Q1 2024 Verint Systems Inc. Earnings Call
Speaker 1: Good day, and thank you for standing by, and welcome to Varen Systems, Inc. Q1 fiscal 2024 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Matthew Frankel, Investor Relations.
Speaker 1: and Corporate Development Director, please go ahead.
Speaker 2: Actual results could differ materially from those expressed in or implied by these forward-looking statements. If forward-looking statements are made as of date of this call and is accepted as required by law, Varen assumes no obligation to update or revise them. Investors are cautioned not to place underreliance on these forward-looking statements. For a more detailed discussion of how these and other risks and uncertainties could cause Varen's actual results to differ materially from those indicated in these forward-looking statements, please see our Form 10-K for the fiscal year ended January 31, 2023. Form 10-Q for the quarter ended April 30, 2023.
Speaker 2: one file, and other filings we make with the SEC. The financial measures discussed today include non-GAAT measures, as we believe investors focus on those measures in comparing results between periods and among our peer companies.
Speaker 2: Please see today's slide presentation, earnings release, in the investor relations section of our website at Varenth.com for a reconciliation of non-GAAP financial measures to GAAP measures.
Speaker 2: non-GAAP financial information should not be considered in isolation from, as it is 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 2: The non-GAAP financial measures the company uses have limitations and may differ from those used by other companies.
Speaker 2: Now, I'd like to turn the call over to Dan. Dan? Dan, are you still on?
Speaker 3: Thank you, Matt.
Speaker 2: I'm pleased with our first quarter non-GAAP revenue and diluted EPS.
Speaker 4: coming ahead of our guidance.
Speaker 4: Our results were driven by strong SAS momentum and our differentiated open platform.
Speaker 4: These benefits include accelerating revenue growth, higher gross margins, and incremental cash generation. Let me start with reviewing our first quarter results. non-GAAP Q1 revenue came in at $270 ahead of our guidance, and gross margin came in close to 70%, a strong 200 bps increase year over year. A gross margin expansion is being driven by our ongoing shift to SAS.
Speaker 4: Long gap unit EPS came in at 53 cents.
Speaker 4: Next, I would like to discuss significant wins in market dynamics.
Speaker 4: During Q1, we received orders from some of the world's leading brands.
Speaker 4: such as the Global Bank.
Speaker 4: Macquarie, Auto Company, Toyota, and telecom provider, Deutsche Telekom.
Speaker 4: In terms of new logos,
Speaker 4: We continue to win many new customers and in Q1 we again added more than 100 new logos, including the Bank of England and retailer Casey's General Stores. As discussed on the last earning call, in the current environment we are seeing elongated sale cycles, especially with very large deals. While customers may take longer to make decisions, their need to elevate CX and increase automation is very high.
Speaker 4: Our open platform delivers significant customer value and we are winning deals in the current environment.
Speaker 4: based on our ability to clearly demonstrate customer ally.
Speaker 4: Let's take a closer look at three recent large 7 and 8 digit SAS wins. These wins were all driven by our open platform.
Speaker 4: and our CX automation innovation resulting in significant ROI for our customers.
Speaker 4: The first order for $21 million dollar TCV
Speaker 4: was from a living US-based financial services company.
Speaker 4: This customer expanded its relationship with Variant.
Speaker 4: With an eight digit order by adding new applications for my open platform
Speaker 4: The second order for $6 million dollar TCV
Speaker 4: was from a living telecom company in Europe .
Speaker 4: This customer merged with another large company and decided to adopt VARIAN solution across the combined entity.
Speaker 4: The third order for $3 million DCV is $1.5 million DCV.
Speaker 4: work from a large international bank.
Speaker 4: This customer expanded its usage of the variant open platform to address additional CAX optimization opportunities.
Speaker 4: In this environment, the timing of closing builds can vary by customer.
Speaker 4: Looking at that pipeline, of course all types of deals.
Speaker 4: We expect to drive double-digit growth for new SAS ACV for the year.
Speaker 4: Let me now turn to the capabilities of the variant open platform.
Speaker 4: designed to increase CX automation and deliver significant customer ROI.
Speaker 4: Customers have been reporting that CX automation has become a strategic objective.
Speaker 4: We estimate that the industry already employs 50 million workers globally.
