Q3 2024 Verint Systems Inc Earnings Call
Speaker 1: Good day and thank you for standing by. Welcome to the variant systems third quarter fiscal 2024 earnings conference call. At this time, all participants are in listen only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 1 on your telephone.
Good day, and thank you for standing by.
Systems' third quarter fiscal 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
I ask a question during the session you each press star one one on your telephone.
Speaker 1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Matthew Frankel, Investment Relations and Corporate Development Director. Please go ahead.
I didn't hear an automated message advising your hand is reyes towards really a question. Please press star one again.
Today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Matthew Frankel Investor Relations and corporate development Director. Please go ahead.
Thank you operator, good afternoon, and thank you for joining our conference call today.
Speaker 2: I'm here with Dan Bodnar, Varen CEO , Grant Highlander, Varen CFO , and Ellen Roden, Varen's Chief Corporate Development Attorney
Dan Bodner, Barents, CEO Grant Hollander, Barrett, CFO, and Alan Roden Burns Chief Corporate development Officer.
Speaker 2: 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.
Before getting started I'd like to mention that accompanying our call today is a slide presentation.
Could you decide in real time during the call. Please visit the IR section of our website at <unk> Dot com click on the Investor Relations tab and click on the webcast like it's like today's conference call.
Speaker 2: 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 Security Litigation Reform Act of 1995 and other provisions of the Federal Security...
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 laws.
Speaker 2: These four business statements are based on management's current expectations and are not guaranteed to future.
These forward looking statements are based on management's current expectations and are not guarantees of future performance actual results could differ materially from those expressed in or implied by these forward looking statements are.
Speaker 2: actual results could differ materially from those expressed in or implied by these four.
Speaker 2: The forward-looking statements are made as of the date of this call and as accepted as required by law, Berenson's no obligation to update or revise.
Forward looking statements are made as of the date of this call and except as required by law Geron seems no obligation to update or revise them.
Speaker 2: Investors are cautioned not to place undue reliance on these forward-looking statements.
Investors are cautioned not to place undue reliance on these forward looking statements.
Speaker 2: For more detailed discussion of how these and other risks and uncertainties could cause parents actual results to differ materially from those indicated in these folders and statements, please see our Form 10-K for the fiscal year ending January 31, 2023. Our Form 10-Q for the quarter ending October 31, 2023, when filed, and other filings we make with the SEC.
For more detailed discussion of these and other risks and uncertainties could cause 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, our Form 10-Q for the quarter ended October 31, 2023, when filed and other filings we make with the SEC.
Speaker 2: Financial measures discussed today include non-GAAP measures as we believe investors focus on these measures comparing results between periods and among our peer companies.
The financial measures discussed today include non-GAAP measures as we can.
Investors focus on these measures and comparing results between periods and among our peer companies. Please see today's slide presentation, our earnings release, and the Investor Relations section of our website at <unk> Dot com for a reconciliation of non-GAAP financial measures to GAAP measures.
Speaker 2: Please see today's slide presentation, our earnings release, and the investor relations section of our website at Verint.com for a reconciliation of non-GAAP financial measures
Speaker 2: 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 supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes.
non-GAAP financial information should not be considered nicely you from as a substitute for or superior to GAAP financial information, but it included because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and it is useful to investors for informational and comparative purposes.
Speaker 2: The non-GAF financial measures the company uses have limitations and may differ from those used by other companies. Now, I'd like to turn the call over to Dan.
The non-GAAP financial measures. The company uses have limitations and may differ from those used by other companies.
Now I'd like to turn the call over to Dan Dan.
Thank you Matt.
Speaker 2: We're pleased to report that our Q3 revenue and non-GAAP diluted EPS came in ahead of our expectations, and we are on track to finish the year strong.
I'm pleased to report that our Q3 revenue and non-GAAP diluted EPS.
It came in ahead of our expectations.
And we are on track to finish the year strong.
With double digit revenue growth in the fourth quarter.
Speaker 3: Today I will start with a review of our third quarter results.
Today, I will start with a review of our third quarter results.
Speaker 3: Then I will discuss our key wins, AI trends, and various platform differentiation.
Then I will discuss our key wins AI trends and various platform differentiation.
Speaker 3: And finally, I will provide a preview of our agenda for Investor Day next week. In Q3, revenue came in at $219 million.
And finally, I will provide a preview of our agenda for our Investor Day next week.
In Q3.
When you came in at $219 million.
non-GAAP diluted EPS came in at 65.
Speaker 3: In addition to our results coming in ahead of our expectations,
In addition to our results coming in ahead of our expectations.
Speaker 3: We saw several positive trends driven by our AI platform innovation.
Several positive trends.
Even by our AI platform innovation.
Speaker 3: First, in Q3, more than 50% of our SAS bookings included AI-powered bots, which is a significant
First in Q3 more than 50% for the first half bookings.
<unk> AI powered box.
Which is a significant increase from the prior year.
Speaker 4: Second, the vast majority of our new SAS ACV bookings came in as bundled SAS.
The vast majority of our newest ACB bookings.
I mean as bundled SaaS.
This significant improvement from last year.
Speaker 3: reflects demand for various AI, which is offered only in the various clouds.
It reflects demand for various AI, which is offered only in the very cloud.
Speaker 4: We're pleased to see a bookings shifting to more bundled SaaS.
We're pleased to see our bookings shifting to mobile.
Speaker 3: As brands seek to leverage AI to increase CX automation and adapt more AI from the variance platform.
As Brent seeks to leverage AI to increase.
Automation.
And adapt more AI from the variance platform.
Speaker 3: at our investor day next week, we'll discuss in much more detail how the Variant platform enables brands to build a workforce of people and bots working together.
At our Investor Day next week.
I will discuss in much more detail.
The platform enables brands to build a workforce of people and box working together.
Speaker 4: And the positive impact that customer AI adoption is expected to add.
The positive impact that customer AI adoption.
<unk> is expected to have on our growth.
Speaker 4: Let me turn to Q3 wins and pipeline growth.
Let me turn to Q3 wins and pipeline growth.
Speaker 4: In Q3, we continue to have significant wins across existing customers and new logos.
In Q3, we continue to have significant wins across existing customers and new logos.
Speaker 4: We received more than 30 orders in excess of $1 million PCV.
We received more than 30 orders in excess of $1 million PCB.
Speaker 4: As large enterprises across the globe continue to expand and adapt more applications and AI for our platform. These orders included a large order in excess of $20 million.
As large enterprises across the globe continue to expand and adapt more applications.
For our platform.
Yeah.
These orders included a large order in.
In excess of $20 million GCB.
From a leading entertainment services company in Europe.
Speaker 4: A $6 million DCV order from a leading telecom company in North America.
A $6 million.
<unk> order from a leading telecom company in North America.
Speaker 4: and a $4 million CCV order from a leading healthcare company in the U.S.
And a $4 million <unk> order from a leading healthcare company in the U S.
Speaker 4: I'm pleased that each of these three large orders included AI-powered bots. In fact,
I'm pleased that each of these three large orders.
AI powered box.
Speaker 4: Nine of our 10 largest bundled SaaS deals in Q3 included variant bots.
Perfect.
Of our 10 largest bundled SaaS deals in Q3.
Included various box.
Speaker 4: With respect to new logos, in Q3 we again added more than 100 new logos.
With respect to new logos in Q3, we again added more than 100, new logos.
Speaker 4: including large brands such as CarMax, Louis Vuitton, and Sky.
Including large brands, such as Carmax, Louis Vuitton and Sky.
Speaker 4: Our objective with new logos is to have them expand in our cloud platform and purchase more bots over time.
Our objective with new logos is to have them expanding our cloud platform.
And purchase more box overtime.
In addition to these orders.
I'm pleased to report that as of the end of Q3.
12 months plus pipeline.
Increased more than 20% year over year.
