we made very good progress towards this goal with this metric reaching 87%, up significantly from Q1 of last year. In summary, we are pleased with our revenue and profitability in Q1 and reiterate our guidance for the year.

Speaker 2

Next, I would like to discuss Significant wins and market dynamics. During Q1, we received orders from some of the world's leading brands such as the Global Bank, Macquarie, Auto Company, Toyota and Telecom provider, Deutsche Telekom. In terms of new logos, we continue to win many new customers and in Q1 we again added More than 100 new logos, including the Bank of England and retailer Casey's General Stores. As discussed on the last earnings call, in the current environment, we are seeing elongated sales cycles, especially with very large deals. While customers may take longer to make decisions, their need to elevate CX and increase automation is very high.

Speaker 2

Our open platform delivers significant customer value and we are winning deals in the current environment based on our ability to clearly demonstrate customer ROI. Let's take a closer look at 3 recent Large 7 and 8 digit SaaS wins. These wins were all driven by our open platform and our CX Automation Innovation resulting in significant ROI for our customers. The first order for $21,000,000 TCV was from a leading U. S.-based financial services company.

Speaker 2

This customer expanded its relationship with Verint with an 8 digit order by adding new applications from our open platform. The second order for $6,000,000 TCV was from a leading telecom company in Europe. This customer merged with another large company and decided to adopt Verint's solution across the combined entity. The 3rd order for $3,000,000 TCV was from a large international bank. This customer expanded its usage of the Verint open platform to address additional CX automation opportunities.

Speaker 2

In this environment, the timing of closing deals can vary by customer. Looking at our pipeline across all types of deals, We expect to drive double digit growth for new SaaS ACV for the year. Let me now turn to the capabilities of the Verint open platform designed to increase CX Automation and deliver significant customer ROI. Customers have been reporting that CX Automation has become a strategic objective. We estimate that the industry already employs 50,000,000 workers globally at an annual cost of $2,000,000,000,000 and improving CX levels with incremental hiring is not sustainable anymore.

Speaker 2

Brands are ready to adopt AI that can help them elevate CX and increase efficiencies to reduce costs. Clearly, the industry needs AI and Verint has developed the platform that translates AI technology into tangible business outcomes. We do this by placing AI at the fingertips of the workforce of human and bots. Here are some examples that explain how Verint injects AI to all parts of the contact center operations. Verint automates interaction responses to improve self-service and reduce the number of calls coming into the contact center.

Speaker 2

Verint automates workforce planning by increasing focusing accuracy. Verint automates the compliance process across all channels to ensure adhere adherence. Verint automates the knowledge search to increase agent efficiency and reduce customer hold time. And Verint automates quality assessments and coaching to increase the effectiveness of the workforce. There are many more automation capabilities available today in the Verint open platform and with the increased pace of AI innovation, We are launching more CX Automation at an even faster pace, which I will explain next.

Speaker 2

There are 3 key attributes that make the Verint open platform highly differentiated. 1st, At the core of the platform is our open engagement data hub. For more than 2 decades, we've been helping customers capture Comprehensive engagement data across all channels and types of interactions between consumers and brands. This vast and unique data set is critical to continuously train AI models and make them accurate and effective. Open Data Hub is a key differentiation of the Verint platform.

Speaker 2

2nd, we also architected at the core of the platform, the Verint's open da Vinci AI. Da Vinci is completely open and takes advantage of the latest AI models available commercially such as GPT and others. This unique design enables Verint to remain flexible and future proof by quickly embracing the latest generic AI innovations for Verint or any other vendor. And 3rd, our platform includes many best of breed applications that leverages da Vinci and the data hub, placing AI at the fingertips of the workforce to deliver tangible business outcomes. Regarding AI monetization, customers today can purchase from the open platform based on the CX Automation consumption model.