Speaker 4: and improving CX levels with incremental hiring is not sustainable anymore. VARENT are ready to adopt AI that can help them elevate CX and increase efficiencies to reduce costs. Clearly the industry needs AI and VARENT has developed the platform that translates AI technology into tangible business outcomes. We do this by placing AI at the fingertips of the workforce of human and bots. Here are some examples that explain the
Speaker 4: Our variant injects AI to all parts of the contact center operation.
Speaker 4: Verit automates interaction responses to improve self-service and reduce the number of calls coming into the contact center.
Speaker 4: Don't automate whatforce planning.
Speaker 4: by increasing focusing accuracy. Variant automates the compliance process across all channels to ensure adherence. Variant automates the knowledge search to increase agent efficiency and reduce customer hold time. And Variant automates quality assessments and coaching to increase the effectiveness of the workforce. There are many more automation capabilities available today in the Variant open platform.
Speaker 4: And with the increased pace of AI innovation, we are launching more CX automation at an even faster pace.
Speaker 4: which I will explain next There are 3 key attributes that make the variant open platform highly differentiated
Speaker 4: First, at the core of the platform is our open engagement data hub.
Speaker 4: For more than two decades, we've been helping customers capture comprehensive engagement data across all channels and types of interactions between consumers and brands.
Speaker 4: This vast and unique data set is critical to continuously train AI models and make them accurate and effective.
Speaker 4: Open Data Hub is a key differentiation of the variant platform.
Speaker 4: Second.
Speaker 4: We also architected at the core of the platform.
Speaker 4: the variant open DaVinci AI. DaVinci is completely open and takes advantage of the latest AI models available commercially, such as GPT and others. This unique design enables variant to remain flexible and future proof by quickly embracing the latest generic AI innovations for variants or any other vendor.
Speaker 4: And third, our platform includes many best-of-grid applications that leverages DaVinci and the Data Hub.
Speaker 4: to deliver tangible business outcomes. Regarding AI monetization, customers today can purchase from the open platform based on a CX automation consumption model. Over time, as AI adoption increases, we expect our customers will naturally increase their CX automation consumption, and this is expected to benefit both our customers.
Speaker 4: business outcomes. Regarding AI monetization, customers today can purchase from the open platform based on a CX automation consumption model. Over time, as AI adoption increases, we expect our customers will naturally increase their CX automation consumption, and this is expected to benefit both our customers as well as our financial results.
Speaker 4: Turning to our guidance for the current year, fiscal 24. We expect another year of strong SAS revenue growth and margin expansion with adjusted EBITDA going faster than revenue and we are maintaining our annual guidance.
Speaker 4: As we manage the business this year to 7% adjusted EBITDA growth
Speaker 4: We continue to progress towards the completion of our systemization and I would like to discuss the expected benefits to our financial model next year.
Speaker 4: We expect the completion of the SAS transition next year to positively impact our top-line growth in two ways.
Speaker 4: First, when you look at the last year's results and this year's guidance, you can see that
Speaker 4: We have headwinds from the decline in non-recline revenue of approximately 3% each year.
Speaker 4: Next year, with the planned completion of our self-transation,
Speaker 4: We expect these headwinds to be largely eliminated.
Speaker 4: And this is expected to translate to incremental riveting growth next year.
Speaker 4: Second.
Speaker 4: Over the last several years, we have focused on the variant cellisal
Speaker 4: Completing the SAS transition should not only improve our overall revenue growth rate, it is also expected to have a positive impact on margins and cash flow generation. Similar to most companies going through a SAS transition, we expect a cash generation to improve. This year, we expect cash flow operations, excluding non-recurring items, to grow at a similar rate to revenue, and next year we expect it to grow faster than revenue.
Speaker 4: We look forward to completing the transition next year and to benefiting from these tailwinds.
Speaker 4: to our financial model. As you know, our transition to SaaS has taken several years given the nature of our large enterprise customer base. As a reminder, our customer base including over 85% of the Fortune 100, including all 10 of the top 10 banks.
Speaker 4: As you know, our transition to SaaS has taken several years given the nature of our large enterprise customer base. As a reminder, our customer base including over 85% of the Fortune 100, including all 10 of the top 10 banks, 9 of the top 9 insurance companies.