Speaker 4: While we've seen elongated sales cycles this year due to the macroeconomic environment, the demand for CX automation is strong, and customers' growing interest in AI is reflected by our expanding SAS pipeline.
While we've seen elongated sales cycles this year due to the macroeconomic environment.
The demand for CX reclamation is strong at customers' growing interest in AI is reflected by our expanding pipeline.
Speaker 4: Regarding fiscal 24, we expect to finish the year with double-digit revenue growth in Q4, and later Grant will discuss a Q4 outlook in more detail.
Regarding fiscal 'twenty four we.
We expect to finish the year with double digit revenue growth in Q4.
And later, Brian will discuss our Q4 outlook in more detail.
Next week at <unk>.
Speaker 4: We will review the completion of our SAS transition over the last three years and discuss
Investor Day.
We will review the completion of our SaaS transition over the last three years.
And discuss the next three years.
Speaker 4: with our next chapter focused on CX automation leadership and growth acceleration.
With our next chapter or focused on CX automation leadership and growth acceleration.
Speaker 4: Here is a quick preview of the agenda we plan to cover at Invest Today. First, we will review the last three years.
Here's a quick review of the agenda, we plan to cover at the Investor Day.
First.
We will review the last three years.
Following the spin of our cyber security business.
Speaker 3: During this period, our total revenue increased every year.
During this period.
Total revenue increased every year.
Speaker 4: while executing a complex sub-transition with large enterprise customers.
While executing a complex centralization.
Large enterprise customers.
Also as part of the SaaS transition.
Speaker 4: We invested in building a highly differentiated CX automation platform, which was launched
We invested in building a highly differentiated CX automation platform.
Which was launched earlier this year.
Speaker 4: And we can now shift our focus to execute our next chapter.
And we can now shift our focus to execute our next chapter.
Speaker 4: The second topic of the agenda will focus on the AI opportunity driving our next chapter over the next three years.
The second topic of the agenda will focus on the AI opportunity driving our next chapter over the next three years.
Speaker 4: We will review our CX automation platform and provide a deep dive into our AI differentiation.
We will review, our CX automation platform and provide a deep dive into our AI differentiation.
Speaker 4: including the 35 AI-powered bots available in the platform today.
The 35 AI powered box available in the platform today.
Speaker 4: We will discuss our go-to-market and the AI opportunity with our large customer base.
We will discuss our go to market.
In the AI opportunity with our large customer base.
Speaker 4: Barrett has a large customer base of enterprise customers, and we support four.
Eric is a large customer base of enterprise customers.
And we support 4 million agents worldwide.
Speaker 4: helping them to process 30 billion interactions annually.
Helping them to process 30 billion interactions annually.
Speaker 4: We believe we are well-positioned to augment this 4 million agents workforce in our base with our open platform.
We believe we are well positioned to augment this 4 million agents workforce.
Yes.
With our open platform and AI powered box.
Speaker 4: as the market shifts to a workforce of people and bots working together.
As the market shifts to a workforce of people and box working together.
Speaker 4: We have a significant opportunity in our large customer base and with new logos.
We have a significant opportunity in our large customer base and with new logos.
Speaker 4: The third topic on the agenda is the positive economic impacts of...
The third topic on the agenda is the positive economic impact.
<unk> increased AI adoption.
Speaker 3: Going forward, Variant is well positioned for the market shift to more bots and fewer people.
Going forward <unk> is well positioned for the market shifts to more box and fewer people.
Speaker 4: Variants deploying more bot licenses with fewer agent licenses will increase our TAM overall and provide us the opportunity to accelerate such revenue growth. To bring this to life we will provide specific examples
Various deploying more bought licenses.
With fewer agent licenses will increase our Tam overall and provide us the opportunity to accelerate revenue growth.
To bring this to life.
We'll provide specific example.
How we monetize our AI capabilities.
Speaker 4: and the resulting positive impact to our long-term financial morals.
And the resulting positive impact to our long term financial model.
In summary.
Speaker 4: We're pleased to have overachieved revenue and long gap diluted EPS in Q3 and are on track to finish the year with strong double-digit revenue growth in Q4.
We're pleased to add overachieve revenue and non-GAAP diluted EPS in Q3 and.
And are on track to finish the year with strong double digit revenue growth in Q4.
Speaker 4: We are also encouraged by the increase in our pipeline, the addition of new logos, and the increase in customer adoption.
We are also encouraged by the increase in our pipeline. The addition of new logos.
And the increase in customer adoption ovarian box.
Speaker 4: We're excited about our next chapter of growth, driven by customer AI adoption, and look forward to seeing you at our event today. And now, let me hand the call over to.
We're excited about our next chapter of growth driven by customer AI adoption.
I look forward to seeing you at our Investor day.
And now let me hand, the call over to grant.
Great.
Thanks, Dan and good afternoon, everyone.
Speaker 5: 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.
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 then the IR section of our website.
Speaker 5: 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,
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.
Speaker 5: 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. Now, let me.
Facilities and infrastructure realignment as well as certain other items that can vary significantly in amount and frequency from period to period.
Now, let me start with an overview of our Q3 results.
Speaker 5: Revenue came in at $219 million, $4 million ahead of our guidance.
Revenue came in at $219 million 4 million ahead of our guidance.
Speaker 5: Non-gap gross margins came in strong at 71%, slightly above the prior year, and up 180 basis points from Q2. We continue to be pleased with our gross margin expansion progress this year.
non-GAAP gross margins came in strong at 71% slightly above the prior year and up 180 basis points from Q2, we.
We continue to be pleased with our gross margin expansion progress this year.
Speaker 6: The combination of our revenue overachievement and strong gross margins drove non-GAAP diluted EPS of $0.65, $0.08 ahead of expectations.
The combination of our revenue over achievement and strong gross margins drove non-GAAP diluted EPS of <unk> 65.
<unk> ahead of expectations.
For Q4 at.
Speaker 5: At the midpoint of our annual guidance, we expect around $264 million of revenue, representing 11% year-over-year growth, another quarter of sequential gross margin expansion.
At the midpoint of our annual guidance, we expect around $264 million of revenue, representing 11% year over year growth.
Another quarter of sequential gross margin expansion.
Speaker 5: and about 99 cents of non-GAAP diluted EPS.
And about 99 of non-GAAP diluted EPS.
Speaker 5: As we discussed last quarter, a large sequential revenue increase in Q4 is driven by significant expected growth of our unbundled SAS revenue stream.
As we discussed last quarter, our large sequential revenue increase in Q4 is driven by significant expected growth of our unbundled SaaS revenue stream.
Speaker 5: For full year fiscal 24, our guidance for revenue is 910 million plus or minus 2%, and $2.65 for non-GAAP diluted EPS at the midpoint of our revenue guidance.
For full year fiscal 'twenty for our guidance for revenue is $910 million, plus or minus 2% and $2 65.
For non-GAAP diluted EPS at the midpoint of our revenue guidance.
Speaker 5: I will discuss our guidance in more detail later, but first I would like to provide additional color on our Q3 performance.
I will discuss our guidance in more detail later, but first I would like to provide additional color on our Q3 performance.
Speaker 5: Starting with SAS metrics, several important leading indicators came in very positive. The first indicator
Starting with SaaS metrics several important leading indicators came in very positive.
The first indicator is bookings mix.
Speaker 5: new SAS ACV bookings came in at $25 million, or an annual run rate of around $100 million, consistent with our expectations.
New SaaS ACB bookings came in at $25 million or an annual run rate of around $100 million consistent with our expectations.
Speaker 5: Looking at the SAS bookings mix in Q3, nearly 90% of our new SAS ACV bookings were for bundled SAS, compared to 65% in the prior year.
Looking at the SaaS bookings mix in Q3, nearly 90% of our new SaaS ACB bookings were for bundled SaaS compared to 65% in the prior year.
