Q1 2022 Verint Systems Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to <unk> first quarter Conference call. At this time all participants are in a listen only mode. After the speaker presentation.

Dentation there'll be a question and answer session ask a question during the session you will need to press star 1 on your telephone please be advised that today's conference maybe recorded.

Acquire any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today Matthew Frankel. Please go ahead.

Thank you operator, good afternoon, and thank you for joining our conference call today from here with Dan Bodner, <unk> CEO, Doug Robinson, Varun, CFO, and Alan Roden Burns Chief Corporate development Officer.

Before getting started I'd like to mention that accompanying our call today is on Webex with price.

If you'd like to view these slides in real time during the call. Please visit the IR section of our website at <unk> Dot.

Click on the industrial relations tab 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 in 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 except as required by law bearing assumes no obligation to update or revise them.

Listeners are cautioned not to place undue reliance on these forward looking statements.

For.

For a more detailed discussion on how these and other risks and uncertainties could cause <unk> 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, 'twenty 'twenty, 1 and other filings we make with the SEC.

Actual measures discussed today include non-GAAP measures as we believe investors focus on those measures and.

Results between periods and among peer companies. Please see today's webex slides earnings release, and the Investor Relations section of our website at <unk> Dot com for a reconciliation of non-GAAP financial measures to GAAP measures non-GAAP financial information should not be considered in isolation from.

And 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 from 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.

Comparing I'm pleased to report a strong first quarter.

Both revenue and diluted earnings per share coming in on.

Our expectations.

Over the last few quarters, we discussed our expectation the cloud revenue would accelerate this year.

And I'm pleased to report that in Q1.

We were at 39% year over year growth.

Non-GAAP cloud revenue.

New P M D or perpetual license equivalent bookings.

Which measures our new software bookings on a perpetual license equivalent basis.

Also came in strong with 28% year.

There will be a growth.

Overall, our cash.

<unk> metrics were strong across the board.

Including new Sussex debris.

Carrier revenue and mix.

We expect the cargo mental to continue.

And are raising our annual outlook from here.

Booking growth.

Our strategy is to help brands navigate digital transformation.

With an open cloud platform that connects work data and experience across the enterprise.

To help explain and bring this strategy to life I would like to review several recent large customer cloud wins.

Our differentiated platform.

Positioning us well to win new customers.

And also to capture white space within our customer base.

We have thousands of customers globally.

Many of which are looking to variant to help them expand their customer engagement strategies.

In connection.

Next the contact center with back office <unk>.

<unk> and digital marketing.

Here are a few examples.

In Q1, we received the $10 million order.

From 1 of the largest financial services companies.

This is an existing very customer.

Transitioning from.

Our on premises solutions to our open cloud platform.

While at the same time closing gaps in their white space.

By adding new variant application.

This customer is using variance across the enterprise.

That's the kind of center back office and customer experience operations.

This is a good example of a customer using the various cloud platform to eliminate silos drive more efficiency.

And elevate customer experience.

Another example is a $17 billion cloud order.

We see it in early Q2 from 1 of the largest health care providers.

In the United States.

This is also on existing varian customer.

They decided to transition their various applications lots of them to the cloud.

And at the same time transitions or communications platform for the cloud with a new vendor.

Because of our open platform.

And it's broad.

Sets of free built integrations with leading communications platform.

The customer was able to select their communications vendor.

With the peace of mind that the various application platform.

Could be seamlessly integrated rigor.

Regardless of who they choose.

This is a good example.

So far the Varian platform gives customers the openness and flexibility they need.

In addition to these 8 digit orders from existing customers, we continue to win new customers and displace competitors.

In Q1, we received a $4 million cloud.

Order flow.

1 of the world's largest logistics companies and.

A new customer for Berry.

This is a good example of various working together with a partner.

To package, the Varian platform with a communication platform.

And offer the customer a pretty integrated offerings.

With competitive displacements.

Due to the best of breed functionality of our open platform.

And our strategy of working closely with partners.

We believe these large orders reflect our differentiated technology.

