Q4 2023 Verint Systems Inc Earnings Call
Speaker 1: I.
Speaker 2: systems fourth quarter 2023 earnings conference call. At this time all participants are in listen only mode. After the speaker's presentation there will be a question and answer session. To ask the question during the session you would need to press star 11 on your telephone.
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Speaker 2: I would now like to hand the conference over to Matthew Frankel. Frankel, you may begin.
Speaker 3: Thank you, operator. Good afternoon and thank you for joining our conference call today. I'm here with Dan Bodnar, Varens CEO , Grant Highlander, Varens CFO , and Alan Roden, Varens Chief Corporate Development Officer.
Speaker 3: Before getting started, I'd like to mention that accompanying our call today is a slide presentation. If you'd like to view these slides in real time during the call, please visit the IR section of our website at Varen.com, click on the investor relations tab, and click on the webcast link and select today's conference call.
Speaker 3: 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 of 1995 and other provisions of the Federal Securities Clause.
Speaker 3: These forward-looking statements are based on management's current expectations and are not guaranteed the future performance. Actual results could differ materially from those expressed in or implied by these forward-looking statements.
Speaker 3: The forward-looking statements are made as of the date of this call and as accepted as required by law. Verne has seen no obligation to update or revise them.
Speaker 3: Investors are cautioned not to place undue reliance on these forward-looking statements.
Speaker 3: For more detailed discussion about these and other risks and uncertainties could cause various actual results to differ materially from those indicated in these four other statements, please see our Form 10-K for the fiscal year and the January 31, 2023, one filed, and other filings we make with the SEC.
Speaker 3: The financial measures discussed today include non-GAAP measures, as we believe investors focus on those measures in comparing results between periods and among peer companies.
Speaker 3: Please see today's slide presentation, earnings release, and the investment relations section of our website at BERENDS.com for a reconciliation of non-GAAP financial measures to GAAP measures.
Speaker 3: non-GAAP financial information should not be considered an isolation problem as a substitute for or superior to GAAP financial information, but is included because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes.
Speaker 3: The non-gas financial measures the company uses have limitations and may differ from those used by other companies.
Speaker 3: Now, I'd like to turn the poll over to Dan. Dan? Is Danduke Y a
Speaker 4: Thank you, Matt.
Speaker 4: I'm pleased with our non-GAAP revenue and diluted EPS coming ahead of our guidance.
Speaker 4: Our results were driven by strong SAS momentum.
Speaker 4: and our class platform delivering differentiated CX automation.
Speaker 4: Today I will discuss our results various differentiated platforms.
Speaker 4: the market environment in our guidance.
Speaker 4: I will also report on our multi-year such transition.
Speaker 4: which is tracking ahead of the plan that we laid out two years ago at the time of the spin.
Speaker 4: As we are approaching the substantial completion of our SAS transition next year,
Speaker 4: Today we are introducing an additional SAS operating metric.
Speaker 4: That's a all
Speaker 4: Let me start with reviewing our fiscal 23 results.
Speaker 4: Last revenue which is a key growth driver
Speaker 4: Increased 38% in fiscal 2013.
Speaker 4: on a non-GAAP constant currency basis. This class momentum drops down, requiring revenue growth.
Speaker 4: In a total non-gap revenue came in five million dollars ahead of guidance
Speaker 4: As you know, our return revenue generates much higher gross margin.
Speaker 4: the non-recalibrated
Speaker 4: And as our revenue mix continues to improve,
Speaker 4: A gross margin expanded approximately 100 bucks.
Speaker 4: The growth margin expanded approximately 100 bits in fiscal 2013.
Speaker 4: Consistent with our guidance on fire calls,
Speaker 4: Our financial model assumes EPS going faster than revenue
Speaker 4: and I'm pleased with fiscal 23 eluded EPS increasing 11%
Speaker 4: on a non-gap basis.
Speaker 4: A multi-year thrust transition is going well.
Speaker 4: Since becoming a fuel-play customer engagement company two years ago,
Speaker 4: We've delivered steady quarterly revenue growth.
Speaker 4: with annual SaaS revenue nearly doubling since the spin.
Speaker 4: The success of our self-position
Speaker 4: The success of our SAS transition is due to several factors.
Speaker 4: First, we offer customers a broad portfolio of best-of-breed applications
Speaker 4: providing them CX automation
Speaker 4: To help brands close their engagement capacity gap
Speaker 4: Back in.
Speaker 4: Our cloud platform is open with data and variant DaVinci AI at the core.
Speaker 4: I will elaborate on our platform differentiation a little later.
Speaker 4: And third our open and partner friendly approach is resonating well in the market
Speaker 4: Both with end customers.
Speaker 4: and with existing NU partners.
