Verint Systems Inc.

Good day, and thank you for standing by. And welcome to Barron Systems, Inc. Q1 Fiscal 2024 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 a question during the session, you'll 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 introduce your host for today's call, Matthew Frankel, Investor Relations and Corporate Development Director. Please go ahead.

Thank you, Operator. Good afternoon, and thank you for joining our conference call today. I'm here with Dan Bodner, Barron's CEO, Grant Highlander, Barron's CFO, and Alan Roden, Barron'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 barron.com. click on the Investor Relations tab, and then 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 a date of this call and is accepted as required by law. Varon assumes no obligation to update or revise them. Investors are cautioned not to place under-reliance on these forward-looking statements. For a more detailed discussion of how these and other risks and uncertainties could cause Varon'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, our Form 10-Q for the quarter ended April 30, 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 our peer companies. Please see today's fly presentation, earnings release, in the investor relations section of our website at barron.com for a reconciliation of non-GAAP financial measures to GAAP measures. Non-GAAP financial information should not be considered in isolation from, as it's 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 first quarter non-GAAP revenue and diluted EPS coming ahead of our guidance. Our results were driven by strong SaaS momentum and our differentiated open platform. Today, I will start with a review of our Q1 results, including our strong growth margin expansion driven by our SaaS revenue growth. Next, I will review our open platform and how we leverage the latest AI innovations to deliver CX automation and significant customer ROI. Finally, I will review our guidance for this year and we'll discuss the expected benefits to our financial model upon completion of our SaaS transition next year. These benefits include accelerating revenue growth, higher gross margins, and incremental cash generation. Let me start with reviewing our first quarter results. Non-GAAP Q1 revenue came in at $270 ahead of our guidance, and gross margin came in close to 70%, a strong 200 bps increase year-over-year. Our gross margin expansion is being driven by our ongoing shift to SUS. Non-GAAP diluted EPS came in at 53 cents, also ahead of our guidance. SAS revenue, which is our key growth driver, increased approximately 24% year-over-year on a constant currency basis. We are on track to complete our SAS transition next year, which we define as the milestone when 90% of our software revenue comes from recurring sources. In Q1, we made very good progress towards this goal, with this metric reaching 87% up significantly from Q1 of last year. In summary, we are pleased with our revenue and profitability in Q1 and reiterate our guidance for the year. Next, I would like to discuss significant wins in market dynamics. During Q1, we received orders from some of the world's leading brands, such as the global bank Macquarie, auto company Toyota, and telecom provider Deutsche Telekom. In terms of new logos, we continue to win many new customers, and in Q1, we again added more than 100 new logos, including the Bank of England and retailer Casey's General Stores. As discussed on the last earning call, in the current environment, we are seeing elongated sales cycles, especially with very large deals. While customers may take longer to make decisions, their need to elevate CX and increase automation is very high. Our open platform delivers significant customer value, and we are winning deals in the current environment based on our ability to clearly demonstrate customer ROI. Let's take a closer look at three recent large seven- and eight-digit SAS WINS. These WINS were all driven by our open platform and our CX automation innovation, resulting in significant ROI for our customers. The first order for $21 million TCV was from a leading U.S.-based financial services company. This customer expanded its relationship with Variant with an eight digit order by adding new applications from our open platform. The second order for $6 million TCV was from a leading telecom company in Europe. This customer merged with another large company and decided to adopt variant solution across the combined entity. The third order for $3 million TCV was from a large international bank. This customer expanded its usage of the Variant Open Platform to address additional CAX automation opportunities. In this environment, the timing of closing deals can vary by customer. Looking at our pipeline across all types of deals, we expect to drive double-digit growth for new SAS ACV for the year. Let me now turn to the capabilities of the Variant Open Platform designed to increase CX automation and deliver significant customer ROI. Customers have been reporting that CX automation has become a strategic objective. We estimate that the industry already employs 50 million workers globally at an annual cost of $2 trillion and improving CX levels with incremental hiring is not sustainable anymore. Brands are ready to adopt AI that can help them elevate CX and increase efficiencies to reduce costs. Clearly the industry needs AI and Variant has