Speaker 2

Over time, as AI adoption increases, We expect our customers will naturally increase their CX Automation consumption and this is expected to benefit both our customers as well as our financial results. Turning to our guidance for the current year fiscal 2024. We expect another year of strong SaaS revenue growth and margin expansion with adjusted EBITDA growing faster than revenue and we are maintaining our annual guidance. As we manage the business this year to 7% adjusted EBITDA growth, We continue to progress towards the completion of our SaaS transition and I would like to discuss the expected benefits to our financial model Next year. We expect the completion of the SaaS transition next year to positively impact our top line growth in 2 ways.

Speaker 2

First, when you look at the last year's results and this year's guidance, we have headwinds From the decline in non recurring revenue of approximately 3% each year. Next year with the planned completion of our SaaS transition, We expect these headwinds to be largely eliminated and this is expected to translate to incremental revenue growth next year. 2nd, over the last several years, we are focused on the Verint SaaS transition and at the same time We are now beginning to shift our focus to driving customer expansions initiatives, helping our customers achieve their strategic objectives related to increased CX Automation. This should have a positive impact on our revenue growth over time. Completing the SaaS transition should not only improve our overall revenue growth rate, it is also expected to have a positive impact on margins And cash flow generation.

Speaker 2

Similar to most companies going through a SaaS position, we expect our cash generation to improve. This year, we expect cash from operations excluding non recurring items to grow at a similar rate to revenue And next year, we expect it to grow faster than revenue. We look forward to completing the transition next year and to benefiting from these headwinds to our financial model. As you know, Our transition to SaaS has taken several years given the nature of our large enterprise customer base. As a reminder, Our customer base including over 85 percent of the Fortune 100, including all 10 of the top 10 banks, 9 of the top 9 insurance companies and 8 of the top 10 healthcare companies.

Speaker 2

In summary, CX Automation is a strategic objective as brands are spending $2,000,000,000,000 annually on labor costs and hiring more people to elevate customer experience is not sustainable. Helping brands close this engagement capacity gap By addressing their very large labor cost, we see exclamation is a significant long term opportunity for Verint. We've architected the Open Data Hub and Verint da Vinci AI at the core of the platform. And now with the faster pace of AI innovation, Verint is increasing our differentiation as the leader in CX Automation. Our SaaS position is nearing the end of the journey and we look forward to the financial and operational benefits we expect next year.

Speaker 2

And finally, we have strong margins and a strong balance sheet, which provide us flexibility as we continue to execute our previously announced stock buyback program. Now let me turn the call over to Grant to discuss the financials in more detail. 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

For certain metrics, it also includes adjustments related to foreign exchange rates. Starting with our Q1 results, non GAAP revenue came in at $217,000,000 ahead of our guidance. Non GAAP diluted EPS came in at $0.53 also ahead of our guidance. SaaS revenue increased approximately 24% year over year on a constant currency basis. There are 2 main drivers of our SaaS revenue growth, New customer deployments and conversions.

Speaker 3

In Q1, the growth from both drivers was relatively evenly split. For the year, we project around 2 thirds of our growth to come from new customer deployments and 1 third from conversions similar to prior years. And the percentage of our software revenue coming from recurring sources increased to 87%, up approximately 400 basis points year over year. Turning to gross margins, our recurring revenue generates much higher gross margins than our non recurring revenue And our recurring revenue growth has been driving total gross margin expansion. In Q1, I am pleased to report that gross margins increased to nearly 70%, a more than 200 basis point increase year over year.

Speaker 3

Our recurring revenue gross margin has already improved to the mid to high 70% range due to the scale of our SaaS operations. And going forward, as our revenue mix continues to shift towards SaaS, We expect total gross margin to continue to move higher. Turning to guidance. We are pleased with our revenue and profitability metrics in Q1 and we are maintaining our guidance for the year. Let me discuss how we see the year progressing.

Speaker 3

On a non GAAP basis, for revenue, we expect 935,000,000 Plus or minus 2% with sequential increases in revenue every quarter. We expect a slight increase in Q2, For new SaaS ACV, we expect double digit growth this year. So far in the year, new SaaS ACV was $16,000,000 in Q1 and $12,000,000 in May. This brings our last 12 month new SaaS ACV bookings through May to $103,000,000 reflecting 7% growth over the same period in the prior year. With respect to the progression of the current fiscal year, Through May, we have $28,000,000 closed out of the more than $50,000,000 projected in the first half and an additional $60,000,000 in the second half of the year.

