Q1 2023 Verint Systems Inc Earnings Call
Hello, Thank you for standing by and welcome to the Varian Systems, Inc. First quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please.
Be advised that today's conference maybe recorded if you require any further assistance. Please press star Zero I would now like to turn the conference over to your Speaker today, Matthew Frankel Investor Relations and corporate development director.
Thank you operator, good afternoon, and thank you for joining our conference call today I'm here with Dan Bodner, <unk> CEO , Doug Robinson, <unk>, CFO , and Alan Roden Garden, Chief Corporate Development Officer.
Before getting started I'd like to do.
Mentioned that accompanying our call today is a webex slides if you'd like the beauty side in real time during the call. Please visit the IR section of our website at <unk> Dot com click on the Investor Relations tab and click on the webcast link and select today's conference call.
I would also like to draw your attention to the fact that certain matters discussed on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095, and other provisions of 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 and forward looking statements are made as of the date of this call and except as required by law fair and 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 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 June 31, 2022, our Form 10-Q for the quarter ended April 32022, when filed and other filings we make with the SEC.
The financial measures discussed today include non-GAAP measures as we believe investors focus on 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> Dot com for a reconciliation of non-GAAP financial measures to GAAP measures non-GAAP financial information should not be considered in isolation from as a substitute for or superior to GAAP financial information.
Is 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.
non-GAAP financial measures. The company uses have limitations 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 strong cloud momentum in Q1.
With non-GAAP revenue and diluted earnings per share coming in ahead of our guidance.
In fact Q1 was strong across all key metrics.
<unk>, new <unk> bookings growth and mix.
As our bookings continue to shift to SaaS.
Looking ahead, we expect strong cloud momentum.
And are raising our annual guidance to cloud revenue growth.
By 200 basis points.
To a range of 32% to 34%.
Behind our strong momentum is a focus on helping brands.
Closed engagements capacity gap.
With a highly differentiated customer engagement cloud platform.
We believe the closing the capacity gap.
It's become more urgent for brands.
A result of recent macroeconomic conditions.
And wage inflation challenges in hiring.
As well as post pandemic heartbeat workforce dynamic.
On Thursday this week.
We will hold our annual Investor day.
We will discuss this new workforce realogy and <unk>.
<unk> deeper into our platform differentiation.
Which helps brands reduced cost and.
And elevate the customer experience.
Today.
Let's take a closer look at our Q1 results, including key cloud Kpis.
Our journey to the cloud continues to progress ahead of the plan.
Outlawed.
Well over a year ago at the time of the spin off of our security business.
Let's take a closer look at our Q1 cloud Kpis.
First cloud revenue increased by 38% year over year.
Driven by new logos customer expansions and strong cloud conversions.
Second our booking mix.
We continue to shift to the cloud with 58% of our new <unk> bookings.
Coming from SaaS compared to 51% in Q1 of the prior year.
The continued mixed shift suggest strong market adoption for our cloud platform.
Third new daily bookings increased 27% year over year, a great start to the year and well ahead of our annual targets.
Low double digit growth.
Fourth we had 26 cloud orders in excess of $1 million tissue.
It's the number of large enterprise customers shifting to the cloud continues to increase.
Our million dollar cloud orders.
Including some of the more notable brands in the world.
Such as Wells Fargo, Comcast Marriott and Zillow.
And finally <unk>.
During Q1, we continued to win many new customers and added more than 100, new logos.
Including the Goodyear Eastman chemical Kindercare education.
Sam Johnson University.
Yes.
Let's take a closer look at some of our competitive wins.
I would like to highlight three Q1 wins.
The first order for $15 million.
What from a leading insurance company that expanded its relationship with us.
Consolidated applications for multiple vendors onto the cloud platform and also converted is perpetual licenses with very into the cloud.
<unk> was selected to help this customer closed engagements capacity get we.
We believe that this large order was due to our strong relationships differentiated AI capabilities.
And our ability to drive significant ROI.
The second order for $3 million.
Was for a customer in the health care industry.