Speaker 4: and eight of the top 10 healthcare companies. In summary,
Speaker 4: CX automation is a strategic objective as brands are spending $2 trillion annually on labor costs.
Speaker 4: and hiring more people to elevate customer experience is not sustainable.
Speaker 4: Helping brands close this engagement capacity gap by addressing their very large labor costs with CX optimization
Speaker 4: Is a significant long-term opportunity for variant? We've architected open data hub and variant DaVinci AI at the core of the platform.
Speaker 4: And now with the faster pace of AI innovation, variant is increasing our differentiation as the leader in CX automation.
Speaker 4: Our SAS transition is nearing the end of the journey.
Speaker 4: And we look forward to the financial and operational benefits we expect next year.
Speaker 4: And finally...
Speaker 4: with strong margins and a strong balance sheet.
Speaker 4: which provide us flexibility as we continue to execute our previously announced stock buyback program.
Speaker 4: Now let me turn the call over to Grant to discuss the financials in more detail.
Speaker 5: Grant. Thanks, Dan. Good afternoon, everyone.
Speaker 5: Our discussion today will include non-GAF financial measures. A reconciliation between our GAF and non-GAF financial measures is available, as Matt mentioned, in our earnings release and in the IR section of our website. Differences between our GAF and non-GAF financial measures include adjustments related to acquisitions, including fair value revenue adjustments, amortization of acquisition-related intangibles, and other acquisition-related expenses, stock-based compensation expenses, separation-related expenses, accelerated lease costs, IT facilities, and infrastructure realignment.
Speaker 5: as well as certain other items that can vary significantly in amount and frequency from period to period.
Speaker 5: For certain metrics, it also includes adjustments related to foreign exchange rates. Starting with our Q1 results.
Speaker 5: non-GAAP revenue came in at $217 million ahead of our guidance. non-GAAP diluted EPS came in at $0.53, also ahead of our guidance.
Speaker 5: SAS Revenue increased approximately 24% year over year on a constant currency basis. There are two main drivers of our SAS Revenue growth, new customer deployments and conversions. In 2.1, the growth from both drivers was relatively evenly split.
Speaker 5: For the year, we project around two-thirds of our growth to come from new customer deployments and one-third from conversions similar to prior years.
Speaker 5: And the percentage of our software revenue coming from recurring sources increased to 87%, up approximately 400 basis points year over year.
Speaker 5: Turning to gross margins, our recurring revenue generates much higher gross margins than our non-recurring revenue, and our recurring revenue growth has been driving total gross margin expansion.
Speaker 5: In Q1, I am pleased to report that gross margins increased to nearly 70%, a more than 200 basis point increase year over year.
Speaker 5: And going forward, as our revenue mix continues to shift towards SAS, we expect total gross margin to continue to move higher. Turning to guidance, we are pleased with our revenue and profitability metrics in Q1, and we are maintaining our guidance for the year. Let me discuss how we see the year progressing. On a non-GAAP basis, for revenue, we expect 935 million plus or minus 2%, with sequential increases in revenue every quarter. We expect a slight increase in Q2, and we expect a slight increase in Q1.
Speaker 5: a larger increase in Q3, and to finish the year with our usual strong fourth quarter.
Speaker 5: Looking at the year, we expect revenue growth to be higher in the second half of the year given the easier year-over-year compares.
Speaker 5: For new SAS ACV, we expect double-digit growth this year. So far in the year, new SAS ACV was 16 million in Q1 and 12 million in May. This brings our last 12-month new SAS ACV bookings through May to 103 million, reflecting 7% growth over the same period in the prior year.
Speaker 5: With respect to the progression of the current fiscal year, through May we have 28 million closed out of the more than 50 million projected in the first half.
Speaker 5: and an additional $60 million in the second half of the year. I would like to note that with ratable revenue recognition, the exact timing of bookings does not significantly impact revenue in the current financial period.
Speaker 5: We expect our gross margins to increase sequentially and for the full year to increase around 50 basis points year over year. We expect OPEX to increase modestly in Q2 from Q1 levels and we expect to maintain that level of spend for the rest of the year.
Speaker 5: as we manage expenses in the current economic environment. For the full year, we expect our operating margins to expand a bit more than 50 basis points year over year.
