Q2 2025 Verint Systems Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the variant Q2 2025 earnings conference call at this time all participants are in a listen only mode
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced.
Speaker Change: to withdraw your question. Please press star-1 one again. I would now like to hand a conference over to your speaker today, Matthew Frankel, Investor Relations and Corporate Development Director.
Matthew Frankel: Thank you, operator. Good afternoon and thank you for joining our conference call today. I'm here with Dan Bodner, very CEO, Grant Highlander, Grant TFO, and Alan Rhodes, Lawrence Chief Cooper Development Officer.
Speaker Change: Before getting started, I'd like to mention that accompanying our call today is slide presentation. If you'd like to view these slides in real-time during the call, please visit the IRR section of our website at www.burnt.com. Click on the Industrial Relations tab, and then click on the web tab when you can select the state's conference call.
Speaker Change: I would also like to draw your attention to the fact that certain matters discussing is called Maintain Forward Looking Statements within the meaning of the private security litigation of Form Act in 1995 and other provisions that the federal security was. The forward looking statements are based on manager's current expectations and are not guaranteed if you can perform it.
Speaker Change: Actual results could different materialies from those expressed in or implied by the following statements.
Speaker Change: The four living statements are made of a data this call and is accepted as required by law, very soon with no obligation to update nor revise them.
Speaker Change: and that's where the caution, Matthew plays under the lines on these four of them statements.
Speaker Change: For more detailed discussion on how these and other recent uncertainties could cause their own to actual results, to different materialies from those indicated in these forward-looking statements. Please see our form 10K for the fiscal year ended January 31, 2024. Our form 10K for the quarter-ended equal 30 of 2024.
Speaker Change: Top one, 10Q for the quarter-end of July 31st, 2024, one filed another filing to make the SEC.
Speaker Change: The financial measures discussed today include non-gat measures, as we believe that your focus on those measures is comparing results between periods and among our peer companies.
Speaker Change: Please see today's five presentations at Irvings Release and the Investual Relations section of our website at verance.com for a reconciliation of non-gaps and answer measures to gap measures.
Speaker Change: Non-Gap Financial Information should not be considered in isolation from as it substitutes for or superior to Gap Financial Information, but is included because managed with the leads to providing meaningful supplement information regarding our operating results when assessing our business and its useful tool investors for informational and comparative purposes.
Speaker Change: and I'm Gapton International Manager at the company use this type of limitations and may differ from those used by other companies.
Speaker Change: Now, I'd like to turn the call over to Dan, Dan.
Dan Bodner: Thank you, Matt.
Speaker Change: A police report another quarter of continued AI momentum, including strong AI bookings and AI business outcomes reported by customers.
Dan Bodner: UAI Bookings increased over 40% in future year over year.
Speaker Change: Bandos last week at New, driven by AI.
Speaker Change: Increased 15% year over year.
Speaker Change: and Acceleration, compared to approximately 10% growth in Q1.
Speaker Change: We expect our air momentum to continue and drive strong air in booking, and Bumbleza's revenue growth in the second half of the year.
Speaker Change: Beyond our environment, Zoom is our ability to deliver AI Business Outcomes now.
Speaker Change: Today, we have many customers, including some of the world's leading brands.
Speaker Change: Reporting Strong AI Business Outcomes, from Durant AI Powered Bots.
Speaker Change: We believe our ability to deliver measurable AR Business Outcomes now.
Speaker Change: is a significant differentiator.
Speaker Change: Turning to our fiscal 25 outlook, we're on track to achieve our guidance for the year.
Speaker Change: Q2 revenue came in at 210 million dollars
Speaker Change: We're in our guidance range.
Speaker Change: and for the full year, we are maintaining our guidance of 5% growth.
Speaker Change: It's just this for the Investiture.
Speaker Change: For non-gap diluted EPS, we are also maintaining our full year guidance of $2.90.
Speaker Change: We expect another year of margin expansion.
Speaker Change: and suggested Evida going faster than revenue.
Speaker Change: Rescan to Sam's EBITDA girls for the full year.
Speaker Change: We believe the AI opportunity in the context of their market is very large.
Speaker Change: The CX industry is spending about $2,000 annually on labor costs
Speaker Change: and Brands Arstaking AI-powered bots that can deliver tangible business outcomes.
Speaker Change: We are addressing this very large town with a differentiated open platform.
Speaker Change: Delivering tangible results to our customers.
Speaker Change: Air Adduction in our markets is currently in its early stages.
Speaker Change: and we are pleased to report many data points that demonstrate our competitive differentiation.
Speaker Change: The Re-Significant AR Noise in the Market
Speaker Change: and Brands Six Vendors that have proven capabilities.
