Q4 2021 Verint Systems Inc Earnings Call
Ladies and gentlemen, and thank for standing by and welcome to the parent systems, Inc. Fourth quarter 2021 earnings Conference call. At this time, all participants are in listen only mode. After.
After the speaker's presentation, there will be a question and answer session to ask a question during the session and you'll need the press star one on your telephone as a reminder, today's program may be recorded and now I'd like to introduce your host for today's program, Matt Frankel with Barrett Investor Relations. Please go ahead Sir.
Thank you operator, and good afternoon, and thank you for joining our conference call today and.
And here with Dan Bodner, there and CEO, the Robinson Aarons CFO and now on road.
The corporate development officer.
Before getting started I would like to mention that accompanying our call today is a webex with slides.
If you'd like to view the slides in real time during the call. Please visit the IR.
Number of website and burnt dot com click on the Investor Relations tab click on the webcast link and select today's conference call.
And I'd also like the 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 and 1995 and other provisions of the federal Securities laws.
These forward.
Forward looking statements are based on management's current expectations and are not guarantees of future performance.
Actual results could differ materially from those expressed in or implied by these forward looking statements.
The forward looking statements are made as of the date of this call.
Except as required by law.
And bear and assumes no obligation to update or revise.
Our second and investors are cautioned not to place undue reliance on these forward looking statements.
For a more detailed discussion of how these and other risks and uncertainties could cause <unk> actual results to differ materially from those indicated and these forward looking statements. Please see our form 10-K 10-K for the fee.
Full year ended January 31, 2021 when filed.
Revise their filings we make with the SEC.
And the financial measures discussed today include non-GAAP measures and we believe investors focus on those measures and comparing results between periods and among our peer companies.
Please see today's webex slides and our earnings release, and the Investor Relations section of the website the green Dot com for a reconciliation of non-GAAP financial measures.
And the GAAP measures.
Non-GAAP financial information should not be considered in isolation from as a substitute for or superior to GAAP financial information.
But is included because management believes it provides meaningful and supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes.
The non-GAAP financial measures of the company uses have limitations and may differ from those used by other companies now.
Now I'd like to turn the call over to Dan Dan.
Thank you Matt.
I'm pleased to report the strong fourth quarter for both customer engagement and cyber intelligence.
With revenue and non-GAAP EPS.
Coming in ahead of our expectations.
Cash from operations was also strong.
$254 million for the year.
Increasing 7% compared to the prior year.
On February one we completed the spin of our cyber intelligence business.
And on now.
Pure play of customer engagement of company.
Today, we will discuss our long term growth strategy for the new variant.
And as brands are facing and widening engagements capacity GAAP.
Your line is well positioned with the differentiated cloud platform.
And extensive resources.
Including approximately 4300 professionals worldwide.
The focus on helping brands provide boundless customer engagement.
Looking at the current year.
We expect strong cloud momentum.
Assistant with the acceleration we experienced in the second half of last year.
Year, and we are raising guidance for cloud revenue growth.
Which we will discuss later.
I would like to start today's call.
By reviewing the fourth quarter results for customer engagement.
We had a strong finish to the year and Ah.
Very pleased we successfully executed.
<unk> the Carbonite spin.
And accelerating our cloud strategy.
Revenue in Q4 came in and it's more than $225 million.
Ahead of expectations.
And key cloud metrics accelerated.
Bookings in Q4 were also very strong.
And we exited the year with a record backlog.
Behind the strong bookings is our strategy to target of larger $65 billion Tam.
And our competitive differentiation.
We continued to win new cloud customers and displace competitors.
Due to our open cloud platform innovations.
Here are three examples of large cloud deals from the quarter.
The $7 million cloud order from a leading global food delivery service company.
This win was driven by our open and agnostic partner approach.
<unk> and our ability to scale and the cloud.
This is a new customer for bearings and the competitive win.
And 8 million of our cloud order from one of the largest insurance companies in the U S.
This competitive displacement was due to the strength of our open cloud platform.
And the 13 million of all cloud order from an existing financial services customer.
This large win is driven by the customer's decision to transition to SaaS and expand relationships.
We believe these large orders reflect our differentiated technology.
And the execution of our cloud first strategy.
We're very pleased with our Q4 cloud performance across all key cloud metrics.
Cloud bookings were up significantly.
Q4, new subs HCV increased 39% year over year.
And Upa.
Bookings for perpetual license equivalents, Inc.
15% year over year.
