Q2 2022 Verint Systems Inc Earnings Call
[music].
Good day, and thank you for standing by and welcome to damage Systems, Inc. Q2 fiscal 'twenty 'twenty two earnings conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session. Please be advised that today's conference is being recorded.
Ask a question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to Matthew Frankel. Please go ahead.
Thank you operator, and good afternoon, and thank you for joining our conference call today I'm here with Dan Bodner, <unk> CEO cyber Robinson bearing CFO and Alan Roden Gardner Chief Corporate development Officer.
Before getting started life you mentioned that accompanying our call today is a webex with slides if you'd like to view. These slides in real time during the call. Please visit the IR section of our website at <unk> com click on the Investor 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 in this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act with 1995 and other provisions of the federal Securities laws.
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 the date of this call and except as required by law <unk> assumes no obligation to update or revise them investors are cautioned not to place undue reliance on these forward looking statements.
For more detailed discussion of how these and other risks and uncertainties could cause <unk> actual results could differ materially from those indicated in these forward looking statements. Please see our Form 10-K for the fiscal year ended June 31, 2021, and other filings we make with the SEC.
The financial measures discussed today include non-GAAP measures, because we believe investors focus on those measures and comparing results between periods and among our peer companies.
Please see today's Webex slides our earnings release in the Investor Relations section of our website at <unk> Com for a reconciliation of non-GAAP financial measures to GAAP measures.
Non-GAAP financial information should not be considered in isolation from or as a substitute for or superior to GAAP financial information.
Included because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and are useful to investors for informational and comparative purposes. The non-GAAP financial measures. The company uses have limitations and may differ from those used by other companies now I'd like to turn the call over to Dan Dan.
Thank you Matt.
I am pleased to report a strong second quarter across all key cloud metrics.
With both revenue and ADP.
Coming in ahead of our expectations.
Since the completion of the Carbonite spin at the beginning of the year.
We've experienced strong cloud momentum.
<unk> crossed the midpoint of our cloud transition.
We expect our cloud momentum to continue in the second half of the year.
We are raising our annual outlook for both revenue and diluted EPS.
We're also raising our annual outlook.
For new <unk> bookings.
Which we believe is an important metric during our cloud transition.
Let me start today's discussion with a REIT.
View of our Q2 cloud Kpis.
First I'll review, new <unk> bookings growth and mix.
To remind you new perpetual license equivalent bookings.
Normalizes, the mix of perpetual and SaaS bookings.
To compare bookings growth period over period.
In Q2.
<unk> came in strong.
With 17% year over year growth.
Reflecting our continued strong bookings momentum.
Also the percentage of new P. Amy this came from SaaS.
<unk> to increase.
In Q2.50.
53% of our new bookings came from SaaS.
Up from 51% in Q1.
Representing the second quarter of crossing the mid point of our cloud transition.
In addition, I'm pleased to report <unk>.
<unk> SaaS deals over $1 million P. C V in Q2.
An increase of 100% year over year.
Overall, you can see on the slide <unk>.
All of our bookings metrics came in strong in Q2.
Looking at revenue.
Non-GAAP cloud revenue was also strong with 44% year over year growth.
Later, I will discuss our relationship between bookings growth and current periods.
And revenue growth in future periods.
Behind our strong momentum.
Our strategy to drive automation and customer engagements across the enterprise with our open cloud platform.
We believe that more and more brands are embracing digital first engagement.
And that we are uniquely positioned to help them with our open partner friendly and infrastructure agnostic cloud platform.
I would like to briefly discuss our platform.
It has been designed with an open multi cloud architecture and provides our customers a unified engagement data hub.
And a broad set of AI and analytics engine.
As the platform is completely open.
Customers are able to deploy our workforce engagement digital engagement and experience management solutions base.
Based on their business priorities.
The platform is designed to help brands closed engagements capacity GAAP.
By reducing their operating costs.
While elevating the customer experience.
To illustrate the value of our platform I'm happy to share the results of a study performed by Forrester consulting.
That examined the potential ROI and business benefits of our solution.
The study and comp us to various customers.
Thats handled 10 million interactions annually in the aggregate.
And found that on average these customers achieved a payback period of under six months.
And a 400% return on their investment over four years.
This was achieved through a variety of improvements.
Including a 45% reflection of calls to less expensive channels.
A 44% improvement in contact center efficiency.
At 20% improvement in agent productivity, and an 8% reduction in employee turnover.
To drive even more value for our customers, we continue to innovate our cloud platform, providing customers new functionality to power the workforce with people in box to embrace an enterprise wide customer experience culture.
And to harvest data to drive more AI and analytics into their business.
Another important differentiation of our cloud platform.
Is the open design that makes it seamlessly fit with existing enterprise ecosystem.
This is very important for our customers.
And I would like to discuss three aspects of our open imperative.
First.
Relative to communication infrastructure, including seek us ucas and seaport.
Various platform is agnostic and enables our customers to quickly integrate with the vendor of their choice.
We have recently seen some M&A activity among communication infrastructure vendors.