Speaker 3

I would like to note that with ratable revenue recognition, The exact timing of bookings does not significantly impact revenue in the current financial period. We expect our gross margins to increase sequentially and for the full year to increase around 50 basis points year over year. We expect OpEx to increase modestly in Q2 from Q1 levels and we expect to maintain that level of spend for the rest of the year as we manage expenses in the current economic environment. And for the full year, we expect our operating margins to expand a bit more than 50 basis We expect adjusted EBITDA to increase 7% for the year to a bit more than $250,000,000 through a combination of strong SaaS revenue growth, gross margin expansion and expense controls. And for diluted EPS, we expect $2.65 at the midpoint of our revenue guidance with sequential increases in EPS consistent with our sequential increase in revenue.

Speaker 3

Regarding the below the line assumptions, We expect interest and other expense on average of $750,000 per quarter. Net income from non controlling interest Should be about $200,000 per quarter. Our cash tax rate should be about 10% and we expect around 75,000,000 Fully diluted shares outstanding. Looking beyond this year, as Dan discussed earlier, We believe the completion of our SaaS transition will have positive benefits to our financial model next year. Let me provide you with some additional details on these benefits.

Speaker 3

Starting with revenue, as we have shifted to SaaS, our non recurring revenue has steadily been declining. Looking at last year's results and this year's guidance, non recurring revenue represents a headwind to total revenue growth in an amount of about 3 points each year. And we believe this headwind will be largely behind us next year. In addition, as Dan mentioned earlier, we believe we will see a benefit to our top line from shifting our focus from SaaS migration to platform and AI adoption. With respect to cash flow, similar to most companies going through a SaaS transition, We expect our cash generation to start to grow faster.

Speaker 3

To put this in perspective, last year, we generated $190,000,000 of cash from operations excluding non recurring items. This year, we expect this to grow in line with revenue And next year, we expect to grow faster than revenue at a double digit rate. I'd like to highlight That our free cash flow acceleration should be even faster as the one time investments over the last few years related to the spin and our office space will be behind us next year. Turning to our balance sheet. We continue to be in a very good financial position.

Speaker 3

Our net debt remains well under 1 times last 12 month EBITDA and is further supported by our strong cash flow. We expect our balance sheet to get even stronger going forward as we benefit from the foundation we laid since the spin resulting in continued improvement in margins and cash flow. And regarding our previously announced $200,000,000 stock buyback program, To date, we have repurchased close to $90,000,000 worth of shares. In summary, Our non GAAP revenue and diluted EPS came in ahead of guidance driven by our differentiated open platform. We expect our platform to drive strong SaaS growth and margin expansion for the full year and we are maintaining our guidance for the current year.

Speaker 3

Looking ahead to next year, we expect our financial model to further benefit from the planned completion of our SaaS transition. These benefits include accelerating revenue growth, higher gross margins and incremental cash generation. Finally, Our ability to deliver innovative CX Automation and drive significant customer ROI positions us well for sustained long term growth. Before taking questions, I'd like to highlight several Investor Relations initiatives. First, we've updated the financial dashboard on our IR website to help investors focus on the critical metrics associated with the end of our SaaS transition.

Speaker 3

2nd, we'll be updating sell side analysts on our AI powered platform at our Engage conference next week, where we'll showcase our latest innovations. And 3rd, In the fall, we'll be hosting an Investor Day for both sell side analysts and investors to demonstrate our AI innovation and discuss the benefits of completing our SaaS transition in more detail. With that operator, please open the line for questions.

Operator

And thank you. And one moment and wait for your name to be announced. And our first question comes from Ryan MacDonald from Needham and Company. Your line is now open.

