Q1 2024 Cognyte Software Ltd Earnings Call
Speaker 1: You.
Speaker 2: Good day, and thank you for standing by. Welcome to the Cognight First Quarter Fiscal Year 2024 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 a question during the session, you will need to press star-1-1 on your telephone.
Speaker 2: You will then hear an automated message advising that 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 hand the conference over to your speaker today. And now, I would like to introduce our speaker, Dr. Jane Redlant, head of investor relations. You may begin.
Speaker 3: Hello, everyone. I'm Dean Ridlon, Cognite's head of investor relations. Thank you for joining us today. I'm here with Elad Sharron, Cognite CEO , and David Abadi, Cognite CFO .
Speaker 3: Before getting started, I would like to mention that accompanying our call today is a presentation.
Speaker 3: If you'd like to view these slides in real time during the call, please visit the investors section of our website at cognite.com, click on the investors tab, 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...
Speaker 3: may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of the federal securities laws.
Speaker 3: 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, except as required by law, Cognite assumes no obligation to update or revise them.
Speaker 3: Investors are cautioned not to place undue reliance on these forward-looking statements.
Speaker 3: and other risks and uncertainties could cause cognites actual results to differ materially from those indicated in these forward-looking statements.
Speaker 3: Please see our annual report on Form 20F for the fiscal year ended January 31, 2023, and other filings we make with the SEC.
Speaker 3: The financial measures discussed today include non-GAAP measures.
Speaker 3: We believe investors focus on non-GAAP financial measures in comparing results between periods and among our peer companies that publish similar non-GAAP-root measures. Please see today's presentation slides, our earnings release, and the investors section of our website at cognite.com for a reconciliation of non-GAAP financial measures to GAAP measures.
Speaker 3: non-GAAP financial information should not be considered in isolation from, as a substitute for, or superior to, GAAP financial information, but is included because management believes it provides meaningful information about the financial performance of our business and is useful to investors for informational and comparative purposes. The non-GAAP financial measures the company uses have limitations and are not applicable to the company's financial performance.
Speaker 3: and may differ from those used by other companies.
Speaker 3: Now, I would like to turn the call over to Elad.
Speaker 4: Thank you, Dean. Welcome everyone to our first quarter conference call.
Speaker 4: I'm pleased to report a good start for the year with solid Q1 results across several quissed our Pro Intelligence
Speaker 4: Revenue grew sequentially and came in ahead of our expectation at 73 million dollars.
Speaker 4: I am very pleased with our growth margins increasing by 800 basis points compared to Q1 last year and growth profit increasing 7% over here on an SaaS adjusted long gap basis.
Speaker 4: Free cash flow was very strong, coming in at $70 million, also ahead of our expectations.
Speaker 4: Today, I'll start with a review of our first quarter significant wins in market dynamics.
Speaker 4: Next, I will discuss our differentiated technology and how we believe a real position to leverage the latest AI innovations to increase customer value. And lastly, I'll discuss our updated outlook for the year.
Speaker 4: I would now like to review some of our significant wins in the quarter that highlight our differentiated technology and deep custom relationship.
Speaker 4: Our investigative analytics solutions help national security, law enforcement, national intelligence and other security organizations to accelerate investigations. The first deal is for approximately $8 million with an existing national intelligence customer for its mission to combat drug trafficking.
Speaker 4: and other high-impact crimes around the borders. We believe we are selected because of our cutting-edge technology that consistently outperforms solutions from other vendors during the variety of operational activities performed by this customer.
Speaker 4: The second deal is with an existing NOS Security Customer for approximately $9 million.
Speaker 4: It represents an expansion of our customers' capabilities and functionality for its mission to address an increase of terror and criminal activities in the country.
Speaker 4: We believe we are selected due to our ability to accelerate security investigations and the long-term relationship we have with this customer.
Speaker 4: The third deal is so approximately $5 million from an existing national security customer.
Speaker 4: The deal is to expand capacity and widen the operational capabilities of the solution to more effectively combat your activities.
Speaker 4: We deliver selected based on our long track record of success in value creation.
Speaker 4: The common thread we see through these wins is our innovative and differentiated investigative analytics solutions and our ability to help customers successfully create a personal value. Looking at the current packet dynamics, we see a noticeable change that's as hot as so last year.