That is expanding its relationship with us by replacing another vendor with additional solutions in the various cloud platform.
We believe our open partnership strategy differentiated AI capabilities and platform scalability.
The key reason is we want this opportunity.
And a third win is a new logo for Berry.
Typically new logo start small and expand over time.
This win with relatively large for $2 million.
From a new customer in the banking industry.
The customer conducted a competitive process and we believe we were selected.
Due to our leading AI capabilities and to open scalable architecture of our cloud platform.
Behind these wins and our strong momentum is a cloud platform differentiation.
Our Investor day on Thursday, we will focus on what makes our platform differentiate it.
You will hear from multiple various executive.
And we will cover the forward topics.
Recent market trends and different opportunity to help brands closed engagements capacity gap.
Our strategy to increase differentiation and deliver even more ROI to customers.
Our cloud platform and a deep dive into variant da Vinci AI.
And finally, our financial model.
We think it will be a very informative session and hope that you can attend this event.
Next week we.
We'll hold our annual engage customer conference, which is also opened for investors.
At engage.
We will unveil numerous innovations across the platform.
I would like to briefly touch on two examples of our recent innovation.
To help brands closed engagements capacity yet.
The first one we call one workforce.
One workforce enables the entire customer engagement workforce across the enterprise.
To engage with customers in the right way at the right time.
Connecting workforce silos and.
And automating business processes.
With one workforce, we are helping people and box work together as a unified workforce.
To increase efficiency and elevated customer sentiment.
The second one is varying da Vinci AI.
Which is at the core of the Vantiv platform.
We are introducing very da Vinci AI capabilities as API services.
This means our developer community.
King of customers and partners.
We can now leverage various AI to develop unique functionality.
With our cloud platform, we're able to accelerate our pace of innovation.
Which we will showcase at engage.
Before concluding my prepared remarks.
I would like to briefly discuss our approach to guidance and investment in the current environment.
We are pleased with our strong start to the year with strength across all key cloud metrics.
We expect our cloud momentum to continue throughout the year and are pleased to be raising our annual outlook for cloud revenue growth.
Behind our guidance.
He is a strong start to the year combined with our cloud momentum.
And our recurring revenue visibility.
We plan to continue hiring and investing for the remaining of the year to support this growth guidance.
Beyond this year.
We believe we are uniquely positioned to grow long term.
As we help brands closed engagements capacity gap and deliver a strong ROI.
Now, let me turn the call over to Doug to discuss our financial results in more detail.
Doug.
Yeah, 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 non-GAAP financial measures include adjustments related to acquisitions.
<unk> fair value revenue adjustments amortization of acquisition related intangibles certain other acquisition related expenses stock based compensation expenses separation related expenses accelerated lease costs as well as certain other items that can vary significantly in amount and frequency from period to period.
For certain metrics. It also includes adjustments related to foreign exchange rates.
Dan mentioned, our Q1 results came in ahead of expectations.
Revenue growth came in around 5% or $218 million on a GAAP basis and $219 million on a non-GAAP basis.
non-GAAP diluted EPS came in at <unk>, 52 up 18% year over year.
We generated $54 million of cash from operations during the quarter up 43% year over year.
Regarding our stock buyback I'd like to mention that we completed our previously announced approximately 100 million buyback program.
Purchasing 2 million shares the maximum amount permitted to repurchase this year due to the tax free nature of the spin off.
In Q1, our cloud metrics came in strong across the board.
Cloud revenue increased 38% year over year.
We saw strength in both customers buying new cloud solutions as well as maintenance customers converting to the cloud.
<unk> bookings increased 27% year over year, well above our 10% to 12% target for the year.
58% of our new bookings came from SaaS compared to 51% in Q1 last year as our customers continue to shift to the cloud.
And the percentage of our software revenue that was recurring came in at 83% in Q1.
Turning to guidance for the current year ending January 31, 2023, let me start with three key metrics.
We're raising our cloud revenue guidance again.
We now expect cloud revenue growth of 32% to 34% up from our initial guidance of 30%.
