Cognyte Software Ltd.

Hello, everyone, and thank you for joining us today. I'm here with Elad Sharon, Cognite CEO, and David Abadi, Cognite CFO. Before getting started, I'd like to mention that accompanying our call today is a WebEx with slides. If you'd like to view these slides in real time during the call, please visit the IR section of our website at cognite.com. Click on the Investors tab, click on the Webcast link, and select today's conference call. 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 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 required by law, cognizant of no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward-looking statements. For more detailed discussion about these and other risks and uncertainties that could cause Cognite's actual results to differ materially from those indicated in these forward-looking statements, please see our annual report on Form 20F for the fiscal year ended Jan 31, 2021, filed with the SEC on April 29, 2021, and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures. We believe investors focus on non-GAAP financial measures in comparing results between periods and among our peer companies that publish similar non-GAAP measures. Please see today's presentation slides and earnings release in the investor section of our website at cognite.com for 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 information about the financial performance of our business and is used by 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 Elad. Elad?

Thank you, Matt, and welcome everyone to our first quarter of FY22 conference call. I'm pleased to report a strong quarter with both revenue and diluted EPS coming in ahead of our expectations. During our last conference call, we discussed the completion of our transition to our software model, and I'm pleased to report that in Q1, We continue to see the benefits of our strategy and our results. Non-GAAP revenue increased 12.3% over year, while gross profit increased at an even faster pace of 18.8%, reflecting an improved software mix. We are particularly pleased with our gross margin, which came in at 72.6%, up 400 basis points. Adjusted EBITDA increased a strong 66%. Our strategy is to empower security organizations with an open analytics platform to help them address many different security use cases. To help bring this strategy to life, today I will review our market opportunity, discuss several large first quarter orders, and discuss recent innovations in our analytics platform. Our customers are facing many security challenges. Well organized, well funded entities are becoming harder to detect as they take advantage of the lesser technologies to hide in the shadows. At the same time, there is a growing volume and diversity of structured and unstructured data, and data is fragmented and spread across organizational silos, making investigations more difficult. Many customers recognize that homegrown solutions cannot keep pace with these evolving security challenges and have increasingly sought open security platforms with cutting-edge analytics. Solutions that confuse data at scale from different sources and generate high-quality insights faster to mitigate a wide range of security threats before they unfold. Our open platform provides many benefits to our customers, including faster innovation and more frequent updates with the latest analytics and artificial intelligence technology. We believe the security analytics market is in early stage and we are committed to staying ahead of the demand curve with our open analytics platform. With nearly 1,000 people in R&D, primarily based in Israel, we are focused on developing highly sophisticated security analytics software. Our total addressable market is around $30 billion, growing 10% per year, and we believe we are well positioned to address this opportunity with our open analytics platform. Let me take you through several large Q1 wins that reflect the successful execution of our strategy. The first is a $14 million order that came from a national law enforcement organization that started with one use case and is expanding into a second use case. This customer initially deployed our platform with Real-Time Analytics for fighting drug trafficking in one agency and over time deployed it across multiple agencies to facilitate collaboration across its different operational units. This customer is now expanding our platform to add additional use case for anti-terrorism. This is a good example of how our platform supports multiple use cases and enables us to go wider and deeper and grow with our customers' needs. The second example is a $9 million order from a national security organization that is replacing a homegrown solution. This organization needed a more scalable, open, and advanced platform and faster innovation to address its changing security needs. Our platform allows them to easily add new data sources and accelerate criminal and terror investigations using advanced analytics capabilities. This is a good example of how our platform addresses the limitations of homegrown solutions. The third example is a $6 million order from an existing national intelligence customer that is expanding the deployment of our latest security analytics software. This is a good example of how our customers look to Cognite to help them address their growing security challenges with real-time analytics. As a reminder, about 90% of our revenue is repeat business from existing customers, reflecting our ability to help them address the evolving security challenges with our cutting-edge technology. We continue to innovate our platform by adding analytics to address new use cases. A recent example of our innovation is addressing cryptocurrency investigations. Cryptocurrencies are being increasingly used for illegal activities such as money laundering, extortion, drug transactions, terror funding and cybercrime. Cryptocurrencies can be anonymous and borderless and it's a challenge to find who is behind those illicit transactions. Investigations with existing technologies often reach a dead end when trying to determine who is responsible. We are about to launch a new solution to help security organizations conduct investigations involving cryptocurrencies. Our solution will be offered on the subscription basis and is designed to identify illicit transactions and suspects and generate actionable intelligence to successfully complete investigations. Blockchain analytics and the challenge it poses to security organizations are good examples of why the rapid pace of innovation is required for our customers to stay ahead of the curve. This is also a good example of how customers can easily deploy new solutions from our open analytics platform. In summary, we are pleased with our strong first quarter as a pure-play security analytics company. For the current year, we expect around 10% revenue growth and we target our revenue growth rate and margins to further improve in FOA 23 and FOA 24. I'm also pleased to share with you that after a successful transition to software, We are now turning our attention to shifting to a subscription model. We expect this initiative to have a positive impact on our revenue composition with more recurring revenue over time. Now, let me turn the call over to David to discuss our current results and outlook in more detail. David?