Speaker 4: Here we go, many customer staffers from budget uncertainties which impacted the visibility and ability to plan ahead.
Speaker 4: This year, more customers are expressing confidence in the budgets and plans.
Speaker 4: Our customers in case confidence supports our expectations for the year and is translating into more discussions about future needs. For example, at recent industry conference we saw a higher level of attendance and interest from customers.
Speaker 4: Overall, we clearly see more customers returning to normal behavior this year compared to what was happening a year ago.
Speaker 4: Next, I would like to discuss our innovation and differentiation.
Speaker 4: Our customers fetch unique challenges when it comes to investigating on analytics and decision-making.
Speaker 4: They have to fuse an analyzed data scale from a large variety of different sources including sensitive data.
Speaker 4: The objective is to uncover insights quickly to accelerate investigations.
Speaker 4: Cognit is focused on investigating analytics in order to uncover hidden connections inside large diverse data sources.
Speaker 4: We have been doing this for many years by continuously improving the functional lyrics and incorporating the official intelligence model in our solutions.
Speaker 4: The recent development in the AI will guide us with new opportunities.
Speaker 4: We are currently focused on leveraging the latest innovations to enable our customers to derive even greater value from their data.
Speaker 4: We believe there are new market segments that face investigating analytics challenges that present us with good expansion opportunities over time.
Speaker 4: We believe that our long-term market leadership in investigative analytics combined with our technological strength and our strong relationships with our large customer base across the globe positions well to leverage AI innovation and drive long-term growth.
Speaker 4: Looking at our outlook for this fiscal year, given the improved visibility, we are worth in the revenue guidance for the year to $303 million plus or minus 2%, representing 7% the over-egoat at the midpoint on an SS-adjusted non-GAB basis.
Speaker 4: With revenue expected to grow by 7%, we now expect was profit to go faster at more than 10% year-over.
Speaker 4: At 4K flow, we are now expecting positive cash flow from operations for the full year.
Speaker 4: Looking beyond this year, given recent innovations in AI, will identify potential opportunities to expand our business with both existing and new customers.
Speaker 4: We believe that the combination of positive industry trends, our innovative technology and large global customer base position as well for long-term growth.
Speaker 4: Any Copyrightku?
Speaker 4: Our customers continue to face significant investigative challenges across many use cases.
Speaker 4: Our mission is to help them accelerate investigations and mitigate a wide range of threats before they unfold.
Speaker 4: And our customers' viewers is the main expert and trusted partner.
Speaker 4: We are pleased with our first quarter results and positive momentum and a raising guidance for the current year. Long term, we target continuous growth and margin expansion.
Speaker 4: Now, let me turn the call over to David to provide more details about our results and outlook.
Speaker 4: Turn the call over to David to provide more details about our results and outlook. David?
Speaker 5: Thank you a lot and the low everyone. Our discussion today will include none got to the national measures.
Speaker 5: The constellation between our gap and non- GAAP financial measures is available as Dean mentioned in our annual release and in the investor section of our website.
Speaker 5: Our website also includes a financial dashboard with the tab that details our historical results excluding the divested situation intelligence solutions.
Speaker 5: We are pleased with our Q1's financial results.
Speaker 5: as the B.A.D. solely performance across revenue, growth margin, cash flow and booking.
Speaker 5: They are all going to demand for our cutting edge investigative analytic solutions. Continue to be strong during the quarter and we continue to win deals from a variety of customers.
Speaker 5: Do you want to revenue came in at $73 million, up to $2 million from Q4? Dr. Rebanyu came in at $25 million, representing six percent sequential growth and 11 percent year-over-year growth. What profit was...
Speaker 5: Up 9% sequentially and 7% year over year, and our software growth portfolio grew faster than software revenue, and was up 90% sequentially and 80% year over year.
Speaker 5: Q1 growth margin was 68.4% after 250 basis points from Q4 and up 800 basis points from Q1 last year, primarily due to an increase in software revenue. Our growth marginal flex, our competitive differentiation and ability to create value for our customers. All of the revenue growth profit and growth margin growth rates I just discussed.
Speaker 5: our cost structure resulting in sequential revenue growth, higher gross margin and a significant reduce of operating costs. Our Q1NGAP operating loss was 5.5 million dollars and NGAP adjusted the EBDA loss was 2.3 million dollars.