Speaker 5: Also, more than 50% of our new SAS ACV bookings included box.
Also more than 50% of our new SaaS ACB bookings included box representing.
Speaker 5: representing a large increase in customer AI adoption from the prior year.
Representing a large increase in customer AI adoption from the prior year.
Speaker 5: Since today our bots are only offered in the Barrett cloud, which we report as bundled SaaS revenue, we expect our bot innovation to drive growth in our bundled SaaS revenue stream going forward.
Since today or bots are only offered in the cloud, which we report as bundled SaaS revenue, we expect our bot innovation that drive growth in our bundled SaaS revenue stream going forward.
The second indicator is pipeline.
Speaker 5: We continued to see strong growth in our 12-month SAS pipeline, which was up more than 20% year-over-year, driven by our OpenAI platform and bot.
We continued to see strong growth in our 12 months SaaS pipeline, which was up more than 20% year over year, driven by our open AI platform and box.
Speaker 5: Similar to the bookings mix trend, our SAS pipeline has also trended to bundled SAS, which now represents nearly 90% of our SAS pipeline and reflects the strength of our AI platform and bots.
Similar to the bookings mix trends, our SaaS pipeline has also trended to bundled SaaS, which now represents nearly 90% of our SaaS pipeline and reflects the strength of our AI platform and bonds.
Turning to SaaS revenue.
Speaker 6: As we have discussed in the past, the revenue recognition for bundled SAS and unbundled SAS under ASC 606 are very different.
As we have discussed in the past the revenue recognition for bundled SaaS and unbundled SaaS under ASC 606 are very different.
Speaker 6: Bundled SAS revenue is recognized radibly over the term of the contract, whereas unbundled SAS revenue is recognized predominantly up front.
Bundled SaaS revenue is recognized ratably over the term of the contract, whereas unbundled SaaS revenue is recognized predominantly upfront.
Speaker 6: Due to this difference in accounting treatment, unbundled SAS revenue, as well as the year-to-year growth rates, can fluctuate significantly from quarter to quarter.
Due to this difference in accounting treatment.
Bundled SaaS revenue as well as the year to year growth rates can fluctuate significantly from quarter to quarter.
Speaker 6: Therefore, I will discuss the unbundled and bundled revenue streams separately and also share SAS ARR that normalizes these accounting differences.
Therefore, I will discuss the unbundled and bundled revenue stream separately and also share SaaS AAR that normalizes these accounting differences.
Speaker 6: As you can see from the table on the left, bundled SAS revenue has been trending up quarterly, and we had another quarter of sequential revenue growth in Q3.
As you can see from the table on the left bundled SaaS revenue has been trending up quarterly and we had another quarter of sequential revenue growth in Q3.
Speaker 6: We expect bundled SAS revenue to increase sequentially again in the fourth quarter, and for the year, we expect double-digit revenue growth in bundled SAS.
We expect bundled SaaS revenue to increase sequentially again in the fourth quarter and for the year, we expect double digit revenue growth and bundled SaaS.
Speaker 6: From the table on the right, you can see our unbundled SAS revenue has fluctuated quarter to quarter, and we expect a significant increase in Q4 to around $100 million of revenue.
From the table on the right you can see our unbundled SaaS revenue has fluctuated quarter to quarter and we expect a significant increase in Q4 to around $100 million of revenue.
Speaker 6: While year-over-year growth in unbundled SAS revenue can fluctuate quarterly, for the full year, we also expect double-digit revenue growth for unbundled SAS.
While year over year growth and unbundled SaaS revenue can fluctuate quarterly for the full year. We also expect double digit revenue growth for unbundled SaaS.
Speaker 6: Let me provide some more detail on what is driving the large sequential increase in unbundled SAS revenue in Q4.
Let me provide some more detail on what is driving the large sequential increase in unbundled SaaS revenue in Q4.
Speaker 6: Three years ago, we started a new program under which we offered our customers multi-year SAS contracts that were recognized as part of our unbundled SAS revenue.
Three years ago, we started a new program under which we offered our customers multi year SaaS contracts that were recognized as part of our unbundled SaaS revenue.
Speaker 6: This program is ongoing and when these contracts come up for renewal, the value is predominantly recognized up front in the quarter in which the contract is renewed.
This program is ongoing and when these contracts come up for renewal the value is predominantly recognized upfront in the quarter in which the contract is renewed.
Speaker 6: With respect to Q4, we have a significant amount of unbundled SAS contracts coming up for renewal.
With respect to Q4, we have a significant amount of unbundled SaaS contracts coming up for renewal.
Speaker 6: In fact, when analyzing the 48 million sequential increase in Q4 unbundled SAS revenue,
In fact, when analyzing the $48 million sequential increase in Q4 unbundled SaaS revenue.
Speaker 6: 40 million of the 48 million increase is driven by these renewals.
$40 million of the $48 million increase is driven by these renewables.
Speaker 6: It's important to note that quarterly fluctuations of unbundled SAS revenue also drives quarterly fluctuations in our total SAS revenue.
Overall.
It's important to note that quarterly fluctuations of unbundled SaaS revenue also drives quarterly fluctuations in our total SaaS revenue.
Speaker 6: Looking forward, we expect total SAS revenue to increase around 25% in Q4, which brings our full year to about 15% year-over-year growth.
Looking forward, we expect total SaaS revenue to increase around 25% in Q4, which brings our full year two about 15% year over year growth.
Speaker 6: Let me now turn to SAS ARR, which is a way to look through the unbundled quarterly fluctuation.
Let me now turn to SaaS, IRR, which is a way to look through the unbundled quarterly fluctuations.
Speaker 6: As a reminder, SAS ARR normalizes all SAS contracts to reflect a consistent and annualized ratable view and is becoming an important metric to understand our SAS growth trends as customers shift to the variant cloud and our revenue shifts to bundled SAS.
As a reminder, SaaS are our normalized is all SaaS contracts to reflect the consistent and annualized ratable view and is becoming an important metric to understand our SaaS growth trends as customers shift to the <unk> cloud and our revenue shifts to bundled SaaS.
Speaker 6: Q3 SaaS ARR growth came in at 11% year-over-year, reflecting our new SaaS ACV bookings and solid SaaS renewal rate.
Q3, SaaS <unk> growth came in at 11% year over year, reflecting our new SaaS ACB bookings and solid SaaS renewal rates.
We just covered the unbundled and bundled revenue streams and now I'd like to briefly discuss the other two software product related revenue streams perpetual and support.
Speaker 6: Our perpetual revenue came in at 25Million in Q3, and as we have completed our perpetual license to SASH transition, we expect it to remain around 25Million in Q4 and going forward.
Our perpetual revenue came in at $25 million in Q3, and as we have completed our perpetual license to SaaS transition, we expect it to remain around $25 million in Q4 and going forward.
Speaker 6: In Q3, our support revenue continued to gradually decline as our support base shifts to SAS over time.
In Q3, our support revenue continued to gradually decline as our support base shifts the SaaS over time.
Speaker 6: Q4, we expect a decrease of approximately $1 million.
For Q4, we expect a decrease of approximately $1 million.
Speaker 6: At Investor Day next week, we will discuss trends for our four software product-related revenue streams over the next three years.
At Investor Day next week, we will discuss trends for our four software product related revenue streams over the next three years.
Speaker 6: Turning to gross profit, I am pleased to report that our non-GAAP gross margins continue to expand in the quarter, both sequentially and year-over-year to 71.3%.
Turning to gross profit.
I'm pleased to report that our non-GAAP gross margins continued to expand in the quarter, both sequentially and year over year to 71, 3%.
Speaker 6: Year-to-date, our non-GAAP gross margin came in at 70.2%, up 100 basis points compared to the same period last year.
Year to date, our non-GAAP gross margin came in at 72% up 100 basis points compared to the same period last year.