Speaker 4: As we progress with our SAS transition, our recurring revenue has been steadily growing faster than total revenue.
Speaker 4: over the last two years
Speaker 4: The current revenue is increased close to 10% each year on a constant currency basis.
Speaker 4: increased close to 10% each year on a constant currency basis. Last year
Speaker 4: We reported that we had crossed the midpoint of our SAS presentation
Speaker 4: and for the full year we delivered 86% of our non-GAAP software revenue as recurring.
Speaker 4: up from 81% two years ago.
Speaker 4: As previously discussed, we defined the substantial completion of our such transition as when 90% of our software revenue is derived for recurring sources.
Speaker 4: We are targeting reaching the substantial completion of our staff transition next year in fiscal 25.
Speaker 4: Grants we'll discuss later how we expect completing our such position will accelerate our overall revenue growth and free cash flow growth
Speaker 4: overtime.
Speaker 4: We continue to evolve our disclosure with an additional PureSAS operating metric.
Speaker 4: And today we're introducing SAS ARR or annual recurring revenue
Speaker 4: SAS ARR has been growing at more than 30% CAGR over the last two years
Speaker 4: and reached a milestone of approximately $500 million.
Speaker 4: the milestone of approximately 500 million dollars in the year we just completed.
Speaker 4: There are four factors behind a strong AR growth.
Speaker 4: The first one is expansion.
Speaker 4: Our large customer base continues to expand with variants.
Speaker 4: And we expect this trend to continue as a cloud platform makes it easier for customers to add capacity and functionality.
Speaker 4: The second factor is customer-based conversion.
Speaker 4: Many customers have already converted their perpetual maintenance contracts to SAS and we expect this trend to continue.
Speaker 4: The third factor is winning new logos.
Speaker 4: In both fiscal 22 and fiscal 23, we won more than 100 new logos every quarter.
Speaker 4: due to strong innovation in our platform.
Speaker 4: And lastly, our mission critical IOR solutions
Speaker 4: Are driving strong with your race?
Speaker 4: which contributes further to our strong ARR growth.
Speaker 4: In summary, we are pleased with our supplementing across these four factors.
Speaker 4: and with achieving a scale milestone
Speaker 4: of nearly half a billion dollars of SAS ARRs. Behind a strong SAS Revenue growth,
Speaker 4: is the rapid innovation we deliver in the BEREN platform. Our platform is unique in the market and I would like to highlight several areas providing us with strong competitive differentiation.
Speaker 4: First, the platform is completely open, unlike many of our competitors.
Speaker 4: And it easily fits into the customers existing ecosystems in fact our message to customers is focused on Bring your own telephony and bring your own CRM
Speaker 4: The benefits for customers of this approach are clear.
Speaker 4: They can choose to keep their existing Telephony or CRM solutions
Speaker 4: or choose to purchase new from the many vendors that offer these solutions
Speaker 4: Either way, customers can easily connect their choices to VARIN's platform.
Speaker 4: and quickly deploy the CX automation benefits our platform provides.
Speaker 4: In addition to OpenHAT
Speaker 4: Customers benefit from the engagement data hub.
Speaker 4: and variant DaVinci AI at the core of the platform.
Speaker 4: Today, customers realize that data and AI are core to achieving their strategic objectives.
Speaker 4: to elevate customer experience.
Speaker 4: with lower operating costs
Speaker 4: Where individual AI powers the platform with state-of-the-art AI morals.
Speaker 4: including unique morals developed by variants
Speaker 4: as well as OpenAI models. In that regard, in Q4, we already had a first customer purchasing variant of Kingsley,
Speaker 4: with chat GPT embedded
Speaker 4: just GPT embedded to achieve automation of call summaries.
Speaker 4: The variant platform supports a broad set of best-of-breed applications
Speaker 4: and customers can start anywhere and deploy CX automation capabilities in the chronic centers and across the enterprise.
Speaker 4: Also, the platform design is partner friendly.
Speaker 4: so the platform design is partner-friendly and supports cloud-to-cloud connectivity.
Speaker 4: This capability makes it easy for resell partners and system integrators to use the system integrator.
Speaker 4: To add value for the end customer by connecting the very cloud platform with solutions running in other clouds
Speaker 4: Let's turn to our Q4 results in recent market environment
Speaker 4: In Q4, non-GAAP revenue and diluted EPS
Speaker 4: came in ahead of our expectations with record high growth margins.
Speaker 4: The revenue overachievement was primarily due to several deals were originally expected to close in Q1
Speaker 4: It came earlier before the year end
Speaker 4: The competitive differentiation of our platform continues to drive many customer wins.
Speaker 4: including expansions and new logos.
Speaker 4: in Q4 we had many large SAS orders
Speaker 4: including some of the more recognizable organizations in the world.