Speaker 5: Turning to cash, we generate a significant positive cash reform operation of $19 million during Q1. The positive cash law was driven by our improved financial result and strong cash collection.
Speaker 5: Total RPO at the end of Q1 was $581 million and shorted in RPO was $283 million. At approximately the same level as it's Q4.
Speaker 5: This healthy backlog and continued demand allows us to increase again our outlook for the current year.
Speaker 5: Turning to fiscal 24.
Speaker 5: For the full year, we are raising our revenue outlook to $333 million, plus or minus 2%, reflecting approximately 7% year-over-year growth on an SIS-adjusted non-gab basis at the midpoint of the range.
Speaker 5: Our revenue outlook is given by our kind view of the Becker deployment schedule for this year and assumes similar macro environment conditions.
Speaker 5: Let me share with you more color on how we see the remainder of the year evolving.
Speaker 5: For revenue, best would current short and vehicle deployment schedule. We expect Q2 revenue similar to Q1 and the second half to be higher than the first half.
Speaker 5: As a result of the strength of the quality of our backlog and recent booking, we are increasing our full year non-gap gross margin expectation to 66.5%. An improvement of 150 basis points versus our previous outlook.
Speaker 5: and Eurobearing Improvement of 175 basis points on an SIS-adjusted non-GAB basis. Thank you.
Speaker 5: Gross margin will fluctuate between Quote's best filament and revenue mix.
Speaker 5: For our non-double operating expenses, we continue to expect total expenses of about $220 million for the full year and to be relatively flat throughout the year. Our improved cost structure combined with revenue growth and our growth margins.
Speaker 5: will allow us to improve operating margins of the time.
Speaker 5: The remains of track to achieve our goal to drive positive non-gap adjusted EBDA June Q4 of this fiscal year.
Speaker 5: A result, we are now expecting a smaller Arnold EPS loss.
Speaker 5: The midpoint of the revenue range we are now expecting a 53 cents annual non-GAP EPS loss and the improvement of seven cents versus our previous outlook.
Speaker 5: Our non-gap EPS will fluctuate quarter to quarter partially due to our non-gap attack expenses.
Speaker 5: We expect our key to non-gapic EPS laws to be larger than Q1 primarily as a result of our non-gap tax methodology.
Speaker 5: Starting to cash flow, giving the stone cash flow from operation we generate in Q1, and improve financial outlook.
Speaker 5: We are now expecting positive cash reform operations for the full year. We continue to expect about $10 million of payment for CAHPEX partially upset by additional receipts from the SAS divestiture related to the whole back and price adjustment which we expect to receive during the second half of their year.
Speaker 5: We believe this technological innovation increases the operational value of our customer degenerate-for-solution and health drive demand. We have plans with our first-quarter results.
Speaker 5: We now expect about $300 million of revenue.
Speaker 5: Plaster minus 2% and improve course margin and profitability for FY-24.
Speaker 5: We're expecting positive cultural form of version for the year.
Speaker 5: Looking beyond F424, we believe that the combination of our cutting edge technology, large and lower customer base.
Speaker 5: and the opportunity to address the needs of new customers position us well for long-term growth.
Speaker 5: With that, I would like to end the call over to the operator to open the line for questions.
Speaker 2: Operator? 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. We'll be compiled a Q&A roster. One moment for our first question. Thank you.
Speaker 2: And our first question will come from Mike, like those of NETEM, your line is open.
Speaker 3: Hey guys, Mike Shekos here. I appreciate the pronunciation on the last thing there, but thanks for getting me on here. One of the store out with the quarter itself and going over some of the upside and out performance that you guys were able to deliver. First, obviously revenue was above what we had anticipated. I know you guys were talking.
Speaker 4: Yes, so hi, mate. Yes, indeed. We see a healthy demand positive momentum in the market.
Speaker 4: over the last few quarters already and continuing to win significant deals. The reason for being ahead of expectations for Q1 is mainly related to backlog conversion scheduling.
Speaker 4: And that's the reason we're able to deliver more within the quarter.
Speaker 4: And that's the reason why I do believe I'm all within the quarter.
Speaker 6: pull it out because like your your backlog bookings right if I think about the Disclosure you guys provided today with RPO and current RPO climbing
Speaker 6: from 4Q to 1Q by a couple of million dollars, right? So when you're calling out that backlog conversion, should I interpret that as like backlog came in earlier than you guys had anticipated and you were still able to backfill that based on the fact that those those RPO and current RPO balances climbed sequentially. Like can you can you tease that out?
