Verint Systems Inc.

Good day, and thank you for standing by. Welcome to the Variant Systems third quarter fiscal 2024 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 will 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 first speaker today, Matthew Frankel, Investment 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, Verint's CEO, Grant Highlander, Verint's CFO, and Alan Roden, Verint'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 Verint.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 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. Barron 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 Barron'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 October 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 these measures in comparing results between periods and among our peer companies. Please see today's slide presentation, our earnings release, and the investor relations section of our website at Verint.com for 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 to report that our Q3 revenue and non-GAAP diluted EPS came in ahead of our expectations and we are on track to finish the year strong with double-digit revenue growth in the fourth quarter. Today, I will start with a review of our third quarter results. Then I will discuss our key wins, AI trends, and variance platform differentiation. And finally, I will provide a preview of our agenda for Investor Day next week. In Q3, revenue came in at $219 million, and non-GAAP diluted EPS came in at $0.65. In addition to our results coming in ahead of our expectations, we saw several positive trends driven by our AI platform innovation. First, in Q3, more than 50% of our staff bookings included AI-powered bots, which is a significant increase from the prior year. Second, the vast majority of unused SAS ACV bookings came in as bundled SAS. This significant improvement from last year reflects demands for Variant AI, which is offered only in the Variant Cloud. We're pleased to see our bookings shifting to more bundled SAS, as brands seek to leverage AI to increase CX automation and adopt more AI from the Variant platform. and our investor day next week, we'll discuss in much more detail how the various platform enables brands to build a workforce of people and bots working together and the positive impact that customer AI adoption is expected to have on our growth. Let me turn to Q3 wins and pipeline growth. In Q3, we continue to have significant wins across existing customers and new logos. We received more than 30 orders in excess of $1 million TCV as large enterprises across the globe continue to expand and adapt more applications and AI for our platform. These orders included a large order in excess of $20 million TCV from a leading entertainment services company in Europe, a $6 million TCV order from a leading telecom company in North America, and a $4 million TCV order from a leading healthcare company in the US. I'm pleased that each of these three large orders included AI-powered bots. In fact, nine of our 10 largest bundled SaaS deals in Q3 included variant bots. With respect to new logos, in Q3, we again added more than 100 new logos, including large brands such as CarMax, Louis Vuitton, and Sky. Our objective with new logos is to have them expand in our cloud platform and purchase more bots over time. In addition to these orders, I'm pleased to report that as of the end of Q3, our 12-month SaaS pipeline increased more than 20% year-over-year. While we've seen elongated sales cycles this year due to the macroeconomic environment, the demand for CX automation is strong, and customers' growing interest in AI is reflected by our expanding SaaS pipeline. Regarding fiscal 24, we expect to finish the year with double-digit revenue growth in Q4, and later Grant will discuss a Q4 outlook in more detail. Next week at Invest Today, we will review the completion of our SaaS transition over the last three years and discuss the next three years with our next chapter focused on CX automation leadership and growth acceleration. Here's a quick preview of the agenda we plan to cover at Invest Today. First, we will review the last three years following the spin of our cybersecurity business. During this period, our total revenue increased every year while executing a complex SaaS transition with large enterprise customers. Also, as part of this SaaS transition, we invested in building a highly differentiated CX Automation platform, which was launched earlier this year, and we can now shift our focus to execute our next chapter. The second topic of the agenda will focus on the AI opportunity driving our next chapter over the next three years. We will review our CX Automation platform and provide a deep dive into our AI differentiation including the 35 AI-powered bots available in the platform today. We will discuss our go-to-market and the AI opportunity with our large customer base. Verint has a large customer base of enterprise customers, and we support 4 million agents worldwide, helping them to process 30 billion interactions annually. We believe we are well-positioned to augment this 4 million agent workforce in our base with our open platform and AI-powered bots. As the market shifts to a workforce of people and bots working together, we have a significant opportunity in our large customer base and with new logos. The third topic on the agenda is the positive economic impact of increased AI adoption. Going forward, Variant is well positioned for the market shift to more bots and fewer people. Variant deploying more bot licenses with fewer agent licenses will increase our TAM overall and provide us the opportunity to accelerate SaaS revenue growth. To bring this to life, we will provide specific examples of how we monetize our AI capabilities and the resulting positive impact to our long-term financial model. In summary, we're pleased to have overachieved revenue and long-gap saluted EPS in Q3, and are on track to finish the year with strong double-digit revenue growth in Q4. We're also encouraged by the increase in our pipeline, the addition of new logos, and the increase in customer adoption of variant bots. We're excited about our next chapter of growth driven by customer AI adoption and look forward to seeing you at our event today. And now let me hand the call over to Grant. Grant?