Combined these three infrastructure solutions into a single vendor.
We believe this should benefit bearing as a pure play enterprise application platform with an open infrastructure agnostic strategy.
Second.
Many of our customers are using CRM solutions.
As a system of record.
Sales marketing and service functions.
The various platform augments CRM solutions.
And we enable our customers to easily integrate data between various platform and their CRM system.
And third for.
For enterprise data MDI systems, we provide access to a wealth of engagement data managed by the various platform.
It can be easily shared with enterprise data Lake.
Our open platform is driving wins of new logos as well as expansions with our customer base.
Some of the new logos we were.
One in the first half of the year include.
Include Fedex global payments Norton Lifelock and Vodacom.
Leading companies around the world select variant.
Because of our market, leading open cloud platform.
Broad customer ecosystem and partner ecosystem.
And our focus as a pure play customer engagement company.
<unk> is a broad customer base and in Q2, we received multi million dollar expansion orders as our customers continue to evolve their digital first engagement strategies.
As I mentioned earlier in Q2, we had 20 SaaS orders with 50 feet greater than $1 million.
Here are two examples of Q2 expansion deals.
The first is a 3 million daus soft order, we received from one of the worlds largest financial services companies.
This customer had applications for multiple vendors.
Including variant and.
And decided to consolidate their existing applications onto the <unk> platform, while expanding with additional functionality.
Various selection was driven by the value the customers saw integrated platform delivering strong ROI and our ability to connect customer engagement.
Across their contact centers and branches.
The second expansion example is a 2 million dollar order from a leading transportation company.
This win was due to the best of breed functionality of our open platform.
And our strategy of working closely with partners.
We are very pleased with our strong first half momentum.
And are raising our annual non-GAAP guidance as follows.
For new <unk> bookings.
We are raising our growth outlook to 15%.
Up from our initial our initial guidance of 10%.
For cloud revenue growth, we are raising our growth outlook to 35%.
Up from our prior range of 30% to 35%.
For revenue, we are raising our guidance to $872 million at the midpoint.
And for diluted EPS, we're raising our guidance to $27.0
Doug will provide further details on our revised guidance shortly.
We believe our strong performance this year position us position us well for accelerated revenue growth going forward, which I will discuss next.
In Q1, we provided three year targets and explained why we expect our revenue growth to accelerate as we crossed the midpoint of our cloud transition.
Our three year targets were based on an assumption for new <unk> bookings to grow at a 10% CAGR.
We discussed the 10% level over the three year period.
Is expected to drive higher revenue growth rates next year and a year after.
We still quarters under our belt as a pure play customer engagement company.
In which we over achieved the 10% level and build strong momentum.
We now have increased confidence in our long term targets.
Overall, I am very pleased with our first half results.
The number of competitive wins, we experienced.
And the momentum we have going into the second half of the year.
Now, let me turn the call over to Doug.
That.
Yeah, Thanks, Dan and good afternoon, everyone.
Discussion today will include non-GAAP financial measures.
A reconciliation between our GAAP and our non-GAAP financial measures is available as Matt mentioned in our earnings release and in the IR section of our website.
Differences between our GAAP and non-GAAP financial measures.
Include adjustments related to acquisitions.
Including fair value revenue adjustments.
Amortization of acquisition related intangibles certain other acquisition related expenses stock based compensation expenses separation related expenses as well as certain other items that can vary significantly in a mountain frequency from period to period for certain metrics. It also includes adjustments related to foreign exchange rates.
We're pleased to put up two strong quarters following the spin of our security business.
Earlier, Dan reviewed our second quarter results.
Now I'd like to review, our first half, which as Dan indicated provides us increased confidence in our fiscal 'twenty, two outlook and our ability to accelerate revenue growth longer term.
<unk> bookings growth increased 22% year over year with more than half of our software bookings coming from SaaS.
Pleased to have crossed the midpoint of our cloud transition.
We had 32 SaaS orders with more than 1 million T C D and increase of 60% from last year.
Each of these deals drove a 59% increase in new SaaS ACD year over year.
Many of these SaaS deals are just ramping up and will contribute to revenue growth in the future.
Non-GAAP cloud revenue increased 42% year over year while.
While perpetual revenue continued to decline as expected, resulting in total non-GAAP revenue growth of 5% year over year.
Overall, our business continues to shift towards more recurring revenue in the first half of the year, 83% of our software revenue was recurring.
Also remaining performance obligations or our P O increased 29% year over year.
Turning to guidance, we are pleased to be in a position to raise our non-GAAP guidance for the year.
Half of our 12 million revenue guidance increase from $860 million to $872 million at the midpoint comes from the Congress Social acquisition, we completed in late August.
As a company as breakeven we expect it will make no contribution to earnings in <unk>.
You too.
Let me also discuss how we see the year progressing.
We expect Q3 revenue to be between $215 million to $220 million with 53 of diluted EPS at the midpoint.
Got to finish the year with our typically strong Q4.