Speaker 6: For Q4, we expect non-GAAP gross margin to be around 73%, also up more than 100 basis points year over year.
For Q4, we expect non-GAAP gross margin to be around 73% also up more than 100 basis points year over year.
Speaker 6: We believe our ability to increase gross margins reflects the strength of our AI.
We believe our ability to increase gross margins reflects the strength of our AI innovation.
Speaker 6: CX Automation creates significant ROI for brands as it enables them to reduce costs while at the same time elevating customer experience.
Dx automation creates significant ROI for brands as it enables them to reduce costs, while at the same time elevating customer experience.
Speaker 6: Variance is able to capture a portion of these customer savings in the way we price our solutions, which benefits our gross margin.
<unk> is able to capture a portion of these customer savings and the way, we price our solutions, which benefits our gross margins.
Speaker 6: We will also discuss our improved economics due to AI adoption further at our Investor Day next week.
We will also discuss our improved economics due to AI adoption further at our Investor Day next week.
Turning to our annual guidance on a non-GAAP basis for revenue, we expect $910 million plus or minus 2%.
Speaker 6: For revenue, we expect $910 million, plus or minus 2%.
Speaker 6: At the midpoint of our guidance in Q4, we expect $264 million of revenue.
At the midpoint of our guidance in Q4, we expect $264 million of revenue.
Speaker 6: We expect both gross margin and operating margin to increase around 100 basis points year over year.
We expect both gross margin and operating margin to increase around 100 basis points year over year.
Speaker 6: And for diluted EPS, we expect $2.65 at the midpoint of our revenue guidance.
And for diluted EPS, we expect $2 65 at the midpoint of our revenue guidance.
Speaker 6: Regarding below-the-line assumptions for Q4, we expect interest and other expense of around $1.9 million.
Regarding below the line assumptions for Q4, we expect interest and other expense of around $1 9 million.
Speaker 6: net income from a non-controlling interest of around $250,000.
Net income from Noncontrolling interest of around 250000.
Speaker 6: And for the full year, we expect around a 9.5% cash tax rate and around 74 million fully diluted shares outstanding.
And for the full year, we expect around nine 5% cash tax rate at around 74 million fully diluted shares outstanding.
Turning to our balance sheet, we continue to be in a very good financial position.
Speaker 6: Our net debt remains well under one times last 12-month EBITDA and is further supported by our strong cash flow.
Our net debt remains well under one times last 12 months EBITDA and is further supported by our strong cash flow.
Speaker 6: I am pleased to report that gap cash from operations is up 19% year over year through the first nine months.
I am pleased to report the GAAP cash from operations is up 19% year over year through the first nine months.
Speaker 6: Regarding our previously announced $200 million stock buyback program.
Regarding our previously announced $200 million stock buyback program to date, we have repurchased close to $150 million worth of shares.
Speaker 6: To date, we have repurchased close to $150 million worth of shares.
Speaker 6: This program was announced in Q4 last year as a two-year program, but we now expect to complete it faster than planned.
This program was announced in Q4 last year as the two year program, but we now expect to complete it faster than planned.
Speaker 6: Looking forward, we expect to announce a new program once the current one is completed.
And looking forward, we expect to announce a new program. What's the current one is completed.
Speaker 6: We are pleased to have overachieved our revenue and non-GAAP diluted EPS expectations in Q3.
In summary.
We are pleased to have over achieved our revenue and non-GAAP diluted EPS expectations in Q3.
Speaker 6: We are encouraged by the positive leading indicators in bundled SAS bookings and SAS pipeline mix, and are on track to finish the year strong with double-digit revenue growth in the fourth quarter.
We are encouraged by the positive leading indicators and bundled SaaS bookings and SaaS pipeline mix and are on track to finish the year strong with double digit revenue growth in the fourth quarter.
Speaker 6: Next week at our Investor Day, we will provide a deep dive into our AI differentiation.
Next week at our Investor Day, we will provide a deep dive into our AI differentiation.
Speaker 6: review our financial model, and discuss our next chapter of growth driven by AI adoption. With that.
View, our financial model and discuss our next chapter of growth driven by AI adoption.
With that operator, please open the line for questions.
Speaker 1: Thank you. And at this time, we'll conduct the question and answer session. As a reminder to ask a question, you need to press star 11 on your telephone and wait for a name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Thank you and at this time, we will conduct a question and answer session. As a reminder, cancer question you will need to press star one on your telephone and wait for your name to be announced Twitter. A question. Please press star one again, please turn borrowing capacity Q&A roster.
One moment for our first question.
Okay.
Speaker 1: Our first question will come from the line of Joshua Riley from Needham. Your line is open.
And our first question will come from the line of Joshua Reilly from Needham Your line is open.
Speaker 7: All right. Thanks for taking my questions. Nice job on the quarter here. Maybe just starting off with a macro question. I noticed in the prepared remarks and in the press release,
Alright, Thanks for taking my question nice job on the quarter here maybe.
Maybe just starting off with a macro question I noticed in.
In the prepared remarks and in the press release.
Speaker 7: you didn't call out the elongated sales cycles, maybe to the degree that you had in the last couple of quarters. Can you just give us a sense of, has there been a shift in terms of the sales cycles or anything on the macro front that led to a little bit better net new ACV?
You can call out the elongated sales cycles.
Maybe to the degree that you had in the last couple of quarters.
Can you just give us a sense of has there been a shift in terms of the sales cycle is there anything on the macro front that might do a little bit better net new ATB.
Speaker 4: Yes, I think that what we're seeing is that no change. So, alligator sales cycles that we reported at the beginning of the year have not changed, but we've adjusted our forecast and our expectations to the market dynamics today.
Yes.
I think that.
What we're seeing is that.
So elevated sales cycle that we reported at the beginning of the year have not changed but we have adjusted our forecast and our expectations to.
The market dynamics today.
Speaker 4: So, you know, we hope that we'll see better economic environment next year, but what's driving up growth next year is a lot of the bundle size shift that is happening this year because the revenue is going to go up.
So.
We hope that we.
We will see better economic environment.
Next year, but.
What's driving our growth next year is a lot of the bundles, thus shift that is happening this year.
Because the revenue is lagging the booking.
Speaker 4: And the shift is really the more important change that we are reporting now in Q3.
And the shift is really the more important.
Change because we are reporting now in Q3.
Speaker 4: And it's all driven by AI, as Grant explained, I touched on that, all our innovation, all the bots in the platform are offered only in the Varying Cloud, which drives the bundled SaaS revenue condition.
And it's all driven by <unk>.
AI.
As grant explained.
Just on that.
All of our innovation all the Boston the platform are offered only in the very cloud, which drive the bundled SaaS revenue from Asia.
Speaker 4: So as customers are adopting bots and very important quarter by the way, because we announced our open stickers platform in Q2, in the middle of Q2, and Q3 was our first quarter that we actually was in full motion in the market with our customers. And nine out of the 10 largest bundles of deals came with bots.
So if customers are adopting bots and.
Very fourth quarter by the way because.
We announced our open platform in Q2 in the Middle of Q2, and Q Q3 was our first quarter that we actually was up.
In full motion.
In the market with our customers in nine out of 10 large largest SaaS.
And with such deals King was bought.
Speaker 3: So obviously they came in bundled stuff because that that's the way our customers will consume the iPhone variant. So that that is a shift. And of course.
So obviously, they can bundle SaaS because thats the way our customers will consume the AI from variant.
It is a shift and of course with <unk>.
Speaker 3: We're booking now is revenue next year.
Looking now at revenue next year.
Speaker 4: The other thing which again we report is the pipeline growth in Q3 and it's all very much 90% of the pipeline is bundled SAS and AI driven.
And.
The other thing, which again, we reported the pipeline growth in Q in Q3, and it's all very much 90% of the pipeline. These bundled SaaS.