Speaker 4: such as financial services provider Barclays.
Speaker 4: such as financial services provider Barclays, media company DirecTV
Speaker 4: An airline easyJet.
Speaker 4: For the year, we had more than 100 such deals.
Speaker 4: with a TCD of $1 million plus.
Speaker 4: up more than 15% year-over-year
Speaker 4: up more than 15% year over year. In addition, we continue to win many new logos.
Speaker 4: including the telecom company Juniper Networks.
Speaker 4: and financial institution, Farmers Merchant Bank.
Speaker 4: For the year we added more than 400 new logos.
Speaker 4: including more than 100 new logos every quarter.
Speaker 4: Our open and flexible platform is also attracting new partners that are reselling the variant platform.
Speaker 4: And we recently announced new reselling partnerships with Google Carasoft and Tech Mahindra These three companies signed a variant reseller agreement
Speaker 4: and we are enabling their Salesforce to sell the very platform.
Speaker 4: We generate approximately 50% of our annual revenue from partners
Speaker 4: and expect our partner ecosystem to continue to grow.
Speaker 4: Due to the strength of the variant platform
Speaker 4: and a partner-friendly strategy Let's take a closer look at three large seven and eight digit SAS wings in Q4
Speaker 4: The first order for $16 million dollar CCV
Speaker 4: was from a leading healthcare company. This customer is expanding its relationship with variant.
Speaker 4: to more applications and to additional areas of its enterprise due to our platform's scalability and openness.
Speaker 4: The second order for $4 million DCV
Speaker 4: was from a leading company in the transportation industry. This large European company chose our such platform.
Speaker 4: given the strong ROI the platform offers and our AI differentiation.
Speaker 4: And the third order for two million dollars DCV was from a leading insurance company
Speaker 4: This customer decided to move to the cloud. We see X applications first.
Speaker 4: while keeping their existing telephony system on trend.
Speaker 4: We believe our platforms open us.
Speaker 4: and our differentiated AI capabilities were key drivers of the customer's decision.
Speaker 4: continue to win many large orders and new logos.
Speaker 4: We are also seeing a change in the market environment and buying behaviors.
Speaker 4: Here are a few examples of behaviors we noticed in Q4.
Speaker 4: We saw some buyers slowing down conversion views.
Speaker 4: They continue to be engaged with us and plan to convert
Speaker 4: But given that variant software is already deployed in their operations
Speaker 4: And given that variant software is already deployed in their operations, they are taking more time to move forward with the conversion.
I also noticed several deals that came in with a reduction in scope.
If customers push out budgets
And awarded us smaller deals than originally anticipated Having said that,
We also notice the opposite behavior.
also notice the opposite behavior as some views that we expected in Q1
arrived earlier and drove a revenue overachievement in Q4. Grants will discuss later the booking trends and the booking assumptions and the
underlying our guidance for fiscal 24. Turning to our guidance for fiscal 24, we expect another year of strong SAS revenue momentum.
our guidance for fiscal 24. Turning to our guidance for fiscal 24 we expect another year of strong SAS revenue momentum with 25% to 30% growth.
We expect another year of double digits, recurring revenue growth of around 10%.
and we expect another year of gross margin expansion.
driving diluted EPS growth faster than revenue growth
Overall, very such business as which scale
And it's driving strong growth with improving margins
Looking beyond fiscal 24, we believe we are well positioned to sustain our SaaS momentum over many years.
BERNS platform delivers CX automation solutions.
DX automation is important to our customers.
And we believe that brands are spending two trillion dollars annually on labor costs
And we believe that brands are spending $2 trillion annually on labor costs and are seeking vendors like variants.
that can help introduce to their workforce new automation tools.
to their workforce new automation tools while elevating the customer experience.
helping brands to address their very large labor costs with automation in the significant long term opportunities for variants.
In summary, I am pleased with the strong SAT momentum since the spin two years ago and the opportunity to sustain this momentum over many years.
Now let me turn the call over to Grant to discuss the financials in more detail.
Grunge? Thanks, Dan. Good afternoon, everyone. Our discussion today will include non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available, as Matt mentioned, in our earnings release and in the IR section of our website.
Differences between our GAAP and non-GAAP financial measures include adjustments related to acquisitions, including fair value revenue adjustments, amortization of acquisition-related intangibles,
certain other acquisition related expenses, stock based compensation expenses, separation related expenses, accelerated lease costs, IT facilities and infrastructure realignment, as well as certain other items that can vary significantly in amount and frequency from period to period.
For certain metrics, it also includes adjustments related to foreign exchange rates.
Similar to last quarter, given the significant appreciation of the US dollar this past year, I will be discussing certain results on a constant currency basis to help you better understand our operational performance.
non-GAAP revenue for Q4 came in at $237 million, $5 million above our prior guidance.
