Verint Systems Inc.

Hello, and thank you for standing by. Welcome to Verint Systems' fourth quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Matthew Frankel. Frankel, you may begin.

Thank you, operator. Good afternoon, and thank you for joining our conference call today. I'm here with Dan Bodnar, Varian CEO, Grant Highlander, Varian CFO, and Alan Roden, Varian's Chief Corporate Development Officer. Before getting started, I'd like to mention that accompanying our call today is a slide presentation. If you'd like to view these slides in real time during the call, please visit the IR section of our website at barrett.com, click on the Investor Relations tab, and 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 in 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 security laws. These forward-looking statements are based on management's current expectations and are not guaranteed the 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, 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 about 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 31, 2023, 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 peer companies. Please see today's slide presentation, our earnings release, and the investor relations section of our website at barrett.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 supplemental information regarding our operating results when assessing 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 Dan. Dan?

Thank you, Matt. I'm pleased with our non-GAAP revenue and diluted EPS coming ahead of our guidance. Our results were driven by strong SaaS momentum and our cloud platform delivering differentiated CX automation. Today, I will discuss our results, various differentiated platforms, the market environment, and our guidance. I will also report on our multi-year SaaS transition, which is tracking ahead of the plan that we laid out two years ago at the time of the spin. As we are approaching the substantial completion of our SaaS transition next year, today we are introducing an additional SaaS operating metric, SaaS ARR. Let me start with reviewing our fiscal 23 results. SaaS revenue, which is our key growth driver, increased 38% in fiscal 23 on a non-GAAP constant currency basis. This past momentum drove strong recurring revenue growth, and our total non-GAAP revenue came in $5 million ahead of guidance. As you know, our return revenue generates much higher gross margins than our non-reclaiming revenue. And as our revenue mix continues to improve, our gross margin expanded approximately 100 bits in fiscal 23. Consistent with our guidance on prior calls, our financial model assumes EPS growing faster than revenue, and I'm pleased with fiscal 23 alluded EPS increasing 11% on a non-GAAP basis. Our multi-year SaaS transition is going well. Since becoming a Pew Play customer engagement company two years ago, we've delivered steady quarterly revenue growth with annual SaaS revenue nearly doubling since the spin. The success of our SaaS transition is due to several factors. First, we offer customers a broad portfolio of best of breed applications, providing them CX automation to help brands close their engagement capacity gap. Second, our cloud platform is open, with data and very DaVinci AI at the core. I will elaborate on our platform differentiation a little later. And third, our open and partner-friendly approach is resonating well in the market, both with end customers and with existing and new partners. As we've progressed with our SaaS transition, Our recurring revenue has been steadily growing faster than total revenue. Over the last two years, recurring revenue has increased close to 10% each year on a constant currency basis. Last year, we reported that we had crossed the midpoint of our SaaS transition, and for the full year, we delivered 86% of our non-GAAP software revenue as recurring, up from 81% two years ago. As previously discussed, we define the substantial completion of our SaaS transition as when 90% of our software revenue is derived from recurring sources. We are targeting reaching the substantial completion of our SaaS transition next year in fiscal 25. Grant will discuss later how we expect completing our SaaS transition will accelerate our overall revenue growth and free cash flow growth over time. We continue to evolve our disclosure with an additional pure SAS operating metric. And today, we're introducing SAS ARR, or annual recurring revenue. SAS ARR has been growing at more than 30% CAGR over the last two years and reached a milestone of approximately $500 million in the year we just completed. There are four factors behind our strong ARR growth. The first one is expansion. Our large customer base continues to expand with variance, and we expect this trend to continue as our cloud platform makes it easier for customers to add capacity and functionality. The second factor is customer base conversions. Many customers have already converted their perpetual maintenance contracts to SaaS, and we expect this trend to continue. The third factor is winning new logos. In both fiscal 22 and fiscal 23, we won more than 100 new logos every quarter due to strong innovation in our platform. And lastly, our mission critical IRI solutions are driving strong renewal rates, which contribute further to our strong ARR growth. In summary, we are pleased with our SAS momentum across these four factors and with achieving a scale milestone of nearly half a billion dollars of SAS ARR. Behind a strong SAS revenue growth is the rapid innovation we deliver in the Variant platform. Our platform is unique in the market, and I would like to highlight several areas providing us with strong competitive differentiation. First, the platform is completely open, unlike many of our competitors, and it easily fits into the customer's existing