With the half of our purely bookings coming from SaaS.
Q4 cloud revenue grew more than 30% year over year, following strong growth and each of the prior quarters.
And we exited the year with the remaining performance obligations of <unk> of $636 million.
Representing backlog growth of 29% year over year.
The significant increase of year end backlog.
It's being driven by cloud and provides us.
<unk> good visibility for the current year.
Overall.
We're very pleased with our strong finish to the year and the significant momentum we have.
Going into fiscal 'twenty two.
We.
<unk> a customer engagement Tam at 65.
The $5 billion.
With recent trends of accelerating cloud transition and digital transformation.
Customer engagement has become a top priority for many brands.
In preparation for the spin we work during Q4 with the third party to survey of more than two dozen business low.
<unk> from 12 countries and of course, 10 industries and Bob.
The customer engagement priorities trends.
Pandemic impacts and future plans.
The finding the fifth research validate our go to market strategy.
The four key findings include first.
There is of widening engagements capacity GAAP.
New work force dynamics ever expanding customer engagement channels and exponentially more customer interactions.
All of must be managed with limited budgets and resources.
Yeah.
Second the.
The business leaders are.
Concerned with rapid changes, 94% reported being worried about understanding and exiting on rapidly changing customer behaviors.
Third the.
The business leaders have high hopes for AI.
But they want to see results.
78% of made AI.
Our investments.
But the only 18% sales help them manage rising interactions volumes.
And finally data and departmental silos.
Per the effectiveness of analytics efforts.
Companies need the unified approach and view of data.
In order to realize the potential of AI and analytics.
Let me discuss our various go to market strategy addresses the finding of this recent research.
Our open cloud platform helps brands to provide.
Boundaries and customer engagement in the contact center as well as across the enterprise.
Platform used cases are enterprise wide going well beyond the contact center to back office branches digital marketing and compliance.
The very and cloud platform was designed to connect the kind of center to other parts.
Of the organization involved and customer engagement activities are true.
And that has become increasingly important.
And as the acceleration of digital transformation.
From a technology perspective, the platform is designed with the native cloud architecture supporting multi clouds with open.
And access to data.
Making it easier for customers and partners to quickly integrate with their environment.
Variant da Vinci, AI and analytics is and the center of the platform.
Is it powers all platform applications with the latest machine learning models and advanced analytics.
We believe the our commitment to open access and our API strategy.
Differentiate our platform.
And we will drive further growth.
And Q4.
We launched several innovative solutions.
Including a new data management solution.
And to help brands build of unified approach to aggregating interaction data across silos.
And unlocking the value in the data.
And this highly innovative cloud solution helps breakdown data silos.
And manage all modalities of data of course of unified communications seek us and NTT.
<unk> collaboration solutions.
And new workforce scheduling solution.
To help bridge to optimize the customer engagements workforce.
Of course, the contact center back office and the branch.
And the new real time agent assist solutia.
To help brands.
And provide their agents within the moment guidance to increase and increase efficiency and elevated customer experience.
This innovative solution is based on the state of the art linguistic and acoustic models.
And it's especially effective for the agents working at home.
Regarding partners.
We are of a large partner ecosystem.
That we have developed over many years.
There's never been a better time to partner with variance with a focus on delivering a world class partner friendly experience.
In addition to supporting of existing partners.
<unk> this.
And this year, we launched a new partner program with the focus on system integrators.
We believe the digital transformation is providing system integrators and new opportunities.
To help brands with the customer engagement initiatives across the enterprise.
Our open cloud platform as.
So the four system integrators.
Focused on data management workforce efficiency.
And customer experience.
Turning to our outlook for the current year.
We expect another year of strong cloud growth.
With 10%.
And with new booking growth on the <unk> basis.
Given the cloud momentum experienced in the second half of last year.
We are raising our outlook for cloud revenue growth.
To a range of 30% to 35% for the current year.
Our guidance.
And the continued market shift to SaaS.
This year, we expect the percentage of new software bookings that come from SaaS to approach 60%.
Letting of a steady increase over the last three years.
We also expect on a non-GAAP basis.
Reflect the percentage of software revenue from recurring sources.
The approach, 85% up from 81% last year, and 71% and three years ago.
Now before I turn it over to Doug I would like to briefly discuss cyber intelligence.
Carbonite a former cyber intelligence business is now listed on NASDAQ under the ticker C. G N T.
While the cyber intelligence is no longer part of the variant.