For the year, it was $905 million, an increase of 5% year over year on a constant currency basis.
non-GAAP recurring revenue came in at $186 million, and for the year it was $689 million, up 10% year-over-year on a constant currency basis.
Driving our recurring revenue growth was our strong SAS revenue growth, up 38% for the year on a non-GAAP constant currency basis.
I would like to break down the sources of our 38% non-GAAP SaaS revenue growth last year on a constant currency basis between new deals and conversion deals.
In fiscal 23, fast revenue grew 23% year over year as a result of new deals on a constant currency basis.
New deals primarily come from expansions and also include new logos.
In Fiscal 23, SAS revenue grew 15% on a constant currency basis as a result of converting deals from our perpetual customers migrating to SAS.
We believe that these growth drivers will remain intact for many years and will enable us to sustain strong SAS growth long term. Throughout the last year we experienced the sequential improvement in gross margins each quarter.
Our recurring revenue generates much higher gross margins than our non-recurring revenue, and our recurring revenue growth has been driving gross margin expansion.
In Q4, we achieved a non-GAAP gross margin of 71.5 percent, and for the year, we achieved 100 basis points of expansion, with our non-GAAP annual gross margin reaching 70 percent.
Our non-GAAP recurring revenue gross margin has already improved to the mid to high 70% range due to the scale of our SAS operations. And going forward, as our revenue mix continues to shift toward SAS, we expect total gross margin to move higher.
Turning to earnings, in Q4 we delivered 75 cents of non-GAAP diluted EPS up from 57 cents in Q4 of the prior year.
Our strong Q4 earnings was driven by our SaaS revenue growth combined with gross and operating margin expansion.
For the year, non-GAAP diluted EPS grew 11 percent faster than our revenue growth.
Moving forward, our goal is to continue to grow our non-GAAP EPS faster than revenue through margin expansion driven by our SaaS transition and our proven ability to manage costs including with the natural foreign currency hedge we have.
As Dan mentioned earlier, as we approach the completion of our SaaS transition, we are pivoting from transitional SaaS metrics to traditional SaaS operating metrics to help investors better understand the momentum underlying our business.
And today we are introducing SAS Annual Recurring Revenue, or SAS ARR. SAS ARR represents the annualized quarterly run rate value of active or signed SAS contracts as of the end of a period.
We use SAS ARR to identify the annual recurring value of customer contracts at the end of a reporting period and to monitor the growth of our recurring business as we shift to SAS. We believe SAS ARR is an appropriate metric at this time.
given a majority of our software revenue now comes from SAS. Our SAS ARR has been growing at more than a 30% CAGR over the last two years and in Q4 we were pleased to achieve a significant milestone of approximately 500 million of SAS ARR.
Looking forward, we expect continued strong growth in SAS ARR in Fiscal 24 and beyond.
Turning to new SAS ACV bookings, we delivered 102 million in fiscal 23, representing 11% growth on a constant currency basis.
New SAS ACV can fluctuate quarter to quarter based on the timing of new deals and conversions.
In fiscal 23, we had small quarterly fluctuations and averaged about $25 million of new SAS ACV bookings per quarter.
During our last earnings call, we discussed the strong pipeline for conversion and expansion deals that we were expecting to close before year-end.
Looking back at Q4, we noticed changes in buying behavior and are now expecting new SAS ACV to grow approximately 11% in Fiscal 24, similar to the growth we experienced in Fiscal 23.
I'd now like to discuss our guidance for the current fiscal year ending January 31st, 2024.
For the year, we are adjusting our revenue guidance to $935 million, plus or minus 2%, to reflect the overachievement in Q4 from deals that we originally expected in Q1 but closed before year-end, as well as the trends we've discussed today.
We expect another year of double-digit growth and recurring revenue with a decline in non-recurring revenue.
This translates into about $755 million of recurring revenue and about $180 million of non-recurring revenue for the year.
Behind our strong recurring revenue growth is an expectation for continued strong SAS revenue growth of between 25 and 30 percent.
As we discussed earlier, we expect gross margin to expand by about 50 basis points and operating margin a little faster. And for diluted EPS, we expect $2.65 at the midpoint of our revenue guidance.
discussed earlier, we expect gross margin to expand by about 50 basis points and operating margin a little faster. And for diluted EPS, we expect $2.65 at the midpoint of our revenue guidance. Regarding below-the-line assumptions...
We expect interest and other expense on average of $750,000 per quarter. Net income from a non-controlling interest we have in a small joint venture should be about $200,000 per quarter.
Our cash tax rate should be about 10% and we expect around 75 million fully diluted shares outstanding. Let me also discuss how we see the year progressive.