Speaker 4

Thanks for taking my questions and appreciate all the color, especially in the sort of the post SaaS Transition world here for Verint. And that's where I really wanted to start, Dan. Can you kind of double click on that a bit more? Can you talk a bit about the benefits of Sort of what the completion of the SaaS transition will bring in, in particular, you talked about sort of the second revenue driver of acceleration around sort of the AI Platform adoption will help further that acceleration of growth. Can you just maybe talk a bit more about where that comes from or how investors should think about that coming in?

Speaker 4

Thanks.

Speaker 2

Sure. Yes, sure. Thank you. So we're almost approaching the midpoint of the year, so it's a good time to start to talk about next year and I'm Really excited to finish the cloud transition as we discussed before. So there are immediate benefits that we will see next year And there are more benefits over time.

Speaker 2

And I'll talk about AI separately. I think it's a very important topic, but let me start kind of with A review of why this fast transition completion is good. And Based on the detailed analysis that we did for our customer base, we believe that next year the headwind from non recurring decline is coming to an end. And just this will result in a couple of points of incremental growth, even if the rest of the business performs exactly the same way it is this year. So that's one thing.

Speaker 2

The second thing is we also see an increase that Customer base shifting to running in the Verint cloud. And these customers are Already SaaS, but for now they host Verint solutions in other clouds, could be in partner clouds or their own cloud. So, there are clear benefits for this customer to shift to the Verint cloud for faster innovation and especially AI and Quick time to value. And we expect a minimum of 2x uplift if these customers just move like to like. But of course, many of them are expanding and we expect up to 10x if they expand in the platform.

Speaker 2

And they don't have to expand at the time of the conversion. They can definitely expand On the conversion and then over time, but it's a great uplift opportunity for us from this customer base. Finally, As we complete the fast transition, we're going to focus on helping them expand. We You asked what are we going to do? So it's a little early, but we're starting actually this year, so we will be fully ready next year.

Speaker 2

And as we kind of shift the focus to operational Operationizing the completion, it's more marketing campaigns on the base. It's the pricing models. I'll discuss Maybe later, the consumption model and it's obviously the sales force that will be focusing more on helping customers do this conversion and expansion. So there's some uplift that comes from this conversion and of course expanding As these customers are looking to increase consumption of CX Automation and that drives a very strong ROI. Now in addition to what we expect to revenue accelerating, We definitely expect gross margin to continue to expand.

Speaker 2

We discussed many times that our recurring revenue has higher gross margin In the mid to high 70s, so the shift to more recurring continued to benefit gross margin and we saw some very nice expansion in Q1. And Grant discussed also the improvement to our cash flow generation, which is Acceleration in cash from operation, but also acceleration in free cash flow because some of the one time investments we did after the spin are also going Come to an end, so free cash flow is going to accelerate even faster next year. So From a big picture perspective, when you think about this SaaS transition, the economic value of a SaaS deal is far greater then perpetual over time. And our customers benefit from faster innovation in the Verint cloud and of course we benefit from higher economic value. And because we have very large customers and they moved to start slowly, our transition took several years.

Speaker 2

But for the same reason, we expect that we'll continue to renew and expand with these customers as they consume more AI from the platform And increased the spend with Verint and again the expansion opportunity could result in a 10x uplift. So we see very tangible benefits that we expect next year and even more so over time.

Speaker 4

Appreciate the color there. And then maybe as

Speaker 2

I think about, we've been getting

Speaker 4

a lot of questions from investors, obviously, with generative AI and the potential disruption it can have on the contact center broadly. But Can you talk about why these investments in AI are a good thing for Verint over time?

Speaker 2

Sure. So AI plays a role in many industries, but clearly it plays a very big role in the customer engagement. And we discussed many times, we estimate that brands spend $2,000,000,000,000 on labor and it's not sustainable. So our customers I'm really excited about AI and I can tell you that in Q1, we estimate that more than Half of the deals we did in Q1 had some elements of AI already included. But as much as customers are They also want to make sure that it's creating ROI and it's not just technology.