Thanks, Dan. Good afternoon, everyone. Our discussion today will include non-GAAP financial measures. The reconciliation between our GAAP and non-GAAP financial measures is available, as Matt mentioned, in our earnings release and in the IR section of our website. Differences between our GAAP and non-GAAP financial measures include adjustments related to acquisitions, including fair value revenue adjustments, amortization of acquisition-related intangibles, certain other acquisition-related expenses, stock-based compensation expenses, separation-related expenses, accelerated lease costs, IT facilities and infrastructure realignment, as well as certain other items that can vary significantly in amount and frequency from period to period. Now, let me start with an overview of our Q3 results. Revenue came in at $219 million, $4 million ahead of our guidance. Non-GAAP gross margins came in strong at 71%, slightly above the prior year and up 180 basis points from Q2. We continue to be pleased with our gross margin expansion progress this year. The combination of our revenue overachievement and strong gross margins drove non-GAAP diluted EPS of 65 cents, eight cents ahead of expectations. For Q4, at the midpoint of our annual guidance, we expect around 264 million of revenue representing 11% year-over-year growth, another quarter of sequential gross margin expansion, and about $0.99 of non-GAAP diluted EPS. As we discussed last quarter, our large sequential revenue increase in Q4 is driven by significant expected growth of our unbundled SAS revenue stream. For full year fiscal 24, Our guidance for revenue is $910 million plus or minus 2% and $2.65 for non-GAAP diluted EPS at the midpoint of our revenue guidance. I will discuss our guidance in more detail later, but first I would like to provide additional color on our Q3 performance. Starting with SAS metrics, several important leading indicators came in very positive. The first indicator is bookings mix. New SAS ACV bookings came in at 25 million, or an annual run rate of around 100 million, consistent with our expectations. Looking at the SAS bookings mix in Q3, nearly 90% of our new SAS ACV bookings were for bundled SAS, compared to 65% in the prior year. More than 50% of our new SAS ACV bookings included bots, representing a large increase in customer AI adoption from the prior year. Since today our bots are only offered in the Barrett Cloud, which we report as bundled SAS revenue, we expect our bot innovation to drive growth in our bundled SAS revenue stream going forward. The second indicator is pipeline. We continue to see strong growth in our 12-month SAS pipeline which was up more than 20% year over year, driven by our open AI platform and bots. Similar to the bookings mix trend, our SaaS pipeline has also trended to bundled SaaS, which now represents nearly 90% of our SaaS pipeline and reflects the strength of our AI platform and bots. Turning to SaaS revenue, as we have discussed in the past, the revenue recognition for bundled SAS and unbundled SAS under ASC 606 are very different. Bundled SAS revenue is recognized ratably over the term of the contract, whereas unbundled SAS revenue is recognized predominantly upfront. Due to this difference in accounting treatment, unbundled SAS revenue as well as the year-to-year growth rates can fluctuate significantly from quarter to quarter. Therefore, I will discuss the unbundled and bundled revenue streams separately and also share SAS ARR that normalizes these accounting differences. As you can see from the table on the left, bundled SAS revenue has been trending up quarterly, and we have another quarter of sequential revenue growth in Q3. We expect bundled SAS revenue to increase sequentially again in the fourth quarter, and for the year, we expect double-digit revenue growth in bundled SAS. From the table on the right, you can see our unbundled SAS revenue has fluctuated quarter to quarter, and we expect a significant increase in Q4 to around $100 million of revenue. While year-over-year growth in unbundled SAS revenue can fluctuate quarterly, for the full year, we also expect double-digit revenue growth for unbundled SAS. Let me provide some more detail on what is driving the large sequential increase in unbundled SAS revenue in Q4. Three years ago, we started a new program under which we offered our customers multi-year SAS contracts that were recognized as part of our unbundled SAS revenue. This program is