And the successful execution of our open.

Platform strategy.

We recently had the opportunity to.

To showcase our innovation at our annual engage user conference, where we had more than 5000 registrants up nearly 40% year over year.

And the content.

Plus we're.

We unveiled many innovations.

Including real time work, which I would like to discuss today.

Real time work is growing in importance.

In the post Covid world of remote work and increasing demands on the workforce.

Brands need new techniques.

Randy.

To help customer engagements employees.

Upon better in real time and increased workforce productivity.

Our new real time work innovation includes several cloud platform applications as follows.

Sure.

We hope that the agent the space.

Knowledge automatically detects unique moments of truth.

Such as customer complains escalations.

Positive or negative sentiments long silences compliance risks and coaching opportunities.

Agents and managers received based on guidance alerts and.

Thanks.

With next best action and insights on how to improve interactions.

Second.

Contextual knowledge.

She says advanced AI to create a more automated natural and effective way to connect people to knowledge.

AI infused contextual knowledge can be sheer free dramatically and in real time.

So the agents and managers can respond with the right answers and avoid long searches and customer frustration.

And finally <unk>.

Intelligence virtual assist for the work.

Coach Inc.

Which provides human agents with AI powered continuous support joint calls and chats.

And it allows agents to improve response accuracy from.

Appliance.

Training ramp time.

From a customer experience.

Overall.

I'm happy to report that post the spin our security business.

The new variant is increasing the pace of our innovation.

And building more platform differentiation to accelerate growth.

As discussed on prior calls.

Our platform is open and design with a new.

Native cloud architecture.

Supporting multiple clouds.

Making it easier from customers and partners who.

So quickly innovate and integrate with their environments of choice.

The value of the brand platform comes not only on features.

But from its ability to easily connect.

Next external tools team data and processes.

This is critical today as customer engagement is no longer solely a contact center functions.

With digital transformation.

It's an enterprise function that requires the collection of data and workflows of.

Of course, many deposits.

Parkman and silos.

We've designed a platform to integrate seamlessly.

With other key enterprise platform.

Including communication platforms.

Our M solutions, and enterprise business intelligence and analytics tools.

For communications platforms, we have nasty.

And enable our customers to quickly integrate with the west with the vendor of their choice.

As illustrated by the large wins, we discussed earlier.

Well see her M. When.

Enable customers to easily export and import data between their CRM systems and their various platforms.

And.

We're.

Our business intelligence and analytics tools.

We provide free access to the wealth of data.

Managed by the various platforms.

Overall, we are pleased with our Q1 results the increased pace of a platform innovation and.

The strong cloud momentum.

Now, let me turn the call over to Doug Doug.

Thanks, Dan and 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, including fair value revenue adjustments.

Amortization of acquisition related intangibles.

Certain other acquisition related expenses stock based compensation separation related expenses as well as certain other items that can vary significantly.

Difficultly in a mountain frequency from period to period.

For certain metrics. It also includes adjustments related to foreign exchange rates.

I would also like to mention that our first quarter results exclude our cyber intelligence business, which was spun off on February 1st as cockpit. So now as a standalone company and shown as a discontinued operation.

Operation and our prior period results.

As Dan mentioned, we started the year strong with results that came in ahead of our expectations.

Non-GAAP revenue came in at $202 million adjust.

Adjusted EBITDA came in at $49 million and non-GAAP diluted EPS came in at 44.

Our cloud metrics were strong across the board.

Non-GAAP cloud revenue increased 39% year over year, consistent with our objective to accelerate our cloud growth.

New P. L E bookings increased 28% year over year and for the first time more than 50% of our new software bookings were from SaaS.

Cross the 50% Mark for new bookings in Q1.

New SaaS ACB growth increased a strong 58% year over year, reflecting demand for our cloud solutions and this bookings growth will contribute to our revenue growth in future periods.

The percentage of our software revenue that was recurring increased to 83%.

We're pleased to actually 100 basis points year over year.

And our P O was $619 million up 30% year over year, reflecting the multi year commitments from our cloud customers.