Speaker 2

So what Verint does is really we're exclusively focused on CX Automation, that's what we do and that means that we our mission is to transform AI technology 2 business outcomes. And that's what customers want because they don't want to buy AI, they want to buy the business outcomes that Great, the ROI. So why are we going to benefit from AI? So first, there's a simple reason we have an open platform and it's differentiated and best in the market And its ability to place AI innovation at the fingertips of the workforce. And we also I can talk about how we monetize AI And through a consumption model and that's good for customers and also good for Verint.

Speaker 2

But let me start with the first point, why we have the best platform in the today. So our platform is open and it's open in all dimensions. We have the OpenDaVinci And OpenDevi takes advantage of commercial AI models in addition to our own proprietary models. So I can tell you with Specifically with GPT, we already have GPT 3.5 in production with customers. We have GPT 4.0 in our research lab And we will be introducing new use cases because there's some additional capabilities in 4 That's specifically around leveraging visual imports and significantly larger prompts that will create New use cases that Verint will commercialize.

Speaker 2

I believe that when it comes to GPT, Open source generative AI this year is equally if not more disruptive than GPT-four And we have basically we have every and any open source AI from any vendors as part of da Vinci and it's completely open. So DaVinci is architected at the core of the platform and I'm not aware of any other vendor in the market that actually have this architecture. So it's highly differentiated. And why it's important is because At the core of the platform, we also have the data hub and the platform can train all the AI models, Whether it's proprietary from Verint or 3rd party, they train on real engagement data 20 fourseven. And data is critical.

Speaker 2

It's critical for the accuracy and effectiveness of AI. We know that when AI doesn't work, it's very frustrating to people and that's just useless. So training is a key component and for over 2 decades, we Help our customers capture data and our data is completely open. So we bring together data from many data silos across the customer ecosystem. And again, no other vendor has a data hub architected at the core with such dash and diversified datasets that is available for AI training.

Speaker 2

So as you can see, we have da Vinci, it's open, we have data that is VAST and train all the time, but then the last component, you need a platform to transform technology into business outcome. And the platform offers many best of breed applications and it's completely open to allow customers to start anywhere. So they can use Any piece of workflow that they want and inject AI into that workflow. And the result of this is You bring the AI to the fingertips of the workforce, so they can use it and it will augment The work increased obviously increased their productivity. And let me stop here and see if any follow-up questions.

Speaker 4

Yes, no, that's helpful. And maybe just one more from me. You mentioned earlier about the potential for a 2x uplift when

Speaker 2

A customer

Speaker 4

who is on is hosted on the Verint cloud versus another cloud. How are you thinking about in terms of strategy Salesforce incentivizing customers to drive that shift going into next year. Thanks.

Speaker 2

Yes. So the way we designed the SaaS transition Because we have large customers and they had preferences for cloud and we wanted to make sure that they're moving to SaaS And regardless of which cloud they run, and that's what the first part of our SaaS transition. But over time, our customers realized that running in a Verint cloud allows us to introduce innovation faster than when they run-in different clouds, Just because we put new software in our cloud every 2 weeks. So the AI increased the pace of innovation And obviously cloud is the best vehicle to drive innovation faster for quick run to value. In fact, da Vinci is only available in the Verint Cloud today.

Speaker 2

So that's a big incentive for our customers to Leverage the latest da Vinci capabilities. And again, now that we're getting to 90% of software revenue recurring and The SaaS position will be behind us next year. We're increasing the focus also internally in terms of programs that we offer customers and Pricing consumption models and of course, sales force incentives, this will be introduced later in the year, but I think it will start to really kick off next year and beyond that.

Speaker 4

Excellent. Appreciate the color. I'll hop back in the queue.

Operator

And thank you. And our next question comes from Shaul Eyal from TD and Kankakem Tower. Your line is now open.