For recurring revenue, we expect about $170 million in Q1, with sequential growth of about $10 million in Q2, another sequential increase in Q3, and to finish the year with our typically strong Q4. For non-recurring revenue, which includes perpetual licensing, we expect about $1.5 million in Q1, with sequential growth of about $10 million in Q3, another sequential increase in Q4,
year. The fact that non-recurring revenue stepped down in the middle of last year will make for tough revenue comparisons in H1.
For OPEX, we expect Q1 to be similar to Q4 of Fiscal 23. We do not plan to increase headcount this year and therefore expect to maintain that level of OPEX for the full year.
These assumptions drive approximately $215 million of total revenue for Q1, consisting of $170 million of recurring revenue reflecting 6% year-over-year growth.
and $45 million of non-recurring revenue compared to $59 million in Q1 of last year. These assumptions also drive around 45 cents of diluted EPS in Q1.
Turning to our balance sheet.
We continue to be in a very good financial position with a strong balance sheet and cash flow generation.
For Fiscal 23, we generated $190 million of cash from operations, excluding one-time items, primarily associated with office lease terminations as part of our Workplace Reimagined program.
We expect cash flow from operations to continue to grow as we complete our SAS transition. On our last earnings call, we announced the $200 million buyback program.
Since announcing the program, we have repurchased 41 million worth of shares, 24 million in Q4 and 17 million so far in Q1. In summary, our SAS transition has been going very well and we are tracking ahead of the plan we laid out two years ago at the time.
a half a billion dollars of SAS ARR.
Looking forward, SAS growth is our key success metric, and we are targeting to sustain strong SAS revenue growth long term for the following reasons.
First, our highly differentiated platform is resonating well in the market, both within customers and with partners.
Second, we have a large customer base that continues to expand with Verint. Third, we continue to expand our ecosystem as resellers are attracted to our open platform because it provides them an opportunity to build value-added services around our offerings.
And finally, we have a significant revenue uplift opportunity from converting our customer base to our SaaS platform.
We estimate that the conversion uplift opportunity still ahead of us is very large, in the order of magnitude of several hundred million dollars.
Overall, we expect to sustain strong SAS revenue growth in Fiscal 24 and beyond.
With that operator, please open the line for questions.
Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and then wait for your name to be announced.
To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Our first question comes from the line of Timothy Horan with Oppenheimer. Your line is open.
Thanks guys. Can we talk about AI in a little bit more detail? Can maybe compare and contrast what ChatGPT compares to your legacy AI and maybe what new opportunities and risks it represents and it's something you're able to deploy relatively quickly.
an existing customer. Can you maybe just elaborate a little bit more on that and how important is your legacy data and operations to basically being able to leverage Chat
Okay, thank you for the question. Clearly AI is going to play.
a very important role in the future of customer engagement industry. But different vendors are approaching AI very differently.
So, you know many cloud platform vendors approach AI with a focus on deploying bots
And of course variant is different. We are focusing on sex automation. And with sex automation AI is critical and we're taking a much broader point of view on how to use AI across the platform.
So the underlying approach is that we believe that brands are looking for tools to make their products better.
that enable people and bots to work together to achieve the productivity and to elevate CX. And that's very important because bots on their own sometimes, you know, frustrate customers and they don't really help people. So you need workflows and AI to work together. And I want to explain how we approach it.
So, Varian da Vinci is our AI engines that are built at the core of the platform. They offer state-of-the-art technology.
But the key to successful AI strategy is not just the technology, but the ability to monetize the AI. And obviously, customers will pay for AI when it's providing them ROI.
So this is why we are embedding AI in all the applications that we offer In the platform and we have AI working together with workflows to bring AI to the right people at the right time.
So let me just focus on the technology, because you asked about the technology, I'll focus on it first, and then I'll talk about some examples.
From a technology standpoint, DaVinci is architected at the core of the platform as an open framework.
So what does this mean that it's open? First, you know, DaVinci includes AI morals that variant developed and we developed based on our unique data, which I'll touch on later, but we also embedding commercially available generative AI such as chart TPT.
So what does this mean that it's open? First, you know, DaVinci includes AI morals that variant developed and we developed based on our unique data, which I'll touch on data later. But we also embedding commercially available generative AI, such as creativity.
Also because it's architected the core of the platform, DaVinci provides access to all the applications running the platform. So we don't need to design separate AI models for each of the applications, and you know we have many many different applications we offer customers. So let's take the example with chart GPT.
We've been evaluating this technology for last year. And we evaluate for not just capability it provides on the internet, but what specifically we can use that for customer engagement use cases.
And because the link is open, we embedded ChachiPT at the core of the platform, and initially we decided to apply it to use case for automating core summaries.