For annual diluted EPS, we are raising our outlook and we now expect fully diluted EPS for the year to be approximately $2.25 at the midpoint of our revenue guidance.
Let me also provide you some additional detail for modeling purposes.
We expect around 1.5 million of interest and other expense in each of Q3 and Q4.
We expect about 300000 of net income from a noncontrolling interest we have in a small joint venture in each of Q3 and Q4.
We expect a 10% cash tax rate for the second half and for the full year.
Regarding your share count the number of diluted shares we have can fluctuate each quarter, depending on the accounting treatment of our convertible preferred each.
Each quarter, we calculate our diluted EPS, two ways, including the preferred dividend, but excluding the converted shares.
And then excluding the dividend, but including this year's.
We then show diluted EPS based on the calculation that is more dilutive for the period.
Given our level of expected income, we expect diluted EPS to be very similar under both scenarios and for Q3 and Q4 modeling purposes. You can check you can just assume the conversion of the preferred stock. So approximately 76 million shares outstanding per quarter for the full year.
Turning to our long term outlook, we are two quarters into the three year plan that we laid out at our Investor day earlier this year.
At this point, we're not raising our long term targets, but our strong start to the year certainly gives us greater confidence in achieving these targets.
So let me take this opportunity to review our current long term targets.
For fiscal 'twenty three we're assuming.
Revenue growth accelerated to the mid single digits to around 6%.
For margins, we expect a little bit of expansion with greater scale and around 10% diluted EPS growth for the year.
For items below the operating line you can use the same assumptions, we just discussed for the second half of fiscal 'twenty two.
For fiscal 'twenty, four we're assuming revenue growth accelerates further to high single digits with some additional margin expansion.
And we're targeting 1 billion of revenue of which $650 million will be cloud and nearly 90% of our software revenue will be recurring.
Overall.
We're pleased with the start of the current year and we believe we're well positioned to achieve our three year plan with a highly differentiated open cloud platform.
So with that operator, let's open the line for Q&A.
Thank you as a reminder, we ask a question you will need to press star one on your telephone to draw. Your question press the pound key please standby as we compile the Q&A roster.
And our first question comes from Peter Levine from Evercore. Your line is now open.
Great. Thanks for taking my question congrats on a.
Sure.
I guess first I mean, obviously your results, but our pipeline more predictable today versus where we were when we entered the year, meaning are we back to pre pandemic levels Holden I guess, if not like outlined to us the path of the timeframe or the timeline do you think it takes to kind of get back there.
Yeah, So we see.
The large pipeline, but youre right. We also have a large large pipeline last year in COVID-19.
And what we saw last year is suddenly the perpetual deals were not happening as customers would hope for because of Covid and there was an increase in cloud deals.
And this year, we actually have a much better closer.
Close rates when you win ratio on the pipeline. So I would say back to normal but also the number of cloud deals is wave.
Higher than last year, we talked about double what the 1 million dollar plus deals.
Got 20 in in Q2 versus 10 in Q2 last year.
So I think that the shifts that we see in the market.
<unk> is.
He is also helping customers to plan, what they need and also to execute it.
Because they are not dependent on the perpetual resources. They have internally they are they're basically buying a cloud solution from the vendor.
Perfect.
Question.
On the acquisition you guys made during the quarter or kind of a social.
Can I just talk about the strategic rationale and then maybe go into the go to market motion what the go to market motion will look like I mean is the idea to kind of white label. This this messaging product essentially having your partners resell it.
Well five nine position this as a messaging platform. Thank you.
Yes, So I think first of all our M&A strategy is about our cloud platform.
And expanding the functionality of our cloud platform. So we've gone to social our plan is in a very short time to offer it as part of our cloud platform.
Where it's going to be available to any of our customers or partners.
Just another application that it consumed from the cloud platform.
And I think we discussed last quarter why we think the platform approach is very important and I made comments earlier about the open platform approach, where basically customers can start anywhere.
So they can start with messaging that can start with workforce management, they can start with Iga.
Is complete freedom for customers to consume cloud services from the platform based on their business priorities and then they will expand from there again over time based on what is the most urgent use cases they have.
So this is the plan with <unk>.
Messaging in the very short timeframe.
And rigs.
Regarding the question about why messaging now well, we do see that the customer engagement market is shifting to digital.
And while we see the number of interactions on the voice telephony side, it's pretty flat the number of.
Interactions over digital and messaging is actually growing and growing very very quickly.
And we also see that consumers actually would like to see more choices, they would like to be able to choose.
The channel of their choice based on what they used to and especially for.
Mobile devices, so kind of a social scoring two variant the ability to offer challenged like Tweed Air and Whatsapp and this basically complete the offering from variant in terms of flexibility we can offer our customers branch <unk>.
Basically any choice of.
It's just a service or self service channels.
So they can put a complete set of choices in front of their customers and help them to have.
More flexible customer journeys.
And.
The feedback we got from industry analysts and customers was extremely positive.
Because if it is positioning very it is a strong player not just relative to the legacy telephony driven contact center, but also combining telephony and digital channels into.
