Verint Systems Inc.

Good day, and thank you for standing by. Welcome to Verrent Systems, Inc., fourth, I'm sorry, Q4 2025 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'll 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. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Matthew Frankel. Please go ahead.

Thank you, Operator. Good afternoon, and thank you for joining our conference call today. I'm here with Dan Bodnar, Verans CEO, Grant Highlander, Verans CFO, and Alan Roden, Verans 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 verans.com. Click on the Investor Relations tab, 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 in this call may contain forward-looking statements within the meaning of the Private Security Critication Reform Act of 1995 and other provisions of the federal securities laws. These forward-looking statements are based on management's current expectations that are not guaranteed 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, there is no obligation to update or revise them. Investors are cautious not to place undue reliance on these forward-looking statements. For more detailed discussion of how these and other risks and uncertainties could cause variance to actual results and different materiality from those indicated in these forward-looking statements, please see our Form 10-K for the fiscal year ended Jan. 31, 2025, one file, and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures and certain operating metrics. is we believe investors focus on those measures in comparing results between periods and among our peer companies. These include revenue and ARR growth, which are adjusted for the divestiture we effectuated on January 31st, 2024. Please see today's slide presentation, our earnings release, and the investor relations section of our website at varen.com for a reconciliation of non-GAAP financial measures to GAAP measures, as well as for more information about our key operating metrics. 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. Let me begin with ARR growth trends. In Q4, our strong AI momentum continued, driving our ARR growth to 5% ahead of our guidance of 4%. I'm pleased to report that ARR growth accelerated every quarter last year as customers expanded their AI deployments. More and more customers are recognizing the strong AI business outcomes that Varian delivers and are progressing from initial AI experiments to AI adoption at scale. We expect this AI momentum to continue in the current quarter and throughout the year, and we forecast another year of ARR growth acceleration. For Q4 26, we are raising our ARR outlook for a prior guidance of 760 million to 768 million, reflecting 8% growth. Let's take a closer look at the key drivers behind our AI momentum. There are three key drivers behind our acceleration last year, which we believe will drive further acceleration in fiscal 26. The first driver is variance ability to deliver strong and differentiated AI business outcomes. Many of our customers started to deploy variant bots over the last several years and are now reporting strong AI business outcomes, which clearly differentiates variant in the CX market. There are many CX vendors who talk about AI technology, but are unable to walk the talk and demonstrate tangible business outcomes like we do. The second driver is our ability to deliver AI business outcomes faster than any other CX vendor and without customer disruption. With various differentiated hybrid cloud, customers are able to start their AI journey small, prove the desired outcomes in their own production environment, and then quickly scale with various AI deployments in our cloud. And the third driver is our success in seeding many customers with initial bot deployments in prior years. And we expect that this year, these customers will continue to accelerate variant AI consumption. Let me elaborate on these three key growth drivers and give a few customer examples. Starting with the first growth driver are strong and differentiated AI business outcomes. Here are two customer reported AI business outcomes. A healthcare insurer deployed a variant copilot bot and reported around a 30-second reduction in average call time. With 30,000 agents, a 30-second handling time reduction is equivalent to $70 million of agent capacity. The second example is a telecom company, also with 30,000 agents. This customer deployed a variant copilot bot and achieved a 5% increase in agent productivity, which is equivalent to $45 million of agent capacity. In this case, the variant coaching bot not only increased the customer productivity, but in addition, this customer reported increased revenue by improving the performance of their sales agents. Customers are reporting stronger AI business outcomes from Variant than from any other CX vendor. There is a lot of noise and hype in the markets as all CX vendors are today telling an AI technology story, but our competitors cannot report strong ROI case studies like we do. Today, Varence stands out in the CX market as a highly differentiated vendor because our customers are reporting very strong AI business outcomes, and we are excited that many of them are willing to publicly share their success stories. These customer references are really helpful to variants as they are building confidence with