developed the platform that translates AI technology into tangible business outcomes. We do this by placing AI at the fingertips of the workforce of humans and bots. Here are some examples that explain how Variant injects AI to all parts of the contact center operations. Variant automates interaction responses to improve self-service and reduce the number of calls coming into the contact center. Variant automates workforce planning by increasing forecasting accuracy. Variant automates the compliance process across all channels to ensure adherence. Variant automates the knowledge search to increase agent efficiency and reduce customer hold time. And Variant automates quality assessments and coaching to increase the effectiveness of the workforce. There are many more automation capabilities available today in the Variant open platform. And with the increased pace of AI innovation, we are launching more CX automation at an even faster pace which I will explain next. There are three key attributes that make the Variant Open Platform highly differentiated. First, at the core of the platform is our open engagement data hub. For more than two decades, we've been helping customers capture comprehensive engagement data across all channels and types of interactions between consumers and brands. This vast and unique data set is critical to continuously train AI models and make them accurate and effective. Open Data Hub is a key differentiation of the Variant platform. Second, we also architected at the core of the platform, the Variant Open DaVinci AI. DaVinci is completely open and takes advantage of the latest AI models available commercially, such as GPT and others. This unique design enables Variant to remain flexible and future-proof by quickly embracing the latest generic AI innovations from Variant or any other vendor. And third, a platform includes many best-of-grade applications that leverages DaVinci and the Data Hub placing AI at the fingertips of the workforce to deliver tangible business outcomes. Regarding AI monetization, customers today can purchase from the open platform based on a CX automation consumption model. Over time, as AI adoption increases, we expect our customers will naturally increase their CX automation consumption And this is expected to benefit both our customers as well as our financial results. Turning to our guidance for the current year fiscal 24. We expect another year of strong SAS revenue growth and margin expansion with adjusted EBITDA going faster than revenue and we are maintaining our annual guidance. As we manage the business this year to 7% adjusted EBITDA growth, we continue to progress towards the completion of our SAS transition, and I would like to discuss the expected benefits to our financial model next year. We expect the completion of the SAS transition next year to positively impact our top-line growth in two ways. First, when you look at the last year's results and this year's guidance, we have headwinds from the decline in non-recurring revenue of approximately 3% each year. Next year, with the planned completion of our SAS transition, we expect these headwinds to be largely eliminated. And this is expected to translate to incremental revenue growth next year. Second, over the last several years, we have focused on the variant SAS transition And at the same time, our customers focused on their own SaaS migrations. We're now beginning to shift our focus to driving customer expansions initiatives, helping our customers achieve their strategic objectives related to increased CX automation. This should have a positive impact on our revenue growth over time. Completing the SAS transition should not only improve our overall revenue growth rate, it is also expected to have a positive impact on margins and cash flow generation. Similar to most companies going through a SAS transition, we expect our cash generation to improve. This year, we expect cash flow operations, excluding non-recurring items, to grow at a similar rate to revenue. And next year, we expect it to grow faster than revenue. We look forward to completing the transition next year and to benefiting from this tailwind to our financial model. As you know, our transition to SAS has taken several years given the nature of our large enterprise customer base. As a reminder, Our customer base including over 85% of the Fortune 100, including all 10 of the top 10 banks, 9 of the top 9 insurance companies, and 8 of the top 10 healthcare companies. In summary, CX Automation is a strategic objective as brands are spending $2 trillion annually on labor costs. and hiring more people to elevate customer experience is not sustainable. Helping brands close this engagement capacity gap by addressing their very large labor cost with CX automation is a significant long-term opportunity for Variant. We've architected the Open Data Hub and Variant DaVinci AI at the core of the platform, and now with the faster pace of AI innovation, Variant is increasing our differentiation as the leader in CX automation. Our SaaS transition is nearing the end of the journey, and we look forward to the financial and operational benefits we expect next year. And finally, we have strong margins and a strong balance sheet, which provide us flexibility as we continue to execute our previously announced stock buyback program. Now let me turn the call over to Grant to discuss the financials in more detail. Grant?