A more unified workforce that can handle any type of interaction and obviously very very strong with automation. So the workforce, it's not just humans, but it's a combination of human and boss working side by side and on the digital channels like messaging. It is obviously very very.
Important to offer automation because many of the interactions can be done by a bot.
And.
Respond very well to.
Two customer needs. So for example, if you look at.
I'm shocked when you go to Amtrak and you try to find a schedule or.
<unk> you will talk to you Julie and Julia is a bot that handle 5 million cut.
Customer interactions a year.
And Julie.
Julie can handle many direction at the same time. So the importance here is the consumer don't have to wait slide because even if they are under.
On the consumer trying to do something they don't have to wait in the queue and get an agent that can get instant responses form from Julie.
So as it as it becomes easier for the consumers to.
Engage over digital interaction in the volume of interaction is growing.
We are all trying to do more from a mobile devices than we used to do is with a telephone call.
And that's important that makes it more important to manage a workforce that is human boss working together so that the brands can lower the cost of operation, but at the same time elevate the customer experience.
So it is positioning variant.
It's a small acquisition, but it's additive to our platform and <unk>.
Together with all the conversational channels in conversational AI.
We really supports automation across every channel and.
Very differentiated platform and that in that regard.
Alright, thank you for the color.
Thank you.
And our next question comes from Dan Ives from Wedbush. Your line is now open.
Yes. Thanks.
Can you talk about for typical customer when they move to cloud what type of upsell.
Cross sell you're generally seeing I mean, obviously, you're seeing the large deals we just hit on that.
Yes, so our customers move to the cloud in two ways. There are customers that convert what they already have some bearing to the cloud and then they expand.
And we also have customers that do not want to convert right now because the clients happy and <unk>.
I don't want to disrupt anything but they are buying from various new solutions that offered in the cloud.
And one of the benefits for Varian is that we are able to support them with a combination of some of their solutions working on Prem like they always state and some of the newer solutions like digital like automation and <unk> and so forth are.
Working in the cloud.
<unk>.
And then we see customer debt.
No.
Move to the cloud and the new solutions and then they bring their legacy solutions into the cloud over time, So we really see all that different scenarios and I think our customers are very happy.
Appreciate.
That we allow them the flexibility that they can actually innovate faster with new solution to cloud, but don't have to carry their legacy stuff into the cloud on azure on some timeframe that may not be best for them.
And I think that's why we see very.
A very strong renewal rates, because our software was always sticky.
But I think that our renewal rates are high.
As a result of this.
Stability that we provide our customer in the conversion.
<unk> journey.
Great and then just as a follow up when you think about million dollar deals in your pipeline I mean is it something.
We're from a trend perspective. This is just going to continue to accelerate.
When we think about where it's heading and just more and more.
Customers are ordering a bigger piece of that.
Sweden platform.
Definitely I think that we will see.
Definitely more adoption by customers of our cloud platform because.
It is easier for us and for our customers to expand in the cloud than it was on track.
With every on Prem expansion and the customers have to initiate a project ethylene volt to have to purchase hardware.
Integrations.
And very often it's it becomes.
Complex project and.
Their internal it you may have.
Limited resources in terms of how fast they can move with cloud platform.
Our business users basically bypass all of that.
Process and they just consume.
More applications from the same cloud platform.
So we expect more adoption.
The cloud platform now whether they are they're going to buy that in one purchase of multimillion dollar deal or small incremental.
Deals that could be hundreds of thousands each one but multiple deals like this.
Every quarter.
I think that can go either way.
Because many customers wants to try before buying new functionality. So maybe they may want to start something new.
In a low volume, but then expand over time.
I think we will see growth in terms of spending but.
We will see both.
More multimillion dollar deals but also.
Higher spend per customer in the vertical platform.
Great. Thanks.
Thank you.
And our next question comes from Shaul Eyal from Cowen. Your line is now open.
Thank you good afternoon, guys congrats on the performance and improved outlook.
Dan or Doug.
So you've crossed the midpoint of your cloud transition congrats on that front.
Can you talk about the impact maybe also the longer term impact on the financial model and I have a follow up.
Sure So I'll start and I'll, let Doug give some more more details.
But we believe the costing the midpoint is a big deal.
We saw that with other companies that.
Had a cloud transition journey and had very positive impact from crossing the midpoint.
So let me start with the operational aspects. So operationally the second half is much easier because in the first half.
We had to make many changes in how we sell to our customers. The commission plan, how we incentivize the salesforce.
This was a lot of changes and while the second half is now more about timing of customer decisions how fast they can adopt the cloud, but it's not that's not required that many changes.
Into our model and operational.
The procedures.
So.
Operationally that gives us a lot of a lot of flexibility now from the financial model.
There are benefits the growth rates, the benefits to margins and the benefits to cash flows.
So let me start.
Sure.
And maybe that can give you more on the cash flow side.
First of all the revenue growth.
So it accelerates even if even if we don't have we don't accelerates booking and we did see great bookings momentum in each one.