other customers because they can hear directly from their peers. Now let's discuss the second growth driver. In addition to delivering stronger AI business outcomes than other vendors, we're also delivering these strong outcomes faster than any other CX vendor and without disrupting the customer's operation or ecosystem. Various CX automation platforms can be deployed in a hybrid cloud to deliver faster AI outcomes. So why is hybrid cloud so important to our customers? Brands have many different CX workflows, which are mostly manual and require a large, expensive human workforce to operate. Automating these CX workflows is an increasingly important priority for brands. However, they are looking to achieve this automation without embarking on big, rip and replace infrastructure projects that can take years to deploy and which do not guarantee AI business outcomes at the end. The very hybrid cloud approach to automating CX workflows is what the market is looking for and is resonating well with customers. With Variant, they can quickly automate existing workflows without disruption. They are able to start their AI journey with a small initial deployment, prove the desired outcomes, and then quickly scale and benefit from a large ROI. Also, customers get peace of mind that they can keep their existing technology systems on premises or in the cloud and layer Variant bots on top quickly. This means that customers can continue to work with their existing AI, CRM, and communications vendors as they did before and add Variant hybrid cloud on top to automate their CX workflows now. Let's look at Variant's hybrid cloud in action. Throughout fiscal 25, many brands deployed Variant bots in hybrid cloud model, starting small and then growing usage as they proved the desired AI business outcomes. For example, a leading financial services company has expanded in the Variant platform with hybrid cloud in fiscal 25. They added seven bots, and increased their usage over time, resulting in ARR more than doubling from 1.6 million in Q4 24 to 3.5 million in Q4 25. Another example is a leading telecom company expanding their variant platform with hybrid cloud. They added three co-pilot bots to their existing variant on-premises solutions resulting in ARR growing from 1.4 million in Q4 24 to 4.1 million in Q4 25. And the third example is a leading insurance company that expanded their usage of a variant bot resulting in ARR growing from 2.3 million in Q4 24 to 4.3 million in Q4 25. These are three examples for customers achieving fast AI outcomes with hybrid cloud without long and expensive rip and replace projects. These are also good examples of customers that receded with initial AI deployments last year, and we expect these customers to increase their usage and expand with additional bots over time. The third key driver for ARR growth acceleration is the customer AI seeding that we started in prior years. Let's look at a customer's journey over multiple years. This telecom customer started their AI journey with variance in fiscal 23, and over a two year period added 10 bots, growing ARR for a few hundred thousand dollars in fiscal 23, to $2.1 million in fiscal 24, and then accelerated to ARR of 8.5 million in fiscal 25. Customers are increasing consumption of our bots over time, as the economics are very favorable with significant ROI. The CX market is in an early stage of AI adoption, and we've been seeding our customer base with AI. We're pleased that today more than 90 of the Fortune 500 largest brands in the world are already using Variant AI-powered bots to automate their CX workflows. These are leading brands and we expect them to scale and to serve as strong reference customers to influence adoption in the rest of the market. Now let's take a look at Q4 bookings and key customer wins. In Q4, we delivered record SaaS ACV bookings for new deals with 30% growth year over year. Our record bookings and key wins were driven by customers reporting strong and fast AI outcomes and sharing their success stories with other customers. Here are examples of two large Q4 wins. A $27 million TCV order from an insurance company for renewal and usage expansion of the Verit platform. And a $10 million TCV order from a telecom company to automate CX workflows and increase agent capacity. There are two main reasons behind these large competitive wins. First, more and more brands are fatigued by the AI noise and are looking for vendors that can deliver proven, tangible, and strong AI business outcomes now. And second, brands are looking for vendors with hybrid cloud that can deploy AI solutions with no disruption and with a show-me-first approach. In summary, we experienced strong AI momentum throughout last year. We finished fiscal 25 with record bookings and ARR growth acceleration and are raising the outlook for the current year to 8% ARR growth. We deliver stronger and faster AI business outcomes, better than any other vendor in the CX market, and behind our growth outlook is the proven value that we create for our customers. We believe the customer AI seeding that we did in prior years will benefit us in fiscal 26 and beyond. Our proven differentiation makes us a CX Automation category leader and well positioned for double digit ARR growth longer term. And now, let me turn it over to Grant. Grant?