Turning to our outlook we.

We are pleased with our strong start to the year, particularly with our cloud momentum and we are increasing.

I think our annual outlook for 2 P. M E bookings to more than 10% for the full year.

As a reminder, last quarter, we increased our annual outlook for cloud revenue growth to a range of 30% to 35%.

Regarding PLE bookings mix. This is an important metric to measure the progress of our new booking transition to SaaS.

As our customers.

Continue shifting to the cloud we expect a greater portion of our software bookings to come from SaaS. This year following a steady increase over the last 3 years.

What are the major financial benefits of our cloud transition is the increase on a recurring revenue.

Following steady increases in recurring revenue over the last 3 years for this year, we expect to again increase the percentage.

First software revenue coming from recurring sources another major benefit of our cloud model is improved economics over time.

Turning to the balance sheet following the spin of cognates on February 1 we completed several capital market transactions, which strengthened our balance sheet.

We closed the second tranche of the apex.

Tax investment following which apex holds about 13% of our shares on an as converted basis.

We issued new convertible notes with an effective conversion price of $100 per share after giving effect of the capped call.

We repurchased 1.6 million shares of common stock for $75 million.

We paid.

Term loan to a current balance of 100 million.

And we settled our prior convertible notes upon maturity the first week in June.

Following these transactions, we have a strong balance sheet with approximately $400 million of cash and net debt of approximately $50 million.

For the year, we expect to have 76 million fully diluted.

Downward outstanding, including the apex preferred shares on an as converted basis and excluding any accrued dividends.

To help you further with your models with respect to interest and other expense, we expect $3 million in Q2, and $1.5 million in Q3 and in Q4.

In addition for the year, we expect a 10%.

Chairs right.

And a $1 million noncontrolling interest.

Based on the momentum we experienced in Q1 for the year, we expect $860 million of non-GAAP revenue, plus or -2% and $2.23 of non-GAAP diluted EPS at the midpoint of the revenue rich.

Tax regarding our cloud outlook for the year.

Last quarter, we raised our cloud revenue growth outlook and today, we are raising our outlook for new <unk> bookings growth to more than 10%.

Let me also discuss how we are seeing the year progressing.

For Q2, we expect revenue to increase sequentially to between 205 and tutored and.

$10 million with a desk with additional sequential increases from Q3 and Q4.

From an expense perspective, given our expectation for strong cloud growth. This year, we're making investments to support that growth.

Based on our revenue expense outlook, we expect to run 40 cents EPS in Q2.

As a reminder, we took steps.

During Q2 of last year to lower expenses due to COVID-19.

In summary, with a strong first quarter driven by our differentiated cloud platform and expect strong cloud performance for the year.

With that operator, let's open up the lines for questions.

Thank you as a reminder to ask a question you will need to.

Press Star 1 on your telephone to withdraw your question press the balance sheet. Please stay involved with the part of the Q&A roster.

Our first question comes from Dan Ives with Wedbush You May proceed with your question.

Yes things solid quarter.

So what's the what's the biggest driver.

And Oh of wide costumers, and moving to cloud today with Baird I mean, why not wait like can you just talk about catalysts, what you're hearing from customers.

Yeah sure.

So customers on moving to the cloud with varying today.

Because the work force is being disrupted.

But digital transformation.

And also Colgate is accelerating the digital transition.

So COVID-19 has changed their work force dynamics and some optics permanently.

And they vary in cloud platform provides our customers better visibility.

And efficiency tools to manage the new workforce human humans and boss.

But I'm looking at digital transformation. This is a more strategic driving force.

If it's driving a massive increase in the number of digital and social interactions.

And also consumers expect faster and more contextual service.

And the result of different brands cannot afford to.

They're more employees.

To respond to this massive increase in volume and expectations.

So this is causing and engage with capacity to GAAP.

And as you know various offers 2 day and open cloud platform that is focused on.

On empowering this work force for human on Board.

So the brands can close the engagement capacity to get.

This is a strategic challenge to our customers and they are moving to the cloud use variant.