Its result for last year are included in our 10-K.
And I would like to provide a brief review.
The cyber intelligence also had the strong finish to the year.
With revenue coming in at $124 million.
And estimated fully allocated adjusted EBITDA coming in at four of $24 million for Q4.
Carbonite will publish their results.
<unk> on form 20-F, it at a later time.
And the announced today that they will review the fourth quarter results on the conference call in the second half of April.
As noted in Carbonite press release.
The results may be slightly different than those republished due to the applications of varying.
Allocation methodologies.
Carbonite is and the very exciting market and we wish them. Good luck as an independent public company.
Now, let me turn the call over to Doug.
Yeah, Thanks, Dan and good afternoon, everyone.
And today will include non-GAAP financial.
Measures a reconciliation between our GAAP and non-GAAP financial measures is available as Matt mentioned, and our earnings release and and 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 and.
Amortization.
And of acquisition related intangibles.
Certain other acquisition related expenses stock based compensation separation related expenses as well of certain other items that can vary significantly and the mountain and frequency for certain metrics. It also includes adjustments related to foreign exchange rates.
As Dan mentioned, we finished the year strong.
Strong with the results that came in ahead of our expectations.
Preventative overall, including cyber intelligence non-GAAP revenue came in at 1.29 billion. Adjusted EBITDA came in at 338 million and EPS came in very strong and $3.60 on the non-GAAP basis.
Our operating cash flow for the quarter was also strong.
And for the full year was $254 million.
For customer engagement.
Non-GAAP revenue came in at $841 million and estimated fully allocated adjusted EBITDA came in at $249 million.
And as Dan highlighted our cloud metrics were strong across the board.
This is our dashboard that can be found on the IR website.
It contains kpis for customer engagement, including revenue bookings bookings mix and profit metrics.
I'd like to highlight the following the spin of cognate will be reporting revenue and two components recurring revenue and non recurring revenue versus our historical presentation of product.
And service, which became obsolete with the move to the cloud.
Our dashboard and now reflects that breakdown.
Given our cloud first strategy, we expect recurring revenue to become a larger portion of our total revenue over time.
Turning to our outlook for fiscal 'twenty two.
As we shift to the cloud we believe.
Two P L D growth because of useful metric as it normalizes, our bookings growth for perpetual and SaaS.
For fiscal 'twenty, two we expect 10% new PLE growth with the percentage of new bookings coming from SaaS approaching 60 per cent.
We expect our double digit new earnings new bookings growth will translate to low single.
Digital revenue growth in fiscal 'twenty, two with higher revenue growth and the following years.
Underlying our outlook is and expectation for strong cloud growth and as Dan mentioned earlier, we are raising our outlook for cloud revenue growth to a range of 30 to 35 per cent.
We also expect and fiscal 'twenty to nearly 85 per cent of our software and will come from recurring sources.
And as we've discussed and the pass we will have a one time step down and adjusted EBITDA due primarily to separation dis synergies and we expect 225 million of adjusted EBITDA for fiscal 'twenty, two driving $2 and 20 of non-GAAP EPS at the midpoint.
Our EPS outlook assumes around $19 million of interest expense.
And proximately of 10% tax rate.
And 73 million fully diluted shares outstanding.
This excludes the second tranche of the apex of investment, which we expect to close in Q1 and any share of buybacks. So we may do this year.
Let me also discuss how we're seeing the year progressing.
We expect to start the year of strong with.
More than 10% year over year of PLE growth and Q1.
With respect to total revenue, we expect nearly $200 million of revenue in Q1 with more than 30 per cent cloud revenue growth.
From an expense perspective, given our strong Q4 and in anticipation of double digit new PLE growth in fiscal 'twenty two.
We increased our hiring.
And on Q4, and our first quarter expense run rate will be higher and in Q4 and will increase sequentially throughout the year.
And now I'd like to review, our fiscal 'twenty, two cloud revenue growth and more detail.
Our cloud revenue has steadily been increasing and we expect $380 million of cloud revenue at the midpoint of our guidance.
There are two sources of our cloud revenue growth do deployments and support conversions.
We expect around half of our cloud revenue growth to come from new bookings and have to come from support conversion.
This mix reflects strong momentum for our cloud solutions, including the success of transitioning our existing base to the cloud.
We ended last year with of 300 million.
And base of support revenue and we expect our support revenue to migrate to cloud over time.
Finally, I'd like to review of capital structure following the cognate spin.