But as I mentioned before our three year targets assumed 10% yearly growth and even with a flat booking growth. We can we will see.
Higher revenue growth because theres less headwind.
From the current period perpetual decline and there is all the benefits of the booking of the strong booking we report now will impact growth rates in the future.
Expansion in the platform and so on we certainly think that.
This will accelerate the revenue growth.
And we expect revenue growth of 6%, we really didn't change our three year targets.
Doug mentioned that before.
It's too soon H, one was great, but we really just confirming that we have targets today.
You talked about mid single digits next year around 5%.
Doug mentioned, 6% since we have 100% now form.
The acquisition of Congress social.
And then we expect high single digit to get to a billion dollars.
In 'twenty four.
Now <unk> also will benefit because we expect margin expansion a little bit next year, So EPS will grow 10%.
And more in 'twenty, four where EPS will expand into.
12%.
And the final thing is that.
In addition to the revenue and margin cash flow, we also expand faster.
And we expect actually 20% growth in cash flow, but that.
Maybe you can explain more about it.
The outlook on cash flow.
Yeah sure Dan Yeah.
It's all really the same thing right. It's the beauty of that waterfall. So that same thing that was giving us the headwind as we began the cloud transition.
You know built up that the RP O when the deferred revenues.
And that's all coming in now so you can see as we go forward over the next couple of years you can see that in our three year targets are the accelerated revenue growth that drives accelerated earnings of course.
The cost structure was always what it was.
But that revenue was a little bit of headwind now kind of catching up.
Same thing as to when the cash also right. So as you go through this cloud transition.
Next couple of years, we'll have some very strong cash flow.
And then it kind of normalize out beyond the next couple of years. So yes, Dan mentioned this year.
We're going to probably end up about $150 million in terms of GAAP cash from ops, if you exclude the separation and some of those other <unk>.
<unk> costs, we had this year.
The Europe the spin if you will probably be around 180.
And then we expect that to grow like 20%. The next couple of years, because we kind of get that cash waterfall happening.
Along with the.
The revenue topline waterfall for the same kind of cloud transition reasons right. So what was the headwind is turning into the tailwind as.
As we kind of go through time here. So that's certainly to the financial model benefits.
Yeah, and just to add Doug.
<unk> is what we expect excluding the spin related expenses. This year of course, we don't have this spin related next year. So we expect that 180 to grow 20% next year and then another 20% the following year.
Which is clearly ahead of.
Our EPS growth. So that's another benefit of being in the second half of the of the transition.
Understood understood.
And then maybe from a bird's eye view someone who had been within the industry for such a long time.
We have seen over the course of the past don't even six to 12 months, an acceleration of market consolidation.
Assume $5 nine Thoma Bravo consolidating two related assets.
Do we see the blurring of the swim lanes you know between the.
Infrastructure are there, they're the application kind of the services.
In the UK.
Are you thinking.
About you know some of those acceleration accelerating trend.
Within the current environment.
Yeah. So.
No. There there has been debate in the industry for quite some time on.
What are the market is going to go through vertical integration. So the contact center companies will integrate infrastructure with applications.
Or whether the market is going to grow to enterprise consolidation of infrastructure and enterprise consolidation of applications.
And I think the deals you mentioned.
Are very important data point that actually point to the second.
Theory, well scenario.
So what we saw is.
Five nine which is a contact center company, combining with zoom, which is an enterprise communication and collaboration company to create a very strong.
Infrastructure that they can deliver across the enterprise, whether it's a CCAR CCAR sleep us.
Customers really want to.
We have strong infrastructure, which is reliable and.
What it can get efficiencies of scale and it doesn't matter where there.
Person get engaged customers is in the contact center or is on the website engaging through some.
Automation.
Because the market is moving very quickly not just too.
Reactive.
Engagement, but proactive and reactive as where you as a consumer as a partner and you call. The contact center for activities. There's a flight cancellation, we know notify 500 passengers that slide was cancelled and we write away engage them into how they can book another flight.
Or something else they need.
So that engagement is no longer a proactive engagement is longer the contact center, it's becoming part of you know.
Other parts of the organization.
<unk> talked about some deals we won in Q2 and it was also deals in Q1, where we have financial services companies that wanted to manage their workforce across the branch and the contact center as one workforce because it doesn't matter if the consumer.
Consumer walk into a branch or they engage electronically.
It was the kind of center always the website, they they really need to manage it holistically. So the bottom line is I think when you look at.
So five nine I think is a strong data point of infrastructure consolidation across the enterprise.
And then when you look at.
Another day like <unk> and cloud Bridge, we'll cross close rates as a SaaS company and Clara Bridge is interaction analytics again consolidation of applications across the enterprise.
Cloud, which is mostly in the contact center and Caltex is mostly outside the contact center.
So.
It didn't it doesn't make sense to me we saw that in other software markets where.
First thing worth infill infrastructure consolidation of the data Center and then there was enterprise consolidation across different.
Parts of the enterprise and what we see from customers is that they can no longer run their customer operation in silos Theyre looking for applications that profit across the silos and connect them to.