So they basically want to accelerate closing the capacity GAAP.

Great.

And just sort of as a follow up on what percentage of the bes.

New hired today's move to cloud.

That's right the net penetration.

From an average existing bearing customer today.

And going forward.

Thanks.

Yeah. Okay. So so basically 2 questions. So first today the majority of our customers are moving to the cloud and have made plans.

Or have made plans to move to the cloud.

We own more than 50% of our purely booking coming from SaaS and.

And we expect this to continue to improve and gradually approach 60% for the year.

The second part of the question is on penetration.

So we.

Did a study of our top 1000 customers.

And we believe that on average.

They are less than 25% penetrated with the cloud platform.

And the reason for this.

Relatively low price.

It's basically the time and complexity.

Associated with the on Prem expansion.

And of course with the cloud platform.

Makes it easy for customers to expand in the cloud.

So we believe that our open cloud platform is the main reason behind our double digit new bookings growth rate as we see.

More penetration accelerating.

Relative to the pace, we had on Prem.

And we have significant opportunity with our with our base to move to the cloud.

But let's also not forget that we also win new customers.

Directly.

And with partners and for example, we discussed earlier.

4 million.

When a new customer.

Which we did together with 1 of our partners.

This is also due to the open cloud platform.

So I think we have both.

Good.

Opportunity now with the cloud platform to accelerate.

The penetration into the base, which is less than 25%.

And to continue to differentiate and win new customers.

Thanks.

Thank you. Our next question comes from Ryan Macdonald with Needham You May proceed with your question.

Hi, Thanks for taking my questions and congrats on a nice quarter here, Dan first for you I'd be curious as you.

And what Youre seeing from a market dynamic perspective, obviously, we're seeing.

Increased demand for cloud based solutions, but how is the RFP activity trending when you think quarter over quarter and how are you feeling about win rates currently today.

Yeah.

Doug you want to take this.

Yes sure.

Yeah.

Yeah, Hey, Ron.

<unk> seen the pace of the cloud transitions are accelerating.

So you've seen with our strong cloud revenue and bookings growth.

When you look on a new bookings mix, we just crossed the midpoint so that more than 50 percentage is coming from SaaS now.

You see the mid points, a key inflection point and we've got the tailwind from the cloud growth now stronger than the headwind that we've been getting from the perpetual decline.

So from a revenue perspective, we expect our revenue growth to accelerate every year is a perpetual.

New declining this year and then a trials next year.

So we think that from a margin perspective going forward, we expect day.

An improvement also as the mix of recurring revenue.

Continues to improve our recurring revenue carries a higher gross margin right.

So we don't expect margin improved this year, but going forward, we're looking for improvement every year starting from next.

Excellent and as a follow up.

M <unk>.

Interesting to see the real time work our solutions offering that you introduced at the conference just curious what sort of feedback you've been getting from customers, thus far and and how should we start to think about that layering into bookings as we progress during the remainder of the year.

Yeah.

Yeah.

Yeah, Dan what you're going to take that.

Yes sure.

<unk>.

So that day.

The response, we got from customers doing the engage conference was terrific.

And also from partners, who are excited too.

To carry the product the concept of real time work and.

M assisting the work force in the moment.

With AI.

AI driven decision, making is not a new is not a new idea.

The market has shown interest in Q4.

Now, but we.

We believe that technology will just not effective.

To do that in real time and of course, when you start to guide.

A person during an interaction if youre not very accurate.

And provide.

Value then you're just basically disrupting the person from doing the work.

So I think we got to the point now that we feel that we packed a lot of.

Hey, I from different type of disciplines, all fitting in 1 platform.

Based on what we call da Vinci, which is the AI engine in our platform.

And this is AI.

That is.

Costing discipline, so we have AI relative to understanding the intent.

On the voice call.

We have AI.

Looking at that.

On the acoustic dynamics of the call looking at net demand and also looking at what the agent is doing on the desktop with.

Applications and understanding all in real time, what is the context.

Oh for the agent is trying to do and how we can suggest health.

From a itself could be.