Thank you, Elad, and hello, everyone. Our discussion today will include non-GAAP financial measures, a reconciliation between our GAAP and non-GAAP financial, is available, as Matt mentioned, in our earnings release and in the investor section of our website. As Elad mentioned, we had a strong start to the year, with revenue and EPS coming ahead of our expectations. During Q1, we won multiple 7- and 8-digit orders from existing and new customers, driven by ongoing demand for our analytics software and our strong differentiation. NANDGAP revenue came in at about $150 million, up 12.3% year-over-year and NANDGAP diluted EPS came in at $0.20. NANDGAP operating income increased more than 100% and adjusted EBITDA increased 66% year-over-year to $21.1 million. Behind our strong result, was the demand for our solution and the successful execution of our software model strategy, which I would like to discuss in greater detail. In Q1, nearly 50% of our revenue was recurring and 89% of our revenue came from software, up 400 basis points year over year, reflecting the adoption of our analytics platform and the reduction of hardware reselling and professional services. Our non-GAAP gross margin increased 400 basis points to 73% and our non-GAAP gross profit increased approximately 19% year-over-year as a result of this improved mix. Over the last few years, we have made investments transition from a system integrator model to a software model. These investments are behind us and we are seeing the benefit of this investment in our software mix and gross margin. As Elad mentioned earlier, after the successful completion of our transition to software, we are now shifting our attention to a subscription model and are in the process of reviewing our go-to-market strategy with the goal to drive more subscription revenue over time. Turning to FY22, we are pleased with our strong start to the year and expect a strong Q2 and a full year. Our confidence in the outlook has improved due to strong Q1 results, faster delivery cycles as a result of our transition to software model, and the gradual increase in recurring revenue. Our outlook for the full year is $490 million of non-GAAP revenue with a range of ±2% reflecting approximately 10% year-over-year growth. We expect our non-GAAP diluted EPS to come in at 80 cents at the midpoint of the revenue range. Our diluted EPS guidance reflects 85 million dollars of adjusted EBITDA or 14% year-over-year growth in adjusted EBITDA normalized for the spin-off dis-energies. Let me provide you with a little more color on how we see the year progressing. For revenue, we expect sequential increase throughout FY22. In Q2, we expect approximately 9% revenue growth year-over-year and approximately 14 cents of diluted EPS reflecting the timing of certain expenses. In summary, with cutting-edge analytics and AI technology and a strong track record, we are well positioned to grow in a large addressable market driven by favorable trends. We are pleased with our first quarter results and for the current year, we expect 10% revenue growth and 14% normalized adjusted EBITDA growth. Looking beyond the current year, we expect revenue growth to accelerate and our margin to continue to expand as we execute on our growth strategy. With that, I would like to hand over to the operator to open the line for questions. Operator?