Thanks, Dan. Good afternoon, everyone. Our discussion today will include non-GAAP financial measures. A 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 and divestitures, including fair value revenue adjustments, amortization of acquisition-related intangibles, certain other acquisition and divestiture-related expenses, stock-based compensation 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. Let me start today with subscription ARR. As Dan mentioned earlier, Variant CX Automation Platform delivers AI business outcomes faster and stronger than any other vendor in the market. And we are seeing growing adoption of our AI solutions from our base as well as from new customers. This growing AI adoption is translating into faster growth. I am pleased to report that our subscription ARR year-over-year growth rate accelerated every quarter last year and we finished the year strong. In Q4, ARR came in at $712 million, up 5% year-over-year, ahead of our 4% guidance adjusted for the divestiture. Looking forward, we expect our ARR growth to continue to accelerate, and for the year, we are raising our outlook to $768 million of ARR, representing 8% growth. Behind our ARR growth is strong bookings. In Q4, SAS ACV bookings from new deals increased 30% year-over-year to 32 million. I would like to highlight that 32 million was a quarterly record and follows three-quarters of strong year-over-year bookings growth from new deals, with 34% growth in Q1, 29% growth in Q2, and 37% growth in Q3. For the full year, SAS ACV bookings from new deals increased 33%. As a reminder, customer conversions from on-premise applications to the variant cloud were minimal in fiscal 25. We also expect minimal conversion bookings in fiscal 26 as customers continue to take advantage of our hybrid model to add AI without disruptive rip and replace programs. Looking ahead, we expect another year of strong New Deal bookings growth driven by customers adding new parent AI bots and increased usage. As Dan mentioned earlier, in fiscal 25, we seeded many customers with initial AI deployments, which we expect will increase usage in fiscal 26. Turning to bundled SAS revenue, we are pleased with our acceleration from 9% growth in Q1 to 23% growth in Q4, which was also ahead of our guidance. For the year, Bundled SaaS revenue grew 17% year over year. Bundled SaaS ARR showed similar trends throughout the year, also with 17% growth at year end. As a reminder, Variant's AI solutions are only offered in the Variant Cloud and therefore bundled SaaS ARR is a good proxy for our AI growth. Dan shared earlier several examples of customers increasing AI consumption and growing ARR. We are pleased with this AI consumption growth trend, which represents more customers evolving from initial AI experiments to deploying AI at scale. At our investor day, we discussed our plan to begin reporting cash generation and cash contribution to help investors understand Variant's growth on a ratable basis. I'm pleased to report fiscal 25 cash generation came in $8 million ahead of guidance, and our cash contribution came in $16 million ahead of guidance. Cash contribution for fiscal 25 came in at $228 million, an increase of 2% year-over-year, and drove a 4% increase in free cash flow year over year. To bridge from cash contribution to free cash flow, we subtract capex, cash taxes, interest expense, as well as adjust for the timing of collections and payables and other changes in working capital. Turning to revenue, As Dan discussed earlier, customers are embracing our hybrid cloud approach to adopt AI without disruption, which means they continue to purchase our software in both unbundled and bundled SaaS models. From a revenue perspective, revenue accounting for our bundled SaaS model is ratable, and revenue accounting for our unbundled SaaS model is not ratable. Therefore, the timing and term length of unbundled deals can make year-over-year and sequential trends not meaningful and difficult to predict. In contrast to revenue, ARR presents a radical view of both unbundled and bundled models, providing consistent and meaningful trends period over period. Looking back in fiscal 25, ARR growth accelerated each quarter reflecting the true growth and trajectory of the business, while revenue trends fluctuated due to timing of unbundled SAS revenue. In Q4, revenue came in at $254 million versus our guidance of $277 million. All revenue streams came in as expected, except for unbundled SAS. As you know, our unbundled SAS stream includes revenue from both renewals of multi-year contracts and bookings of new deals. Looking