ongoing, and when these contracts come up for renewal, the value is predominantly recognized up front in the quarter in which the contract is renewed. With respect to Q4, we have a significant amount of unbundled SAS contracts coming up for renewal. When analyzing the $48 million sequential increase in Q4 unbundled SAS revenue, $40 million of the $48 million increase is driven by these renewals. Overall, it's important to note that quarterly fluctuations of unbundled SAS revenue also drives quarterly fluctuations in our total SAS revenue. Looking forward, we expect total SAS revenue to increase around 25% in Q4 which brings our full year to about 15% year-over-year growth. Let me now turn to SAS ARR, which is a way to look through the unbundled quarterly fluctuations. As a reminder, SAS ARR normalizes all SAS contracts to reflect a consistent and annualized ratable view and is becoming an important metric to understand our SAS growth trends as customers shift to the Variant Cloud and our revenue shifts to bundled SAS. Q3 SAS ARR growth came in at 11% year-over-year, reflecting our new SAS ACV bookings and solid SAS renewal rates. We just covered the unbundled and bundled revenue streams, and now I'd like to briefly discuss the other two software product-related revenue streams, perpetual and support. Our perpetual revenue came in at $25 million in Q3, and as we have completed our perpetual license to SAS transition, we expect it to remain around $25 million in Q4 and going forward. In Q3, our support revenue continued to gradually decline as our support base shifts to SAS over time. For Q4, we expect a decrease of approximately $1 million. At Investor Day next week, we will discuss trends for our four software product-related revenue streams over the next three years. Turning to gross profit, I am pleased to report that our non-GAAP gross margins continue to expand in the quarter both sequentially and year-over-year to 71.3%. Year-to-date, our non-GAAP gross margin came in at 70.2% up 100 basis points compared to the same period last year. For Q4, we expect non-GAAP gross margin to be around 73%, also up more than 100 basis points year over year. We believe our ability to increase gross margins reflects the strength of our AI innovation. DX automation creates significant ROI for brands as it enables them to reduce costs while at the same time elevating customer experience. VARENT is able to capture a portion of these customer savings in the way we price our solutions, which benefits our gross margins. We will also discuss our improved economics due to AI adoption further at our investor day next week. Turning to our annual guidance, on a non-GAAP basis, for revenue, we expect $910 million, plus or minus 2%. At the midpoint of our guidance in Q4, we expect $264 million of revenue. We expect both gross margin and operating margin to increase around 100 basis points year over year. And for diluted EPS, we expect $2.65 at the midpoint of our revenue guidance. Regarding below the line assumptions for Q4, we expect interest and other expense of around $1.9 million, net income from a non-controlling interest of around $250,000, and for the full year, we expect around a 9.5% cash tax rate and around 74 million fully diluted shares outstanding. Turning to our balance sheet, we continue to be in a very good financial position. Our net debt remains well under one times last 12-month EBITDA, and is further supported by our strong cash flow. I am pleased to report that GAAP cash from operations is up 19% year-over-year through the first nine months. Regarding our previously announced $200 million stock buyback program, to date we have repurchased close to $150 million worth of shares. This program was announced in Q4 last year as a two-year program, but we now expect to complete it faster than planned. And looking forward, we expect to announce a new program once the current one is completed. In summary, we are pleased to have overachieved our revenue and non-GAAP diluted EPS expectations in Q3. We are encouraged by the positive leading indicators in bundled SAS bookings and SAS pipeline mix and are on track to finish the year strong with double digit revenue growth in the fourth quarter. Next week at our investor day, we will provide a deep dive into our AI differentiation, review our financial model, and discuss our next chapter of growth driven by AI adoption. With that, operator, please open the line for questions.

