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 slide. If you'd like to view these slides in real time during the call, please visit the Investors 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 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. If forward-looking statements are made as of the date of this call and is accepted 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, 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 useful to investors for informational 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 second quarter conference call. I'm pleased to report another strong quarter with both revenue and diluted EPS coming in ahead of our expectations. In Q2, we continue to see the benefit of our software model strategy in our results. Revenue increased 10% year-over-year, while gross profit increased at an even faster pace of more than 13%. We are particularly pleased with our gross margin, which increased 250 basis points year-over-year. Adjusted EBITDA came in strong at $18.5 million, and non-GAP EPS came in at $0.17. It's a similar strong story for the first half of the year, with revenue growing 11% over the year and gross profit growing 16%. We are pleased with the progress of our software strategy, which is ahead of schedule, and raising our profit guidance for the year, reflecting a better software mix, which David will expand upon later. 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'll briefly review our market opportunity and discuss several large second quarter orders. Our customers are facing security challenges across many use cases. Well-organized, well-funded adversaries are becoming harder to detect as they take advantage of the latest technologies to hide in the shadows. At the same time, there is 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 the homegrown solutions can no longer keep pace with these evolving security challenges and have increasingly sought open analytics platform that can support multiple use cases. Solutions that can fuse 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 analytics 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 its early stages, and with nearly 1,000 people in R&D, primarily based in Israel, we are focused on developing highly sophisticated security analytics software. Let me take you through several large Q2 wins that reflect the successful execution of our strategy. The first example is a $13 million order from an existing national security agency customer that is expanding the capacity of the platform. This is a good example of how a platform can scale and help customers address their growing needs to accelerate complex investigation with sophisticated analytics. The second example is a $10 million order from an existing national law enforcement organization customer that is expanding to a second use case. This customer initially deployed our platform with three-time analytics for investigating drug trafficking and is now expanding our platform to investigate human trafficking. This is a good example of how our customers can use the platform to address multiple use cases and enables us to go with our customers' needs. The third example is a $7 million order from an existing Homeland Security customer that is using our platform to investigate cross-border smuggling of drugs and weapons. The customer decided to replace the homegrown system, which they had used for many years, but found it to be inflexible and expensive to maintain. Behind these wins is our ability to evolve our platform to address multiple use cases. Today, let me double-click into one investigative analytics use case that we are seeing a growing interest in, cybercrime. Cybercrime is becoming more frequent and the methods that are being used are becoming more and more sophisticated, making identifying the bad actors much more difficult. Our customer mission is to identify the bad actors and prevent cybercrime activities that can lead to significant economic losses and security breaches. Many security organizations today are using homegrown solutions that are unable to keep pace with current threats, are difficult to maintain, and are expensive to operate. Our open analytics platform provides our customers with strong analytics tools to accelerate investigations, identify bad actors, and prevent cybercrime. Our platform is built with deep domain expertise, easily integrates into our customer's ecosystem, and is frequently refreshed to keep pace with evolving technology and security challenges. Cybercrime is a good example of how our open analytics platform can address multiple use cases. In summary, we are pleased to have a strong second quarter as a pure-play security analytics company. For the current year, we expect approximately 12% gross profit growth on 10% revenue growth and are pleased to be in a position to raise our annual outlook for EBITDA and annual guidance for non-GAAP EPS due to the successful execution of our software strategy. Looking beyond this year, we believe market demand is strong for security analytics software and we are well positioned for continued growth. As discussed on past calls, we are pleased with the execution of software strategy, and going forward, we'll offer more use cases on our platform through a subscription model. We expect customers to adopt subscription models gradually over time. Now, let me turn the call over to David to discuss our results and outlook in more detail. David?

Thank you, Elad, and hello, everyone. Our discussion today will include non-dub financial measures. A consideration between our GAAP and non-GAAP financial measures is available, as Matt mentioned, in our earning relief and in the investor section of our website. As Elad mentioned, we had a strong second quarter with revenue, gross profit, and EPS coming ahead of our expectations. During Q2, we won multiple seven- and eight-figure orders from existing and new customers, driven by ongoing demand for our analytic software and our strong differentiation. Revenue for Q2 came in at about $116 million, up approximately 10% year-over-year. NAND GAP gross profit came in at $85.6 million, up more than 13% year-over-year. And NAND GAP diluted EPS came in at $0.17. Adjusted EBITDA was $18.5 million in the second quarter. 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 the first half of the year, over 50% of our revenue was recurring and 89% of our revenue came from software. up 200 basis points year-over-year, reflecting the adoption of our analytics platform and the reduction of hardware reselling and professional services. Our H1 non-GAAP growth margin increased over 300 basis points to 73%, and our non-GAAP growth profit increased approximately 16% year-over-year as a result of this improved mix. Over the last few years, we have made investments to transition from a system integrated model to a software model. These investments are now behind us, and we are seeing the benefit of this investment in our software mix and gross profit growth. Now, let us turn to our FOE22 outlook. Starting with the revenue, our outlook for FOE22 is $490 million, of non-GAAP revenue with a range of plus or minus 2%, reflecting approximately 10% year-over-year growth. We expect our annual recurring revenue, including subscription and support revenue, to represent approximately 50% of our total revenue. As Elad mentioned, we are offering more of our platform use cases through a subscription model and we expect gradual adoption of subscription over time. Regarding profitability, we are pleased that our software strategy is ahead of plan, and we are raising our annual outlook for gross margin and adjusted EBITDA, and our annual guidance for diluted EPS. For non-DAP gross margin, we now expect slightly above 72% for the year, more than 100 basis points improvement over the period year, with non-GAAP gross profit growing approximately 3% year over year. We expect our non-GAAP diluted EPS to come in at $0.82 at the midpoint of the revenue range, up from our period guidance of $0.80. Our diluted EPS guidance reflect $87 million of adjusted EBITDA, up from our prior outlook of $85 million. Our outlook for $87 million of EBITDA reflects 18% year-over-year growth normalized for the spin-off dish energies. Let me also discuss how we see the year progressing. We are pleased with our strong first half. and added Q2 with more than $500 million of RPO, reflecting strong demand for our platform. When looking at our backlog and the timing of our customer deployment, we expect Q3 revenue in a range of $112 million to $117 million, and to finish the year with our typical strong fourth quarter. Regarding EPS, As I just mentioned, we are raising our outlook for the year to 82 cents and based on our revenue mix and Opus level for H2, we expect EPS of about 10 cents in Q3 and EPS of about 35 cents in Q4 at the midpoint of our revenue outlook. With that, I would like to hand over to the operator to open the line for questions. Operator?