Based on knowledge that is pushed to the agents in real time, so they don't have to search.

Tom It's based on our body.

We have virtual assistant Buddy.

The agents can kidney directly.

Direct with in real time and get.

Faster answers so they don't have to put customers on hold and do a long growth territories.

Actually it is lots of productivity, but also very annoying.

On the consumers.

So we think that you know.

Technology now is ready.

And can basically help close the engagement capacity gaps.

But doing both.

M increasing productivity.

The work force and at the same time elevating the customer experience as they get faster and more contextual responses.

Now on in terms of the impact on.

The second part was the impact on our.

Our growth rate.

Like like any this is not a new.

Clearly new product, it's a it's part of the platform, it's not available for our customers to turn on as a cloud service from the cloud.

And obviously with my comments earlier, we just expect the cloud that it's going to.

<unk> here so the whole sales cycle is much faster customer can actually start with a small number of agents.

And test.

The technology and then expand over time. So this is 1 this is 1 of the innovations that we're doing in the platform that will help us accelerate growth.

Okay.

He's excellent thank you very much.

Thank you. Our next question comes from Peter Levine with Evercore. You May proceed with your question.

Great. Thanks for taking my questions. So the first 1 maybe for Dan.

The deal is running through the pipeline how is that trending today.

12 months ago are we back to pre COVID-19 levels.

We we have.

I'd say definitely in perpetual.

On a year ago, we said perpetual is on hold and is going to come back it.

It is coming back but much of it is coming back.

Day birth.

So in terms of the overall demand I think we're showing great growth.

And booking and then obviously booking will become revenue over time in the SaaS model.

But but but the shift from perpetual to cloud is also.

Very clear.

As cloud.

So I would say, we see the shift in both areas, we see the shift from our customer base.

And the number of conversions that we have of legacy solutions to the cloud, but also very important.

With new bookings.

As we just said I guess several times because.

Traffic is a very important milestone that we just.

<unk> crossed the midpoint net more than you could fendt is is coming from Seth and it's going to continue to grow toward stuff. So yes. The demand is strong, but definitely shifting to cloud across the platform.

And maybe.

With the new Doug sticking to the full year guide love them as Dan what's behind that what are the tailwind.

Youre building in what are you're not building in Florida.

Not baking in that could potentially be the upside as we progressed through the year. Thank you.

Yeah, sure Hey, Peter.

Well I think.

What we've modeled into the guidance is our expected mix of business as we see it you know we've talked about headwinds tailwind are you know customers come back on 1 more perpetual licenses that would drive additional revenue growth.

Yes.

More bundled and its more later.

That's a bit of a tailwind.

So it's really the mix the expense side is pretty steady rate in software companies, mostly head count and much of that is fixed.

So it's really kind of a revenue mix that will give us upside and we think we've.

Modeled conservatively.

So hopefully we're in good shape for the year and you know may get some upside.

Yeah, and I would say that.

You have to look at.

Now, but also the cloud metrics because.

We just.

Talked about what we expect now clearly growth to be double digit more than 10%.

Now the higher the booking growth.

Not necessarily.

Translating to revenue this year.

But actually on this booking is going to be revenue over the next few years. So it's going to accelerate our 3 year targets, but not necessarily this year target.

We also discussed.

Got you.

Our remaining performance obligations. So basically we are getting more multi year cloud.

Cloud deals.

So that was.

I believe 30% growth year over year.

And that also translates into.

M future revenue and future commitments that we have from customers for revenue that they are locked up this year. So there's a lot of things that can.

Only approve a new will be able to see that from our client metrics.

But not necessarily going to be reflected in the P&L.

For this year so.

I think it's important for investors to look both at our annual.

In your guidance, but also we discussed 3 year targets and any improvement in booking will suggest also.

In our ability to achieve and overachieve on 3 of targets.

Great. Thank you.

Thank you. Our next question comes from somewhat Samana with Jefferies. You May proceed with your question.

Good afternoon, and thanks for taking my questions I guess, maybe first 1 just a follow up question on the guidance, where I know that we're only through the first quarter of the year and then a couple of weeks into that into the next quarter, but that 30% to 35%.