We expect to $940 million of revenue for the year, reflecting 7% growth year over year at the midpoint of our guidance.
And we expect non-GAAP diluted EPS of $2 50.
<unk>, 10% year over year growth at the midpoint of our revenue guidance.
I'd also like to mention that while the dollar has been strengthening we've been able to absorb this within our guidance.
Now let me provide you with some additional information for modeling purposes for the year.
Starting with bookings.
We expect double digit new <unk> bookings growth in the range of 10% to 12% with approximately 65% coming from SaaS.
With respect to perpetual revenue as we transition to the cloud we expect it to decline to around $120 million this year compared to $138 million last year.
And with respect to our approximately $250 million maintenance base, we assume 15% to 20% will convert to the cloud this year.
Relative to margins, we see some modest gross margin and operating margin expansion for the full year.
Additionally, we expect our cash flow from operations to grow more than 20% this year.
Last year cash flow from operations was $180 million, excluding nonrecurring items and this year, we expect more than $215 million on the same basis.
This should drive our cash balance to around 400 million at year end and a net debt position close to zero.
As a reminder, we have $415 million of debt comprised of $350 million of convertible notes at a six 5% interest rate and.
And a $100 million term loan, which is our only floating interest rate exposure.
In a rising interest rate environment based on our current cash position, we expect the incremental interest income from our cash balances will be more than the increased cost of our floating rate debt.
Now, let's discuss some below the line assumptions.
For the remainder of the year, we expect around $1 $5 million per quarter of interest and other expense.
We expect about 300000 per quarter of net income from Noncontrolling interest we have in a small joint venture.
We expect an approximately 11, 5% cash tax rate for each quarter and for the year.
And we expect around $76 million of fully diluted shares flat with last year, reflecting the effect of our stock buyback program.
For modeling purposes in Q2, we assumed $225 million of revenue and 52 of diluted EPS.
Our Q2 outlook reflects a gradual increase in gross margin and operating expenses.
We believe that our Q2 outlook combined with our strong Q1 results give us a great start to the year.
Looking beyond this year, we believe we are well positioned for long term growth and at our Investor day on Thursday, we will discuss some of our assumptions with respect to our long term financial model.
Let me give you a summary of what we'll discuss.
First we will discuss our opportunity to gradually improve gross margins overtime.
We will review, how we are targeting non-GAAP gross margins to reach the mid seventies.
This is driven by an increase in recurring revenue, which in fiscal 'twenty two carried a 76% gross margin compared to 50% for nonrecurring revenue.
We will discuss our expectation that gross margins will increase modestly over the next few years and then increased faster as recurring revenue crosses 90% of total revenue.
And we'll also discuss cash flow from operations and while we expect strong cash flow generation over the next few years.
In summary, we're pleased with our strong cloud momentum. We're tracking ahead of our three year plan, we laid out last year and were raising our annual outlook for cloud revenue growth.
We expect total revenue growth to accelerate we expect our margins to gradually expand.
And we're generating strong cash flow and have a strong balance sheet.
Most importantly, we believe our cloud and AI differentiation positions us well for long term growth.
Operator, let's open up the lines for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Joe Your question, Chris the balance sheet.
Our first question comes from Peter Levine with Evercore you May proceed.
Yeah, Hi, guys. This is actually Peter Berkeley on for Peter Levine, Thanks for taking my questions here.
You guys mentioned, a couple of nice wins, I think within the insurance company and a health care company.
So there might be actually some overlap here, but just curious $5 nine on our last call highlighted that Barrett was a part of one of our largest deals to date without with an insurance company. So just curious.
If you could share with us.
How long it took to close that deal whether you gave away any concessions.
And how many of those do you end up getting.
Okay sure regarding the 509.
$40 million announced deals.
So none of this was booked by variant in Q1 for the numbers we reported.
It does not include the deal and this is not the win that we discussed.
We expect to book you still overtime.
Unable to discuss the specific scope and timing of the deal but.
