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spk08: Hello, everyone. I'm Dean Ridlawn, Cognite's Head of Investor Relations. Thank you for joining us today. I'm here with Elad Sharon, Cognite's CEO, and David Abadi, Cognite's CFO. Before getting started, I would like to mention that accompanying our call today is a presentation. If you would like to view these slides in real time during the call, please visit the Investor 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 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, 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 January 31st, 2023, 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, 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 information about the financial performance of 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.
spk01: Thank you, Dean. Welcome, everyone, to the fourth quarter conference call. I'm pleased to report solid Q4 results and that our visibility continues to improve. Non-GAAP revenue adjusted for the SAS divestiture came in at $71 million at the upper end of our expectations and represents 16% sequential growth. Gross margins were also improved compared to Q3, and we continue to benefit from our cost reduction actions. As a result of our strong sequential revenue growth, higher gross margins, reduced operating expenses, and strong collections during the quarter, cash flow from operations was positive during Q4, and we continue to win large deals with our bookings coming in higher than revenues, resulting in our revenue performance obligations, or RPO, of about $580 million at the end of Q4, a sequential increase of more than $50 million. Overall, I'm pleased with our fourth quarter results, and because of our positive momentum and improved visibility, we are raising revenue guidance for fiscal 24. Our investigative analytics solutions help customers address a variety of use cases, primarily across national security, law enforcement, national intelligence, and cyber security agencies. Behind our momentum and improved revenue outlook is the strength of our customer base and our differentiated solutions. I would like to review some of the large deals we won during Q4. First deal is for over $20 million with an existing national intelligence customer, primarily to combat terror threats. The deal is for functionality upgrades to an existing solution and to expand capacity to address the customer's increasing amount of data. We believe we're selected as a result of our cutting-edge analytics capabilities, which significantly improves time to decision, as well as our strong long-term relationship with this customer. We expect about 40% of this deal to be recognized as revenue over the next 12 months. The second deal is for approximately $20 million, and we present a functionality upgrade and a multi-support contract with the National Security Agency. In this deal, the customer is adding capabilities to address anti-terror and criminal activities. We believe we're selected based on our solution's ability to address the customer's evolving needs and the long track record of success we have with this customer. We expect to recognize about 20% of this deal over the next 12 months. The third deal is for approximately $6 million from an existing national security customer. The deal is to upgrade the solution with more functionalities, including the ability to analyze high volumes of additional data sources. We believe we're selected based on our strong analytics engines and the long-term deep relationship with this customer. The customer is using our solution to accelerate investigations and decision-making in order to effectively combat terror and criminal activities. We expect to recognize most of the deal over the next 12 months. Let's review what happened in fiscal 23. We continued to win many large deals from our large customer base and new customers. At the same time, due to budget constraints and operational readiness, many customers delayed deployments. This resulted in an unusual dynamics with revenue declining and uproar increasing. Given the unusual dynamics, we took the following proactive actions. We streamlined the operations of the company. We focused on use cases and countries where we see the best opportunities. We adjusted our cost structure, and following active dialogue with our customers, we regained visibility in Q4. We believe that our proactive actions were necessary to address the unusual dynamics, and we believe it will position us for growth and profitability. We are entering fiscal 24 with improved visibility following the active dialogue we had with our customers. Our short-term RPO, which reflects orders we expect to convert into revenues over the next 12 months, was approximately $280 million, representing more than 90% of our revenue outlook for the year. We have a global presence and do business in more than 100 countries. Our new and existing customers view us as domain experts and trusted partner that helps them address the evolving needs with our market-leading analytic solutions. Our solutions deliver powerful functionality that helps customers accelerate and improve investigations and decision-making. Looking at our outlook for this fiscal year, as a result of our increasing backlog and strong Q4 order activity, we are raising our revenue guidance for fiscal 24 to $300 million, plus or minus 2%, reflecting approximately 6% year-over-year growth on SAS-adjusted non-GAAP basis. Regarding our cost structure for Fiscal 24, given our large RPO, we have decided to keep our operating expenses relatively flat on a quarterly basis, and together with the expected sequential revenue growth for the year, we are expecting to achieve positive quarterly EBITDA in Q4. As of cash flow, we are expecting cash flow for operations for the full year to be break-even. Looking beyond fiscal 24, we believe we're well positioned for sustained growth as market conditions improve. Our customers continue to face significant investigative 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, customers have to address growing volume and diversity of structured and unstructured data And data is fragmented and spread across organizational silos, making investigations more difficult. Our mission is to enable our customers with the latest technology to make faster decisions to mitigate a wide range of threats before they unfold. Recent innovation in the AI technology presents significant opportunity to uncover insights from data that were not possible with legacy technologies. We have a large R&D organization, and we are focused on incorporating recent technologies into our solutions. We believe that our continuing investment in R&D will provide incremental value to our customers and drive more demand for our solutions. Now let me turn the call over to David to provide more details. David?