Basically elevate the customer experience.
Got it thank.
Thank you so much good luck.
Yeah.
Thank you and our next question come from <unk> Kumar from Jefferies. Your line is now open.
Hi, great. Thanks for taking my questions, maybe one just given the consolidation that you've mentioned in the industry.
And the company itself being more than halfway through this cloud transition I was wondering if you could maybe help us understand for your install base.
WMO.
Customers.
Much of it is.
As attached to a true cloud contact center vendors users versus.
On premise deployment.
What a legacy or an incumbent solution I guess I'm, just trying to map, where where your installed base and whatnot.
That's right or not but what they are using on the on the routing side, how much of that's moved to the cloud in Europe salvage.
Yes, I think a good chunk of it moves to the cloud I think.
You know our customers.
Separate the decision on applications for infrastructure.
So they may have moved to the various cloud while keeping infrastructure on prem.
Or are they have moved to the cloud and to infrastructure.
Infrastructure cloud at the same time.
But they.
They don't have to make the decision at the same time.
And many customers look at their contact center infrastructure and they want to make the decision together with the enterprise communication platform. So if they want to move to teams.
They are looking you know.
And especially when you think about digital channels for a decent chunk of not really married to.
Connects or infrastructure, because when you think about chat chat is offered in a contact center, but it's also offered on any website. It's also a marketing tool.
And definitely messaging like.
<unk>.
Messenger on Twitter and Whatsapp.
All of our channels that are being used by the enterprise not exclusively in the contact center.
So the old way of thinking about telephony I have my infrastructure for telephony and contact center and that's different for my telephony in the enterprise.
All of that is lower now because of digital.
And let's see that the number of.
Telephony calls are not growing but the number of digital interaction is growing exponentially. So the decisions are.
Decoupled.
And.
I think that you know.
Not all of our customers report to us what they do with infrastructure.
So I don't have pure and perfect numbers, but anecdotally, what we hear is that they prefer or many of them prefer to kind of make those decisions decoupled.
Because.
Infrastructure change does not really create a ROI, it's not helping them to close the engagement capacity GAAP. It provides.
A lot of flexibility, but it's not about <unk>.
Is this all along.
Where the various applications are all about ROI.
We talked before about the Forrester study.
In the hour.
Tumors. So every every sale that we do we start with what is the business.
Problem.
And what is the expected IRR and then we sell and into that target and help them measure the ROI that they generate both in terms of hard dollars. They said as well is elevating the customer experience.
In a nutshell I think that.
What we see is.
More and more decoupling of the two decisions.
And I would say that you know that most of our customers our meat meat meat market to large enterprise I think at the small end of the market. It's different I think there is much less focus on it.
Infrastructure and applications.
So it's different dynamics, but it's not really where variant is operating.
That's helpful. And then maybe just a housekeeping question I'm, sorry, I missed what the Comverse social.
Impact would be more.
For the.
The guidance in Dallas.
Yes, so clever social basically we paid $50 million.
For the company.
It's generating about a little bit more than a million dollars a month.
So we expect it.
It was breaking even so we expect.
For the remainder of the year, we expect about $6 million of revenue and no contribution to EPS.
And.
This is about where we raised guidance for this year 12 million. So this is about 50% of the guidance is from the acquisition and 50% is organic.
And for next year.
Because this is going to be.
You know over five months of this year and seven months next year, it's about 1% contribution to next year growth.
Okay, Great and then just maybe maybe kind of zooming out a little bit just as we think about your yeah, there's been consolidation.
Again, we've talked about but maybe touch on the company's own acquisition strategy.
Going forward, how should we think about maybe what are your what's the area that you're most focused on especially now that you've just adjusted net.
The way to the conversational acquisition.
Would it be more on on the digital side or is there another area that we should be thinking about.
Yeah. So first just to make clear that we when we set that three year targets for $1 billion in 'twenty. Four we said clearly this is organic.
So we're not trying to manage into a financial number.
Customer M&A strategy.
It's really more about expanding the cloud platform functionality and accelerating growth.
So the areas that we think are very important to us to accelerate is obviously automation and in that regard I think it's data AI and analytics.
There's lots of small companies that have innovation that.
Potentially it could be good addition to our platform.
And then.
Round.
Digital.
The changes in that area of the market is so so fast that well.
While we innovate organically.
I think that.
A lot of companies that maybe have no revenue or very little revenue could become a very innovative very quickly and make a difference. So we are definitely looking at.
Tuck in acquisitions on the digital side as well.
Great. Thank you again, taking my questions.
Yes sure.
Thank you.
And our next question comes from Dan Bergstrom from RBC capital markets. Your line is now open.
Yeah. Thanks for taking my questions say, the SaaS booking mix remains impressive 53% of PLE.
SaaS up 1000 basis points year over year.
Given that strength and trajectory here.
SaaS trending towards 60% still the right way to think of the bookings bookings mix for the year.