Speaker 5: We expect adjusted EBITDA to increase 7% for the year to a bit more than $250 million through a combination of strong SAS revenue growth, gross margin expansion, and expense controls.
Speaker 5: And for diluted EPS, we expect $2.65 at the midpoint of our revenue guidance, with sequential increases in EPS consistent with our sequential increase in revenue.
Speaker 5: Regarding the below-the-line assumptions, we expect interest and other expense on average of $750,000 per quarter.
Speaker 5: Net income from non-controlling interest should be about $200,000 per quarter.
Speaker 5: Our cash tax rate should be about 10%, and we expect around 75 million fully diluted shares outstanding. Looking beyond this year, as Dan discussed earlier, we believe the completion of our SAS transition will have positive benefits to our financial model next year.
Speaker 5: Let me provide you with some additional details on these benefits. Starting with revenue, as we have shifted to SAS, our non-recurring revenue has steadily been declining.
Speaker 5: Looking at last year's results and this year's guidance, non-recurring revenue represents a headwind to total revenue growth in an amount of about three points each year. And we believe this headwind will be largely behind us next year.
Speaker 5: In addition, as Dan mentioned earlier, we believe we will see a benefit to our top line from shifting our focus from SAS migration to platform and AI adoption.
Speaker 5: With respect to cash flow, similar to most companies going through a SaaS transition, we expect our cash generation to start to grow faster.
Speaker 5: To put this in perspective, last year we generated $190 million of cash from operations excluding non-recurring items.
Speaker 5: This year, we expect this to grow in line with revenue.
Speaker 5: And next year, we expect to grow faster than revenue at a double-digit rate.
Speaker 5: I'd like to highlight that our free cash flow acceleration should be even faster as the one-time investments over the last few years related to the SPIN and our office space will be behind us next year. According to our balance sheet, we continue to be in a very good financial position.
Speaker 5: Our net debt remains well under one time's last 12-month EBITDA and is further supported by our strong cash flow. We expect our balance sheet to get even stronger going forward as we benefit from the foundation we laid since the spin resulting in continued improvement in margins and cash flow.
Speaker 5: And regarding our previously announced 200 million stock buyback program, to date we have repurchased close to 90 million worth of shares. In summary, our non-GAF revenue and diluted EPS came in ahead of guidance, driven by our differentiated open platform.
Speaker 5: We expect our platform to drive strong SAS growth and margin expansion for the full year, and we are maintaining our guidance for the current year.
Speaker 5: Looking ahead to next year, we expect our financial model to further benefit from the planned completion of our SASH transition. These benefits include accelerating revenue growth, higher gross margins, and incremental cash generation.
Speaker 5: Finally, our ability to deliver innovative CX automation and drive significant customer ROI positions us well for sustained long-term growth.
Speaker 5: Before taking questions, I'd like to highlight several investor relations initiatives. First, we've updated the financial dashboard on our IR website to help investors focus on the critical metrics associated with the end of our SASH transition.
Speaker 5: Second, we'll be updating sell-side analysts on our AI-powered platform at our Engage conference next week, where we'll showcase our latest innovations. And third, in the fall, we'll be hosting an investor day for both sell-side analysts and investors to demonstrate our AI innovation.
Speaker 5: and discuss the benefits of completing our SAS transition in more detail. With that operator, please open the line for questions.
Speaker 1: And thank you. And one moment, please. As a reminder to ask a question, please press star 11 on your telephone and 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. And one moment for our first question..
Speaker 1: And our first question comes from Ryan McDonald from Needham & Company. Your line is now open.
Speaker 6: Thanks for taking my questions and appreciate all the color, especially in the post-SAS transition world here for VARENT. And that's where I really wanted to start, Dan. Can you kind of double click on that a bit more, talk a bit about the benefits of sort of what the completion of the SAS transition will bring in particular.
Speaker 6: You talked about sort of the second revenue driver of acceleration around sort of the AI platform adoption will help further that acceleration of growth. Can you just maybe talk a bit more about where that comes from or how investors should think about that coming in?
Speaker 4: Yes, sure, thank you. So we are almost approaching the midpoint of the year, so it is a good time to start to talk about next year.
Speaker 4: Really excited to finish the cloud transition as we discussed before. So there are immediate benefits that we will see next year and there are more benefits over time. And I'll talk about AI separately. I think it's a very important topic, but let me start kind of with a review of why this transition completion is.