Thank you. And at this time, we'll conduct the question and answer session. As a reminder, to ask a question, you need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by. We compile the Q&A roster. One moment for our first question.

And our first question will come from the line of Joshua Riley from Needham.

Your line is open.

All right. Thanks for taking my questions. Nice job on the quarter here. Maybe just starting off with a macro question. I noticed in the prepared remarks and in the press release, who didn't call out the elongated sales cycles, maybe to the degree that you had in the last couple of quarters. Can you just give us a sense of, has there been a shift in terms of the sales cycles or anything on the macro front that led to a little bit better net new ACV?

Yes. I think that what we're seeing is that no change. So, elongated sales cycles that we reported at the beginning of the year have not changed, but we've adjusted our focus and our expectations to the market dynamics today. So, you know, we hope that we'll see better economic environment next year, but what's driving our growth next year is a lot of the bundle sales shift that is happening this year because the revenue is lagging the booking. And the shift is really the more important change that we are reporting now in Q3. And it's all driven by AI. As Grant explained, I touched on that. All our innovation, all the bots in the platform are offered only in the Varian Cloud, which drives the Bundle SaaS revenue condition. So as customers are adopting bots and very important quarter, by the way, because We announced our open thickest platform in Q2, in the middle of Q2, and Q3 was our first quarter that we actually was in full motion in the market with our customers. And nine out of the 10 largest bundle SaaS deals came with bots. So obviously they came in bundle SaaS because that's the way our customers will consume the AI from Variant. So that is a shift, and of course, we're booking now is revenue next year. And the other thing which, again, we report is the pipeline growth in Q3, and it's all very much, 90% of the pipeline is bundled SaaS and AI-driven. So no change in economic environment and so on, but definitely behavioral change for our customers, shifting more to AI and therefore shifting more to bundled SaaS.

Got it. That's helpful. And then if you look at this concept of, you know, fewer agent licenses and more bots going forward, is this something being discussed with customers today? And are they already kind of planning their contact center headcount accordingly for the technology shift with not only your AI products, but other vendors? Or is this something that you think is still a few years out from impacting contact center agent headcount?

We definitely are discussing this with our customers. I personally met with many CIOs over the quarter and this comes up in every discussion and the question is how fast it's going to happen and not whether it's going to happen. The desire our customers have is definitely to increase CX automation because that's the only way they can elevate the customer experience and at the same time reduce costs. They just cannot continue to hire to elevate CX. And so that is definitely the center of the discussion with our customers. And the way we do that in our platform is also very differentiated because we provide an orchestration mechanism for our customers to orchestrate, kind of dial up and down how many people and how many bots they actually want to have in their workforce. And that's why we call it a platform of one workforce, people and bots working together. So next week in Investor Day, we're going to spend a lot of time demonstrating the technology, the power of the bots, and also giving examples of what happened to the customer spend when they shift from people to bots, and then what happened to the variant TAM and growth opportunity. And you will see, again, very tangible examples that... you know, it's a win-win. Our customer is going to save a lot of money. They will increase the technology spent, but the net decrease will be bigger because they will decrease much more the labor spent. So we expect, as a vendor, we expect that as they increase the technology spent on buying both licenses, the impact on variant is that the gain from these both licenses is far greater than the loss from the agent license. Again, we'll bring that all into the economic impact and provide a model so you can model that phenomena for the next three years. Where we are now, just to complete the answer, I mentioned before that we currently support four million agents. When we look at our renewal rates, again, good renewal rates in Q3, we have very positive loyal customer base that's sticky because they like the product, they like the value that we bring to them. But when we see this renewal rate, that 4 million number has not trended down yet. So while customers are buying more bots, it's mostly to avoid more hiring, and we don't see yet that they are reducing their agent headcount. At the same time, again, we are expecting that it's going to happen. We're expecting not only this increased capacity that bots is going to bring to the workforce is not going to only be used for reducing labor costs. It's also going to be used for increasing customer experience and increasing revenue opportunity with customers. We will discuss and, again, demonstrate all that. We're going to bring some customers and partners to talk about it. next week. So that's going to be foreign center to our discussion, how the industry is shifting to more AI, variants is shifting to more bundled SaaS, and our TAM is growing because we have a much larger AI opportunity in the future.