spk02: Thank you a lot and hello everyone. Our discussion today will include non-GAAP financial measures. The conciliation between our GAAP and non-GAAP financial measures is available, as Dean mentioned, in our earning release and in the investor section of our website. Our website also includes a financial dashboard with a tab that detail our historical results, excluding the recently divested situation intelligence solutions. This should help as you are updating your models. As Elad mentioned, we had a solid performance in Q4 across revenue, cash flow from operations, and bookings. During Q4, we continue to win deals from existing and new customers, including multiple seven and eight-digit deals, driven by ongoing demand of our investigative analytics software and our strong differentiation. Non-GAAP revenue for Q4 came in at $73.6 million, including $2.4 million of revenue for one month of SAS business. As a reminder, we divested the SAS on December 1st for a total consideration of about $47 million. During Q4, we collected about $42 million with the balance expected to be received during Q2 subject to working capital adjustment. An additional layout amount may be paid subject to the SAS business meeting certain performance-based goals. The sale was completed at an attractive multipal and enabled us to increase our focus on use cases that we believe have stronger growth and margin profiles and better leverage our core competitive strengths and customer relationships. As a result of SAS divestiture, I will discuss our non-GAAP adjusted result without SAS. Q4 adjusted non-GAAP revenue came in at about $71 million, up 16% from Q3. Looking at the revenue mix, software revenue came in at $24 million representing more than 30% sequential growth. Software services revenue came in at $40 million representing 6.7% sequential growth. And professional services and other revenue came in at $7 million. While Q4 adjusted non-GAAP revenue grew by 16% from Q3, our gross profit grew faster by 23%. Q4 gross margin was 64.9% on adjusted non-GAAP basis, up 380 basis points from the Q3 level. Our Q4 adjusted non-GAAP operating expenses were $55 million, $4.6 million lower than Q3. reflecting our cost reduction initiative throughout last year. Approximately, half of our operating expenses are related to R&D, which is a level that we believe is appropriate on an ongoing basis to maintain leadership in current and future solutions that our customer will need. And the other half is related to SG&A, a level that we believe supports our revenue growth expectations. We ended Q4 with an adjusted net gap operating loss of $8.8 million for the quarter. Turning to cash, we generated positive cash flow from operation of $9.1 million during Q4. The positive cash flow was driven by our improved financial result and strong cash collections. In terms of balance sheet, we ended the quarter with cash of about $56 million and no debts. Turning to RPO, RPO increased sequentially in Q2, Q3, and Q4 last year. Total RPO at the end of Q4 was $583 million, an increase of more than $50 million from the end of Q3 and $85 million from Q4 in the prior year. $281 million of our total RPO is for the next 12 months. $281 million of short-term RPO is close to our revenue outlook, providing us good visibility for the current year. Turning to FY24. For the full year, we expect $300 million of revenue, plus or minus 2%, reflecting approximately 6% year-over-year growth on SAS-adjusted non-GAAP basis at the midpoint of the range. Our revenue outlook is driven by our current view of the backlog deployment schedule for this year, based on the discussion we have had with our customers and assumed similar macro environment conditions. Let me share with you more color on how we see the year evolving. For revenue, based on our current short-term backlog, we expect Q1 revenue to be at a similar level to last year's Q4 adjusted non-GAAP revenue, and we expect multi-sequential increases throughout FY24, bringing total revenue to about $300 million. We expect non-GAAP growth margin to improve year-over-year and to be about 65%. Growth margins may fluctuate between quarters best on our revenue mix. For our non-GAAP operating expenses, we expect Q1 to be about $55 million, a similar level to Q4 of fiscal 23, and be relatively flat throughout the year. During FY24, we will have the full benefit from the cost reduction actions we made throughout FY23. Our improved cost structure, combined with the sequential revenue growth, will allow us to improve margins over time. We expect adjusted EBITDA to improve over the year and expect positive quarterly adjusted EBITDA by Q4 of this year. We expect our cash taxes to be about $12 million and non-controlling minority interest to be between $4 and $5 million. As a result, we expect annual EPS loss to come in at 60 cents at the midpoint of the revenue range. For share count, we assume about 70 million weighted average fully diluted shares in FOA24. Turning to cash flow, we continue to target about break-even cash flow from operations for the year, and we expect about $10 million of payments for CAPEX, partially offset by additional expected receipts from the SAS divestiture related to the holdback. To summarize, We believe threats are pervasive and continue to evolve. As a result, our customers need our innovative solutions to address these challenges. We are a market leader in investigative analytics and have a strong and lengthy track record with customers around the world. We are pleased to be in a position to raise our revenue outlook. We expect about $300 million of revenue for FOA24, an increase of about 6% on SAS-adjusted non-GAAP basis, and targeting breakeven cash flow from operations for the year. Looking beyond FOA24, we believe that the combination of our cutting-edge technology, large customer base, and significant backlog position us well for long-term growth. With that, I would like to hand the call over to the operator to open the lines for questions. Operator?
