Cognyte Software Ltd.

Hello, everyone, and thank you for joining our first conference call as an independent public company. My name is Matthew Frankel, and 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 would also like to draw your attention to the fact that certain matters discussed in this call may contain forward-looking statements within the meaning of the Private Security 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, except as required by law, Cognite 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 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, when filed, and other filings we make with the SESB. The financial measures discussed today include non-GAAP measures. as we believe investors focus on those measures in comparing results between period and among our peer companies. Please see today's presentation slides, our earnings release, and the investor section of our website at Cognite.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 that the company uses have limitations and may differ from those used by other companies. Now, I would like to turn the call over to Elad.

Thank you, Matt, and welcome everyone to our first conference call as an independent public company. With the mechanics of the separation from various behind us, we are now a pure-play security analytics software company, laser-focused on addressing the needs of our customers and accelerating our growth. I would like to begin today's call with a view for fourth quarter and fully resolved, followed by a discussion of market trends and outlook. In Q4, non-GAAP revenue came in at $125 million, slightly higher than we expected, bringing non-GAAP revenue for the year to $447 million. On a GAAP basis, Revenue was $124 million and $443 million, respectively. The first half of last year was impacted by global travel and other restrictions due to the pandemic. The business environment improved throughout the year. We experienced sequential revenue growth every quarter and entered FY22 with a higher software mix. With the first quarter almost completed, we are off to a strong start to the year. Looking back on FY21, we made significant progress with our software model strategy ahead of expectations, and I'm pleased to announce that we now view it as being complete. We expect that the completion of this transition will benefit our future growth rate. For the full year, 85% of our revenue came from software, driving gross margin in excess of 70%. We believe our security analytics platform strategy is resonating well with our customers and is driving many of our competitive wins. In Q4, we continue to win multi-million dollar deals, including two 8-figure deals, and I will discuss a few of them later in the course. Next, I would like to review our market opportunity. We estimate our total addressable market to be approximately $30 billion, growing 10% per year. We believe there are three trends behind the demand for security analytics software. First, governments and enterprise security organizations face more complex challenges and threats are becoming more difficult to detect. Second, there is a growing volume and diversity of structured and unstructured data, and data is augmented and spread across organizational silos. And third, leading security organizations seek open security analytic solutions, solutions that can fuse data at scale from different sources and generate high-quality insights faster to mitigate threats before they unfold. CookNight is well-positioned to continue to win large deals from existing and new customers based on our strength of our platform and our reputation for delivering value. Our technological strengths include an open platform, a broad portfolio, and the ability to generate real-time or near-real-time insights for a wide range of security use cases. Our brand leadership is based on a strong track record with more than 1,000 customers in more than 100 countries around the world for over two decades. Let me share with you a few examples of why we win. The first example is a $10 million queue for order from an existing customer. a national security agency that was looking to shorten the time of security investigation and realized they needed to modernize the technology that powered the investigation. They selected Cognite due to our open analytics platform and the ability to give them to keep pace with emerging threats. They also had confidence in our ability to deliver value based on our track record in previous deployment. This is a good example of a customer with challenges that are constantly evolving who recognizes the need to modernize technology that powers investigations with an open analytics platform. The order came from an existing customer consistent with our expectations that 90% of our revenue each year is reoccurring. We're also winning new customers due to our global leadership position. The second example is a $7.5 million order from a new customer, a ministry of public security that was looking to upgrade their capabilities by replacing their homegrown solution. Our solution has many benefits over homegrown solutions, including real-time insights, openness, and the ability to implement quick technology refreshments. We believe that many security organizations today still use homegrown solutions, and we see this as a significant opportunity for Cognite. A third example is a $6.5 billion win from another new customer. This law enforcement agency recognized the need to connect organizational silos to better achieve the strategic mandate. Behind this large win is our ability to fuse data from multiple data silos and apply advanced analytics to help them address multiple security use cases with an open platform. We believe these large wins reflect our differentiation and our ability to grow with existing customers and win new customers. Now that the activities related to the spin-off are behind us, we have shifted our focus to accelerating growth and extending our market leadership. We are a leader in a very exciting market, and we are well positioned to continue to deliver rapid innovation with our open analytics platform. For the current year, we expect around 10% revenue growth, and we target our revenue growth rate and margins to further improve in FY23 and FY24. Now let me turn the call over to David to discuss our Q4 results and outlook in more detail. David?