Got it. Very helpful color. Thank you, guys.

Thank you. One moment for our next question. Our next question will come from the line of Hugh Cunningham from Catlin.

Your line is open.

Hey, guys. Thank you for taking my question. You know, from our side, let's say we also want to say our thoughts and prayers are with you, the members of the family that are in Israel. That is still very much on the minds of everyone here. In terms of the question that was just asked, Dan, Do you have a sense for your end customers, how many of them are focused on really enhancing their competitive position by improving their customer service and not so focused on reducing costs by reducing contact center headcount?

Thank you for your kind note. I would say that today in the current environment, customers are first and for all focused on reducing their cost, their labor cost. But at the same time, they can't keep hiring to introduce better customer experience. So a lot of our customers are reporting that they know they need to hire people to elevate CX. They want to elevate CX because that's strategically important to them. But they're already spending a lot of money. It's very hard to hire and retain an executive agent. So they're looking actually first to stop the bleeding, which is increasing labor costs. I personally, again, have discussions with executive level that are thinking beyond that and understand the power of... customer loyalty and revenue generation over time increasing from from a better customer sentiment so i think that is personally i think it's coming but if i have to report what i see now in the market the reason typically that currently they're buying is uh help me reduce my labor costs and because the and because the roi is also very quick and they don't have to deploy you know if you are a 10 000 agent connect center The way we provide you the bot consumption is you can have a volume-based consumption. So you can start with 200 agents and just look at what does that do to increase capacity. And now that you've proven that in your own environment, if you want to expand, it's all in the very cloud. It's really just changing entitlement, and we're billing them for more bot consumption. So it's very... easy for them to look at, okay, I'm going to start, I'm going to stop the bleeding in terms of I can't hire people I need now to bring bots. But as I keep increasing the volume, I may want to start to use those bots for freeing up people to do more customer service and more personal relationship building with customers. I personally think it's coming, but it's not yet.

Okay, thanks for that, Dan. And then one question on the bundled, unbundled mix. It would seem to me that the motivation to switch to the variant cloud and enter into a bundled agreement is compelling, particularly given that's the only way to access the bots and variant AI. What am I missing on the other side? What's keeping, and there's this strong renewal this quarter, or expected in Q4 for unbundled. Why is there strength still in the unbundled side? Why isn't everyone going to bundle?

Yes, so first you remember that Variant is very much the high end of the market, mid to large enterprise customers. And if you look at kind of the industry reports, only 20% or under 20% of that end of segment of the market has moved to cloud, while Variant already had the majority of our customers in the cloud. So from a revenue perspective. So the way we did that is we know that our large customers did not want to be disrupted. Many of them have, you know, when you have thousands of people, it's not one connect center, it's multiple. They may be in different countries. They may be with different technologies. So these large customers really do not have the desire to just rip and replace everything and do one big transformation into the cloud. So the way we designed our platform is our bots only work in Varian Cloud, but you don't need to bring your legacy Varian solution to the Varian Cloud. So our bots work in the cloud with your on-prem, or we have many partners that are hosting our software. So our bots in the Varian Cloud can work with the partner cloud, can work with the customer cloud. What that did is... it puts us in a position, and when we look at the Q3 booking results, that we have a lot of bundle-sized booking from unbundle-sized customers. And when it comes time to renew, they renew in unbundle because they're not ready to rip and replace what's working. But we gave them a path to consume AI in the Venn Cloud without the need to go through a big transformation. Now, At some point in time, they're going to take the legacy and move it to the cloud as well. They're going to do it at their own pace. And we know that at that point, we get some uplift. But we're not dependent on that transition from customers that only when they move to the cloud, they also buy variant bots. So we designed it that we decoupled the two things. And that's why we will see in Q4 many unbundled renewals. As Grant said, that's something we've been discussing now, those renewals from these customers for the last six months. That's typically when we start the renewal process, and we know they're going to renew in unbundled. And some of them, when they renew in unbundled, they're going to add new capabilities, new AI capabilities in bundled.

