Cognyte Software Ltd.

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.

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?

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?