I can say that this particular customer is already a very customer and we'll get the five lines. When variants is expanding also the application relationship with a customer or consolidating.
A number of different <unk>.
Our competitors into the Marin platform.
That's really helpful. I appreciate that color, maybe if I could just sneak in one more just.
Given the stronger USD just curious how much of an impact FX has not been on your guide and then maybe if you can just remind us how you price your contracts for customers outside the U S.
Yes, so I'll start and Doug if you want to give some more data but.
The guidance we gave today.
Basically absorbs the FX.
Changes that we saw in Q1, so it reflects everything that we know today.
And we are predominantly doing business in U S dollars, but we do have.
Some exposure to revenue, but also we have a hedge because we had a lot of our resources are outside of the U S as well.
Doug would you want to would you like to give more data on the mix up the mix of currencies.
Yes sure.
About three quarters of our revenue is in U S dollars.
Lisa quarter in other currencies, primarily euro pound from Australian dollar are the big ones.
So as the dollar strengthened from a translation purposes, it's going to hurt our top line and at current rates, it's probably about.
Close to $50 million of headwind, which we've absorbed into our guidance from a currency perspective, but as Dan mentioned.
Since we operate internationally, we have a lot of expenses in those currencies as well.
So.
That $50 million of headwind translates to.
Queen.
$5 million of million maybe of op income.
In a year if things were to play out our current rates.
So I think from a earnings perspective.
Okay with respect to the foreign exchange movements, but it just creates a little bit of a kind of top line reporting headwind for us.
That's helpful color. Thank you both.
Sure.
Thank you. Our next question comes from somewhat Simona with Jefferies. You May proceed.
Hi, good evening, it's good to see the solid results maybe first one.
Yes, Doug I think you mentioned in terms of the outlook for conversions being 15% to 20% can you maybe just help us understand how much visibility you have into that is that based on the company's efforts is that based on interests that are indications from customers. Just how should we think about that range that you gave.
Yes.
Give the strategy for conversion.
Can give the numbers because I think I think it's important to understand how we.
Drive conversions with our customer base. So our strategy is to provide our customers the flexibility.
To move to the cloud regardless of the conversion of the legacy solutions. So so what does it mean it.
It means basically that customers can buy new functionality.
That we have in the various platforms that can buy that in the cloud.
Regardless of whether they want to maintain the legacy solutions on Prem, they're ready to move their legacy solutions to the cloud so the.
The architecture of the platform allows them to.
Consume the new functionality and obviously everyone is interested in moving up.
So that can consume new functionality already in cloud and.
When you look at.
Our 38.
Solid growth in cloud revenue last year.
Two thirds came from selling new functionality, but also some of it to customers that didn't want to move to the cloud with the legacy.
And so a third came from.
Customers actually are taking legacy solutions and moving them to be hosted by vertical the cloud and two thirds came from expansions new logos anything to deal with.
Innovation and not worrying about.
What are the legacy on Prem.
Doug do you want to add.
Yes, no I think you covered it I would just say that through last year about 20% of our maintenance base had converted.
And this year, we're kind of dialing in maybe another 15% or so.
And our numbers.
Yes.
I guess just to follow up again is that when you are.
The 15% that you're dialing up is that because the customers of like.
Why that number right at the customers, indicating that they are willing to move or is that just kind of the estimate based on what you've already seen.
It's really based on discussions with customers.
Some of them are indicating that they're going to move this year.
Looking for next year or even the year after software customers.
Our multiyear strategy that is.
Based on.
Our strategy is bigger than what various delivery, what's the overall strategy to move to the cloud.
Phases.
So we are part of their strategy and we're able to kind of dial that into our outlook.
But you can see that.
That said, we have 65% of our.
New bookings will be and such this year, that's our projection.
55% of our revenue will be in shock in cloud.
And only <unk>.
35% will be as a result of conversion the 20% as Doug mentioned, we already have last year and 50% we expect this year.
So that debt.
That lagging the fact that customers don't really feel like they need to rush with variant because they are not dependent on the conversion in order to benefit from innovation.