Okay, understood. Thank you, Dan.

Thank you. One moment for our next question. And our next question comes from Peter Levine from Evacor.

Your line is open.

Great. Thanks, guys, for squeezing me in here. Yeah, maybe, Grant, I think your comments was interesting to me on gross margin. You talked about, you guys, the leverage you're seeing is coming from the cost savings. So maybe just talk us through how that's getting calculated and how you're thinking about that as you plan for next year.

Yeah. What I mentioned, Peter, was the cost savings that our customers realize, the way we price our SaaS business, the AI, we're able to capture that, more of that, because the ROI is very high. So that's what we see and why we look at this and the trajectory that we're on, as Dan mentioned, really driven on the back of the bundled SaaS bookings we did this year, driving some accelerated growth next year. And even with the scale on that, we see a path to expanded margins next year and as we continue into the future.

Your guidance of the $100 million of the unbundled test, Q4, you said that's, I think, dependent on the number of deals that are coming up for renewal. Maybe talk us through where we are in that cycle, meaning 50%, 60%, 70% of those deals have closed, or are you still expecting that? Meaning, how de-risked is that ever?

Yeah, what you're asking is what kind of visibility do we have? It seems like a big number, right? And that's the important point and one of the reasons why I wanted to share here. Of that 100 million, 48 million sequentially, right, up from Q3... And that's where $40 million of that growth comes from this renewal volume that we have, whereas the $8 million of additional growth comes from new. The renewal business tends to have less risk. We tend to see that because customers already have the software deployed. We begin discussions on the renewals with them six months in advance. We know funding typically is secured. So it's a different sales dynamic for this volume of renewals. It's really just that the timing of when these renewals have come up, more of them are here in the fourth quarter. And that's what drives a bit of that revenue dynamic. But looking at it across the year, it has a little bit more natural dynamic along with the SAS ARR that we're seeing.

If I could squeeze one last one, and maybe just to follow up from an earlier question, is it a way that you can quantify for us? We talked about some of the deals that pushed out of the first half into the second half. Can you quantify what you saw in Q3, perhaps that got pushed into Q4, and then perhaps what's getting pushed into, call it the first half next year?

Yeah, I think that what we did after Q2, and we saw, again, Q1, Q2, The Q1 slip deal pushed to Q2, and then there was Q2. We just adjusted our focus, right? We came to Q2 and said we're going to lower the guidance for the year based on our reality of the deal cycle is just longer. So we applied that, what we saw in Q2 into Q3, and we were pretty much where we expected to be. So I think we're reading the market. There was a question before, are things getting worse? No, they're not getting worse. I don't think they're getting better. But I think we have adjusted our view. And that's why we got $25 million ACV in Q3. We're expecting a sequential increase and then a year-over-year increase in Q4. $25 to $30 million is kind of my range. And we think this is adjusting to the elongated cell cycles already.

Will we get any color to fiscal 25 numbers or the guidance for fiscal 25 next week?

We will discuss the next three years next week. That's why we have Invest Today. I think we're going to give you a lot of information about how to think about the opportunity that Varian has and how to model Varian for the next three years. I would say that First, we expect next year the revenue to grow and improve growth rates because of the bundled SAS booking this year. So that increase in bundled SAS this year will drive increase in revenue next year. So obviously we discussed that. We'll discuss the next year, the trends in detail, but the most important thing for us right now as we think about acceleration of growth rates next year and beyond is of course the industry that we're in is very labor intensive and it's ripe for automation. We are at the early stage of this and we know that our customers are buying bots, but it's still very early stage. I think that's going to drive the growth. You'll see next week that the biggest growth driver for Variant next year and beyond is going to be bundle size. And because all our innovation is moved into bundle size, we're still innovating in unbundled. It's not that we are telling our customers that they have to move away from legacy. We're absolutely giving them updates, software updates on everything that is in unbundled. But if they want to buy AI, there is no AI available from Variant in unbundled. All the AI has to buy in the VARN cloud, and that's the bundled SaaS, and that's what's going to be the main driver. So let's kind of wait for next week. You'll see as we dissect each one of the revenue streams that Grant mentioned before, bundled SaaS, unbundled SaaS, support, perpetual. We'll take all these streams, and today we're going to review them for the last three years, and we're going to review them for the next three years.