That range is fairly on the wide side. So maybe Doug could you help us understand kind of Directionally, where we are headed in that range and maybe a better triangulation around alright. Thank you Susan.

Now the Big day.

Yes, I mean, Dan just went through.

It really depends.

On on the bookings mix that drives the revenue growth. So you really need to look at it.

Hand in hand.

Right. So it depends on the mix and timing.

While that seems like allowed band wideband.

That's the way it trickles into our revenue.

But I think you need to look at the <unk>.

About 30% on that gives us a good basis going forward for the year.

Reporting our new ACD bookings that was up 58% in Q1.

So we're building on some good momentum here.

And it's just a question of the mix of how much ends up in the revenue line actually but you know the revenue.

Oh, which are no longer as we're going through this is really the full measure of the strength of the business right you have to look at all the kind of the data points collectively.

Yeah, but cloud cloud revenue just 2.

To add to this the flow cloud revenue, we last quarter, we raised the guidance to 30% to 35%.

And obviously, we achieved 30.

Revenue line in Q1 and at this point, we feel good about it.

Achieving the cloud revenue growth targets that we have for the year.

Great and then maybe Dan a follow up for you on the on the kind.

Business environment, 1 of your top partners.

They obviously have their own Wi Fi offering now, but <unk> seen a kind.

On a steady acceleration in their bookings and their business and I was curious if you're seeing maybe the same mix coming from the same partners or are you seeing any change in the partners that are helping drive your Wi Fi offering.

Yeah.

Yeah.

So.

In terms of change we see more.

More activity with partners and.

More adoption of partners from a cloud platform.

You referred to <unk>, but obviously club platform. We have now many many different applications that are much bigger than W flow.

They include all aspects.

Related to managing the workforce.

Of course the enterprise.

And then.

Also just managing workflow so it's not just.

And bots across all the different digital channel Social channel voice channel obviously.

And also the workflows that are going to drive the productivity.

<unk> and the customer experience that are very key.

And we discussed.

The fact that the workforce is a 2 trillion dollar expense. If you remember when we discussed our Tam we spoke about 50 million workers in customer engagement and approximately.

<unk> day.

The cost of from employees $40000.

2 trillion dollars and with the increasing volume in interactions obviously.

Our brands cannot afford to hire so that's the capacity GAAP and that's where we that's.

That's what we focus on and that's where we.

Have a differentiated functionality.

A real open platform.

On a cross.

All aspects of the workforce and the future of work.

I won't give you an example, just to understand.

You know what I, just said in terms of expansion across the platform.

So.

So 1 of our customers.

<unk> is a large bank they have 50.50000 employees overall.

And.

And they purchased from variant.

35.7500 licenses.

In the contact center.

But also additional 5000 licenses for the back office.

Curious workforce.

An additional 9000 licenses for the branch of our workforce so.

17500 licenses and of course, the contact center back office and branches.

So this this banking customers recognize the benefits of having a Singapore.

Single platform.

That is open and then connect the silos that exist today in the car.

So on their back office on branch.

And of course from a variant perspective.

Theres a single sales person.

For these accounts.

Obviously, the Susquehanna is being supported by subject matter.

Experts so we can offer the customer additional functionality from our platform.

But this is.

This is 1 of the unique capabilities that we have in the platform and some of our partners.

Our system integrators.

Debt.

They they like this type of model.

To help from a.

Enterprise connect silos from the contact center throughout the enterprise. So we have system integrator of size. Its partners. Obviously, we have to be sellers and then we also have.

We also have a communication platform vendors as partners.

<unk> as well, which.

You referred to 1 of them.

So I think it's important for you to understand.

What is really the fact that the platform.

What are we able to solve for the for the end customer and we saw a really really important problem today, which is they can't afford hiring.

And they need to bring more AI and automation and they need to manage the workforce and the work.

In a way that they can connect.

Because again you know how many companies today are able to connect.

<unk> on the website with the kind of sooner right when we chat with someone on the west side.