And this worked very well because in fact customers really liked it and it's automating a part of the function that people do So this is a good example of how bots are helping people and not working on their own And we only saw this in q4. I believe we're the first company to offer a working solution To that customers use operationally that includes chart GPT. So it's a good example of putting
DaVinci and Core platform can accelerate the pace of AI innovation and provide our customers quick time to value. Another example I want to give about the unique DaVinci architecture is related to machine learning. So I think we all know now that AI models are only as good as the underlying data.
that I use to train them. And we've seen some crazy things that happens when the machine learning is on partial data or irrelevant data. So, Venn platform includes a very comprehensive engagement data hub that provides us the opportunity to use machine learning.
To prove the AI effectiveness based on real customer data, and we have many many customers in many verticals across
different languages and different geographies. So we believe that this data that we use for training our AI models give us a big competitive advantage.
So the combination of unique data hub, open DaVinci AI at the center of the platform, the ability to connect AI with workflows, all this makes the platform differentiated.
and its ability to drive automation to help brands close the engagement capacity gap and One of the reasons that you know, we need nearly doubled such revenue over the last two years I believe is our ability to help brands use data and AI effectively
Thank you. Thank you. Please stand by for our next question.
Our next question comes from the line of Shaw. He, y'all, with Cohen. Your line is open. Okay.
Thank you. Good afternoon, guys. My first question is on your fiscal 24 guidance, Dan. What's the level of confidence you have in the current guidance given the macro environment? I have a follow up.
Yes, so I can give you a short answer, which is basically a guidance is consistent with past processes. But I think given the environment, it's probably better to give a detailed answer just to take you through our thinking. So let me just put this together.
So first we're guiding for 25 to 30% fast revenue growth. And that's compared to 38% last year.
And fast revenue growth is the critical metric in our guidance because it drives the recurring revenue growth, which in turn is driving the gross margin expansion and of course the opportunity to grow EPS faster than revenue.
So let me focus first on why we think that 25 to 30% SAS revenue guidance represents about $570 million SAS revenue at the midpoint for guidance
And you know how do we plan to achieve it in the current environment? so first the benefit of Achieving such maturity and a fast offering is no longer in early stages
We all get your scale in our self-operations.
and including adoption by some of the very large customers in the world that moved to SaaS with variant. So.
We ended the year with $500 million stock ARR. So I think all that gives us confidence that our stock offering is very, very robust.
Second, when we look back, and I see very strong supplemental over the last few years.
And I look at the sources of what drove those, this very fast growth, and the sources really, the sources of growth are not changing in the current environment, and that's basically conversion and expansion. So, as Grant said before, our initiative is diversifying Southwest Karen Wilson,
I said before, 38% growth last year was 50% growth came from conversion and 23% came from expansion.
So the conversion, we have very large conversion pipeline opportunities still ahead of us. We have many customers converted, but we see a clear trend that customers are increasingly adapting SaaS.
But we also see that we have a lot of customers that have not converted yet
So for the guidance this year, compared to 15% growth last year, we're dialing 10 to 15% growth this year.
And then the other source is new deals, expansion and new logos. So that's 23% growth last year. We expect this to be lower, about 5-10% lower this year. And that's consistent with the current environment assumptions. And that's the new
You know the expansion comes from our very large custom base that continues to have many business needs. And we know that they will continue to expand in a variant platform and also we've brought to the company many new logos. 100 new logos every quarter and of course those are expected to grow over time.
or the color that the ground provided is also imported.
And we're looking to start the year strong. We expect.
The SAS revenue if you want to grow in line with our annual guidance, so 25 to 30%. And based on the current pipeline, we also expect new SAS ACV to grow double digits in line with our annual guidance of 11%.
And this results with strong Q1 recurrent revenue, which is more predictable of course.
And you know we're targeting seven hundred and fifty million dollars of the current revenue for the year, which is ten percent growth But you know variant is a tale of two cities
on one hand we have seven hundred fifty million dollars going ten percent and At the same time we have a hundred and eighty million dollars of non-recurring revenue
Which is declining
But the good news is it's also becoming less relevant over time because it's becoming very small.
relevant over time because it becomes very small. So.
This, what this will do in Q1, we expect a big drop in perpetual versus last year, almost 15 million non-recalling revenue drop year over year. This is almost 6% impact on total revenue growth.
But non-recurring revenue we expect to be flat this year, 45 million dollars every quarter.
and that creates a task compare at the beginning of the year but more favorable later in age two. So, kind of to summarize, we see last year was 38% growth, we see the growth drivers intact. Our guidance is for such revenue is up 25 to 30% with margin expansion.
and that's kind of the.
You mentioned that some contracts came ahead of time versus some that flipped.
Why would these contracts come at an earlier timeframe? Is it budget flush related? Is it discount related? How would you characterize a specific phenomenon?