Speaker 4: So no change in economic environment and so on, but definitely a behavioral change for customers, shifting more to AI and therefore shifting more to bundle.
And AI driven.
So no change in economic environment, and so on but definitely.
Behavioral change for our customers.
Shifting more to AI and <unk>.
Therefore shifting more to <unk>.
Speaker 7: Got it, that's helpful. And then if you look at this concept of, you know, fewer agent licenses and more bots going forward, is this something being discussed with customers today? And are they already kind of planning their contact center headcount accordingly for this technology shift with not only your AI products, but other vendors? Or is this something that you think is still a few years out from impacting contact center agent headcount?
Got it that's helpful. And then if you look at this concept of <unk>.
Your agent licenses and more bots going forward is this something being discussed with customers today and are they already kind of planning their contact center head count Accordingly.
<unk> shipped with not only your AI products, but other vendors or is this something that you think it's still a few years out from impacting contact center agent head count.
Speaker 4: We definitely are discussing this with our customers. I personally met with many CIOs over the quarter, and this comes up in every discussion. And the question is how fast it's going to happen, not whether it's going to happen. The desire our customers have is definitely to increase CX automation.
We definitely are discussing issues or questions I personally met with many CIO is over the quarter.
This comes up in every discussion and.
And the question is how fast it's going to happen and not weather.
It's going to happen the desire of our customers have is definitely to increase the explanation.
Speaker 4: because that's the only way they can elevate the customer experience and at the same time reduce costs. They just cannot continue to hire to elevate CX. And so that is definitely the center of the discussion with our customers. And the way we do that in our platform is also very differentiated.
Because that's the only way that can elevate the customer experience and at the same time reduce cost. They just cannot continue to hire to elevate CX and so that is definitely the.
Center of the discussion with our customers and the way we do that in a platform is also very differentiated.
Speaker 4: because we provide an orchestration mechanism for our customers to orchestrate, kind of dial up and down how many people and how many bots they actually wanna.
Because we provide.
The orchestration mechanism for customers to orchestrate kind of dial up and down how many people how many box they actually one one.
Speaker 4: want to have in their workforce. And that's why we call it a platform of one workforce, people and bots working together.
Having their workforce and Thats why we call it a platform of one workforce people in box working together.
Speaker 4: So next week in Investor Day, we're gonna spend a lot of time demonstrating the technology, the power of art, and also giving examples.
So next week in Investor day, we're going to spend a lot of time.
Demonstrating the technology deposit box.
And also giving examples.
Speaker 4: of what happened to the customer spend when they shift from people to bots and then what happened to the variant time and growth opportunity.
What happened to the customer spend when they shift from people to box and then what happened to the variant Tam and growth opportunity.
Speaker 4: And you will see with, again, very tangible examples that it's a win-win. Our customers are going to save a lot of money. They will increase their technology spend.
And you will see was again very tangible examples that.
It's a win win.
That's going to save a lot of money they will increase their technology spend.
Speaker 4: but the net decrease will be bigger because they will decrease much more the labor.
But the net decrease will be bigger because they all will decrease much more of a labor spend.
Speaker 4: So we expect, as a vendor, we expect that as they increase the technology spend on buying more bot licenses.
So we expect a vendor we expected as they increased the technology spend on buying more bought licenses.
Speaker 4: The impact on variant is that the gain from this both licenses is far greater than the loss from the agent license.
The impact on variant is that the.
The gain from this both licensees is far greater than.
Speaker 4: And again, we'll bring that all into the economic impact and provide a model so you can model that phenomena for the next few years.
The last one the agent license.
And again, we will bring that all into the economic impact and provide.
Tomorrow, So you can.
Model that phenomenon for the next three years.
Speaker 4: As where we are now, just to complete the answer, I mentioned before that we currently support 4 million agents.
Yes.
Where we are now just to complete the answer I mentioned before that we currently support 4 million agents.
Speaker 4: And when we look at our renewal rates, again, a good renewal rate in Q3, we have very...
And when we look at our renewal rates again.
Good renewal rates in Q3, we are very.
Speaker 4: You know, loyal customer base that's sticky because they like the product, they like the
Our loyal customer base that they're sticky because they like the product they like the.
Speaker 4: the value that we bring to them, but when we see this renewal rate, that 4 million number has not trended down yet.
The value that we bring to them, but when we see this renewal rates.
Thats 4 million number if not trended down yet so while customers are buying more bos, it's mostly to avoid more hiring.
Speaker 4: So while customers are buying more bots, it's mostly to avoid more hiring.
Speaker 4: And we don't see yet that they are reducing their agent headcount. At the same time, again, we are expecting that it's going to happen.
And we don't see after they are made.
Are you seeing there.
Agent head count at the same time again, we are expecting that it's going to happen.
Speaker 4: We're expecting not only this increased capacity that BOTS is going to bring to the workforce is not going to only be used for reducing labor costs, it's also going to be used for increasing customer experience.
We expecting not only increased capacity the box is going to bring through the workforce is not going to only be used for reducing labor costs. It's also going to be used for increasing.
Speaker 8: and increasing revenue opportunity with customers. We will discuss and again, demonstrate all that. We're gonna bring some customers and partner to talk about it next week. So that's gonna be front and center to our discussion, how the industry is shifting to more AI, variants are shifting to more bundled SaaS, and our TAM is growing because we have a much larger AI opportunity in the future. Thank you.
Customer experience.
<unk>, increasing revenue opportunity with customers, we will discuss it again.
Demonstrate all that we're going to bring some customers with partner to talk about it.
Next week, so that's going to be front and center to our discussion how the industry is shifting to more AI variant is shifting to more bundled SaaS and our Tam is growing because we have a much larger AI opportunity in the future.
Got it very helpful color. Thank you guys.
Thank you one moment for our next question.
Okay.
Speaker 1: Next question will come from the line of Hugh Cunningham from Kavan, your line is open.
Our next question comes from the line of Hugh Cunningham from Cowen Your line is open.
Speaker 9: Hey, guys, thank you for taking my question. You know, you know, from our side, let's say we also want to say our thoughts and prayers are with you. You're the the members of the family that are in Israel. That is still very much on the mind of everyone here. In terms of.
Hey, guys. Thank you for taking my question.
Okay.
From our side, let's say.
We also want to say our thoughts and prayers are with you.
The members of the family that are in Israel.
That is still very much on the mindset of everyone here.
In terms of.
The question that was just asked Dan do.
Speaker 9: Do you have a sense for your end customers, how many of them are focused on really enhancing their competitive position by improving their customer service?
Do you have a sense for.
For your end customers.
Many of them are focused on really enhancing their competitive position by improving their customer service.
Speaker 9: I'm not so focused on reducing costs by reducing contact center headcount.
I'm not so focused on reducing cost by reducing contact center head count.
Speaker 4: Yes, thank you for your kind note. I would say that today in the current environment...
Yes.
Thank you for your kind note.
I would say that today in the current environment.
Speaker 3: Customs are first and foremost focused on reducing their labor costs, but at the same time...
Customers are first in for all focused on reducing their cost their labor costs.
Speaker 4: They can't keep hiring to introduce better customer experience. So a lot of our customers are reporting that they know they need to hire people to elevate CX. They want to elevate CX because that's strategically important.
But at the same time.
Yeah.
They can't keep hiring to induce.
<unk>.
A better customer experience.
No.
A lot of our customers are reporting that they know they need to RFP flow to elevate CX. They want out of <unk>, because that's strategically important to them.
Speaker 4: But they're already spending a lot of money. It's very hard to hire and retain unacceptable agents. So they're looking, actually, first to stop the bleeding, which is increasing labor costs.
They're already spending a lot of money there are it's very hard to hire and retain.
<unk> agents, so they're looking actually first to stop the bleeding, we choose increasing labor cost.
Speaker 4: I personally again had discussions with executive level that are thinking beyond that and understand the power of customer loyalty and revenue generation over time, increasing from better customer sentiment. So I think that is.