It doesn't work and we're calling for the kind of fit or very very few brands today.

Are you able to say, yes, we can see what you did on the website and let's keep that help you.

In most cases you have to start over again this is because.

Of the silos that are created historically and there's no silos don't work anymore in the digital.

Transformation when more and more of the interactions are digital chat social media community.

Messaging lots of different vehicles.

Engage customers beyond the traditional coal.

Contact center.

And that's how we that's why we approach.

Any matters and that's also on <unk>.

Partners, So we see our partner business growing.

A little bit faster than direct.

So to answer your question.

Numerically today.

Our direct business is a little bigger than our partner business.

And in terms of growth rates.

Partner business is growing a little bit more but pretty much. The same the same rates, but we expect was the greater adoption that the mix will change more towards partners gradually.

And that will see faster growth rates from partners over time.

It's got great. Thanks for that color and appreciate the example, as well thanks again for taking my questions.

Sure.

Thank you and as a reminder to ask a question you will need to press star 1 on your telephone. Our next question comes from Brian Essex with Goldman Sachs. You May proceed with your question.

Great.

And thank you for taking the question.

Great to see the strong cloud.

Cloud growth in the quarter.

I was wondering again, maybe if you could unpack that a little bit.

It looks like unbundled SaaS accelerated really nicely year on year, but was sequentially down a little bit and certainly more than we thought it was going to.

B.

What were similar dynamics in need of this kind of goes towards your partner comment what we're still on the Dan is at play in the quarter.

Drove bundled unbundled SaaS expectations for the year, and maybe help us understand seasonality in case that on Basel number moves around a little bit I know theres a lot in there but.

Yes.

The balance.

With us.

No.

In Q1, just the number of days in the quarter.

If you neutralized number of days, what's actually growing a little bit but more importantly is to really understand how we offer bundled and unbundled SaaS to our customers basically.

In a bundle.

Bundled SaaS.

Licensed the product and the hosting services bundled together.

And unbundled SaaS, we licensed the product and give the customer an option.

We purchased the hosting services from variant at a later time.

Now, it's an option they may not but.

Sometimes they want to host himself sometimes they.

They want a host.

Another partner of choice. So they don't necessarily have to host is variant.

But.

In essence.

We expect the 2 models to really work together in some customers may start was unbundled.

And then maybe 6 months later day by hosting services and they become.

More like bundled with the same.

<unk> economics.

So that's going on our.

Our approach is really to help the customers to give them more choice and flexibility it's part of the openness.

Because when we talk about open cloud platform, it's not just the API and the development tools and the community.

Environment to support development, and we're getting more and more developers in our community now.

And that's great that's a lot of people.

Writing functionality around the platform.

We look at the openness very seriously also in many other facets.

Including for example on marketplace, we have a free marketplace where customers can.

Download assets and think that some of the assets are contributed by partners into into the marketplace.

So we see the flexibility in.

Cloud environments.

We have multi cloud architecture, the flexibility in SaaS models.

To go bundled to unbundled to New York specific question.

Flexibility to do hybrid where some solutions on Prem and some already on the cloud that many many of our customers take advantage of because they want to move to the cloud.

To the question from from Dan Ives, why I think I made it clear cash is really see.

See that.

Imperative to move to the cloud and accelerate the innovation, but sometimes they don't necessarily want to move a legacy product that works well for the cloud now. So we gave them an option to have a hybrid of on Prem M.

And.

Cloud and in that sense, they can be partially.

Partially unbundled and partially bundled right so.

Bottom line is we are focusing on cloud growth.

And.

We believe that the.

The.

The economics behind the model of the cloud whether it's this or that are much better.

The perpetual as Doug said, we have we have better margins on our recurring business.

Great.

Helpful. Thank you for that and maybe just a follow up.

If I can understand the margins differential between bundled and unbundled and whats the yield differential. So if you do like say a $5 million deal.

Will that bundled.

What might be the difference between.

A bundled deal of that size versus an unbundled deal and impact on the fundamentals like gross margins of the business.

