Cognyte Software Ltd.

Good day and thank you for standing by. Welcome to the Cognite Q2 FYE 24 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dean Ridlon, Head of Investor Relations. Please go ahead.

Thank you, Operator. Hello, everyone. I'm Dean Ridlon, 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 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 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, as 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 January 31, 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 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.

Thank you, Dean. Welcome, everyone, to our second quarter conference call. I'm pleased to report that our positive momentum continues. During the quarter, we continue to win deals with existing customers as well as with new strategic customers who recognize the strength of our innovative technology and the value it delivers. Our team executed very well and we had another quarter of solid results. Revenue grew both year-over-year and sequentially on an SS adjusted non-GAB basis and came in ahead of our expectations at $77 million. We also saw further improvements in gross margin, which was up 450 basis points over Q2 last year, and gross profit increased 13% year-over-year on an SAS adjusted non-GAAP basis. Adjusted EBITDA was positive for the quarter, two quarters earlier than projected, and free cash flow was positive again this quarter due to the positive EBITDA and continuing strong collections. As a reminder, we took many actions last year to address the challenge that we faced and put the business back on track. We focused the business on fewer agendas, divested SAS, adjusted the cost structure, improved our capital structure, and focused our investment on high potential opportunities in R&D and sales, including investing in AI. We are realizing the benefits of our actions and improved execution. We regained visibility, resumed guidance, and have raised our outlook for the year three quarters in a row. We believe the positive momentum will continue and we are on a path of sustainable growth. Now I will start with a review of our significant wins. Then I'll share with you a few use cases that illustrates how our use of AI and other innovations differentiates our solutions and delivers a significant value to our customers. And lastly, I'll discuss our updated outlook for the year. I will now review some of our recent significant wins that highlight our market-leading differentiated technology. Our investigative analytics solutions help national security, law enforcement, national intelligence, and other security organizations to accelerate and perform more effective investigations. The first win is for more than $20 million with a new national security customer for its mission to combat terrorism and national threats. We believe we are selected because of our cutting-edge technology, including how we leverage artificial intelligence, which delivers impactful results. We consistently outperform solutions from other vendors during a variety of real-world operational scenarios. In addition, we believe the customer valued our deep domain expertise and views us as a strategic partner to help them address their long-term evolving needs. The second win is for approximately $4 million from a new unit inside an existing national intelligence customer to combat terror activities. We replaced an incumbent vendor and believers selected because of our higher investigation value. The customer was seeking a state-of-the-art solution to address the evolving needs by enabling a broader group of users with varying skill sets and expertise to maximize the intelligence value delivered. The third win is with a new national intelligence customer for approximately $2.5 million to identify and prevent threats during operations. The customer chose us after a competitive process due to our superior technology. We delivered better operational results during comprehensive field trial in different operational scenarios. Also, we recently had another new customer win in the US. We replaced an incumbent vendor for a competitive bid and we continue our focus on expanding in the US market over time. Our cutting edge solutions and deep domain expertise drive our leadership position and help us to continue to win significant deals from both existing and new customers. Customers view us as a strategic trusted partner that provides innovative solutions that help them generate timely critical insights from the data, accelerate investigations, and improve the speed and accuracy of their decision making. In our last call, I talked about our use of artificial intelligence in our solutions. Now I'll drill down a bit more on our innovative technology and examples of a few customer use cases. Hugnat's focus is on investigating analytics to help our customers improve the speed and success rate of their investigations by effectively analyzing enormous amounts of structured and unstructured data and generating timely, impactful insights. We have been doing this for many years and developed unique domain expertise and advanced technology in investigative analytics. We believe that recent investment in AI technology is accelerating our innovations and positions us as a highly differentiated leader in the investigative analytics market. We have embedded AI models in our solutions to improve velocity and accuracy of customers' insights from data. For example, the introduction of cutting-edge AI technology for pattern recognition enables our customers to reveal previously undiscoverable connections among entities under investigation, such as bad actors and financial transactions. This technological advancement improves investigation success rates and accelerates time-to-resolution. Customers are reacting positively to these recent advancements. To help illustrate customers' benefit from our solutions, let's look at two security use cases. The first use case is for combating drug trafficking. Law enforcement units bear the responsibility of detecting and preventing drug trafficking activities along major international borders. This illicit trade often involves organized groups that exploit well-established routes, conceal their identities, and attempts to master illegal activities as legitimate ones. Within our solutions, AI models play a pivotal role in expediting the analysis of our customers' data sources. Our software helps customers identify suspicious activities, such as unusual behavior, and automatically trigger alerts for users by using AI patterns recognition. In addition, our use of AI enables our solutions to more quickly predict potential hotspots and routes for drug smuggling activities. Those valuable insights help investigation units in closing cases faster and more effectively. The second use case is related to detection and prevention of terror activities. Financial intelligence units are tasked with detecting and disrupting the flow of funds to terror organizations. Terror funding involves illicit financial transactions, money laundering, and other covert activities that facilitate terrorist activities. The challenge lies in the fact that these transactions are often masked as donations, charity, and fraudulent purchasing of goods. Our solution utilizes the algorithms to analyze vast amounts of financial transaction data from various customer data sources, including bank records, money transfer services, and cryptocurrency exchanges. The system utilizes AI pattern recognition algorithms to continuously monitor these data streams to identify patterns and anomalies in financial transactions that may indicate potential thoroughfunding activities. We continue to leverage the latest AI developments from commercially available models and our own AI research lab. Looking ahead, we believe our ability to embed the latest AI innovations quickly, together with our domain expertise in investigative analytics, will further enhance our differentiation and the value we provide to our customers. We continue to invest in AI to generate demand and contribute to driving long-term growth. Turning to our outlook for this fiscal year, given the input visibility and our performance during Q2, we are raising our revenue guidance for the year to $307 million, plus or minus 2%, representing 8.5% year-over-year growth at the midpoint, on an SAS adjusted non-GA basis. With revenue expected to grow by 8.5%, we now expect gross profit to grow faster at more than 15% year-over-year on an SAS adjusted non-GA basis. Given our positive adjusted EBITDA in Q2 and our improved revenue outlook and profitability, we are now expecting positive adjusted EBITDA for the year. Looking beyond this year, Given the recent innovations in AI, we have identified potential opportunities to expand our business with both existing and new customers. We believe that the combination of positive industry trends, our innovative technology, and our large global customer base position us well for growth. Before I summarize, I would like to recognize the significant contributions Dan Bodnar had made to Cognite over the last three decades In his roles as variant CEO and after the spin-off as Cognite's chairman of our board. Dan had a tremendous impact on the creation and growth of our business over the years, and his wisdom and knowledge were a great asset to Cognite. I personally am appreciative for all his support and advice. With Dan stepping down as a director, I'm looking forward to collaborating with Earl Shank in his new role as our chairman. and with the rest of the board to continue to drive growth and profitability at Cognite. To summarize, our customers continue to face significant challenges across many use cases and look to us to help them accelerate investigations and mitigate the wide variety of threats. We have established long-term relationships with many of our customers and they view us as domain experts and trusted partners. These relationships will continue to be a significant asset for us. We are pleased with our second quarter results and positive momentum and are raising guidance for the current year. Long-term, we expect continued growth and improvement of stability. Now, let me turn the call over to David to provide more details about our Q2 results and outlook. David?