We have the modules that they're born in the cloud and the modules. They keep on plan on network and to have all of the integrations they need to run them as one platform.
I guess the way you would you would need to understand that our strategy is not to put pressure on customer to convert something that already works, but to offer them innovation. So they can move into.
Into the future was variant and obviously the future is more AI automation of business processes.
Great and then maybe just a follow up.
Building on the prior analyst.
I know you guys talked about the guidance reflects what youre currently seeing but I am curious are you seeing any change in deal cycles or the number of people involved in it.
Approval is just anything in real time that reflects maybe the greater volatility at least that we're hearing about in the world.
Just curious what customer feedback is and what you are saying.
Yes.
I think we have we see any any change at this point, we saw more than 100, new logos also in Q1.
So there's clearly customers that are buying something that they need and it's very.
<unk>.
Obviously, new logos are competitive.
So we are able to win.
Not any material change in terms of the bank buying pattern.
But clearly focus when it comes to our category, which is business applications that the focus has been on state aid.
And that's how we sell.
And I want to I want to remind you that we did talk I think it was couple of quarters ago, We had a forrester study ongoing customers that.
They interviewed our customers and concluded that the alloy was 391% and the payback was less than six months.
So we've always been kind of focusing on our OE driven sale process and I think now perhaps customers are even more focused on ROI.
But it's not a major change from our perspective.
Great. Thanks for taking my questions.
Thank you. Our next question comes from Ryan Macdonald with Needham You May proceed.
Alright, Thanks for taking my question and I'd be curious as you're as you're looking at the environment. Currently you talked about expectation for 15% to 20% migration, but.
When you talk to customers are you seeing a sort of a shift in demand or a preference for micro full migration given the current state of the market versus <unk>.
Just a continuation of bolting on additional cloud applications on to their existing legacy infrastructure.
I think that what customers tell us that look what we have is working and as long as our data centers.
Not fully depreciated, we don't have to invest in building a new data center.
This is not a priority we're not going to get.
Tremendous ROI, sometimes when they move to the cloud with.
With legacy just saving there.
It personnel and so on but theres not theres not a bigger ROI.
Such as what would they look.
Looking to get from innovation.
So usually focus is.
We have been disruptive to customers and say look we have been disrupted by digital.
There is clearly more interactions we can hire because the labor spend is huge and also it's hard to find people and train them and then there is attrition in remote and hybrid workforce dynamics. So everything is kind of getting.
Very challenging for our customers in managing this very large labor.
So they definitely want to.
Increased automation by introducing more box.
But then defined defined at the bots are operating as a silo. So they really need one workforce of people and bots working together, so thats more automation in terms of the business processes to get knowledge shared between people and box and get.
In channel information, so that when the market stock person can take over and continue all these things we didn't have in our legacy solutions.
For customers to benefit from all this innovation that we offer to the market today. They know they have to go to the cloud because we don't offer if I'm correct, we only offer the new innovation.
SaaS.
But as long as we're able to connect what they have on Prem.
<unk> is new.
We take the pressure off I need a big project I need to disrupt myself and I have to move everything or else I can't I can't move forward.
So this is a big big plus especially for very large customers in.
Great.
They want innovation, but I also cannot afford to disrupt.
The operations and we allow them to do that in a more organized and planned way.
So.
It's been working well for us.
I don't I don't know, if theres going to be acceleration in conversion.
I don't see reason because there is no pressure, but we do see acceleration.
In cloud overall, both in terms of booking in Q1, we.
We had a tremendous 2007% growth in new bookings.
And the shift to SaaS. So clearly there is a.
Strong demand for SaaS solutions, but not necessarily.
The legacy <unk>.
SaaS.
With urgency.
That's really helpful color and then maybe as a follow up great to see another quarter of a 100, new logos onto the platform.
Can you talk about what modules are driving the continued strong new logo adoption, whether they wait towards sort of some of the <unk> solutions versus the CX solutions.
Yes, no that's very interesting and we are obviously monitoring that very carefully because what we see and we talked about it is the engagement capacity gap. So.