back on Q4, revenue from unbundled SAS renewals came in as expected. The entire revenue shortfall was due to bookings of a few new deals in the unbundled SAS model that did not materialize in the quarter. These deals were from existing customers, not competitive, and we expect these customers to continue to expand over time. Even with a few unbundled deals not materializing within the quarter, Q4 was still a record bookings quarter. Even with a record quarter, though, our bookings mix drove unbundled SAS revenue below our expectations. As a reminder, the mix of unbundled and bundled SAS bookings does not change the ARR view, which is ratable for all deals. In fiscal 26, the unbundled booking mix will also be difficult to predict, and we will therefore take a different approach to revenue guidance this year, guiding with a wider range. Also, similar to fiscal 25, we did not expect quarterly revenue trends to be meaningful due to the timing of unbundled SAS revenue. Now, turning to guidance, we are providing guidance in two ways. Guidance for a ratable view of the business is measured by subscription ARR, cash generation, and cash contribution. Our ratable guidance will be provided with a narrow range of plus or minus 1%. Second, we will continue to provide guidance for revenue and non-GAAP diluted EPS, as we always have, but revenue will be provided with a wider range of plus or minus 3%. For our ratable metrics, our guidance is as follows. We are increasing our outlook for ARR in Q4 26 from 760 million to 768 million, plus or minus 1%, reflecting approximately 8% growth year over year. And we are targeting 960 million for cash generation with a range of plus or minus 1%. At the midpoint of our cash generation guidance, we expect around $245 million of cash contribution. For revenue and non-GAAP diluted EPS, our guidance is as follows. We are targeting $960 million of revenue with a range of plus or minus 3%, driving non-GAAP diluted EPS of $2.93 at the midpoint. Also at the midpoint of our revenue guidance, we expect gross margin of around 73% with another year of operating margin expansion. Regarding below-the-line assumptions, for the full year, we expect interest and other expense net of approximately $7 million, net income from non-controlling interest of around $1 million, a cash tax rate of around 11%, and approximately 72.2 million fully diluted shares, reflecting our buybacks to date. Now let me give you a bit more color on our outlook for Q1 of fiscal 26. For modeling purposes, for ARR, year-over-year growth will accelerate to 6% in Q1. For the sequential trend, keep in mind that seasonality typically drives higher usage of our software in Q4 compared to Q1. For revenue, we expect a range of between $190 million to $200 million. Our range reflects another quarter of strong year-over-year bundled SAS revenue growth of more than 17% and lower unbundled SAS revenue year-over-year. As we have discussed in the past, Unbundled SAS multi-year renewals vary by quarter, and we expect unbundled SAS revenue in Q1 to be lower compared to Q1 last year. At the midpoint of our revenue range, we expect driving non-GAAP diluted EPS to $0.13 in Q1. Turning to our balance sheet, we continue to be in a very good financial position. Our net debt remains well under one time's last 12-month EBITDA, and is further supported by our strong cash flow. With regard to capital allocation, we expect the largest use of our free cash flow to be buybacks. As a reminder, we started a new 200 million stock buyback program in September. I would also like to mention that we recently increased the size of our revolver to 500 million and extended the term to 2030. This new revolver can be used to pay down our existing convertible notes upon maturity, as we are not currently planning to issue a new convertible. We can also use the revolver for other purposes, including to potentially accelerate our stock buyback program. In summary, we are pleased with our strong AI momentum. Throughout fiscal 25, ARR growth accelerated and we overachieved our Q4 ARR guidance. We expect this momentum to continue, and we are raising our ARR outlook for the current year. In fiscal 26, to help investors better understand the trends of our business, in addition to providing guidance for revenue and non-GAAP diluted EPS with a wide range, we will provide guidance on a radical basis for ARR, cash generation, and cash contribution with a narrow range. We believe a ratable view is a better way to understand the underlying growth trends in our business. With that, operator, please open the line for questions.

Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. We also ask that you wait for your name and company to be announced before you proceed with your question. One moment while we take the first question. And our first question will be coming from the line of Joshua Riley. of Needham and Company. Your line is open.

All right. Well, thanks for taking my questions here. So if we look at the macro, I guess one of the items we were hoping to dissipate was the AI paralysis impacting contact center spending. And it seems giving the bundled momentum that you have here that's playing out. Can you just speak to the customer confidence in buying solutions now and whether they really are taking this land small approach or are some customers also going for larger deals in the current environment?

Yes, thank you. We do have now a very strong quarter in bundled SaaS revenue, going 23%. But this has been improving all throughout the year. And I believe Variant is very helpful to customers to stop the paralysis with the stronger and faster AI business outcomes. And we do see customers are evolving from just doing AI experiments, which is small scale, to actually AI deployments at scale. So let me give you an example. Fiserv, it's a leading fintech company, and they reported that Variant Quality Bot is doing the work of 1,200 supervisors. So this is Variant Agentic AI that is automating CX workflows. And in Fiserv's case, this is automating a financial compliance work. So the Variant Agentic AI is automating a micro workflow within the compliance workflow and increasing the capacity of the compliance team, but increasing it by a very significant matter. So these kind of examples and companies who are willing to share the success stories publicly is very helpful. And then obviously there's the economics. So from a point of view of the brand, on average, to replace a SIP with AI, the brand will need to invest $2,000 in AI software, but they save $40,000 on labor. This is a 20X ROI, and once customers see that kind of strong outcome, obviously, they move away from the paralysis. At the same time, for variants, this $2,000 revenue from selling the automation software is much better than the loss of the software revenue from the reduced seat, which is only $200. So we swap a $200 license for a $2,000 AI license. And of course that benefits varying from a nine X increase in revenue. So this is a win-win and we're helping customers to actually see the benefits and it's no brainer to invest. I would say that the big AI bottlenecks that we saw last year and are dissipating, one was the customer had that perception that in order to get AI outcomes, they need to change the infrastructure. And, of course, with the hybrid cloud, as we educated the market, that that's not necessary because you can layer the AI bots from variant on top of your existing infrastructure. So that was a big challenge. objection that now customers see that it's not a real objection. And the other objection was mostly from IT, where they were skeptical about AI and they wanted to do AI experiments before they allow AI in the enterprise. And now, of course, the strong AI outcomes reported by their peers, they started to see, well, it's real. And of course, with hybrid cloud, they can start small. They can surely start small in their own production environment. It's not a lab environment. And when they see the results in their own production environment, there is no objection, and they would like to scale quickly. And we saw many examples before of customers that more than doubled their ARR. And basically, they kept their non-bundle SaaS ARR was stable. sometimes growing, sometimes declining a little bit. But a lot of the growth that I discussed before was actually adding AI and layering that AI on top of their existing solutions from Variant and from other vendors.

Got it. Thanks. And then if you look at the FY26 guidance, are you assuming that any of the $20 million and kind of pushed unbundled revenue that... you know, didn't come in in the fourth quarter closes? Or have you kind of taken that assumption on the 20 million there out of the full year guidance, including the plus or minus 3% assumption there?

Yeah, now we are talking about a couple of deals that are from existing customers that have ongoing rollouts of various software into larger operations. In one case, it's a deal that the customer was in the middle of a rollout to more business units, and we expect them to continue the rollout. The timeline the customers have changes, obviously. We see customers actually prefer to invest their budget dollars in AI rather than rolling out infrastructure changes across their operation, but we believe that we have a very large range of outcomes when it comes to unbundled SaaS, right, and that's why we're guiding revenue with plus minus 3%, but from an ARR perspective, you know, everything is runnable, and unbundled or bundled booking basically are not making any impact on ARR, so when we go to the 8% growth in fiscal 26, it's really disregarding the impact of any booking mix. And, you know, when you look at Q4, which we just finished, and a booking mix, we actually assumed in booking Q4 that we will have $25 million of new sales CV. And that was a good number, right? This will be 20% growth year over year. Actually, we had a record booking of $32 million, so we came with 30% growth. Even without those unbundled deals, that will be now pushed into the future. So if we had those few deals that slipped, we would be at 40 million, which is even more than 40% growth. But 30% growth really is great because it's in AI. We saw customers are preferring to put their budget to work to increase the economic benefits that they get from AI, and they are sometimes deferring their infrastructure change and kind of split it over time.

Got it. Last question for me is if you look at the fourth quarter there, you did outperform on total AR with 5% growth. My estimate here is that you lost $8 million to $10 million from one of those large unbundled deals that pushed. I guess in terms of making up for that $8 million to $10 million in lost AR plus still beating on a net basis with 5% growth, Was it a series of smaller bundled deals, or was there a few large bundled deals that kind of came in the quarter there that outperformed relative to your expectations? Thanks, guys.