We are of very strong balance sheet with $2 5 billion of assets of approximately 660 million of cash and expect to get another.
Another $200 million of cash from the apex investment in April.
We now have of current net debt to adjusted EBITDA leverage ratio of less than one times.
Going forward, our excess cash will primarily be used to support our growth.
In addition, I am pleased to announce that we're putting in place and new annual stock repurchase program, and which we'll use part of our.
Cash flow generation to buy back stock.
We plan to buy back up to the number of shares to be issued under our annual incentive equity program.
So in summary, we had a strong Q4, including double digit new bookings growth and a record backlog.
And we enter fiscal 'twenty, two with strong momentum driven by our.
Differentiated cloud platform and our focus as a pure play customer engagement company.
So with that operator, let's open up the line for questions.
Certainly the ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key are.
Strong at the question coming from the line of Daniel Ives from Wedbush. Your question. Please.
Yeah, Thanks, and then.
Great quarter.
Sure. So Dan could you maybe just talk about.
On the cloud deals and they are the size of the deals overall, starting at one of our drivers who are big deals and the quarter and you just talk about.
And in terms from the dynamics from a pipeline perspective.
Yeah.
So I think one.
Area to look at is the increasing backlog and Q4.
Oh did you can see the level of increased 20, a 29%.
The year over year.
And it's definitely reflects more cloud deals and more of large cloud deals.
And that contributes very little to the current quarter, but obviously create backlog for a multi years.
So we've always been very strong with enterprise customers.
And and got large deals, but with the recent introduction of the cloud platform.
Where we put a lot of different applications on the platform the customer can consume as a cloud services.
It is getting easier for our customers and partners.
And to consume more of the platform, which.
And will contribute obviously two of bigger deals.
But what's what's the obviously the way we positioned the platform.
What are the customer buys upfront multiple applications in and a big deal or the buyer over time.
It's no different to us this is basically just the.
Turning on.
And on cloud services and the platform. So we are we have customers that the different behaviors of some tend to.
Concentrate their.
Purchases into larger opportunities and some of.
We'll do it over time.
In terms of the.
On the terms, we it's pretty steady all average.
The cloud daily is about a two and a half years term.
So no no major change there, but definitely more cloud deals and more of large deals and the big change and our backlog.
Great and then just for you and it's worked.
Doug.
And now that the split successfully as happened with cognate and.
Can you just talk about strategically and the optics of the year and a half from the meeting, but how things are different and internally is it just now more.
Sales and marketing all focused on the one area and.
Even from a customer feedback.
And perspective can you just talk about that.
And anecdotally.
Sure happy to.
So we actually feel a lot of changes and we of many people internally, we refer ourself as the new variants.
We became a pure play of customer engagement company.
By the time, where the cloud transition and the digital transformations are presenting enormous growth opportunities.
So there is a lot of buzz internally and and Theres a growing the buzz also externally as we tell the story more and more over time.
Definitely post spin.
And from our board and management team perspective, we are 100% focused on the single mission.
And that is to accelerate the growth of position variances of category leader.
And we've already aligned our compensation plans with our strategic objective.
From a balance sheet perspective, Doug mentioned, our strong balance sheet strong cash.
And flow.
Generation. So we feel like we have the balance sheet that can support any investment we want to make in growing the business.
We talked about launching of new partner expansion program.
We are being recognized in the market as the partner friendly company and.
Cash flow partners are becoming a more important with the.
The changes, we see and the industry, so definitely a focus for us.
We are also accelerating the pace of the innovation and our cloud platform.
And we plan to review the men.
The new items.
And you launched many new innovations in our upcoming.
The customer.
And we believe engage conference.
It will be announced shortly.
And then internally I think it's very interesting that our employees clearly understand the opportunity that we have ahead of us.
We had a fantastic Q4 with strength across all key cloud metrics.
And we expect to start the year very strong.
And Q1.
Great. Thanks.
Thank you. Our next question comes from the line of Ryan Macdonald from Needham and company. Your question. Please.
Hi, good afternoon, and thanks for taking my questions.
At the Analyst day, you highlighted some pretty healthy conversion bookings that.
And we're trending strongly obviously it seems like you're pretty optimistic with the increased guide for cloud revenue growth can you just talk a bit about the mix of of bookings activity between the conversions versus net new customers and thats, how thats being reflected in the <unk>.
Higher outlook for fiscal 'twenty two.
Yeah. So.
So the the cloud revenue growth.
The 30% to 35, 5% net debt.