Yeah, so solidly on a door.

Unbundled.

We'll be basically.

<unk> licensing the product lets say for 3 years. This is a $5 billion.

And in the bundles in the balance situation this could be a 5.

<unk> 5 million for new product, plus let's say another million and a half for the hosting services.

So we're sticking by separately in an unbundled they can.

By $5 million and the 1.5 in separate transaction or they can buy them in 1 transaction and bundled.

The margin on the product is the same.

And the margin on the hosting services and obviously lower margin, but it's pretty pretty typical margins on.

Service.

But.

If the customer starts with a $5 million.

Unbundle game, and then purchase $1.5 million hosting services. They are going to end up exactly the same place with the same margin as a bundled deals so.

No difference and Thats why its.

On a compelling for customers because we're not trying to push them 1 way or the other we're trying to.

Others do what's right for you based on circumstances.

Right.

Very helpful context, Thank you very much.

Thank you on our next question comes from Dan Bergstrom with RBC capital markets. You May proceed with your question.

Yes, thanks for taking my questions.

Prepared remarks at the large deals you talked about some success on the white spaces when customers transition to the cloud from on premise and then you also mentioned with your surveys that customers were about 25% penetrated in the cloud just curious if there are some common adjacencies or products that that maybe are really standing.

Sandra you on driving success on that and that white space.

Yes, I would say the first thing and most important thing about that white space is the customers want to know that.

Signing up to an open platform.

Because some of the vendors today in the market or trying to push a closed platform and.

Our customers realize that the customer engagement challenge is much bigger than any 1 platform.

And Thats why the first things they look at variance is.

How do you play with the communication platform, because we may have all kinds of different communication vendors.

It could be sick, so Newcastle keep us so.

Collaborations like.

Like teams and zoom right, there's a lot of choices.

So they want to be they want to see that we play.

Well integrated with communications platform.

They want to see that we play well with CRM platform and that we can support their enterprise bi and analytics, which is obviously important for them for.

For any data driven enterprise.

So once they kind of.

Understand what the open platform offers.

Were they adopt is.

Very different.

So let's look at history.

Examples that I mentioned earlier and look at analyst day 1.

Carlo mentioned.

We're very often being asked.

So our customers moving to the cloud and they're moving their communication platform at the same time not at the same time in 1 day in day to day.

So I want to discuss the opening from Shaw.

What happened with the 3 customers so let's look first.

First is the $10 million win.

Okay. So with the 10 million is all win.

The customer has actually moved very quickly.

To the cloud a bunch of very applications, they already have and the expanded at the same time.

Buying deeper into the platform.

But the legacy communication channel.

Still on frame.

So the ACD their routing they decided they don't need to change that it's working.

So this was.

The reason was to move with ran through the cloud to accelerate innovation and they didn't see right now any urgency to change their communication platform. So that was the 10 million audience.

Now when we look at the $17 million.

This customer actually does.

Started to move everything to the cloud both the communication platform and the business application platform from very.

But they decided to do 2 separate deals so that basically was awarded the cloud platform deal and they went.

And chose another communications platform vendor.

And they have the peace of mind that variance will work with any of them because they know we're agnostic to the communication platform.

So that was the case in the $17 million now lets look at the $4 million, which was the way in which was a new customer for <unk>.

And again, you'll see a different story.

Here. This deal was 1 together with our partner this partner has there on communication platform.

And the customer wanted to buy from 1 vendor both communications and application.

Platform. So we joined forces in wheat.

Displace the competitor.

And give the customers want solution in 1 day.

And the customer chose basically the solution based on the functionality that various isn't the platform.

So you can see that.

Customers want to.

Behaved in and in a lot of different ways.

And they.

But there is some flexibility which are which is what we are focused on providing them.

Thanks, Dan very helpful.

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

New Frankel for any further remarks.

Great. Thank you everyone for taking the time.

Feel free to reach out with any questions you have.

More than happy to chat.

But thank you again and I look forward to talking to you again soon have a good night.

Okay.

Thank you ladies.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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