Yeah, I don't think it's budget flush because you know our year end, the end of January , so it's mostly not aligning with customer budgets. I think it's customers that just have needs and these are needs that they have to satisfy as opposed to conversions. You know we saw
Many of the slip deals were actually conversions because in this case customers already have the variant product. It's working.
It's operational and they can take more time to keep the tire and decide to do conversion. They do want to convert to sus. That's pretty much
the direction, but they don't feel the urgency that they feel if they need something new.
So we really see, we saw conversions pushing out. We saw some extensions that came in somewhere smaller. So they cut this kind of.
put few phases into the expansion and awarded a little smaller than originally expected at the same time there were deals that customer decided
Earlier to take earlier and then the new logos was was very strong as well in q4 So I think it's it's it's a mix of different behaviors
Take earlier and the new logos was was very strong as well in q4 So I think it's it's it's it's a mix of different behaviors You Way
Thank you. Please stand by for our next question. Our next question comes from Alana Peter-Levy with Evercore. Your line is open. Great. Thanks for taking my questions.
Yeah, so.
There were $5 million of deals that we expected in Q1 that came in Q4, close to 5, or 4 something. And the majority of that was perpetual deals.
There were $5 million of deals that we expected in Q1 that came in Q4, close to five, four something. And the majority of that was perpetual deals.
so you don't see them in the News
We expected about $12 million more based on our...
We expected about $12 million more based on our pipeline.
And I would say half of that 12 million is conversions that got delayed and half is expansions that were either pushed or a smaller scope.
None of these deals on the $20 million, none of these deals was lost to competitor. So we have confidence that it's timing.
And also some of the deals already came in in Q1, but definitely not all of them. And two follow-ups. One is just...
Can you kind of explain or just give us a little bit more detail on the customers that are kind of having a smaller scope? Like what are they pulling back on? Is it the C-count? Is it they going with like one workforce or Engagement? I'm just curious to know like what are they pulling back on and then the conversations that you're having Is it more of a hey come back to us in calendar 24 or is it more of a second half conversation? Just curious to know what their appetite is to kind of
come back to the table and then go full-blown on the contract? I'll give you an example. So, as you know, we have very large customers and they have many divisions and very large workforce.
So one of our customers that has our knowledge management product was looking to expand into more divisions and add more people and bots to the...
license and the deal on the table was 1.5 million dollars and the deal ended up awarded to us at $500,000 so one-third
Is the balance still something they want to do but they said later I I don't know that I have a specific timeline that I can you know
be confident about but I do know that we are the standard product they are very happy customer and it's just a matter of their priority and how fast they want to deploy the product into other divisions.
There's just one last one. On the Google announcements, can you kind of maybe just tell us who was the bake-off with? Is this like an exclusive deal? And then with Google, are there any contract minimums that you guys have in place for them to have? Thank you. Yes, so I think the Google story is obviously...
interesting for on a number of levels one is the fact that Google has been our customers now for a while for the very platform so
As a customer, I think they were able to see the strengths that we will bring Then Google, you know has been for a number of years a player in AI in the comic Center and they've decided to Play bigger So they were looking for partners to resell
And I think our original relationship in terms of being a vendor expanded to now Google reselling variant.
We are going to be enabling their sales force and it's obviously a deal by deal where we, as we do with many other partners, we're not just expecting them to resell.
on their own, but we will continue to collaborate on specific deals and have our sales people and free sales and experts.
Side by side helping Google the same way we've been helping Many many other customers because we as we said many times we have an open and partner friendly strategy
And we're not only providing our partners with good technology, but also with great support in helping them to be successful.
And thanks Switzerland is I think part of the success we had.
Thank you very much. Thank you. As a reminder, ladies and gentlemen, that's star 11 to ask the question. Please stand by for our next question.
Our next question comes from the line of Ryan McDonald with Needleman Company. The line is open. The line is open.
Thanks for taking my questions and thanks for all the great color and detail on the outlook for 24 here. Dan, maybe just starting on the deals where you're seeing the delayed conversions or maybe some of the elongations there. Can you talk about sort of willingness and appetite for the remaining customers to convert over to SaaS and then...
Are you seeing any instances on conversion delays where maybe there's a reevaluation going on or any changing pricing or competitive dynamics there? Thanks!
The only thing we see right now, and I'll give you an example because that tells the story is…
Just a desire to kick the tire again and again. So we had one of our large banks that has been the customer for many years and have made the conversion decision, I think long time ago.
as I got to the final stages, which is to have a security review of our cloud security. And that was planned to be completed in Q4.
And at the end of that security review they decided that they want to do another security review not because You know we don't have great security. We've been already converting many financial services companies to SaaS and
We know how to address their issues. But for this customer, this was the first time they were going to SUS. So we were one of the first vendors in their operations that are going to SUS and they decided that they want to take another review, which will take a few more months.