Exactly.
$100 million of growth and cloud revenue that we expect this year.
About 50%, Doug mentioned will come from our conversion program and we've been definitely.
And it kicked off.
In the second half of last year.
So we saw more conversions are the than before.
And and and 50% of of that Oh, clogged up and of course will come from actually from from new cloud deals.
And this is this is it.
The healthy mix.
On that we see between between the two trends.
And.
Also important to mention that.
We estimate that.
The transition.
From a customer base to the cloud.
Would be overtime. So currently we have.
About $300 million of support revenue.
And are we.
And we mentioned in our Investor day that we expect this to be half of that to be converting by fiscal 'twenty four and so we definitely are.
It seems that the pickup in the Q.
Q3, and Q4 of last year that we expect to continue and the current year.
And a lot.
And we bought the cloud the growth whether it's coming from.
The conversion or the new deals is already reflected in.
And the RVO and so we increased our apio by $150 million year over year.
And and a lot of that is obviously multi year of cloud deals that will contribute to have.
All of them in the current year, so it was pretty good visibility and.
And two how are we going to achieve the 30 plus percent cloud revenue growth.
And it's very helpful. When you think about the mix of new bookings pipeline and new opportunities new customers.
And you talk about the mix you're seeing between.
And contact center versus opportunities outside of the contact center and and perhaps touch on how the variant platform is resonating the messaging around that is resonating outside of that the core contact center base from that perspective. Thanks.
Yes, that's a very good point.
So the platform basically helps.
Revenue of our customers to connect the kind of center with other parts of the organization. So it's not that we need to sell to other parts of the organization and we just help them to connect which is the trend that we definitely see.
Not just in our area, but also.
And the communication infrastructure and we see.
More customers are asking for your costs and and seek us and and.
And the steep us all to be of connected through a simple vendor.
And obviously, we're very well positioned to help connect the enterprise. So let me give you a few examples how we connect with our platform.
So we got a request from customers.
Does that have branches for example of banks that have contact center and branches.
And the scheduling employees for their contact center and Thats getting employees for their branches, but its different scheduling because the obviously different.
Focusing and different needs it.
And the coffee day.
From here, where they've got a lot of people working from home.
And even people and the branch had.
A lot of downtime and there was a pickup in.
Interest in and having various helped them schedule of people in the kind of center in the back office and in the in the branch. So they can have the fixed.
The ability to use the workforce.
To the next based on peak times and based on the resource availability. So that's connection.
And another example is our customer journeys in the digital World, which we are all going into digital transformation and.
A.
Fixed a lot of the consumers actually start the journey on the website and.
And when they can't accomplish what they are trying to accomplish on the web site. They will call the contact center.
But the kind of say I need visibility to the customer journey.
360, so they can continue the journey and and.
And the most.
A lot of the way.
As you know most.
Kind of true social solutions have no visibility into websites and the <unk> platform.
Is able to provide them the journey in the web site. The reasons why customers left the website identify when customers call into the into the contact center and as I mentioned.
Sufficient we're just on your website and could accomplish something so we'll analyze that data and make the connection between their journey and the website and the journey and the contact center.
I think two examples too.
Basically explain and we're not trying to sell to other type of buyers, but we're trying to help the buyers connect.
And we would they can optimize the customer journey.
Optimize the resources and they have.
To achieve better customer journey.
Very helpful. Thanks on the color I'll hop back in the queue.
Thank you. Our next question comes from the line of Brian Essex from Goldman Sachs. Your question. Please.
Hi, good afternoon, and thank you for taking the question nice results.
And I was wondering if you'd talk a little bit about.
The the margins.
Great performance and the quarter.
The stronger than expected EBITDA margins and and I understand we have a step down. This year can you talk a little bit about what you might anticipate and.
Recovery after that step down and when it might how long and might take to get to our return to like the kind.
Kind of a 29% operating EBITDA.
EBITDA margin level.
Oh sure we had.
30% EBITDA margin last year.
The head of our expectations for customer engagement.
<unk>.
Doug can actually take you through the steps we are taking to.
Improve margin over time and and the bridge debt.
Yeah sure Dan.
Yeah, Hey, Brian Yes, as Dan mentioned, we had a really strong performance in Q4, and then for the year.
Terms of all we ended up with the you know about 30% EBITDA margins.
It was a strange year for for all of Us, but we did a lot of cost per strains as we kind of went through feeling out in the period.
And then towards the end of the year started to get get back of things.