Speaker 5

Thank you so much. Good afternoon, guys. Apologies for some background noise here. So Dan, it would appear that you, Grant, Alan, the team definitely seeing kind of the Whatever is left in the fast transition and I'm getting emails asking me As we start thinking about your next year's revenue guidance, and again, I don't want to front run the Analyst Day that you I alluded to later on this year, but is there any chance that we're going to be heading back to double digit growth Territory, is that a possibility at all?

Speaker 2

It's too slow to discuss next year guidance, Also because the economic environment this year and that's why we discussed it in terms of incremental growth that we see next year to this year. Of course, if the overall economy improves, the incremental growth will be on top of a faster Foundational growth, let's call it. But whether it's next year or the year after, We stated the goal that based on an open platform, daVinci and data at the core and driving More ROI for customers, we definitely are targeting double digit revenue growth over time. We're already at 27 percent EBITDA margin this year. So we talk about continued margin expansion.

Speaker 2

So we are targeting to increase revenue growth and at the same time expand margins. And I think for I mentioned before a 10x opportunity for our customers if they Adopt more AI across the platform. And I think if you want to think about the growth potential here or the TAM, Maybe the best thing is to discuss an ROI example. So let's take, For example, a customer that employs 2,500 employees, customer service employees, this customer will spend $100,000,000 a year on labor. That's $2,500,000 times $40,000 a year.

Speaker 2

So, that's a big spend. And Verint customers have thousands of Agents and we have customers that have tens of thousands of agents. We are very strong at the mid to high end of the market, so our customers have lots of labor spent. So now let's assume that this customer purchased 3 Verint specialized bots And I'll explain what a specialized spot is. But they only purchased 3 for a price of $2,000,000 ACV.

Speaker 2

So they're committing to spend $2,000,000 a year. So these 3 specialized bots can help the workforce To increase productivity, so let's say one specialist bot is an expert in automating interaction wrap up. They're not replacing humans. They're not better than humans, but they're really good at doing one thing, the interaction wrap up and therefore they shave 30 seconds from each interaction. The 2nd specialized bot from Verint is an expert in surfacing contextual knowledge.

Speaker 2

So that saves another 30 seconds from the interaction. And the 3rd specialized bots is only good at real time agent coaching Based on assessing where coaching is needed and real time assisting the agent and that saves another 30 seconds. So now that's 90 seconds less and if the average interaction duration is 5 minutes, This customer workforce productivity just increased by 30% using 3 specialized bots And this could be a $20,000,000 ROI for this customer, dollars 20,000,000 savings. So our customers are motivated to consume more and when we think about what's the potential, what's the TAM, what is varied after, when we came up with this CX Automation and we did the spin and we said that's what we're going to focus. That's really the mission that we have to help customers to Our creative productivity by creating specialized bots and we have dozens of specialized bots each focused on one element Of the customer engagement workflow.

Speaker 2

So they're not just superhumans, but They make the agents into superhuman because they're there to help them do something. And when you free the agent time, our customers now can decide either they want to cut cost Or they want to improve the customer experience or what we see many customers are now thinking to use that extra time To make the customer service people into salespeople and leverage the fact that they had a very good interaction with the customer to sell them something. So there's a lot of different ways that this automation can benefit customers.

Speaker 5

Got it. Got it.

Speaker 2

That's how I think about the long term opportunity.

Speaker 5

Understood. Thank you for that elaborated reply. And just maybe quick question also. I know that you've mentioned really maybe a handful of elongated, maybe some deals that are We're pushed a little bit by elongated sales cycle, but has any deal canceled or was it just A timing issue and all the transactions that might have been postponed, how many of those have already come back?

Speaker 2

So we mentioned in Q4 some slip deals. I can say that the majority came in Q1 and we expect over the year some were pushed more than just a few months. In Q1, we had a couple of deals that actually closed shortly after Q1. The $21,000,000 deal that I mentioned before, that's an interesting story because the deal was fully negotiated and ready to sign Way before quarter end and it's a $21,000,000 deal, so many signatories and the signature process just took Long and ended shortly after quarter end. But it's a runnable revenue recognition, so It really doesn't affect anything.