Now, we believe that...
The desire to go south is based on you know better TCO For the customer and also the ability to innovate in the in the stuff environment faster that they can on-prem
So that didn't change and I think the decision to move to the cloud is very didn't change
But given everything else that's going on right now in their environment. I don't think they are trying to accelerate they're trying to take the time
When I look at the pipeline for this year in terms of how many customers are interested in conversion, it's actually growing versus the year before and prior year.
because the whole industry is moving to SaaS and it's just a matter of time. But I don't think that this decision was, to take the time was related to variant at all. Now that's helpful, Kolar, I appreciate that. And then you talk about consistently about the importance of the partner ecosystem and...
Obviously, just curious, given the sort of a situation that's been going on at Avaya and how big of a partner that is for you, I'm curious, you know, one, any concerns about potential negative impacts from that or conversely, you know, if you start to see maybe an acceleration and maybe a reevaluation from customers to move to maybe another routing customer partner, you know, as a result of those challenges. Thanks. Yeah, I think generally we…
But last year revenue grew faster with partners than they grew direct
And this is fine. We we compensate our sales force whether they sell direct or the helping customers Sorry helping partners to win our our sales force is neutral which is part of being Switzerland. We definitely Like to see our partners successful
We we compensate our sales force whether they sell direct or the helping customers Sorry helping partners to win our our sales force is neutral which is part of being Switzerland. We definitely Like to see our partners successful
In terms of concentration, we don't have any 10% partner.
And of course our partners that have been with us many years and have grown some large customer base with variant.
It's not concentrated in one account, but it's many, many accounts. So I don't see any concentration. I believe that we will see many partners that just started with the SAS platform over the last few years will be growing.
And part of the strategy is to continue to...
You know grow our indirect business faster than direct because it's also creating better ecosystem for the platform and also putting some leverage in terms of our up expending and our sales cost
to grow our indirect business faster than direct because it's also creating better ecosystem for the platform and also putting some leverage in terms of our office spending and our sales cost.
And and and and the last thing I say about our partner ecosystem that it's not just reselling partners but we also have many partners developing into a platform and creating Functionality then they put in our marketplace and our marketplace is open and available to our customers. So
Our platform and partner ecosystem will benefit from reselling relationship, but we also see benefits from the platform approach Thanks for the color. Thank you.
platform and part of ecosystem will benefit from reselling relationship but we also see benefits from the platform approach. Thanks for the call. Thank you. Please stand by for our next question.
Our next question comes from the line of Mason Maryung with Jefferies. Your line is open. Your line is open.
Hi, thanks for taking the question. So if we think about your future SaaS growth, do you expect more of this to come from more of your direct sales model or more from your CCaaS partners? We expect SaaS growth, look, our business now is SaaS revenue scale and when I say we expect more...
many many partners that are SICAS resellers.
but they sell CCAS from a CCAS vendor and they sell CX automation
from variant. So we're giving the SICAS partners the ability to not just resell SICAS but to add a lot of value with SIC automation. And I think that's very interesting dynamic in the industry. When you look back at contact centers, the decision was to buy telephony first.
because without the left one is the regional contact center.
without telephone aid, there is no contact center. And then you buy some applications around it.
But when you think about digital transformation and AI, we see many, many customers, and I actually gave an example earlier today and make a clear mark.
that actually are not looking to change the telephony yet because they don't think that's strategic.
But I want to move with variant to the cloud because they are looking for new AI capabilities
And you know, many of our DaVinci capabilities only exist in the cloud. They don't exist on-prem. The way we designed the platform...
we don't force our customers to convert to the SaaS. They can leave what they have on prem and they can buy new things.
in the cloud. And that's why the conversion opportunity that's still ahead of us is pretty big.
Because we have many customers that are buying from very to the cloud But not yet converting the legacy and that's the next step to convert everything into the cloud
that are buying from variant to the cloud, but not yet converting the legacy, and that's the next step, convert everything into the cloud.
So I think that comes to put everything into context. When we think about partners, we have six vendors who are looking to augment what they design with additional platform capabilities.
There are many resellers that are actually not vendors, but they represent multiple vendors and they see the opportunity for open platform to connect variant cloud to cloud with somebody else's cloud.
And then we also have all the customers that prefer to continue their journey, the recipes variant.
and we open to all three scenarios. Great, thank you.
open to all three scenarios. Great, thank you. Thank you.
I'm showing no further questions in the queue. I would now like to turn the call back to Matthew for closing remarks. Thanks, Florida, and thank you everyone for joining us today. As usual, if you have any questions, feel free to reach out. We'll speak with you soon. Have a good night. Thank you so much to the break Indexers for disabilities and thanks to all our viewers.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you for your participation.
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