Yes, I think that we expect Q3 and Q4 to continue to increase the mix towards SaaS, that's what our pipeline suggest.
And you know we have been.
40% last year, so things are moving pretty pretty quickly in that regard and I think that's what I mentioned about the second half being easier in the first half.
Because we we dowell, we know spin.
Spending less time on making changes to our model and really just looking at what is the pipeline and what do we think customers are going to do and we also see the customer that tell us that they're going to go to SaaS I actually doing it.
Last year it was more we'd like to grow starts, but we're not sure yet I think our pipeline suggest now.
Continue to increase in the mix from the 51 to 53 and towards the 60%.
Great and then maybe one for Doug.
Growth remained strong 29% anything to point out behind the continued strength here or is it just as simple as multi year commitments from cloud customers.
And I think it's the latter Dan So I mean, that's going to be a derivative really of these.
Bookings growth as we build that up and accelerate that it just adds to the RP O that then kind of waterfalls into the future that we had talked about a few moments ago.
Great. Thanks.
Yeah.
Thank you.
And our next question comes from Ryan Macdonald from Needham.
Your line, Sir Thank you Mike.
Great. Thanks for taking my questions and congrats on a great quarter, Dan. Many first one for you I think it was not an answering Charles' first question earlier on the call about the first half versus the second half of this cloud transition you mentioned in the second half it's more dependent on the timing.
When your customers want to make that transition just curious given the positive commentary on the confidence you have got in sort of the 23 in 2004 targets, but just be curious to know how those conversations are going with customers and what level of visibility you're starting to see as we get into the back half of this year for.
Actions within that base over as we enter 'twenty three and 'twenty four.
Yeah. So what we mentioned in prior calls and on Investor Day was that we think that some of our largest customers will continue to be perpetual. So we talked about when we get to the $1 billion.
We talked about 90% of our software will be recurring but theres still be around $100 million of perpetual.
We expect.
Will not convert to SaaS not in 'twenty four.
I can say that.
That's still pretty much the case.
I think it's concentrated in maybe a few tens of customers.
Vast majority of our close to 10000 customers.
Very much.
Committed to move to SaaS, it's just a matter of which quarter, they're going to do it and.
Really.
Based on their individual.
Circumstances, but but there are a few tens of customers that are large enough.
That they.
They don't feel they need to.
But in a different model.
Having said that I think what's interesting that even those large customers are starting to build cloud himself.
So while there may not be moving to a public cloud for a lot of reasons that I think they have good wishes they are big enough to actually own the cloud.
And we see that they are building cloud and at some point, they're going to need.
And native cloud architecture.
So I think that even if they don't move to the public cloud they may be moving to a subscription and two to a native cloud architecture software.
But.
That's kind of an interesting discussions we haven't recently, but it doesn't change our long term targets.
And if any you know, we just going to see acceleration.
Acceleration in cloud transition.
Not not all of them.
Great that's really helpful and maybe a follow up for Doug Doug we've been hearing more and more commentary about this this idea that the tight labor market is sort of.
Causing companies to fall behind on hiring plans and resulting in higher costs.
For labor just curious if youre seeing anything of those dynamics within your business today, and if we should expect any impact from a from a cost perspective, as we think about the financial model. Thanks.
I think you know, we're all experiencing and I think it's.
Harder not easier, but we haven't seen anything significant enough to kind of alter our model. So you know what.
Just trying to weather through it and.
Do our best.
You get to the folks that we want and to read.
<unk> of our existing folks and not.
In fact, the cost structure.
Going forward.
Yeah, but I think that.
Hiring this year so far it's on track so we have hard to our budget.
And we're able to hire talent.
All over the world. So we're not just in one area, especially technical talents we are in many different geographies.
And I really feel good about our position.
Because we were able to offer.
A great culture, I think we havent really good.
Feedback from our employees about a customer centric culture. We are operating in a very interesting very dynamic markets. The customer engagement market is just fascinating.
And we have a very clear and strong vision for our platform, which is also exciting for candidates.
No.
You couple that with competitive compensation and benefits and I think we are a very attractive opportunity for candidates.
What happens now and this is I think the backdrop to what you described as a very active labour market.
Is that people make all kind of career decisions post Covid, you know balancing life and work in changing careers. It. It seems like it's a post COVID-19 reaction that maybe people just want to look at different things.
But at the same time when they make they want to make this career change they really want to be part of company's debt.
Have a very attractive opportunities and it's all a relative game. So when we think about how we attract talent.
It's not just giving them competitive compensation plans.
But it's really more important in thinking about the overall package of.
What does it take for.
A key talent that have options to work in many different tech companies.
Why would they want to work in variant.
And especially post spin right when we finish the spin two quarters ago, we have great momentum.
Very very clear pure play vision.
We're getting really a lot of success with with hiring.
Great helpful color, Thanks, very much.
Thank you.
And the next question comes from Tim Horan from Oppenheimer.
Your line is now open.
Thanks, guys I Wonder if you have any color on the 400% productivity, you're citing now.
What that would have been a few years ago.