spk04: To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Mike Kikos with Needham. Your line is now open.
spk07: Hey, great. Thanks, guys. You have Mike Kikos here from Needham. I just wanted to ask you first on the RPO and the short-term RPO specifically, I appreciate the visibility you guys are talking to, but I know that this RPO you're citing called $281 million, which is about 90% of the revenue forecast for the upcoming year. Maybe it'd be helpful, but do you guys typically come into the year with that 90% outlook based on that short-term RPO, or has that been more heavily handicapped, this go-around, just given the macro? And the reason for the question, really, just full disclosure here, but I'm trying to put together the numbers on my side, given the SIS divestiture, which is a newer phenomenon for the business.
spk01: Hi, Mike, thank you. So actually, when we look at it on the guidance, the way we look at it is that in our last call, we discussed improved visibility. It was a result of the dialogue we had throughout the year with our customers, and it was related to deployment schedule. And last call, we were able to resume guidance because of this regain of visibility. And now, when we look at where we are today, following a strong Q4, booking came in ahead of expectations, and we were able to raise revenue guidance. And just to remind you, we had a strong booking in Q4, The RPO is indeed short of RPO, stands on $290 million. Relatively high in terms of percentage to enter the year, this RPO is relatively high. But given the macro conditions, we think that our outlook is the appropriate guidance for the year.
spk07: Thank you for that. Thank you. I really appreciate it. And if I could just ask another question here on the gross margins. I think you guys are looking for pulling about 200 basis points of year-to-year improvement in the adjusted gross margin if I look at fiscal 23X, the SIS divestiture, versus David's commentary for fiscal 24. Could you help us think through what's expected to drive that Gross margin improvement is part of it based on the revenue mix. And then can you also talk about any improvements you guys have made to the product itself or their components that would be beneficial as well?
spk02: Yes, Mike, it's David. We're looking to gross margin of 65 next year. This is what we are planning. And indeed, it's like about the basis points improvement year over year. The main driver for that, it will be the software revenue. The software revenue arriving with the higher margin and allow us to improve our gross margin.
spk07: Got it. So is that software revenue gross, I guess the benefit there is coming from revenue mix or is the software revenue actually showing margin or expected to show margin improvement next year?
spk02: It's more a matter of mix. It's the absolute dollar that will come more from software revenue.
spk07: Got it. Okay. And then just the last question here. I know that you guys had spoken about, I guess, one Q of this coming year is expected to be relatively similar in revenues to what we just saw in Q4. And I'm trying to get a better sense. Is that typical? Should we expect that on a go-forward basis, or is there usually more seasonality? But based on the deployment schedules from your customers, you have maybe more support for that look that we had today.
spk02: If you look at the typical year, on a typical year, usually Q4 will be the strongest quarter of the year. Obviously, last year was unusual from all directions, so we cannot look at last year as a typical year. When we look at Q1 to be similar to Q4, I would say that it's not typical, but again, it's part of our ability to regain visibility, the strong booking of Q4, which allow us to share with you that Q1 will be similar to Q4.
spk07: Got it. Thank you very much. I'll turn it over to my colleagues. Appreciate it. Thank you.
spk03: Please stand by for our next question. Our next question comes from Peter Levine with Evercore.
spk04: Your line is now open.
spk05: Great, thanks for taking my questions. I appreciate the color on the, I think the upsells you called out for Q4, the two $20 million deals, but maybe can you provide a little bit of color on what the top of the funnel looks like for net new deals and what those conversations look like today versus call it six or 12 months ago?
spk01: Peter, just for me to understand the question, to make sure that I understand the question, are you talking about demand? This is the question?
spk05: Yeah, on the demand side, because I believe that the two $20 million deals you highlighted on the call, those are upsells. So curious to know what net new customers coming in on the top of the funnel, like how is that building as we kind of enter calendar 23? So again, just curious to know what those conversations look like and if you could show any metrics in terms of pipeline demand, you know, top X over last year. Just curious to know what the environment for net new deals coming into the door looks like.