Speaker 4: both, even if the rest of the business performs exactly the same way it is this year.
Speaker 4: So that's one thing. The second thing is we also see an increase in customer base shifting to running in the variant cloud.
Speaker 4: And these customers are already sus, but for now they host varying solutions in other clouds. It could be in partner clouds or their own clouds.
Speaker 4: So there are clear benefits for this customers to shift to the variant cloud for faster innovation and especially AI and quick time to value.
Speaker 4: And we expect the minimum 2x uplift if these customers just move like to like. But of course many of them are expanding and we expect up to 10x if they expand in the platform. And they don't have to expand at the time of the conversion. They can definitely expand on the conversion and then over time.
Speaker 4: But it's a great uplift opportunity for us from this customer base. Finally, as we complete the SAS transition, we're going to focus on helping them expand. We asked what we're going to do. So it's a little early, but we're starting actually this year, so we'll be fully ready next year.
And as we kind of shift the focus to operationalizing the completion, it's more marketing campaigns on the base.
It's the pricing models I'll discuss maybe later, the consumption models and it's obviously the sales force that will be focusing more on helping customers during this conversion and expansion.
So there's some uplift that comes from this conversion and of course expanding as these customers are looking to increase consumption of CX destination.
some uplift that comes from this conversion and of course expanding as these customers are looking to increase consumption of C-exotonation and that drives a very strong ROI.
Now in addition to what we expect to revenue accelerating, we definitely expect gross margin to continue to expand. We discussed many times that our recurring revenue have higher gross margin in the mid to high 70s, so the shift to more recurring.
continued to benefit gross margin and we saw some very nice expansion in Q1. And Grant discussed also the improvement to our cash flow generation which is acceleration in cash from operation but also acceleration in free cash flow.
because some of the one-time investments we did after the spin are also going to come to an end. So free cash flow is going to accelerate even faster next year.
So from a big picture perspective when you think about this SAS transition, the economic value of a SAS deal is far greater than perpetual over time. And our customers benefit from faster innovation in the variant cloud and of course we benefit from higher economic value.
And because we have very large customers and they move to start slowly, you know, our transition took several years. But for the same reason, we expect that we'll continue to renew and expand with these customers as they consume more AI from the platform and increase their spend with variant.
And again, the expansion opportunity could result in a 10x uplift. So we see very tangible benefits that we expect next year and even more so over time.
Appreciate the color there. And then maybe as I think about it, we've been getting a lot of questions from investors, obviously, with generative AI and the potential disruption it can have on the context and or broadly, but can you talk about why these investments in AI are a good thing for variant over time?
Sure fo, So you know he I.
plays a role in many industries, but clearly it plays a very big role in the customer engagement. And we discussed many times, we estimate that brands...
spent $2 trillion on labor and it's not sustainable. So our customers are really excited about AI and I can tell you that in Q1, we estimate that more than half of the deals we did in Q1 had some elements of AI already included.
But as much as customers are excited, they also wanna make sure that it's creating ROI and it's not just technology. So what Verint does is really, we exclusively focused on CX automation. That's what we do and...
That means that we, our mission is to transform AI technology into business outcomes.
And that's what customers want because they don't want to buy AI. They want to buy the business outcomes that create the ROI.
So why are we gonna benefit from AI?
So first, you know, there's a simple reason we have an open platform and it's differentiated and best in the market in its ability to place AI innovation at the fingertips of the workforce.
And we also, I can talk about how we monetize AI and through a consumption model, and that's good for customers and also good for variants. But let me start with the first point, why we have the best platform in the market today.
So our platform is open, and it's open in all dimensions. We have the open DaVinci.
and OpenDavid.com takes advantage of commercial AI models in addition to our own proprietary models. So I can tell you specifically with GPT, we already have GPT 3.5.
takes advantage of commercial AI models, in addition to our own proprietary models. So I can tell you specifically with GPT, we already have GPT 3.5 in production with customers.
We have GPT 4.0 in our research lab, and we will be introducing new use cases because there's some additional capabilities in four that specifically around leveraging visual inputs and significantly larger prompts that will create new use cases that variant will commercialize. I believe that when it comes to GPT, open source generative AI this year is equally if not more disruptive than GPT 4.0, and we have basically, we have every open source AI from any vendors as part of the Vinci and it's completely open.