So that kind of with.
And that tough compare in terms of kind of abnormal cost reduction last year kind of drove higher.
EBITDA margins and then the dis synergies this year for the full fiscal year will be post spin.
So kind of and more normalized margins probably around 28% not the third.
<unk> I think that was just.
And the kind of unusual cost reduction.
And and then with the dis synergies of kind of the burden of the part of the company taking on the full company corporate infrastructure.
And it's down to probably around 26 that the you'll see on our guidance.
And then after that we do.
As we scale and the business growth over the next couple of years, we'll have kind of more typical margin expansion off of that.
Okay. That's helpful. And then and then maybe if I can circle back on conversions again.
Could you help us understand that the installed base of.
Of maintenance.
Maintenance that you have.
Do expect and how that might convert the cloud is that on the one for one basis and if we see an acceleration does that mean.
And you kind of need of it I guess.
What is the longer term mix I guess after this year that you might anticipate would come from conversion versus new business I guess is what I'm getting at.
Yeah, So we definitely.
Expect the PLE, which is the the best way to measure the booking growth.
To be.
So the new booking growth and Thats, the perpetual license the equivalent and that is expected to be double digit and we.
Okay.
And then for double digit this year and targeting double digit for the next for the next three years.
And and we also gave of the mix within the purely so we achieved in Q4.
Hum of that clearly came from perpetual and half came from cloud and.
And.
We also guided that this year, we expect 60% of the purely to come from.
So definitely as we encourage.
Encourage customers to move their support.
And convert it to cloud also anything that they.
They buy new.
The more likely they're.
Got it and cloud right because they already are on their journey to move perpetual to cloud and you see that very well and our journey and how we move the mix of of the day.
Really over the last three years.
What we expect of 60% of approaching 60% of the current year.
So a day.
Did.
And our pilot to answer your question now of double digit cloud revenue growth from new deals is definitely part of of MRO.
And.
For this year, we see.
The 50 50 between conversions and new deals and our cloud revenue growth.
And the conversion.
Conversion could accelerate that.
And that's.
We also saw during COVID-19.
There was very low conversion and in the first half of the year and then a big pickup and the second half more than we saw in and the entire year before.
So there is now the changing industry of customer are adopting cloud.
It's something that the very large customers are slower and the mid market is moving faster.
Hard to project.
The the pace of conversion, but.
But we believe that.
The goal of the to convert at least 50% of that support and three years is a very reasonable goals.
Based on what we see now.
Okay. That's helpful. I guess, if I were to ask another way I mean do you do.
The euro assumptions I think at the analyst day.
And we've talked about maybe a longer term 30% cloud.
Growth rate.
And within that assumption or are you kind of assuming that your mix between conversions.
The new stays consistent.
Well.
Our cloud revenue growth of grew also more than 15% without conversion last year. So based on the historical conversion sorry storm clouds of revenue growth from new deals.
And the IPO of.
And we already have that gives us the deals we closed in Q4 that will be.
Contributing to revenue.
And the current here, we see this year.
Half of that.
Revenue growth will come from from new deals that is the reasonable assumption.
Conversion.
First of all can pick up but if conversion of pick up.
It's not going to affect the growth that comes from new deals as well.
So that's sort of professional pick up you know should actually contribute to higher.
Growth rates overtime.
Okay got it.
Thank you.
Thank you. Our next question comes from the line of Paul Coster from Jpmorgan. Your question. Please.
Yeah, a couple of quick questions start due to the.
On the cloud revenue will sort of technically accelerates and 23 fiscal year 'twenty can you just talk us through the mechanism of the causes that to happen.
Definitely going to take it.
Yeah.
And I thought he said Dan.
Yeah, you want to take that Dan because it just kind of sales and we were just talking about in terms of.
And so.
Right.
So the question is for <unk>.
The mechanism that causes the revenue growth to improve.
Prove and fiscal 'twenty, three and 'twenty four.
And that's basically the result of perpetual decline.
Starting to diminish we a perpetual business.
Went down from 180 to $1 40 last year, maybe on the off so it was the big decline and perpetual.
We expect the decline to be about 10%. This year. So it's a it's a much more moderate decline and then we expect the.
Basically the perpetual decline too.
Stop at the $100 million plus some of our customers will continue to buy perpetual.
And we discuss some of the very large customers.
The way they prefer so.
Any cloud revenue growth and the steady growth of double digits.
And with less declined less headwind from the perpetual decline.