Yes, no, thank you for that. So we do see larger deals now from, you know, for POAI, you know, one of the two deals that I highlighted, there was a Q4 win, was a $10 million TCP order that was for a new bot. But interesting, you know, we mentioned that we've been seeding the market for quite some time and I earlier discussed four different examples of customers that increased ARR significantly over the last year. So when we look at different cohorts and how customers behave, first I mentioned that, you know, when we were looking at the Fortune 500 companies, the leading brands in the world, and we already have 90 of the Fortune 500 that are using Variant AI. So that's obviously great because these are market influencer and there's a lot of potential in large companies. When I looked at a different cohort, which is what is the Variant top 100 customers, and in the Variant top 100, each customer on average is like a $3 million ARR. So these are large customers. This cohort actually grew last year, or Q4 ARR, the growth was 17%. Right, so 5% is our overall ARR growth, but in the top 100, we grew 17%. And when I look at even a smaller universe, the cohort of our top 25 customer, which they have on average $6 million per customer ARR, these customers actually grew 24% in Q4, versus the 5%. So what we see now is that our largest customers are actually growing much faster than the overall universe. And it's not a coincidence because when we were introducing this innovative AI and strong outcomes to the market, we decided to actually go top down because we have thousands of customers and we can't focus on educating all of them. So our decision was to educate our customer base top down. And we see big success with the top 25 and the top 100 because we spent a lot of time educating and showing them in their own production environment what they can achieve and then obviously buying now bigger and bigger. So it's not small deals, we have bigger deals, to your question. And also, in fiscal 26, all this seeding work we did with the large customers we think will continue to benefit us because they are continuing to expand the AI consumption. But we have now the bandwidth to focus on the next 100 and the next 100 and go down the customer base and of course we see also acceleration from this effort. As you mentioned in your first question, there was a big paralysis in the market. We're breaking through that paralysis and we're seeing the results now, not just in terms of potential, but also we see very tangible results in our top customer cohorts. Thank you.

Thank you. and one moment while we prepare for the next question. And our next question is going to come from the line of Peter Levine of Evercore. Your line is open.

Great. Thank you for taking my question. You know, I think it's clear you guys have demonstrated or at least, you know, try to relay the message of ARR is the right metric, and I think you're the only company going through the dynamics of term and subscription. But if you look at the dynamics of these customers, can you maybe just share with us your confidence that these customers that pushed their unbundled deals into fiscal 26, what percentage of those do you feel confident are going to close? And then second, are there any other dynamics that happen with these deals? Was it the macro? Was it budgeting? Anything else that kind of played into them pushing out?

I don't think that there is macro issues. I think that actually customers are looking to spend their budgets more where they get tangible results. I think there is now in this environment, there's even more scrutiny on, you know, are we just doing experiments or are we going to see business outcomes now? So that actually works well for Variant because we're not advocating that you need to do a long-term investment. You can start small and prove it and scale only when you see the outcome. So I don't think it's a budget issue. The ARR is so significant that the solutions actually pay for themselves. So in terms of the mix of bundled and unbundled into 26, what will be the mix that we assume? First, the good news is that the mix doesn't matter to our ARR guidance because it doesn't matter. All deals in ARR are reliable. Now, of course, we know that at the end, ARR and revenue are the same thing. The deal, if it's a million dollar deal, it will drive ARR, drive revenue for a million dollar deal. So it's just a matter of timing. And because ARR, we take all dealers as valuable, we basically are indifferent to the mix on our ARR guidance. And this is why we guided for 8% growth with plus minus 1% range. Now, the mix will make a difference to our revenue, as we all know, because of the impact of 606 on unbundled SaaS. So, different mix will create different results, and this is why we're guiding for plus minus 3% or plus minus $30 million, which is a broad range, but it does reflect the reality is that it's difficult for us to predict because the customers now have the flexibility to change their mind. Hybrid cloud brings a lot of benefits to the customer. One of them is they don't have to make the decision what they need to do first. Normally in software, you would think I have to change my infrastructure and then I can layer on the AI applications and get the benefits. Variant came with a very differentiated approach. You do not need to change your infrastructure. So we're not forcing our customers to continue to convert their premises to the cloud, or whether they need to expand on premises before they can go to the cloud with AI. And it gives them the flexibility to actually decide, sometimes at the very last minute. Yes, we're gonna spend, we've varied $5 million, but rather than spending it on SaaS, unbundled SaaS, we're gonna spend it on bundled SaaS. And what we're going to do is we're going to say, great, let's do, let's do the bundle slash 5 million. That's going to be more AI, more on consumption. That brings us faster to where actually we want to be as a company. We want to be, you know, the company that basically leads the market with sitting more and more customers and getting bigger consumption in AI. And that's all in the variant cloud hosted in a variant cloud. So we're not pushing our customers to do more unbundled SaaS deals. It just falls where it falls, and that's why we gave a broader range of outcomes for revenue and a very narrow range for error.