DaVinci is architected at the core of the platform. And I'm not a member of any other vendor in the market that actually has this architecture. So it's highly differentiated. And why it's important is because at the core of the platform we also have the data hub.
and the platform can train all the AI morals, whether it's proprietary from third party, they train on real engagement data 24-7.
And data is critical. It's critical for the accuracy and effectiveness of AI. We know that when AI doesn't work, it's very frustrating to people, and that's just useless. So training is a key component, and for over two decades, we help our customers capture data, and our data is completely open. So we work together.
and train all the time. But then the last component, you need a platform to transform technology into business outcome. And the platform offers many best of breed applications.
and it's completely open to allow customers to start anywhere. So they can use any piece of workflow that they want and inject AI into that workflow.
And the result of this is you bring the AI to the fingertips of the workforce. So they can use it and it will augment.
their work and increase, obviously increase their productivity. And let me stop here and see if any follow up questions.
Yeah, no, that's helpful. And maybe just one more from me. You know, you mentioned earlier about the potential for a 2x uplift when a customer moves on, is hosted on the Verit cloud versus another cloud. How are you thinking about, in terms of strategy, incentivizing Salesforce incentivizing customers?
success.
and regardless of which cloud they run. And that was the first part of our self-transition.
But over time our customers realized that running in a varying cloud allows us to introduce innovation faster than when they run in different clouds. Just because we put new software in our cloud every two weeks.
So the AI increased the pace of innovation and obviously cloud is the best vehicle to drive innovation faster for quick time to value. In fact, DaVinci is only available in the variant cloud today.
So that's a big incentive for our customers to leverage the latest DaVinci capabilities.
And again, now that we're getting to 90% of software revenue recurring and the such position will be behind us next year.
we are increasing the focus also internally in terms of programs that we offer customers and
pricing consumption models and of course salesforce incentives. This will be introduced later in the year but I think it will start to really kick off next year and beyond that. Excellent. I appreciate the call. I'll hop back in the queue. And thank you.
And one moment for our next question. And our next question comes from Shaul Iyost from TD Ink and Tower. Your line is now open. Thank you so much. Good afternoon, guys. Apologies for some background noise here.
So, you know, Dan, it would appear that you, Grant, Alan, the team, definitely seeing kind of the whatever is left in the fast transition, and I'm getting emails asking me as we start thinking about your next year's revenue guidance. And again, I don't want to front-run the analyst data to you.
also because the economic environment this year. And that's why we discussed it in terms of incremental growth that we see next year to this year.
Of course, if the overall economy improves, the incremental growth will be on top of a faster economy.
foundational goals, let's call it. But whether it's next year or the year after, we stand at the goal that based on an open platform.
The Vincent data decor and and and driving more our life for customers we We definitely are targeting double digits revenue growth over time We already at 27% EBITDA margin this year
So we talk about continuing margin expansion. So we are targeting to increase revenue growth and at the same time expand margins. And I think for, you know, I mentioned before 10x opportunity for our customers if they adopt more AI across the platform. And I think if you wanna think about the growth potential here or...
spent and you know, very customers have thousands of agents and we have customers that have tens of thousands of agents. We are very strong at the mid to high end of the market so our customers have lots of labor spent. So now let's assume that this customer purchased
three variant specialized bots, and I'll explain what a specialized bot is, but they only purchase three for a price of $2 million ACV.
So they're committing to spend $200 a year. So these three specialized bots can help the workforce to increase productivity. So let's say one specialist bot.
Is an expert in automating interaction wrap-up They're not replacing humans. They're not better than humans, but they're really good at doing one thing the interactions wrap up
and therefore they shave 30 seconds from each interaction. The second specialized bathroom variant is an expert in surfacing contextual knowledge.
So that saves another 30 seconds from the interaction. And the third specialized bot is only good at real-time agent coaching based on assessing where coaching is needed and real-time assisting the agent. And that saves another 30 seconds. So now that's 90 seconds less. And if the average interaction duration is five minutes, this customer workforce productivity just increased by 30% using three.
specialized bots. And this could be a $20 million dollar OI for this customer. $20 million dollar savings. So our customers are motivated to consume more and when we think about, you know, what's the potential, what's the time, what is varied after when we came up with this, you know, CX automation and we did the spin and we said that's what we're going to focus.