It's basically the mix change that causes the revenue growth to go up.
And also the EBITDA to go up because.
All of the expenses that we have now to bring that backlog and some.
Sign up the deals multiyear deals we don't have to increase the expense in order to get the revenue.
And in the in the next.
Periods.
So we.
We talked at the Investor Day, we gave at three of them all and we talked about are we.
See that mix shift moving our gross revenue growth rates to be up and eventually it should be similar to our day illegal for it.
Okay I'm sorry.
It's the repackage per our own since that's helpful.
And then.
Yes.
On the other question is the capsule of allocation since the unexciting.
I mean, you got absolute boatload of cash flow.
The balance sheet presents the opportunity to deliver on.
And do something but it sounds like youre investing and themselves which is fine.
The.
It seems like you can do more than that and you're just keeping your balance sheet and.
And so let's say so you can do something transformational or or or is this. It is the are you just going to be kind.
On the conservative use of the balance you mean and buying back shares just to cover the cost of the dilution from share issuance is not going on.
And our folks really excited so why should repeat sources about the capital allocation and as defined here.
Yeah, No no youre absolutely right.
I agree we wanted to come out of this spin with the strong balance sheet.
But in terms of buybacks, we have of near time restriction.
And from the spin.
So we can buy back more shares than the new shares of we grant because we just need the big dividend.
And you cannot get a tax free spin and then go buy back shares.
So that restriction is going to be for some time, but not forever and and.
And then we'd have more flexibility in terms of.
Doing buybacks, but at this point.
And we're limited to the to the shares that we issue and we intend to buyback the dilution.
Okay got you and then the.
Duration for that.
So it's.
It depends on many other circumstances.
<unk>.
The hard fact, but.
It could be a couple of years.
Okay.
Good day.
Yes.
It just has to do more with the tax free spin regulations, and the fact that we spun it and you know.
Out of the cognate division tax.
The free.
The tax law that prohibits us from then going and kind of recapitalizing and met with the stock buyback.
Gotcha, I think items dropped to 10 and I think you.
We're going to talk about the investing and the business versus acquisitions. So part of my question.
Yeah. So.
Think that.
We are always looking for acquisitions that make sense, but the the three year targets.
And we laid out in the Investor day of our organic.
We definitely think we have a strong platform today.
So we're not looking too.
To close on any specific big gaps that we need to close.
But.
We'll definitely make.
Further decisions of what we want to do with our with our balance sheet.
But we're really happy that we.
And in April we expect the FX second.
Second tranche and at that point will.
And we'll be in the.
And we'd have more cash and debt and that gives us a lot of flexibility.
Okay got you and thank you so much.
Yeah sure Paul.
Thank you. Our next question comes from the line of some of its ammonia from Jefferies.
Your question please.
Hi, good afternoon, and thanks for taking my question.
Get the connect with you guys again.
Maybe first one Dan for you when you think about.
The the conversion activity that you guys have seen and that you are baking in for 2000 and our.
For fiscal 'twenty two is there any particular.
Consistent characteristics of the customers that are converting early whether it's defined by size or and market or maybe what they are using for their core.
And just any characteristics that we can triangulate up on.
Yeah.
Okay.
I think the journey is is quieting the video in nature, It's it's really.
What day sits in there the decision to move.
And.
To the cloud.
Cloud generally.
And then sometimes.
And actually drive the shift to the cloud because they want to focus on something else and and want to move.
Move the responsibilities to us and sometimes it is actually the the obstacle.
Because they they want to continue to manage.
The infrastructure and.
I don't think that there is the general.
Characteristic other than you know very large customers probably are just moving slowly.
Perhaps because of security reasons, and some large customers actually of buying a building.
Building story of building.
Cloud architecture internal clouds and.
And we are in discussion that of the host themself the the.
The solution and the <unk>.
So.
We are we are very strong in the mid to high end of the market and.
We see a lot of customers that are.
You know one of the work with us on how to optimize their individual journey to the cloud.
Great and then maybe a follow up when I think about the the the new deployments contribution to the cloud growth and two.
To that in fiscal 'twenty, two and how should we think of that and maybe the contribution of new deployments from direct deals that that variance and selling versus a partner such as like the of buyers and the five nines of the World is there was there a change kind of within those two buckets. When you think about the guidance increase.
And we definitely are in the.
<unk> being.
Pardon me friendly company. So we don't really care, whether we get the order on our paper on the parts of the paper.