Speaker 2

And other than the which period to report it, it's It doesn't really impact the revenue at all. So we see customers are taking longer with The final approval, especially when it gets to the CFO, but eventually they recognize that they need technology and they cannot Spend money on labor and we can help them to create good ROI and that's get the deal over the goal line. Understood. Thank you so much. Good job.

Operator

And thank you. And our next question comes from Sumeet Samama from Jefferies. Your line is now open.

Speaker 6

Hi, good afternoon. Thanks for taking my questions. Dan, maybe first one for you. Just on the pricing model for AI, can you remind us, are you currently pricing da Vinci? Is it a platform fee plus some interaction model?

Speaker 6

Is it Based on the number of seats, just how should we think about the current model and how are you thinking about that model evolving over time?

Speaker 2

Yes. So today we give customers an option to purchase the specialist bots Either by the users that they help or by the consumption, so how many times they're being called to help. I can say that some customers like to go by consumption because they can start small And they want to make sure that they only increase automation consumption when it's really working. So that's what's appealing to some customers. Other customers prefer to just pay a fixed price per user, because they want to kind of cap their cost of automation.

Speaker 2

But when you think about this, it's not that we have one specialist box per user. I envision that over time each user will have 3, 4, 5 or 10 different bots helping them doing different things, right. The wrap up work that agent does manually is replaced with a bot that it can only do wrap up. Searching for knowledge is completely different bot. Coaching the agent, it's a different bot.

Speaker 2

So, they can pay by user, but then they'll have to pay for each bot that They use or they can prefer the consumption. The way they actually buy, they don't buy bots, They buy workflows, right? We have been delivering workflows to our customers for many, many years that help them to Run their business processes and the bots are actually injected into the workflow. So the agent doesn't have to stop what they're doing and say, oh, I'm going to call a bot. And everything is being actually automatically built into the way they work today.

Speaker 2

But when they come to do a certain task, If the box was purchased by the customer, that thought shows up and just do the work. So Instead of summarizing the call, which can take 30 seconds, sometimes a minute, the bot, if its purchase come in, They see the summary. They approve it. It takes them 5, 10 seconds and they go to continue to take the next direction. So it's we're very flexible because we know our customers like AI, but they also Want to make sure that this works in their own environment and that's why we see that as they get more confident, they'll increase consumption over time.

Speaker 6

Great. And then, Grant, maybe just a follow-up question for you on the SaaS revenue guidance. I understand the comps get easier in the back half. I guess, As you sit here today, how much of that how much visibility do you have into that acceleration that's required in the back half of the year to hit the full year targets? And how much I guess how much new business you have to book in order To get back to the target, how much variance is there?

Speaker 3

Sure. Thanks. Thanks for the so we do see uptick in the second half Growth rates, and for SaaS, it's really driven by a couple things that we talked about in the past. One is The new and expansion deals, right, and that's related to the new bookings and the other is related to conversions. Our Q1, we saw a fifty-fifty split between those in terms of driving that SaaS revenue growth.

Speaker 3

2nd half and for the full year, we expect it to be more closer closely related to 2 thirds of that overall SaaS revenue In the second half, we'll come from the new and expansions and about a third from the conversion activity. So in terms of the visibility and uptick, a portion of that is outside of the conversions and getting Some of the uplift Dan mentioned, it's also related to some of the new bookings that we have. And I gave some commentary on What we see the $50,000,000 of greater than $50,000,000 in new SaaS ACV first half and a slightly more in the second half that's $60,000,000 And we have good visibility on the pipeline, right, coverage to achieve that. And then there's one other dynamic that we have that drives a little bit Faster acceleration in the second half for growth rates and that's related to some renewal volumes that we have coming up in the second half of the year. And that's really driven by the nature of our SaaS transition.

Speaker 3

We established our transition program 3 years ago. We had a number of customer contracts who signed at that time and those renewals are coming up in the second half of this year. So That combination of dynamics is what drives a little bit of the uptick that you'll see first half to second half.

Speaker 6

Great, really helpful. Thank you for taking my questions. Appreciate it.