That's really the mission that we have, to help customers to create this productivity by creating specialized bots. And we have dozens of specialist bots each focused on one element of the customer engagement.
that we have to help customers to create this productivity by creating specialized bots. And we have dozens of specialist bots each focused on one element of the customer engagement workflow.
So they are not super humans but they make the agent into a super human because they are there to help them do something and when you free the agent time our customers now can decide either they want to cut costs or they want to improve the customer experience or what we see many customers are now thinking to use that extra time.
to make the customer service people into salespeople and leverage the fact that they had a very good interaction with the customer to sell them something. So there's a lot of different ways that this automation can benefit customers.
That's how I think about the long term opportunity. Thank you for that elaborated reply. And just maybe quick question also, I know that you mentioned really maybe a handful of elongated, maybe some deals that are pushed a little bit by elongated sales cycle, but has any deal.
canceled or was it just a timing issue and all the transactions that might have been postponed. How many of those have already come back?
was just a timing issue and all the transactions that might have been postponed. How many of those have already come back?
So we you know we mentioned in Q4 some slip deals I can say that the majority came in Q1 and we expect over the years some were pushed more than just a few months.
In Q1, we had a couple of bills that actually closed shortly after Q1. The $21 million deals that I mentioned before, that's an interesting story because the deal was fully negotiated and ready to sign way before quarter end.
And it's a $21 million deal, so many signatories. And the signature process just took long and ended shortly after quarter end. But it's a routable revenue cognition, so it really doesn't affect anything and...
other than which period to report it, it doesn't really impact the revenue at all. So we see customers are taking longer with the final approvals, especially when it gets to the CFO .
But eventually they recognize that they need technology and they cannot spend money on labor and We can help them to create good ROI and that's that's get the deal over the the goal line Understood, thank you so much. Good job
but eventually they recognize that they need technology and they cannot spend money on labor and We we can help them to create good ROI and that's that's get the deal over the the goal line understood thank you so much good job and thank you
And one moment for our next question. And our next question comes from Submit some mom from Jeffries. Your line is now open.
Hi, good afternoon. Thanks for taking my questions. Dan, maybe the first one for you. Just on the pricing model for AI, can you remind us, are you currently pricing DaVinci? Is it a platform fee plus some interaction model? Is it based on the number of seats just to
How do you think about the current model and how are you thinking about that model evolving over time? Yes, so today we give customers an option to purchase the specialist bots either by the
and how are you thinking about that model evolving over time? Yes, so today we give customers an option to purchase these specialist bots either by the users that they help
or by the consumption, so how many times they're being called to help. I can say that some customers like to go by consumption because they can start small.
and they want to make sure that they only increase automation consumption when it's really working. So that's what's appealing to some customers.
Other customers prefer to just pay a fixed price per user because they want to kind of cap their cost of automation.
But, you know, when you think about this, it's not that we have one special spot per user.
I envisioned over time each user will have 3, 4, 5 or 10 different bots helping them doing different things.
The wrap-up work that the agent does manually is replaced with a bot that can only do wrap-ups. Searching for knowledge is a completely different bot. Coaching the agent is a different bot. So they can pay by user, but then they'll have to pay for each bot that they use, or they can prefer the consumption.
The way they actually buy, they don't buy bots, they buy workflows, right? We have been delivering workflows to our customers for many, many years that help them to run their business processes and the bots are actually injected into the workflow. So the agent doesn't have to stop what they're doing and say, oh, I'm going to call a bot. Everything is being actually...
automatically built into the way they work today, but when they come to do a certain task, they, if the bot was purchased by the customer, that bot shows up and just.
do the work. So instead of summarizing the call, which can take 30 seconds, sometimes a minute, the bot, if these purchase come in, they see the summary, they approve it, it takes them five, 10 seconds, and they go to continue to take the next interaction. So we're very flexible because we know our customers like AI, but they also...
Want to make sure that this works in their own environment
And that's why we see that as they get more confident, they'll increase consumption over time.