Thank you for the color.

Maybe one for you, Grant. Can you help us explain if of the customers, unbundled customers that pushed, were these all renewals? Were any of these net new customers? And then as a percentage, there's one merger customer. Maybe just talk about those.

Sure, Peter. No, thank you for that. And it's important to note, so these were all existing customers, and the deals that we were highlighting, none of them were renewal-oriented. So, in fact, in Q4, all of our revenue streams came in on track or bundled SaaS, as Dan mentioned, was slightly ahead, and that included the unbundled renewals. They all came in exactly as expected and on time. So this dynamic that Dan is sharing simply related to an expansion with some existing customers. And as he highlighted, it really was, they were planning a rollout to some additional business units of some of that software and the timeline for that changed. And we do expect that to materialize much of it as we go throughout fiscal 26.

Thank you very much for the call.

Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. And one moment for the next question. Our next question will be coming from the line of Timothy Herron of Oppenheimer. Your line is open.

Thanks, guys. Can you talk about the channel mix a little bit, you know, as a percentage of revenue, and more importantly, where you expect it to go into Within the channel, are you seeing certain areas of growth versus other areas? And I guess related to this, what makes you think you have the best AI products and services out there now? Are you hearing that back from channel partners as well as your large customers? Thank you.

Yes. So I'll start with how do we go to market with channels? we have very little bookings and revenue from channels that are completely autonomous. Most of our channels are actually not experts in AI and they rely on the varying sales force and pre-sales and product experts to go deep dive with customers to demonstrate the outcomes and so on. So we're now in a cost selling model with most of our most of our channel partners. Now we do see and expect that some of them are going to pick up some of that knowledge. And we see some partners, you know, that we have more than 50 bots. And so each bot is automating a CX micro workflow. And, you know, we don't expect channels to kind of master all these different workflows that we automating. But we do see partners that are trying to package and become better at selling maybe three or four or five. So they're starting to get more capable in delivering the message to customers in a credible way. Of course, what we hear from channels all the time is the kind of customer reported AI business outcomes we don't hear from anyone else. So that really helps the confidence, not just with the end customer, but also with our channel partners. They see that what we say we can do and what we do really resonates well with customers. So look, partners are looking to make it easier for them to sell. And the easier it gets with the demonstrated outcomes, the more they're going to invest in learning the variant platform and actively selling it. So in 26, we baked in obviously another year of growth acceleration in ARR which is driven by booking growth and we do dial in some better contribution from channel partners but we think that over the next few years there's a lot of leverage in our many many relationships that will just be growing and what we did in the last couple years is we couldn't wait for the channel partner to lead, so we were leading more with our direct sales force, but definitely we are, as always, we've been very open to our partners, we are very supportive to partners, and we're looking for our partners to be more successful, and I think it will happen over the next few years.

Great, and then just on the macro side, are you seeing any concerns from your customers that, you know, on macro and I would think if macro is slowing, it should actually benefit you guys because you can obviously reduce their expenses quite a bit and improve productivity, but any thoughts around both would be great.