Speaker 3

You bet. Thanks.

Operator

And thank you. And our next question comes from Peter Levine from Evercore. Your line is now open.

Speaker 7

Great. Thanks guys for taking my question here. Maybe Dean, just to piggyback off what you just said with the renewals, Maybe could you give us an initial read for the contracts that are up? Are you seeing it are you seeing those contracts take longer to close? What percentage are you seeing those conversion rates or renewal rates at all stay steady, improve, decrease?

Speaker 7

Just give us a sense of kind of where you think those renewals will come in in the second half?

Speaker 3

Yes. Renewals, we're not seeing much change at all on those Contracts, I think, what Dan had highlighted and where we're seeing more of the elongated sales cycle are really, on the newer deals or the Expansion related, because that's where customers need to go and find the additional funding. On the renewals, it's pretty well baked in and for the funding environment. So we've seen very good Steady progression on that over time.

Speaker 7

Now in terms of contract terms, we've heard from others that's reported this quarter, like they're not getting 3 years anymore. So are you is that what you're seeing from both new and existing contracts, where it's typically maybe you're seeing more 1 year deals versus 3 year deals?

Speaker 3

What we've seen so our new deals typically are 3 years. And then for the renewal opportunities that we have out there, it's really a mix. It's not a standard 3 year. If anything, we've actually seen a slight tick up And the term length that we have with customers in many cases starting to renew a little bit longer And part of that is the understanding and the messaging that Dan has highlighted of the ability to get additional value from Verint's platform. So locking in gives them a little bit of pricing benefits without as much of uplift, But they have that ability to get a lot more innovation from our platform in doing so.

Speaker 3

Sorry, Dan, go

Speaker 2

ahead. On what I see in that regard, customer on one hand, The natural trend is I don't want to renew longer because I don't know what's going to happen, but once they realize that they Actually, we're not locking them in because the platform is totally open and they can do whatever they want with their telephony, CRM system, they can buy any application. We and they can leverage the platform in any way. As Grant said, we don't see that as an issue. And at the same time, we see customers that really want to lock the price for 3 years because of inflation And they have a price guarantee if they deduct the price for 3 years.

Speaker 2

So net net, yes, no impact on variance for now. Then just one last quick one. I don't think

Speaker 7

I've heard it on the call, but just a kind of a macro update. If you look at your full year What assumptions are you baking in? Are you assuming the environment gets worse, stays kind of where it is today? Just give us

Speaker 2

a sense of When you think about

Speaker 7

the full year guide, what your assumptions are around the background impacting your ability to close deals? Thank you.

Speaker 2

Yes. No assumption in improvement of Economic environment, there's no reason for us to make that assumption. So we expect the same. We talked about the new deals, the ESSECV, 50 in H1 and we have 28 through May and then 60 in H2, which is As Grant just said, we have the pipeline coverage. But in addition, the assumptions this year is that we'll have the gross margin expansion because we continue to shift With good SaaS growth, recurring revenue growth, we continue to shift to higher gross margin and we will We assume that the gross margin improvement throughout the year.

Speaker 2

And in our OpEx level, We had $106,000,000 in Q1. We plan very small sequential increases because we Again, I want to be cautious in this environment. So the net net is 7% EBITDA growth. That's over $250,000,000 EBITDA this year, 20% margin and that's really our focus this year. And while we're doing that, We want to complete the SaaS transition and focus on helping customers adopt AI.

Speaker 2

So that those three things are The main strategic initiatives that I'm driving in the company this year. Great. Thank you for the color.

Operator

I would now like to turn the call back over to Matthew Franklin for closing remarks.

Speaker 1

Thanks, Justin, and thank you to everyone for joining us today. As always, please feel free to reach out to me with any questions and look forward to speaking to you again soon. Have a good night. Take care. This concludes today's conference call.

Operator

Thank you for participating. You may now

Remove Ads
Powered by Quartr
Earnings Conference Call
Verint Systems Q1 2024
00:00 / 00:00
Remove Ads