I personally again have discussions with executive level.
That.
Our thinking beyond that.
And understand the power of.
Our customer loyalty and revenue generation over time.
Interesting.
Better customer sentiment, so I think that is.
Speaker 4: Personally, I think it's coming, but if I have to report what I see now in the market...
Personally I think it's coming but if I have to report what I see now in the market.
Speaker 4: The reason typically that currently they're buying is to help me reduce my labor.
There isn't typically that currently they are buying is helping you reduce my labor cost and because of that and because the <unk> is also very quick and.
Speaker 4: And because the ROI is also very quick, and they don't have to deploy, you know, if you are a 10,000 agent connect center, the way we provide you the bot consumption is you can have a volume-based consumption, so you can start with 200 agents.
And they don't have to deploy 10000 agent contact center.
Hey, we provide you with the box consumption.
As you can you can have a volume based consumption. So you can start with 200 agents and.
Speaker 4: and just look at what that does to increase capacity. And now that you've proven that in your own environment, if you want to expand, it's all in the very cloud. It's really just changing entitlement.
And just look at what does that Doug.
Chris capacity.
And now that you've proven that in your own environment, if you want to expand.
It's all of the various cloud, it's really just changing entitlement.
Speaker 4: and we're billing them for more bot consumption. So it's very easy for them to look at, OK, I'm going to start. I'm going to stop the bleeding in terms of I can't hire people I need now to bring bots.
We are billing them for more but consumption. So it's very easy for them to look at it okay I'm going to start I'm going to stop.
Stop the bleeding in terms of I can't hire people I need now.
Speaker 4: But as I keep increasing the volume, I may want to start to use those bots.
To bring box.
But as I keep increasing the volume I may want to start to use those boss.
Speaker 4: for freeing up people to do more customer service and more personal relationship building with customers. I personally think it's coming, but it's not yet.
For freeing up people to do more customer service and more <unk>.
Personal.
Our relationship building with customers.
First of all I think it's coming.
It's not yet.
Okay. Thanks for that Dan and then one question on the the bundled unbundled the mix it would seem to me that the motivation.
Speaker 9: It would seem to me that the motivation to switch to the variant cloud.
Speaker 9: and enter into a bundled agreement is compelling, particularly given that's the only way to access the bots and they're an AI. What am I missing on the other side? What's keeping, and there's this strong renewal this quarter or expected in Q4 for unbundled. Why is there strength still in the unbundled side? Why isn't everyone going to bundle?
To switch to the various cloud.
And enter into a bundled agreement is compelling, particularly given that's the only way to access the bots and AI.
Am I missing on the other side, what's keeping.
The strong renewal this quarter are expected in Q4 for unbundled.
Why is there strength still in the unbundled side, why isn't everyone going to bundle.
Speaker 4: Yes, so first you remember that Variant is very much the high-end of the market, mid-to-large enterprise customers, and if you look at kind of the industry reports, only 20% or under 20% of that end of segment of the market has moved to cloud, while Variant already has the majority of our customers in the cloud.
Yes so.
Firstly you.
You remember that variance is very much the high end of the market mid to large enterprise customers.
And if you look at kind of the industry reports, only 20% or under 20% of that and the segment of the market has moved to cloud while very important to have the majority of our customers in the cloud.
Speaker 4: So, from a revenue perspective. So the way we did that is, we know that our large customers did not want to be disrupted.
From a from a revenue perspective, so the way we did that is we know that our large customers did not want to be disrupted.
Speaker 4: Many of them have, when you have thousands of people, it's not one contact center, it's multiple. They may be in different countries, they may be with different technologies. So these large customers really do not have the desire to just rip and replace everything and do one big transformation into the cloud.
Many of them have when you have guidance of people. It is not one contact center, it's multiple they may be in different countries.
With different technologies. So these large customers really do not have day.
Desire to just rip and replace everything and do one big transformation into the cloud.
Speaker 4: So the way we designed our platform is, our bots only work in the Variant Cloud, but you don't need to bring your legacy Variant solution to the Variant Cloud.
So the way we designed our platform in a box.
Really working very cloud.
But you don't need to win your legacy Varian solution to the Varian club.
So our box working to cloud with your on Prem or we have many partners that are hosting our software. So a box in different clouds can work with a partner Claude can work with that customer class.
Speaker 4: What that did is it puts us in a position, and when we look at the Q3 booking results, that we have a lot of.
That date is.
It puts us in a position and when we look at the Q3 booking results that we have a lot of.
Speaker 4: bundle size booking for unbundled size customers. And when it comes time to renew, they renew in unbundle because they're not ready to rip and replace what's working.
Bundle SaaS booking from.
Unbundle SaaS customers.
And when it comes time to renew.
Renewing unbundle, because they are not ready to rip and replace what's working.
Speaker 4: But we gave them a path to consume AI in the Venn cloud without the need to go through a big transformation.
But we gave them a path to consume AI in the cloud without the need to go through a big transformation.
Speaker 4: Now, at some point in time, they're going to take the legacy and move it to the cloud as well. They're going to do it at their own pace.
Now at some point in time, they're going to take the legacy and moving to the cloud as well theyre going to do it at their own pace.
Speaker 4: And we know that at that point, we get some uplift. But we're not dependent on that transition.
And we noted at that point, we get some uplift.
But we're not dependent on that.
Speaker 4: for customers that only when they move to the cloud, they also buy variant bots. So we designed it that we decoupled the two things, and that's why we will see in Q4 many unbundled renewals.
<unk>.
For customers that only when they move to the cloud. They also buy variant bonds. So we designed it that we decoupled.
Thanks.
And Thats why we will see in Q4.
Unbundled renewals as grant.
Speaker 4: As Grant said, that's something we've been discussing now, those renewals from these customers for the last six months, that's typically when we start the renewal process and we know they're gonna renew and unbundle, and some of them, when they renew and unbundle, they're gonna add new capabilities, new AI capabilities in BundleSus. Okay, understood. Thank you, Dan.
<unk> said that Thats something.
So I think we've been discussing those renewals.
These customers.
The last six months, that's typically when we start the renewal process and we know what they're going to.
They're going to renew and unbundle and solve them when they renew and unbundle theyre going to add new capabilities, new AI capabilities in bundled stuff.
Okay understood. Thank you Dan.
Thank you.
Our next question.
Speaker 1: Next question will come from Peter Levine from Evacor. Your line is open.
And our next question comes from the line of Peter Levine from Evercore. Your line is open.
Speaker 6: Great, thanks guys for screwing me in here. Yeah, maybe grant. I think your comments was interesting to me on gross margin. She talked about you guys. The leverage you're seeing is coming from the cost savings. We just talk us through how that's getting calculated and how you're thinking about that as you plan for.
Great. Thanks, guys for squeezing me in here, maybe Greg I think your comment was interesting to me on gross margin you talked about you guys. The leverage Youre seeing is coming from the cost savings. So can you just talk us through how thats getting calculated and how youre thinking about that as you plan for next.
Speaker 6: Yeah. What I mentioned, Peter, was the cost savings that our customers realize, the way we price, right, our SaaS business, the AI,
Year.
Yeah, what I mentioned, Peter was the cost savings that our customers realize the way we price right.
<unk> SaaS.
Speaker 6: We're able to capture that, more of that, because the ROI is very high.
The AI.
We're able to capture more of that because the ROI is very high so.
Speaker 6: So, you know, that's what we see and why we look at this and, you know, the trajectory that we're on, as Dan mentioned, really driven on the back of the bundled SAS.
That's what we see and why we look at this in the <unk>.
Trajectory that we're on as Dan mentioned really driven on the back of the bundled SaaS bookings. We did this year driving some accelerated growth next year and even with the scale on that we see a path to expanded margins.