Thank you, Elad, and hello, everyone. Our discussion today will include non-GAAP financial measures. A conciliation between our GAAP and non-GAAP financial measures is available, as Max mentioned, in our Earnings Release and in the IR section of our website. As Elad mentioned, we have a strong finish to the year, with revenues that came in slightly ahead of our expectations. For Q4, non-GAAP revenue came in at about $125 million, and adjusted EBITDA came in at $24 million. Non-GAAP gross margin was 71%, up 200 basis points year-over-year. During Q4, we won multiple seven and eight-digit orders. from existing and new customer, driven by our ongoing demand for our analytic software and our strong differentiation. For the year, we generated $447 million of non-GAAP revenue, achieving sequential revenue growth each quarter. Non-GAAP growth margin came in at 71%, up 530 basis points year over year. Adjusted EBITDA came in at $89 million for the year, compared to variance reporting of $90 million. This $1 million difference was driven by variance cost allocation methodology when Cognite was still a part of variance. As Cognite was part of variance in FY21, we don't view EPS as meaningful for last year. Over the last few years, we have made investments to transition from a system integrator model to a software model. These investments are behind us as we completed the transition. We are now focused on accelerating our revenue growth with gradual margin expansion. We are pleased to report that last year, 85% of our revenue was generated from software, up 450 basis points from two years ago. Our long-term objective is to gradually increase the software mix up to a level approaching 90% of revenue. Over the last few years, we have seen a dramatic improvement in growth margin, reaching 71% on a non-GAAP basis in FY21, nearly 1,000 basis points since FY19. Going forward, we expect our growth margin to gradually improve consistent with the expected improvement in our software mix. Turning to FY22, I'm pleased to share that we have started the year with a strong first quarter. There are a couple of days left before Q1 ends, and our current forecast for revenue is between $113 and $115 million, representing 10% to 12% year-over-year growth. We also expect strong Q1 profitability with EPS of at least $0.15. For the full year, we expect $490 million of revenue, plus or minus 2%, reflecting approximately 10% year-over-year growth at the midpoint. We expect annual EPS to come in at $0.80 at the midpoint of the revenue range. Our confidence in the outlook has improved due to a strong Q1, faster delivery cycle as a result of our transition to software models, and a steady and gradual increase in recurring revenue. Let me share with you a little more color on how we see the year progressing. For revenue, we expect sequential increase throughout FY22. with year-over-year growth of over 10% in Q1, slightly below 10% in Q2 and Q3, and approximately 10% in Q4, bringing total revenue to $490 million. We expect gross margin to be up year-over-year to approximately 71.5%, with gross margin saturation quarter-to-quarter based on our revenue mix. For operating expenses, we expect Q1 to be slightly below Q4 fiscal year 21, followed by sequential increases throughout the year. As previously discussed, we expect OPEX to increase 15% for the full year, primarily due to the $15 million of separation-related disenergies. For taxes, we expect our cash tax rate to be slightly above 10%. For share count, we assume 67.25 million weighted average fully diluted shares in FY22. Personal calculation taking the full effect of the spin-off from variance. Based on these assumptions, We expect around 15 cents of EPS in both Q1 and Q2, increasing sequentially in Q3 and Q4, for a total of 80 cents for the full year. Our EPS guidance of 80 cents reflects $85 million of adjusted EBITDA, or 40% year-over-year growth in adjusted EBITDA, normalized for the spin-off dis-energies. In summary, Following the separation from Variant, we are excited about the journey ahead as a pure-play security analytics company. With cutting-edge analytics and AI technology and strong track record, we are well-positioned to grow in a large addressable market driven by favorable trends. 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 margins to continue to expand as we execute on our growth strategy. With that, I would like to hand over the operator to open the line for questions.