Let me just.
Quickly.
Explain.
Why is that important.
To respond to your question.
GAAP is based on the fact that.
With the increase in the <unk>.
<unk> channel the number of interactions with the complexity.
The workforce.
Clearly.
They need more capacity.
And the capacity can be either.
In terms of hiring people.
Or in terms of buying new AI based solutions are the two options that customers have.
If they don't increase capacity they are going to start to lose customers because of poor customer experience and very low customer sentiment. So.
Our CX portfolio is very much integrated with our Wi Fi portfolio.
One platform, which means you have to continuously measure the customer experience because as you make changes in operation.
It affects the customer experience and you need to really in real time figure out what was the good changes and what would the bat changes can make.
Adjustments and Thats. The only way you can you can introduce changes, which will reduce cost but at the same time ensure that you've got some experienced stay high.
So both are very much together and we see new logos are very excited about our ability to connected to things because as you know, mostly we compete with point solutions that are not connected into one platform.
And there are solutions that can measure customer experience and provide you an indication of customer start to adapt or NPS score went up but why is it going up why is it going down and how you can affect change and how can you change things in real time.
In your workforce processes.
Thats not connected to.
The workforce.
<unk> solutions.
So new members are interested in that combination that we have in the platform because thats the best way to actually close the capacity gap.
We just cost but also at the same time elevate the customer experience.
Thanks for the color and congrats again.
Thank you. Our next question comes from Tim Horan with.
Oppenheimer you May proceed.
Thanks, guys two qualitative questions I know that you won't have definitive answers, but can you just talk about the quality of the product.
AI and ability to implement AI in.
And your customers I guess ability to take advantage of it now versus maybe you were where you were a year ago or two years ago like how much of an improvement that we've seen and then secondly on the bookings front can you just characterize the overall demand environment and I know the bookings are up really really strong but.
Have you seen this type of growth before and maybe is that continuing into the into the quarter. This quarter. Thank you.
Yes.
AI is clearly.
Okay.
Feel that the future of customer engagement.
When you think about the technology spend and customer engagement at $65 billion a year.
That's a big number clearly.
Customer engagement industry acknowledged technology is critical.
But but.
In addition to the 65 billion.
Panel technology, the industry spending two trillion dollars on labor.
So now when you think about that 97% of the investment is in labor and 3% using technology.
And we said incremental AI.
That can obviously.
Reduced to 97% of cost that's a tremendous opportunity for the industry and that's why very very passionate about.
Closing the capacity gaps and this is our.
Very focused focused objective after the spin is really we are focusing on this one thing introducing an AI powered platform too.
To help customers close this gap.
Not not have to deal with the 97% of the cost keep increasing because the industry the industry needs to hire more people.
So.
That's the role of AI and why it's important.
What's the state of AI.
I think that.
What many.
Brands are trying to do now is to deploy AI.
In a very poor way and and it's not that easy to blame the AI, it's really how it's deployed and how it's connected or not connected to the rest of the workforce because.
I cannot be a silo.
My own personal experience I tried to call.
The vendor and I got it I got a box and the board asked me 20 different questions, which I am sure. It very patiently and then bulk got stuck.
So I try to ask for an agent which.
Which I didnt get and after several attempts to book basically responded. This service is not available in this channel.
Which means that the boss doesn't even want to acknowledge that they are not able to.
Bonds and connecting it to our person.
That's not a good implementation of AI.
Maybe ask Mark as they wanted to be but I will need to call an agent and I hate to answer defence for any questions again, which would be a waste of time and definitely a source of frustration.
So.
The real issue is AI cannot be deployed silos and what we did with the platform.
And I mentioned that as one workforce and we will go through more details obviously on Thursday at our Investor Day, and also joined engage next week across from a conference and introduce what is one workforce, how we actually break down the silos and create a unified workforce, which is a huge source for increased capacity flexibility and agility.
<unk>.
And.
That's the correct way to implement AI, which is to infuse AI through business processes processes to automate business processes.