Speaker 4: Yes, so maybe before talking about the IPO, I want to share with you a little bit about the market dynamics today, because I think it's important. You know, we discussed the empty demand, discussed the positive momentum. We have strong backlog, long and short term, but we also see more no customers that are more confident in the budgets and plans.
Speaker 4: And actually the Q1 results are derived by accelerated custom readiness and for us being able to convert more backlog into revenue within the quarter. And that's what we see actually we see more and more customers in better position.
Speaker 6: but RPO and current RPO, you guys said that's flat sequentially. If I go back to my notes, it's actually up by a couple of million dollars. So, it's flat on a percentage basis, but then...
Speaker 6: You did grow it from 4Q to 1Q. One of the things that I'd like to hear, what has the typical cadence been? Like if I go from 4Q to 1Q last year, the year before, the year before that, traditionally is RPO and current RPO climbing sequentially from Q4 to Q1 or now?
Speaker 5: can go from quarter to quarter, but overall our IPO is very strong and our ability to convert more backlog in Q1 and giving the Q1 overall result gave us the ability to improve our outlook for the year. I believe that the IPO that we have the short-term and the long-term support for our level-future goals.
Speaker 5: and it's very solid.
Speaker 6: Thank you for that David. I do appreciate the fact that you guys are talking about the 1QL performance with this backlog conversion and customer readiness, but at the same time, those ORPO and current ORPO balances remain strong. So thank you for calling that out. I think the latest item that I really wanted to talk to you appreciates the color on Q2 and the fact that you're able to maintain that flat off X.
Speaker 6: for the remainder of the year, which I know we had spoken about last quarter. But if I look at the gross margins, that's the last item I really wanted to hit on with you guys before I turn it over to my colleagues. With gross margins, obviously you guys were well ahead of expectations.
Speaker 6: So can we do a similar, I guess line of questioning versus what we just did with revenue? First for gross margin, what helped drive that out performance in Q1? And then second, what provides you the confidence to now take up gross margin 150 bips for the year versus what we anticipated previously? Yes, so Mike, maybe I'll start and then David will
Speaker 4: for over time.
Speaker 5: about the specifics that we want to... Yeah, I will elaborate on that. So obviously we are very pleased with our growth margin in Q1 and also the ability to improve our outlook for the year. In total, we believe that year over year will be almost 400 basis point, 2075 basis point improvement. The main reason behind it is...
Speaker 5: the quality of the booking more software revenue. We see also in the mix in Q1 that our total software revenue were in a higher mix. It was almost 90% of our revenue. This trend that we are able to continue to deliver our, and we say that our premium solution with I margin.
Speaker 5: drive the growth margin over time and now we are looking for the year with the 6.5% and the main reason is the Q1 performance continued with last year and overall backlog which give us the confidence that we will be able to drive it.
Speaker 6: That's great. And I know we're talking about the mix, so just to put a finer point on it. So the assumption is that I guess the mix will normalize a little bit for the rest of the year. And that's why we should expect Q2 through Q4 to come down from this 60% level in Q1, but at the same time the booking's quality.
Speaker 6: is with benefiting that overall gross margin. Is that a fair characterization? Yes, that's fair. Terrific. I'll turn it over to my colleague. Appreciate it. Thank you so much. Thank you, Mike.
Speaker 2: in one moment for our next question. And our next question will come from Peter the Vane of Evercore, your line is open.
Speaker 6: Great, thanks guys for taking my question here. You know, you're commentary earlier on the call. You said better budget discussion seems like customers are returning to normal behavior versus last year. You kind of just maybe.
Speaker 7: Dive into that a little bit deeper. Explains us kind of what you're seeing on the top of the funnel conversion rates.
Speaker 7: and then your expectations, I think, throughout the rest of the year in terms of the macro-impacting your ability to go further and accelerate.
Speaker 4: Yes, thanks Peter. So we see a healthy demand and positive momentum and it's over the last two quarters already.
Speaker 4: We continue to enlarge deals. The backlog is strong as we discussed before and also our customers saying more and more for our customers saying that actually they are more confident about the budgets and the plans. And we also expect the demand for solutions to continue and increase.