Great. And then, Grant, maybe just a follow-up question for you on the SaaS revenue guidance. I understand the comps get easier in the back half. I guess as you sit here today, how much visibility do you have into that acceleration that's required in the back half of the year to hit the full-year targets?
and how much new business you have to book in order to get to the start, how much variance is there. Sure, thanks. Thanks for the... So we do see an uptick in the second half growth rates. And for SaaS, it's really driven by a couple things...
growth. Second half and for the full year, we expect it to be more closely related to two-thirds of that overall SaaS revenue. In the second half, we'll come from the new and expansions, and about a third from the conversion activity. So, in terms of the visibility and the uptick, you know, a portion of that...
first half and a slightly more in the second half that's 60 million and we have good visibility on the pipeline coverage to achieve that. And then there's one other dynamic that we have that drives a little bit faster acceleration in the second half for growth rates.
that's related to some renewal volumes that we have coming up in the second half of the year and that's really driven by the nature of our SAS transition. We established our transition program three years ago. We had a number of customers contracts who signed at that time and those renewals are coming up in the second half of this year. So that combination of dynamics is what drives a little bit of the uptick.
that you'll see first half to second half. Great. Really helpful. Thank you for taking my questions. Appreciate it. You bet. Thanks. And thank you.
see first half to second half. Great. Really helpful. Thank you for taking my questions. Appreciate it. You bet. Thanks. And thank you. We'll take one more question in one moment for our next question.
And our next question comes from Peter Levine from Evercore. Your line is now open. Great. Thanks, guys, for taking my question here. You know, maybe, Dean, just to piggyback off of what you just said with the renewal, you know, maybe could you give us an initial read for the contracts that are up? Are you seeing it – are you seeing those contracts take longer to close? You know, what –
percentage, are you seeing those conversion rates or renewal rates at all stay steady, improve, decrease? Just give us a sense of kind of where you think those renewals will come in in the second half. Yeah, renewals we're not seeing much change at all on those contracts. I think what Dan had highlighted and where we're seeing more of the elongated sales cycle are really on the newer deals or the expansion related.
because that's where customers need to go and find the additional funding. On the renewals, it's pretty well baked in and for the funding environment. So we've seen very good steady progression on that over time. Now in terms of contract terms, we've heard from others that reported this quarter,............
new deals typically are three years. And then for the renewal opportunities that we have out there, it's really a mix. It's not a standard three year. If anything, we've actually seen a slight tick up.
from Varen's platform. So locking in gives them a little bit of pricing benefits without you know as much of uplift but they have that ability to get a lot more innovation from our platform in doing so.
I'm sorry, Dan. Go ahead. What I see in that regard...
You know custom on one hand here. You know they take the natural natural
Trend is you know I don't want to renew longer because I don't know I don't know what's going to happen But once they realize that you know they actually have we're not locking them in Because the platform is totally open and they can do whatever they want with their telephony CRM system they can buy any application we you know and they can leverage
the platform in any way, as Grant said, we don't see that as an issue. And at the same time, we see customers that really want to lock the price for three years because of inflation.
and they have a price guarantee if they dock the price for three years. So, net net, yes, no impact on variance now.
Then just one last quick one. I don't think I've heard it on the call, but just a kind of a macro update. You know, if you look at your full year guide, what assumptions are you baking in? Are you assuming the environment gets worse, stays kind of where it is today? Just give us a sense of you think about the full year guide, what your assumptions are around the macro impacting your ability to close the environment.
through May and then 60 in H2 which is as Grant just said we have the pipeline coverage but in addition the assumptions this year is that we'll have the gross margin expansion because we continue to shift
With good SaaS growth, we continue to shift to higher growth margin and we assume that
the gross monetary improvement throughout the year. And in our OPEX level, we had 106 in Q1. We planned very small sequential increases because we...
Again, we want to be cautious in this environment. So the net net is 7% EBITDA growth. That's over 250 million dollars EBITDA this year, 20% margin.
And that's really our focus this year. And while we're doing that, we wanna complete the SAS transition and focus on helping customers adapt AI.
So those three things are the main strategic initiatives that I'm driving in the company this year.
Thank you for the color. And thank you. And I am showing no further questions. I would now like to turn the call back over to Matthew Franklin for closing remarks. Thanks, Justin, and thank you to everyone for joining us today. As always, please feel free to read.