Speaker 6: bookings we did this year, drive in some accelerated growth next year. And even with the scale on that, we see a path to expanded margin.
Speaker 6: next year and and as we continue into the future.
Next year and as we continue into the future.
Speaker 3: Your guidance of the 100 million of the unbundled test.
Your guidance of the $100 million of the Unbundled SaaS Q4, you said that I think depending on the number of deals that are coming up for renewal maybe talk us through.
Speaker 8: for, you know, you said that's, I think, dependent on the number of deals that are coming up for renewal. Maybe talk us through, you know, where we are in that.
Where we are in that cycle, meaning 50%, 60%, 70% of those deals have closed or are you still expecting meaning how derisked with that number yes.
Speaker 8: 50%, 60%, 70% of those deals have closed, or are you still expecting that? Meaning, how do you risk that?
Speaker 6: Yeah, what you're asking is what kind of visibility do we have? It seems like a big number, right? And that's the important point. And 1 of the reasons why I wanted to share here.
You are asking is what kind of visibility do we have it seems like a big number right.
And that's the important point and one of the reasons why I wanted.
Speaker 6: Of that 100 million, 48 million sequentially, right up from Q3, and that's where 40 million of that growth comes from this renewal volume that we have.
To share here.
That 100 million $48 million sequentially right up from Q3, and Thats were $40 million of that growth comes from this renewal volume that we have.
Speaker 6: Whereas the 8 million, you know, of additional growth comes from new.
Whereas the 8 million.
<unk> growth comes from new.
Speaker 6: The renewal business tends to have less risk. We tend to see that because customers already have the software.
The renewal business tends to have less risk, we tend to see that because customers already have the software deployed.
Speaker 6: We begin discussions on the renewals with them six months in advance.
We begin discussions on the renewals with them six months in advance we know funding typically is secured so it's a different sales dynamic for this volume of renewals. It's really just that the timing of when these renewals have come up more of them are here in the fourth quarter and Thats what dry.
Speaker 6: We know funding, you know, typically is secured, so it's a different sales dynamic for this volume of renewals. It's really just that the timing of when these renewals have come up, more of them are here in the fourth quarter, and that's what drives a bit of that revenue dynamic, but looking at it across the year, right, has a little bit more natural dynamic along with the SAS AR that we're seeing.
Gives a bit of that revenue dynamic, but looking at it across the year right has a little bit more natural dynamic along with the SaaS AAR that we're seeing.
Speaker 8: If I could squeeze one last one and maybe just to follow up on an earlier question, is it a way that you can quantify for us, you know, we talked about some of the deals that pushed out of the second first half of.
Yes.
And if I could squeeze one last one and maybe just a follow up from an earlier question.
Is it way that you can quantify for us we've talked about some of the deals that pushed out of the.
First half into the second half.
Speaker 8: Can you quantify what you saw in Q3, perhaps, like, I got pushed into Q4, and then perhaps what, you know, getting pushed into, call it the first half of next week?
Can you quantify what you saw in Q3, perhaps like I got pushed into Q4, and then perhaps whats getting pushed into call. It the first half of next year.
Speaker 4: Yeah, I think that what we did after Q2 and we saw again Q1, the Q1 slip deal pushed to Q2 and then there was Q2, we just adjusted our focus, right? We came to Q2, we said we're going to lower the guidance for the year based on our reality of the deal cycle is just longer.
Yes.
Think that.
What we did after Q2 and we saw again Q1.
The Q1 slipped deal pushed to Q2 and then there was we just adjusted our forecast we gave in Q2, we said we're going to lower the guidance for the year.
<unk>.
Our.
Reality.
The deal cycles just longer.
Speaker 4: So we apply that what we saw in Q2 into Q3, and we were pretty much.
So we apply that what we saw in Q2 into Q3.
And we were pretty much where we expect it to be.
Speaker 4: So I think we're reading the market. There was a question before, is our thing getting worse? No, they're not getting worse. I don't think they're getting better, but I think we have adjusted our view. And that's why we got $25 million ACV in Q3. We're expecting a sequential increase and then a year-over-year increase in Q4, $25 to $30 million is kind of my range. And we think this is adjusting to the elongated sell cycles already.
So I think we are reading the market. There was a question before I think getting worse no they're not getting worse I don't think theyre getting better, but I think we have adjusted our view and Thats why.
We got $25 million basically in Q3, we are expecting.
The sequential increase in our year over year increase in Q4 $25 million to $30 million is kind of my range.
And we think this is adjusting to the to the elongated sales cycles already.
Speaker 8: And will we get any color to fiscal 25 numbers or their guidance for fiscal 25?
Okay.
We get any color into fiscal 'twenty five.
Numbers or the guidance for fiscal 'twenty five next week.
Speaker 4: We will discuss the next three years next week, right? That's why we've invested today. So I think we're gonna give you a lot of information about how to think about the opportunity that Variant has and how to marvel Variant for the next three years.
So.
We will discuss.
The next three years next week right.
Why we have Investor day, So I think we're going to give you a lot of.
Information about how to think about the opportunity that <unk> has on how to model variants for the next three years.
Speaker 4: First, we expect next year the revenue to grow and improve growth rates because of the bundles that's booking this year.
I would say that.
First we expect next year the revenue to grow.
Proved growth rates because of the bundles thats booking this year so.
Speaker 4: That increase in bundle sales this year will drive increase in revenue next year. So obviously, we discussed that.
That's increasing bundled SaaS this year will drive increasing revenue next year. So obviously, we discuss that.
We.
Speaker 4: We'll discuss the next year, the.
We'll discuss the next week.
Speaker 4: trends in detail, but the most important thing for us right now as we think about acceleration of growth rates next year and beyond is of course the industry that we're in is very labor intensive and it's ripe for automation.
The trends in detail, but the most important thing for US right now as we think about acceleration of growth rates next year and beyond is of course the industry that we're in is very labor intensive and it's ripe for automation.
Speaker 4: And we are at the early stage of this, and we know that our customers are buying bots, but it's still very early stage. And I think that's gonna drive the growth. So you'll see next week that the biggest growth driver for variants next year and beyond is gonna be bundle size.
We are the early stage of this and we know that.
Our customers are buying box, but it's still very early early stage and I think that's going to drive the growth. So you will see next week, but the biggest growth driver for variance next year and beyond is going to be bundles.
Speaker 4: And because all our innovation has moved into bundled SaaS, we're still innovating in unbundled. It's not that we are telling our customers that they have to move away from legacy. We're absolutely giving them updates, software updates on everything that is in unbundled. But if they want to buy AI, there is no AI available from Variant in unbundled.
Bundles us.
And because that because all of our innovation has moved into Burma fast we're still investing in unbundled. It's not that we are telling our customers that they have to move away from legacy we absolutely giving them updates software updates on everything that is in unbundle, but if they want to buy AI. There is no AI available from Barrington Unbundle.
Speaker 4: All the AI has to buy in the very cloud and that's the bundle size and that's what's going to be the main driver. So let's kind of wait for next week. You'll see as we dissect each one of the revenue streams that Grant mentioned before. Bundle size, unbundle size, support, perpetual. We'll take all these streams and today we can review them for the last three years and we're going to review them for the next three years. Thank you.
All of the AI actually buying the brand cloud and Thats, the bundled SaaS and that's what's going to be the main driver.
No.
Yes.
Wait for next week, you will see as we dissect each one of the revenue streams as grant mentioned before.
<unk> SaaS unbundled SaaS support perpetual will take all the streams and we today, we kind of reviewed in for the last three years and we're going to review them for the next three years.
Great. Thank you very much for the color guys.
Thank you and as a reminder.
Speaker 1: a question, that's star 11. Once again, that's star 11. One moment for our next question.
To ask a question Thats star one to one once again Thats Star 111 moment for our next question.
Speaker 1: Question will come from line of Samad Samana from Jeffries line is open
Our next question comes from the line of Samad Samana from Jefferies. Your line is open.