Speaker 4: and actually a few drivers for that. First of all, we discussed it earlier in the call that the customers' challenges are becoming more complex and growing. So in order for them to be able to do the job, they need more analytics.
Speaker 4: More capabilities related to dealing with big data and it's really important for them to get this technology.
Speaker 4: Also, our customer's objective is being able to accelerate in time. The investigation, this is one, second to improve the accuracy of the investigation, and third to make it successful. Make it successful means to reach conclusive outcomes. So it's about time.
Speaker 4: actually present even greater value over time. So for that reason we see the demand of customers improving along the way and we believe that the recent development will also generate the monuments.
Speaker 4: I can give you an anecdote just to give you more color. We participated in industry trade show a couple of weeks ago in Europe .
Speaker 4: Big one and actually we saw that is Royal attendant more participants than we used to see before Many requests for meetings and demos Lots of interest in modernizing the technology with more analytics more AI Customers are now unlike last year that you know they were talking about pressing current needs
Speaker 4: They were talking to us about future needs and what else needs to be done in their side, in order for them to be able to accelerate their performance. So all of those are very encouraging signs. So I feel good about where we are today and I feel good about being able to continue growing in the long term.
Speaker 4: I hope this gives you some color about the dynamics of the market. Yeah, that's for the color. Maybe the last one is...
Speaker 7: Good to see pre-cash roads are higher. Maybe just talk about the levers that you're pulling internally on the top of the marketing side, on the D side. Now, what's the trade off? If you're going to deliver a little bit more leverage, maybe talk about what the trade off is, or maybe just, again, just emphasize on, where you're cutting costs while still being efficient in terms of growth. Thank you.
Speaker 5: So actually just to make sure that we understood the question, the question is about our margin expansion and the ability, the trade-off between increasing investment on the OPEC versus the growth. Is that correct?
Speaker 5: make sure that we understood the question. The question is about our margin expansion and the ability, the trade-off between increase investment on the OPEX versus the growth. Is that correct?
Speaker 5: So, you know, last year we had like to make a lot of decision about our cost structure and versus the opportunity.
Speaker 5: And when we look at, we believe that the opportunity is here. We are playing in this market for a long time. We are market leader. We know our customer base for a long time. Our solutions are.
Speaker 5: Very innovative and customer love what we provide them. When we're to think about like cost structure and what is the right thing to do, you need to balance between your short time and long time.
I think that we build a very well-organized organization that allow us to be there when the growth will come and capture it. I think that you can see that in Q1, the results, we are growing. We are improving our margin. And then we leave that if we continue over time.
Thank you for the color, guys.
Thank you for your good luck.
I'm sorry if you would like to ask a question, please press star 11 on your touch tone telephone. Again, for any questions, please press star 11. Our next question will come from a shawl, a yal of TV telling, your line is open.
Are these all existing clients or are they also new clients at any displacement opportunities that you're seeing out there?
Yes, so the examples I use this quarter are existing clients. It's upgrades of capacity and functionality. We did have also new logos in the quarter and we did give few examples of large deals coming from new customers in previous quarters. So timing is changing from time to time, whether it comes from existing or new customers.
adding more analytics, more AI, in order for them to be able to accelerate what they need to do, or the dealing with more data. So those are the drivers and we see it more and more with large customers that are expanding even further, as the value is greater now with analytics.
to be ready for what might be the next cycle, not that you're seeing that stability and maybe even reacceleration. What steps have you taken internally? So given the situation in the macro environment last year, we took several steps. The first one was,
to focus on the where the highest opportunity is in terms of market conditions, going to countries and to organizations that have more pressing needs, but also have the budget. This is one second, we've structured organization and adjusted the operating expenses to where it should be. And David mentioned that actually we balanced it in a way that in one hand we are able to overcome this macro-environment conditions.
actually focuses and realign the sales force to countries where we see an opportunity. So we in one hand focused on the market if I have to summarize we focus on markets and countries where we see the potential that is higher and they have budgets. One hand on the other hand adjusting the OPEX and prioritizing the activities to increase customer value versus
Thank you, Phil.
And I would now like to turn the call back to Dean Ridlon for closing remarks.
Thank you, Operator, and thank you everyone for joining us on today's call. Should you have any additional questions, please feel free to reach out to me, and we look forward to speaking with you again next quarter. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.