And companies need to really focus on customer engagement specific AI, it's not a generic AI.
That can.
It can be implemented in in finance and HR.
Op type of solution because.
The customer engagement industry have very unique processes that need to be automated.
And.
We are able to do that bike by putting da Vinci, which is our AI engines at a quarter platform. So we can infuse AI through every application that we sell and customers can actually.
Benefits will not just when they implement the bulk but in any business process when they when the schedule when the higher when they do quality monitoring.
Any of the biggest processes needs to be infused with AI and thats, where they are having different collateral.
Great I'm looking forward to Thursday, and this just qualitatively on the overall demand environment.
So at this point, we definitely are.
Looking in monitoring the macro environment to see if there is an impact on.
The customer engagement industry.
We haven't seen any any any impact that we can report at this point.
We we have variant we lived through recessions before.
We definitely have the experience how to manage the company recession. We know we have very sticky software. So our renewal rates are pretty high during recession.
And.
And customers continue to focus on ROI and sometimes even more so we definitely already are very focused on ROI and using AI to automate.
But we haven't seen any any science other than what <unk> reported.
FX moved in in Q1, but we absorbed that Heathrow into our guidance and our guidance reflected reflecting the current spot rates.
We haven't seen any anything that we can report today.
Very helpful. Thank you.
Thank you and as a reminder to ask a question you will need to press star one on your telephone. Our next question comes from Brian Essex with Goldman Sachs. You May proceed.
Hi, This is Charlie <unk> on for Brian .
Hoping you can talk about spending.
Spending patterns across your verticals, what are where are you seeing the most traction.
So we we don't have a vertical strategy.
Because we have the leading vendors in all of them.
In every vertical that has customer service.
We have developed over time.
Specific offerings for vertical so.
Just to recap for everyone.
Various has 10 of the top 10 banks event as customers nine of the top 10 insurance companies as customers.
Eight of the top healthcare companies.
Customers and so on in retail and so we have the leaders in each vertical.
And the reason why this is important.
To your question is.
A lot of the AI to my previous.
AI discussion.
AI is as good as the data that you have to develop the AI models.
And we have been working with this customer for two decades and have been enjoying.
Access to the data.
And developing AI models.
Most are perfected ongoing in a cloud.
We get more data and new data, we haven't seen learning that learn those patterns and improve the AI and what we've what we noticed is that in different verticals. There is some differences.
Alright.
In the data to drive different AI mode. So and that's interesting because you would think that customer service is customer service. So it doesn't really matter.
Which industry, but in each industry. There are nuances there is some difference in language models in terminology and sometimes.
In service offerings. So we are able working with the leading companies in each industry and you think that data we are able to continuously.
We find our offering to the different interest rates.
Great. Thanks, and then.
Have you seen any impact from wage inflation or people looking looking to you all to try to bridge that gap or do you think it's more.
Our future capacity gap that you could ultimately.
Phil.
Yes.
Our customers really are.
Struggling now with wage inflation combined with high attrition.
Q2 higher they really.
Looking for hiring tools, and we introduced last quarter in new hiring AI based hiring tool to improve the hiring process.
And also people working from home in the new hybrid environment and they need they need coaching they need real time assistance at home. So there's a lot of changes at the pandemic and now the wage inflation combined.
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All causing to our customers' wage inflation is one of them and and Thats whats, causing people to want to want to deploy more box right because they feel like they can deal with the growth in interaction by hiring more people.
And it's hard.
Both are really very much in favor, but as I mentioned before.
If some customers deployed many bonds they start to see that they are working in silos and now they are looking for tools to connect the Boston people into one workforce.
Great. Thank you very much.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Matthew Frankel for any closing remarks.
Thank you operator, and thank you to everyone for joining us today.
Binder.
I hold a virtual investor day.
To date in the next week.
On the 14th we invite you to come down to Orlando, Florida, Our engage conference Tomorrow.
For more information on that please proceed with your Kathleen.
I guess, maybe my thanks again for joining us and have a good night.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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