We tried to work with partner, where it makes sense to customers and the way they want to transact.
And.
And in many cases, when we work with partners our direct sales force is involved in actually.
Selling the products because we have the ex the domain expertise and and the partner needs too.
Help from variant and we compensate the sales force accordingly so.
The focus that on I have is on expansion and growth and what do we do it on.
On a paper on the part of paper.
Much less important to us.
Understood I'll pass it along just to take the time, but congrats on the on completing.
Completing the spin successfully and.
On the strong cloud growth. Thank you.
Yeah.
Thank you. Our next question comes from the line of Dan Brooks from from RBC Capital markets. Your question. Please.
Hey, Thanks for taking my question.
And I used to see the conversion of the base and commentary around it.
Talking about the decline of perpetual and Q&A here and response to Paul but what.
What are the thoughts around the perpetual tail would assume some customers and want to remain on premise is that the $100 million, Mark and talk to where kind of the fiscal year 'twenty three number is that the good proxy for it.
Yeah, I think it's it could be a little bit of more than 100 at this point.
But we definitely see.
The decline this year.
Is baked into our guidance and we see this level of.
And next year.
So that's a good mall.
I think the over time, perhaps in the very.
Kind of.
Longer than three years of ryzen I think that the very large customers will also convert for upsell and converting to their own internal clouds, but.
And it's pretty clear of the whole industry is going to the cloud.
But but but there are certain customer the definitely at this point told us the non interested.
Great and then you mentioned increased innovations with the cloud platform and talk to them.
And the addition of the engagement data management and workforce scheduling and real time agent assist and how.
How should we think about those products ramping are you seeing initial interest here.
Should we expect the pace of innovation I guess more generally with the with this.
So the focus.
On customer engagement and the.
The platform now.
We are going on we're innovating and will continue to innovate faster in a cloud platform. It is the.
The nature of the technology and our control over the cloud environment that allow us to release more innovation faster.
And then when you work with the very large on premise on premise environment and you have to invest a lot of the technology stack to be compatible with different.
The data centers because customers have.
So that's one benefit of the of the cloud platform is just the.
EBITDA.
Be able to focus more on innovation and bringing new.
Capabilities from the market.
I think that another benefit of the platform is we concentrated our AI and analytics.
And James into what we call the varying da Vinci.
AI and analytics, which is part of the platform and and you know that we had the lot of strength and in this area of for many years. This is the heritage. We also shared with Cognize. When they were part of the variant very deep and analytics.
And for security and for customer engagement and building this AI.
Modeling.
And into the platform basically allow us to share the technology across all applications that are running on the platform.
And that's another way to accelerate the innovation is.
Access to the the latest AI and.
And and we think our AI is differentiated because.
We manage a lot.
Sort of data, there's the level of interaction data and experience data and it goes through our platform.
With our strength in data management and experienced management and all of the data.
A lot of machine learning that helps too.
Bringing new innovation into all of the different applications.
Around.
What we call the work of the future of changing workforce, putting more automation into workflows.
To make the workforce more efficient.
So if you look at.
The real time agent to face, which we which I discussed earlier.
Definitely with.
Employees working at home.
There was increase in demand for real time assistant and the moment assistant and guidance to employees.
And this is all based on a on the <unk>.
Based on the ability to do acoustic and linguistic Morrow Inc.
And and alert agents that.
Look you speak too fast and the cash with frustrated or you're pausing for too long ago, you were talking to customer or here's the customer and tenant and youre not really answering to.
To the point.
And and the ability to on this to do.
Do this in the moment.
And of course, not just voice channel.
And also chat and messaging of texts channels.
It's really part of that innovation that we and accelerating.
So we were excited about you know the the the cloud platform is not just the business model, but it's really and opportunity for us to address some of this hum.
But the customer urgent needs for helped because of the digital transformation.
The number of interactions going up exponentially theres more digital channels with more digital interactions.
But there's only limited people and resources to address the growth of interactions and.
Clear engagement of capacity gaps that I mentioned before and the answer is obviously automation.
Which is the the focus on all of our cloud platform.
That's great. Thanks, Dan.
Thank you. This does conclude the question and answer session of today's program I'd like to hand.
And does it get it back to Matt Frankel for any further remarks.
Great. Thank you everybody. Thank you for joining us and we look forward to speaking to you again soon have a good day.
Thank you, ladies and gentlemen true participation in today's conference. This does conclude the program you may now disconnect good day.
Okay.
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