ecosystems. In fact, our message to customers is focused on bring your own telephony and bring your own CRM, The benefits for customers of this approach are clear. They can choose to keep their existing telephony or CRM solutions or choose to purchase new from the many vendors that offer these solutions. Either way, customers can easily connect their choices to Variant's platform and quickly deploy the CX automation benefits our platform provides. In addition to Open S, Customers benefit from the engagement data hub and Varian DaVinci AI at the core of the platform. Today, customers realize that data and AI are core to achieving their strategic objectives to elevate customer experience with lower operating costs. Varian DaVinci AI powers the platform with state-of-the-art AI models including unique models developed by Variant, as well as OpenAI models. In that regard, in Q4, we already had a first customer purchasing Variant DaVinci with Chats GPT embedded to achieve automation of call summaries. The Variant platform supports a broad set of best-of-breed applications And customers can start anywhere and deploy CX automation capabilities in their contact centers and across the enterprise. Also, the platform design is partner-friendly and supports cloud-to-cloud connectivity. This capability makes it easy for resale partners and system integrators to add value for the end customer by connecting the very cloud platform with solutions running in other clouds. Let's turn to our Q4 results and recent market environment. In Q4, non-GAAP revenue and diluted EPS came in ahead of our expectations with record high gross margins. The revenue overachievement was primarily due to several deals we originally expected to close in Q1 that came earlier before the year end. The competitive differentiation of our platform continued to drive many customer wins, including expansions and new logos. In Q4, we had many large SaaS orders, including some of the more recognizable organizations in the world, such as financial services provider Barclays, media company DirecTV, and airline EasyJet. For the year, we had more than 100 SaaS deals with a TCV of $1 million plus, up more than 15% year over year. In addition, we continue to win many new logos, including the telecom company, Juniper Networks, and financial institution, Farmers Merchant Bank. For the year, we added more than 400 new logos, including more than 100 new logos every quarter. Our open and flexible platform is also attracting new partners that are reselling the Variant platform, and we recently announced new reselling partnerships with Google, Carasoft, and Tech Mahindra. These three companies signed a Variant reseller agreement, and we are enabling their sales force to sell the Variant platform. We generate approximately 50% of our annual revenue from partners and expect our partner ecosystem to continue to grow due to the strength of the Variant platform and our partner-friendly strategy. Let's take a closer look at three large seven and eight digit SaaS wins in Q4. The first order for $16 million CCV was from a leading health care company. This customer is expanding its relationship with Variant to more applications and to additional areas of its enterprise due to our platform's scalability and openness. The second order for $4 million DCV was from a leading company in the transportation industry. This large European company chose our SaaS platform given the strong ROI the platform offers and our AI differentiation. And the third order for $2 million PCV was from a leading insurance company. This customer decided to move to the cloud with CX applications first while keeping their existing telephony system on-prem. We believe our platform's openness and our differentiated AI capabilities were key drivers of the customer's decision. As we continue to win many large orders and new logos, we're also seeing a change in the market environment and buying behaviors. Here are a few examples of behaviors we noticed in Q4. We saw some buyers slowing down conversion deals. They continue to be engaged with us and plan to convert, But given that Variant Software is already deployed in their operations, they're taking more time to move forward with the conversion. We also noticed several deals that came in with a reduction in scope as customers pushed out budgets and awarded us smaller deals than originally anticipated. Having said that, we also noticed the opposite behavior as some deals that we expected in Q1 arrived earlier and drove our revenue overachievement in Q4. Grants will discuss later the booking trends and our booking assumptions underlying our guidance for fiscal 24. Turning to our guidance for fiscal 24, we expect another year of strong SAS revenue momentum with 25% to 30% growth. We expect another year of double-digit recurring revenue growth of around 10%. And we expect another year of gross margin expansion driving diluted EPS growth faster than revenue growth. Overall, very such business has reached scale and is driving strong growth with improving margins. Looking beyond fiscal 24, We believe we are well positioned to sustain our SaaS momentum over many years. Variant's platform delivers CX automation solutions. CX automation is important to our customers, and we believe that brands are spending $2 trillion annually on labor costs and are seeking vendors like Variant that can help introduce to their workforce new automation tools while elevating the customer experience. Helping brands to address their very large labor costs with automation is a significant long-term opportunity for Verit. In summary, I'm pleased with the strong SaaS momentum since the spin two years ago and the opportunity to sustain this momentum over many years. Now, let me turn the call over to Grant to discuss our financials in more detail. Grant?