spk01: Yes, so maybe let me share with you more color about the event. So if you look at last year at fiscal 23, we did have, in one hand, revenue declining significantly. It was related mainly to conversion. We discussed it in previous calls that the customers were suffering from budget constraints and operational readiness. But at the same time, if you look at the bookings last year, it was strong. So the demand and the need for a solution is there with new customers and also with existing customers. And in the example I gave last call about the deal of over $20 million, it was related to new customers. So we do see a demand coming from existing and new customers. But again, it's important to say that the demand and the need is there. I mean, customers are facing a very complex situation. The challenges are becoming more complicated. The bad guys are becoming more sophisticated. And for that reason, we do see that bookings, although the revenue was declining, the bookings was healthy. The RPO stands now on $590 million, the total RPO. And as Mike mentioned before, the short-term RPO is $280 million. So it's a healthy demand. Going forward, we do see the demand continues throughout this year because of many reasons. Actually, we do see that threats are more complicated. We do see the data. is growing in diversity and in volumes. We do see that data analytics is becoming even more important for customers. Without it, they cannot generate insights and actually they cannot make the decisions on time. And there is another layer here, which is the AI. AI is playing a bigger role now. It's creating even more value for customers to find more insights and faster. we expect also this one to create more demand for existing and new customers so generally speaking the demand last year was good although the revenue was declining was healthy relatively healthy and we expect this year to continue thanks for that and then maybe just two quick follow-ons one could you share or provide any color on what net retention looks like and then second is you know can you
spk05: share kind of the competitive landscape, you know, the pipeline that you're building today. You know, is it – are you seeing new entrants into this market or customers conducting longer RFPs, or is it more of like a budget-related, you know, macro issue that's kind of holding or just not holding but maybe taking some of these sales cycles longer? Thanks.
spk01: Yes, so what we saw last year, what we call these unusual dynamics, is that in one hand the revenue was declining, but the demand was healthy, relatively healthy. So I think what we saw in the market is related mainly or primarily to macroeconomic situation. We saw that customers put the orders, but they couldn't pay on time for the orders, and for that reason we couldn't deploy on time. So I think that it's more related to temporary destruction in the market that is related to the macro environment and not any fundamental issue with the market demand. That's how I see the situation. And actually, evidently in Q4, we saw strong bookings and the RPO last year was increasing significantly by more than $80 million. So the demand is there.
spk05: And then any follow-up on net retention? Yeah, and just the last thought, which is on the net retention side.
spk02: Yeah, so actually, we look differently from, you know, when we look at our customer base, most of our customers, once they are joining us, like, we have a long-term relationship, and the length of the journey is usually... for I would say like for multiple years. We are not using net retention as a KPI because we think that it's less relevant to our business. The way we look at that, it's like when we join a customer, customer join, we require the customer, we over time able to sell more to the customer and increase our footprint with them. They are buying more from our solution, more useful tests, and expand the capabilities.
spk05: Great. Thank you very much for the call. Thank you.
spk04: As a reminder, to ask a question, please press star 11 on your telephone. Please stand by for our next question. Our next question comes from Brian Ruttenberg with Imperial Capital. Your line is now open.
spk06: Yes, thank you very much. Question about your balance sheet. You talk about additional cash coming in from the sale as well as no cash burn. And can you walk us through where you see the balance sheet, you know, maybe at the end of the first quarter or or maybe even at the end of the fiscal year where you see things shaking out in terms of cash and debt?
spk02: So currently we have $56 million of cash and no debt. As a reminder, we had also a credit facility in case we need for additional $100 million in case we want to do any strategic initiative. When I'm looking at how the year will follow, I believe that we're targeting breakeven cash from operation. We currently have a strong working capital. I think that we have relatively enough inventory to fulfill all the deployment that we have for this year. So all the financial KPI put us in a very good position. And obviously, you know, we look over time what is the right to do, how you allocate your capital in the most effective way.
spk06: Okay. So I guess in summary, is your cash position right now should only be at this level at the end of the year or better? Is that a good summary with no debt?
spk02: Yeah, given the fact that we actually guided for a break even from cash from operation, and yes, we have some, you know, capital expenditure offset by a certain payment that we expect from the SAS divestiture, I would say in high level, it should be very similar.
spk06: Great. Thank you very much.
spk04: I show no further questions at this time. I would now like to turn the conference back to Dean for closing remarks.
spk08: Thank you, Operator, and thank you, everyone, for joining us on today's call. Should you have any additional questions, please feel free to reach out to me, and we look forward to speaking with you again next quarter.
spk04: This concludes today's conference call. Thank you for participating.
spk03: You may now disconnect.
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