Speaker 10: Hi, good evening. Thanks for sharing my questions. I guess maybe one, Dan, on the 4 million agents, I think you said that the majority of the, like the revenue is in the cloud, but I was just curious, of those 4 million agents that are using the software on a daily basis today, how many of those are accessing it via cloud deployment versus an on-premise deployment? I'm just trying to see maybe what the opportunity there is to continue pushing the actual users.
Hi, good evening, Thanks for taking my questions I guess, maybe one on the four.
4 million agents.
Said.
The majority of the eight.
The revenue is in the cloud, but I was just under 4 million agents that are using the software on a daily basis today, how many of those are accessing it via a cloud deployment versus an on premise deployment.
I'm just trying to see maybe what the opportunity there is.
To continue pushing the actual users.
Speaker 10: to the cloud side, so I'm just curious to have a couple of follow-ups.
And to the cloud side, just curious and I have a couple follow ups.
Speaker 4: Yeah, no, very good question. So when you look at, you know, we mentioned that more than once, actually, that we have completed the SAS transition. So let's be clear about what that is. So in terms of new perpetual license revenue.
Good question. So when you look at we mentioned that more than one so actually that we have completed the SaaS transition so.
Let's be clear about what that is.
In terms of new perpetual license revenue.
Speaker 4: As we said, we are at $25 million run rate this quarter. We expect it next quarter. We expect it going forward. So we have a certain amount of customers that are on-prem and will remain on-prem, and that's going to be about $100 million of revenue annually.
As we said we are $25 million run rate. This quarter, we expect the next quarter, we expect it going forward. So we have a certain amount of customers that are on Prem and will remain on prem and thats going to be about $100 million.
Of revenue annually.
Speaker 4: Most of these customers, by the way, are financial services, and for a variety of reasons, they're not moving to the cloud anytime soon. So that's kind of one class of customers that are still buying in perpetual lifetime.
Most of discussions by the way are financial services and full variety.
A variety of reasons.
Moving to the cloud anytime soon so thats kind of one class of customers that are still buying in perpetual license.
Speaker 4: Okay, everyone else is buying in a SAS model, but we still have about $140 million.
Okay everyone.
<unk>.
It is buying.
In a SaaS model, but we still have about $140 million.
Speaker 4: that our support, this is support stream, right? And these customers are paying maintenance support and therefore they're still on prep.
That our support business support stream.
These customers are paying maintenance to support and therefore, they are still on track.
Speaker 4: They're not buying anything new in perpetual license, but they have not converted yet to a SAS license. So that's 100.
They are still they're not buying anything new in perpetual license, but they have not converted yet to SaaS license, so thats a $140 million.
Speaker 4: And then when you look at our bundle SAS, it's all in a different cloud.
And then when you look at our.
Bundled SaaS, it's all unified cloud.
Speaker 4: Roughly, you can say about half of the unbundled running in a part of the cloud. Not in the variant cloud, so that's why they are unbundled. But approximately half is running in some.
And unbundled SaaS.
Roughly you can say about half of the unbundled running in the.
Product cloud not only very cloud so thats why they unbundle.
They are.
<unk> is running in some.
Speaker 4: variant partner cloud, and the other half is running at the customer choice, whether it's on-prem or in their choice of the cloud hosting provider.
Various product cloud and the other half is running at the customer choice, whether it's on Prem or.
In in their choice of cloud hosting provider.
Speaker 4: So I can't tell you exactly the number is, but you can see that more than 50% if you add the numbers.
So I can't tell you exactly the numbers, but you can see that more than 50% if you add the numbers.
Speaker 4: and we're happy to walk you through that map, but if you have this knowledge, you see that more than half of our customers are running in multi-tenant cloud somewhere, either in a parent cloud or in a partner cloud.
And we're happy to walk you through that math, but if you have this number you can see that more than half of our customers are running in multi tenant cloud somewhere.
<unk> cloud or in a private cloud.
Speaker 4: And the remaining are either on-prem or they are in some sort of a SAS subscription model, but not yet in the variant cloud or in the variant partner cloud.
And the remaining are either on prem or they are in some sort of SaaS subscription model, but not yet in the very in cloud or in a very partner club.
Is that would be great, yes, definitely appreciate that and then.
Speaker 10: Definitely appreciate that. And then maybe just thinking about
Maybe just thinking about.
Speaker 10: the different partners that you work with. I know we talked about sales cycles by customers and kind of had those elongated. Are you seeing a change in the partners that you work with, demand from them or anything that's kind of idiosyncratic that we should be aware of from some of your larger partners that use Verit to provide WFO to their end customers? And is that something that's also, how much visibility do you have into that for the fourth quarter?
The different partners that you work with I know, we talked about sales cycles by my customary they kind of had those elongated are you seeing a change in in the partners that you work with demand from them or anything thats kind of idiosyncratic that we should be aware of from some of your larger partners that that.
Use barrick can provide Wi fi to their end customers.
And is that something Thats also how.
Would you visibility do you have into that for the fourth quarter.
Speaker 4: Yeah, we see definitely a change. All our partners want to resell their inbox.
Yes, we see definitely a change or our partners want to resell varying box.
Speaker 4: So it's no longer WFO, I mean, they're still selling WFO.
So it's no longer <unk> I mean, they still selling <unk>, which is our legacy product.
Speaker 4: is our legacy product, but they all are being asked by the end customer, hey, you know, I saw Variant has this thing, can I get it? So they need to buy it in the Variant Cloud. So all our partners, almost without any, I would say all, but there's always exceptions, but the vast majority are now reselling in the Variant Cloud or in the process of onboarding themselves to resell in the Variant Cloud so they can have access to the Variant AI.
They all are being asked by the end customer.
So varian has this thing can I can I get it so they need to buy in the Rand cloud. So all Barclays almost without any I would say all but there's always exceptions, but the vast majority are.
Now resetting and vary in cloud or in the process of onboarding themselves to resell it and cloud. So they can have access to the various AI.
Speaker 4: We see that as an additive business, you know, we're not, again, we are fully supporting our legacy products, W4 products, they're all available in the platform.
I appreciate you guys.
As an additive business.
We're not again.
Fully supporting our legacy products definitely for products. They are all available in the platform.
Speaker 4: But we have enhanced legacy product with bots. We've created new bots. We have 35 bots in the platform. And obviously, that's the next chapter of Arent. And our partners.
But we have enhanced legacy product with box, we've created new box, we have 35, Boston the platform.
And obviously thats the next chapter of Eric and our partners.
Speaker 4: want to differentiate their offering, so they want to leverage what Variant can offer. And because we are an open platform, we announced OpenCICAS back in June . We basically allow all partners free access to our platform so they can choose anything they want and resell. And we're definitely in the process of onboarding them. And we'll see that that shift from unbundled booking to bundle booking is going to happen also in our partner ecosystem.
We want to differentiate their offerings, so they want to leverage what variant.
Can offer and because we are an open platform, we announced open seek us back in June.
We basically allow all partners free access to our platform. So they can choose anything they want and resale and we are definitely in the process of onboarding them and we will see that shift from unbundle booking two bundle of bookings is going to happen also in our partner ecosystem.
Great. Thank you so much.
Speaker 1: Thank you. And I'm not showing any further questions at this time. I would now like to call back over to Matthew Frankel for closing remarks.
Thank you and I'm not showing any further questions. At this time I would now like to turn the back call back over to Matthew Frankel for closing remarks.
Speaker 2: Thanks, Victor. And thank you to everyone for joining us today. We hope you can join us next Wednesday at our investor day. Have a good.
Thanks, Victor and thank you to everyone for joining US today, we hope you can join US next Wednesday at our Investor day have a good day.
Speaker 1: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.
Yes.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.
Okay.
Speaker 11: Thanks for watching!
Okay.
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