I'm trying to get at how much as the product improves over the last few years.
And how much kind of a proof.
A few years from now thanks.
Yes.
Well I can tell you that we made a lot of improvement on I'll give you a few examples but I can also say that.
Our customers are measuring the ROI more than they did before.
If I look 10 years ago.
It was more of an infrastructure kind of.
Contact center infrastructure play, where yes, let some by some productivity tools. In addition.
But things got much more complicated because of the digital transition and the increase in volume.
Which is really something the industry didn't see.
And then the interesting volume was creating an engagement capacity GAAP. So.
Customers more and more feel like Oh, theres more interactions I need to add people, but they can't they can't afford to add more people. So so how do you how do you provide your consumers experience they expect.
And.
These messaging for example, you go on Twitter, you say something do you expect the company to it pretty quickly.
John can you just you just assume that they don't care.
So things have changed and.
Higher consumer expectations.
You know much more volume of interactions.
Companies cannot afford to hire more people so the pressure on companies to measure ROI measure productivity and understand.
So everybody can tell them the story when you know Jamie the first process and it's easy to produce slides.
But they really want to understand what is going to be the impact on a lie because they can't afford spending more money, but you also cannot afford not to not to elevate the customer experience.
So.
Now to the question about improvement in technology, So, let's look at I talked before about.
And given examples.
Australia, which is a.
And on the truck.
Automated assistant.
And.
You know, it's all about being able to deflect.
Interactions form expensive channels like human person to less expensive channels like a book.
But obviously, if you force customers to go to the board and they can get the answers.
You are reflecting the conversation away from their human channels, but you are not creating the right level of customer experience.
So how effective is the bought in.
Did you think the right answers and clearly reflecting their call and successfully completion to successful completion.
It's definitely an improvement in technology.
And today AI technology is much more capable in.
You know understanding the intent of the consumer being able to provide contextual knowledge.
And respond in real time to.
Two consumer requests and therefore, there is a higher level of successful deflection away from more expensive channels.
So just one example.
The technology is improving and therefore applications not just check the box, but it's really customers really need to measure.
The purchase of an application is it really.
Delivering the expected ROI.
And are they able to measure now or are they starting to measure improvements in quality or maybe revenue generation because I'm assuming the <unk>.
Protiviti measurement you cited theres really just expense but.
Are they able to or are they starting to measure these sorts of things.
We provide in our software many more reports and metrics for our customers to measure.
So all the time, we added the ability to.
Our customers to decide which of the metrics are important in their environment and provide them.
Real time reports, so that agents can self correct real time reports for supervisors. So they can coach agents as well as trending reports to management. So they see the trends in productivity the trends in first quarter solution to trend inflection in the trend in.
NPS scores.
Yes, it's becoming more of a science and our software is definitely improving in terms of the.
Metrics reporting that we provide our customers.
So just lastly, I mean, it seems like.
It seems like the products fit almost sell itself to existing customers or is it just seemed very high churn in their call centers and impossible to hire new people and.
You have evidence on an incremental basis that you're having.
Having major positive impacts on them, but for lack of a better word I guess can you just.
Scribe, but that sales motion to existing customers.
Yes.
So I think that.
When you sell application platform again, he starts with identifying a business problem that our customers feel like they want to solve.
And you know some customers really don't know what they want to solve and they.
Consultants or.
Advisory firms system integrators to two two.
Decide what is the most important business problem, but where we're also supposed to come in as you know.
Discussing the different problems and discussing what is the potential.
And then.
You know being helpful to the customer to decide what is they're generally going to look like and.
So all of our customers have tens of thousands of employees.
As we discussed before that customer engagement is very labor intense.
So.
They are willing to decide what is the priority and how they want to.
Change.
Their change management internally in order to drive this alloy.
I think this is.
A number of things are changing now.
And our customers are responding well.
It's something that they need to absorb.
You know historically, we sold applications on a seat basis right 10 years ago, almost entirely and we sold the portfolio on a state basis, our cloud platform today, he's on a volume basis.
Because when we talk about like.
Iga and robotic.
Okay.
So you basically charged to customers by the volume the number of questions that consumers are able to.
Complete by asking.
The box and that's a volume based now.
Now what's interesting about that is that the more the customer shift.
The question is to the various solutions the more they pay very slight because they pay us by volume.
But if you think about it every.
They reflect form.
Voice channel a digital channel they save a lot of money.
That's basically a win win.
A decision they will pay very small, but they will pay other venture is much less and they will not have to increase their workforce.
So this is this is the discussions customers needs to decide okay. If our priority is call deflection.
We need to implement the sudden pathology and now we need to choose which of the vendors out there is going to be able to provide us the allied that we expect.
Very helpful. Thanks, so much everybody.
Sure.
Thank you and that is our last question I would now like to turn the call back to Matthew Frankel for closing remarks.
Thank you operator, and thank you everyone for joining us today.
Feel free to reach out with any questions you have.
We look forward to seeing is having.
Take care.
This concludes today's conference call. Thank you for participating you may now disconnect.
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