Yeah, no, I think you're absolutely right. I think that customers really are more hesitating to do infrastructure projects because infrastructure change doesn't really create great ROI and takes a lot of time and it's disruptive, but our message now is resonating better than before, which is No need for infrastructure change, no need for upfront commitment, start small. Look, some of the big customers that I discussed before, I'll give you an example, a customer that started just with a co-pilot bot, and they wanted to just assist 300 agents and see how it goes, and in a few weeks they saw the results, in a few months they expanded from 300 agents to 30,000 agents. And we reported before $70 million was their increase in agent capacity. So they were very skeptical at the beginning. At the same time, the other example I gave, which was the $10 million TCV order in Q4, this was the already initial order for 5,000 to assist 5,000 agents with a co-pilot. So the pricing is also another thing which helps customer because the way we price our AI software is very aligned to creating value. They have this complete flexibility on how much consumption they desire and that consumption is directly related to the value. So the unit of measure is directly related to the value that they create. So one for bots, for example, price based on the number of minutes that the customer decides to allocate to the bot. And the customers may have, you know, five million minutes that they need to respond to, and they say, well, the bot is going to do, you know, 100,000 minutes, and then the rest, 4.9 million, will be by people. As they see the bots actually creating good outcomes, they can shift more minutes to the bot, which will be more revenue to variant, but obviously, that investment invariant will be with a 20x ROI relative to investment in labor. And they have the flexibility to shift it back and forth. If they see the bot is not working well, they know they can take it away. In reality, they don't because the bot actually is improving performance over time because our bots learn from data. One of the differentiation part of our platform is that we're not just using AI models. We have the data in a platform, which is behavioral data, and the various AI-powered bots are using hundreds of different models. We pick the right model for the task, which depends on which micro workflow we're automating, but then we also train that bot all the time on fresh data, and bots get actually better, and then customers will consume more time with that bot, send more minutes to the bot, which will increase the revenue and create huge ROI for customers. That dynamics, when you think about the macroeconomic, the trends, what happens with the economy, the message is don't have a big rip and replace project that takes two years and you don't know what's going to be at the end. With Variant, you can take a completely different approach and you can start to measure those tangible outcomes in your own environment, and then scale, and it's very quick to scale because all these bots are running in a very cloud, and basically it's just giving more entitlement to customers to use more of the bots. The scaling is also not disruptive. I think we have a very compelling and differentiated approach with hybrid cloud, and we're starting to see that with ARR accelerating.

Thank you.

Thank you. One moment for the next question. And our next question will be coming from the line of Shaw Eel of TD Cowen. Your line is open.

Thank you. Hi, good afternoon, guys. Dan or Grant, these handful of SIP deals, are they U.S. or internationally driven?

They were... Basically, there were two large deals that predominantly are the total amount that was slipped, and they were both very large U.S. companies, financial services companies.

Understood. Thank you for that. And from a competitive market dynamics stand, do you think you're gaining market share driven by the bot strategy over the course of the past few quarters?

We're not aware of any other vendor that has that scale of AI deployments that Varian does today. Actually, if you look at a customer base right now, all customers that are running in the Varian cloud have some AI entitlements, which brings our total ARR over $300 million of total ARR for customers that actually using various workflows with some level of automation assisted by AI. And that's a pretty large number. And as I mentioned before, our top customers, our top 25 customers are growing, you know, 24% year over year. And as you saw in the examples before, All the growth is coming from investing in AI, the keeping the legacy solutions from Varian, the WFP solutions, they're keeping them on-prem and they're adding more and more AIs and different level of consumption for different bots, some adding seven bots, some adding 10 bots. So yeah, I think we are creating a very nice market share with leadership position in the CX automation market. and we are totally agnostic to infrastructure. So the customer decision on SICAS, on CRM, even on the AI vendors, we are totally agnostic. We will work with any AI vendors of choice, and we can take different LLM models. Obviously, we have many different LLM models that we test in our labs, and we recommend to customers what what will give them the best cost performance, but we're also very agnostic. So in CX automation, which is, you know, we define that as very simply automating CX workflows. I believe that we are the market leader and we're taking market share.

Thank you so much.

Thank you. And this does conclude today's Q&A session. I would like to go ahead and turn the call back over to Matthew Frankel, For closing remarks, please go ahead.

Thanks, Lisa. And thank you, everyone, for joining us today. As always, please feel free to reach out with any further questions you have. And we look forward to speaking to you again soon. Have a good night. Take care.

Thank you for joining today's conference call. This does conclude today's conference. You all have a great evening.