Thank you very much, Nikola, guys.

Thank you. And as a reminder, to ask a question, that's star 1-1. Once again, that's star 1-1. One moment for our next question. Our next question will come from the line of Samad Samana from Jefferies. Your line is open.

Hi. Good evening. Thanks for taking my questions. I guess maybe one, Dan, on the 4 million agents, I think you said that the majority of the revenue is in the cloud, but I was just curious, of those 4 million agents that are using the software on a daily basis today, how many of those are accessing it via cloud deployment versus an on-premise deployment? I'm just trying to see maybe what the opportunity there is to continue pushing the actual users to the cloud side. So just curious, and then I have a couple of follow-ups.

Yeah, no, very good question. So when you look at, you know, we mentioned that more than once, actually, that we have completed the SaaS transition. So let's be clear about what that is. So in terms of new perpetual license revenue, as we said, we are at $25 million run rate this quarter. We expect it next quarter. We expect it going forward. So we have a certain amount of customers that are on-prem, and will remain on-prem, and that's going to be about $100 million of revenue annually. Most of these customers, by the way, are financial services, and for a variety of reasons, they're not moving to the cloud anytime soon. So that's kind of one class of customers that are still buying in perpetual license. Everyone else is buying in a SaaS model, but we still have about $140 million that are support, this is support stream, and these customers are paying maintenance for support, and therefore they're still on-prem. They're still, they're not buying anything new in perpetual license, but they have not converted yet to a SaaS license. So that's $140 million. And then when you look at our bundled SaaS, it's all in the parent cloud, and unbundled SaaS, Roughly, you can say about half of the unbundled running in a partner cloud, not in a variant cloud, so that's why they are unbundled, but approximately half is running in some variant partner cloud, and the other half is running at the customer choice, whether it's on-prem or in their choice of a cloud hosting provider. So I can't tell you exactly the numbers, but you can see that more than 50%, if you add the numbers, and we're happy to walk you through that map, but if you have these numbers, you see that more than half of our customers are running in multi-tenant cloud somewhere, either in variant cloud or in a partner cloud. And the remaining are either on-prem or they are in some sort of a SaaS subscription model, but not yet in the variant cloud or in the variant partner cloud.

Does that help you? Yeah, definitely. Appreciate that. And then maybe just thinking about the different partners that you work with. I know we talked about sales cycles by customers and kind of how those are elongated. Are you seeing a change in the partners that you work with, demand from them or anything that's kind of idiosyncratic that we should be aware of from some of your larger partners that that use Verit to provide WFO to their end customers? And is that something that's also, you know, like how much visibility do you have into that for the fourth quarter?

Yeah, we see definitely a change. All our partners want to resell Verit bots. So it's no longer WFO. I mean, they're still selling WFO, which is our legacy product, but they all are being asked by the end customer hey, you know, I saw Varian has this thing, can I get it? So they need to buy it in the Varian cloud. So all our partners, almost without any, I would say all, but there's always exceptions, but the vast majority are now reselling in the Varian cloud or in the process of onboarding themselves to resell in the Varian cloud so they can have access to the Varian AI. We see that as an additive business. Again, we are fully supporting our legacy products, WFO products. They're all available in the platform, but we have enhanced legacy product with bots. We've created new bots. We have 35 bots in the platform, and obviously that's the next chapter of Eric, and our partners want to differentiate their offerings, so they want to leverage what Variant can offer. And because we are an open platform, we announced OpenCICAS back in June, we basically allow all partners free access to our platform so they can choose anything they want and resell. And we're definitely in the process of onboarding them. And we'll see that that shift from unbundled booking to bundle booking is going to happen also in our partner ecosystem. Great. Thank you so much.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Matthew Frankel for closing remarks.

Thanks, Victor, and thank you to everyone for joining us today. We hope you can join us next Wednesday at our Investor Day. Have a good night.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.