Verint Systems Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Verit Systems, Inc. 4th Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program may be recorded. And now I'd like to introduce your host for today's program, Matt Frankel, with Verit Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon. Thank you for joining our conference call today. I'm here with Dan Bodnar, Varon CEO, Doug Robinson, Varon CFO, and Alan Roden, Varon Chief Corporate Development Officer. Before getting started, I would 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 Varon.com, click on the Investor Relations 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. The forward-looking statements are made as of the date of this call, except as required by law. VARIN assumes no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward-looking statements. For more detailed discussion of how these and other risks and uncertainties could cause VARIN's actual results to differ materially from those indicated in these forward-looking statements, please see our form 10-K for the fiscal year ended January 31st, 2021, when filed, and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures, as we believe investors focus on those measures in comparing results between periods and among our peer companies. Please see today's WebEx slides, our earnings release, and the investor relations section of our website at Verint.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 and supplemental information regarding our operating results. when assessing our business and is useful to investors for informational and imperative 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 Dan. Dan?

Thank you, Matt. I'm pleased to report a strong fourth quarter for both customer engagement and cyber intelligence, with revenue and non-GAAP EPS coming in ahead of our expectations. Cashmere Operations was also strong at $254 million for the year, increasing 7% compared to the prior year. On February 1st, we completed the spin of our cyber intelligence business and are now a pure play customer engagement company. Today, we will discuss a long-term growth strategy for the new variant. As brands are facing a widening engagement capacity gap, Variant is well positioned with a differentiated cloud platform and extensive resources, including approximately 4,300 professionals worldwide, focused on helping brands provide boundless customer engagement. Looking at the current year, we expect strong cloud momentum, consistent with the acceleration we experienced in the second half of last year, and we are raising guidance for cloud revenue growth, which we will discuss later. I would like to start today's call by reviewing the fourth quarter results for customer engagement. We had a strong finish to the year and are very pleased with successfully executing the Cognite spin and accelerating our cloud strategy. Revenue in Q4 came in at more than $225 million ahead of expectations, and key cloud metrics accelerated. Bookings in Q4 were also very strong, and we exited the year with a record backlog. Behind the strong bookings is our strategy to target a larger $65 billion TAM and our competitive differentiations. We continue to win new cloud customers and displaced competitors due to our open cloud platform innovations. Here are three examples of large cloud deals from the quarter. A $7 million cloud order from a leading global food delivery service company. This win was driven by our open and agnostic partner approach and our ability to scale in the cloud. This is a new customer for Variant and a competitive win. An $8 million cloud order from one of the largest insurance companies in the US. This competitive displacement was due to the strength of our open cloud platform. And a $13 million cloud order from an existing financial services customer. This large win is driven by the customer's decision to transition to SaaS and expand relationships. We believe these large orders reflect our differentiated technology and execution of our cloud-first strategy. We're very pleased with our Q4 cloud performance across all key cloud metrics. Cloud bookings were up significantly. Q4 new SaaS HCV increased 39% year-over-year, and new PLE bookings, or perpetual license equivalents, increased 15% year-over-year, with half of our PLE bookings coming from SaaS. Q4 cloud revenue grew more than 30% year-over-year, following strong growth in each of the prior quarters. And we exited the year with the remaining performance obligations, or RPO, of $636 million, representing backlog growth of 29% year-over-year, This significant increase of year end backlog is being driven by cloud and provides us good visibility for the current year. Overall, we're very pleased with our strong finish to the year and the significant momentum we have going into fiscal 22. We estimate our customer engagement time at $65 billion. With recent trends of accelerating cloud transition and digital transformation, customer engagement has become a top priority for many brands. In preparation for the spin, we worked during Q4 with a third party to survey more than 2,000 business leaders from 12 countries and across 10 industries about customer engagement priorities, trends, pandemic impacts, and future plans. The findings of this research validate a go-to-market strategy. The four key findings include, first, there is a widening engagement capacity gap. New workforce dynamics, ever-expanding customer engagement channels, and exponentially more customer interactions all must be managed with limited budgets and resources. Second, Business leaders are concerned with rapid changes. 94% report being worried about understanding and acting on rapidly changing customer behaviors. Third, business leaders have high hopes for AI, but they want to see results. 78% have made AI investments, but only 18% say it helped them manage rising interaction volumes. And finally, data and departmental silos hamper the effectiveness of analytics efforts. Companies need a unified approach and view of data in order to realize the potential of AI and analytics. Let me discuss how Variant's go-to-market strategy addresses the findings of this recent research. Our Open Cloud Platform helps brands to provide boundless customer engagement in the Connect Center as well as across the enterprise. Platform use cases are enterprise-wide, going well beyond the Connect Center to back office, branches, digital marketing, and compliance. The Varian Cloud Platform was designed to connect the Connect Center to other parts of the organization involved in customer engagement activities, a trend that has become increasingly important with the acceleration of digital transformation. From a technology perspective, the platform is designed with a native cloud architecture, supporting multi-clouds with open access to data, making it easier for customers and partners to quickly integrate with their environments. Variant DaVinci AI and Analytics is in the center of the platform, as it powers all platform applications with the latest machine learning models and advanced analytics. We believe that our commitment to open access and our API strategy differentiates our platform and will drive further growth. In Q4, we launched several innovative solutions, including a new data management solution to help brands build a unified approach to aggregating interaction data across silos and unlocking the value in their data. This highly innovative cloud solution helps break down data silos and manage all modalities of data across unified communications, CCAS, and enterprise collaboration solutions. A new workforce scheduling solution to help brands optimize their customer engagement workforce across the contact center, back office, and the branch. And the new real-time agent assist solution to help brands provide their agents with in-the-moment guidance to increase efficiency and elevate customer experience. This innovative solution is based on the state-of-the-art linguistic and acoustic models and it's especially effective for the agents working at home. Regarding partners, we have a large partner ecosystem that we have developed over many years. There's never been a better time to partner with Variant with our focus on delivering a world-class, partner-friendly experience. In addition to supporting existing partners, This year, we launched a new partner program with a focus on system integrators. We believe that digital transformation is providing system integrators new opportunities to help brands with their customer engagement initiatives. Our open cloud platform is well-suited for system integrators focused on data management, workforce efficiency, and customer experience. Turning to our outlook for the current year, we expect another year of strong cloud growth with 10% new booking growth on a PLE basis. Given the cloud momentum experienced in the second half of last year, we are raising our outlook for cloud revenue growth to a range of 30% to 35% for the current year. Our guidance reflects a continued market shift to SAS. This year, we expect a percentage of new software bookings that come from SAS to approach 60%, reflecting a steady increase over the last three years. We also expect, on a non-GAAP basis, the percentage of software revenue from recurring sources to approach 85%, up from 81% last year and 71% three years ago. Now before I turn it over to Doug, I would like to briefly discuss cyber intelligence. Cognite, our former cyber intelligence business, is now listed on NASDAQ under the ticker CGNT. While cyber intelligence is no longer part of Variant, its results for last year are included in our 10K, and I would like to provide a brief review. Cyber intelligence also had a strong finish to the year, with revenue coming in at $124 million, and estimated fully allocated adjusted EBITDA coming in at $24 million for Q4. Cognite will publish their results on Form 20F at a later time. and they announced today that they will review the fourth quarter results on a conference call in the second half of April. As noted in Cognite's press release, their results may be slightly different than those we published due to the applications of varying allocation methodologies. Cognite is in a very exciting market, and we wish them good luck as an independent public company. Now let me turn the call over to Doug.