Speaker Change: The can increase agent capacity, LVACX, and automates workflows within their existing ecosystems.
Speaker Change: Our ability to demonstrate tangible AI business outcomes now.
Speaker Change: for some of the world's leading brands.
Speaker Change: is resonating well within a customer base and new logos.
Speaker Change: In Q2, we continue to win large contracts.
Speaker Change: Based on our AI Business Outcome Defension.
Speaker Change: As discussed on prior earning calls,
Speaker Change: The very open platform quickly transforms the latest AI technology.
Speaker Change: into tangible air business outcomes.
Speaker Change: Better than any other complexion of Vendor.
Speaker Change: Behind our differentiation is the unique design of our platform with behavioral data and learn the Vinci AI in the platform core.
Speaker Change: Durned to Vinci X is the factory for our boss.
Speaker Change: Leveraging the latest AI technology available today in the market.
Speaker Change: has very much emerged from the boss factory, they trained continuously in the bar gym on relevant behavioral data.
Speaker Change: [inaudible]
Speaker Change: and we believe the data is available in the very classroom data hub.
Speaker Change: is another significant differentiator driving stronger AI business outcomes.
Speaker Change: And finally, the very box are embedded in the same workloads our customers use every day.
Speaker Change: and Nadeling grants to quickly deploy bots and benefit from outcomes now.
Speaker Change: Our competitors are generally unable to show strong proven results.
Speaker Change: The required disruptive changes to the customer ecosystem.
Speaker Change: and take long before any Afghan STEM-Demos David.
Speaker Change: Our competitive advantage comes from the strong and proven AI business outcomes.
Speaker Change: If we can very quickly deliver into existing customer ecosystems.
Speaker Change: for some of the largest brands in the world.
Speaker Change: As a reminder, we launched our open platform.
Speaker Change: with 40 AI Power Gods, one year ago.
Speaker Change: Since that time, customer that is purchased a box
Speaker Change: Typically started with low consumption to validate the air business outcomes the boss can deliver.
Speaker Change: I'm pleased to share that many of these customers are now reporting very strong AI business outcomes.
Speaker Change: They are also starting to increase consumption levels of the box that are on the purchase.
Speaker Change: and Ed Murboss to generate additional ARD consultants.
Speaker Change: We're tracking air adoption across our country based.
Speaker Change: Looking at the cohorts of our largest customers
Speaker Change: Those generating at least 1 million dollars they are.
Speaker Change: We see more than half
Speaker Change: I've already purchased at least one A.I. powered box.
Speaker Change: And very clearly with the progress we are making in a customer days.
Speaker Change: and our ability to demonstrate strong AI business outcomes.
Speaker Change: You can find many examples of customer reported AI business outcomes on our website.
Speaker Change: Here are a few examples.
Speaker Change: A leading bank created a 10 million dogs in Agents Partity.
Speaker Change: by containing 80% of its interactions in self-service.
Speaker Change: A top-meapy arrow avoids six million dollars of self-service for the time in a single month.
Speaker Change: A financial service company created five million dogs in ages capacity by cutting 20 seconds for coal on average.
Speaker Change: And in insurance company, they've 4.5 million dollars by reducing agent's attrition by 30%.
Speaker Change: Let's look at the case study from a healthcare customer in Mordeges.
Speaker Change: One of the largest healthcare providers in the U.S.
Speaker Change: has been deploying, multiple, very bots.
Speaker Change: Let me walk you through their A.I. journey.
Speaker Change: Starting with one of their very boss.
Speaker Change: The specific box is designed to automate the reput portion of the core.
Speaker Change: and Reduce average called duration by 30 seconds.
Speaker Change: In January 2024,
Speaker Change: The customer deployed his boss with three unidagents.
Speaker Change: in a hybrid cloud model.
Speaker Change: This was a quick deployment in the very cloud connected to the customer on-prem existing ecosystem.
Speaker Change: Our differentiated high-beclout architecture
Speaker Change: Enable the customers to deploy our latest AI innovation without the need for cloud conversion first.
Speaker Change: In just a few months
Speaker Change: The very important effort, tangible AR Business Arts Council
Speaker Change: and in July 2024.
Speaker Change: This AR outcomes led the customer to dramatically expand the board deployment from 300 agents to 30,000 agents.
Speaker Change: To help you understand our eye of this specific boss
Speaker Change: with using called duration by 30 seconds across 30,000 agents.
Speaker Change: Increases Asian capacity, equivalent to $17 million annually.
Speaker Change: The AI journey for this customer includes the deployment of multiple bots at initial consumption levels
Speaker Change: and a platform enables them to quickly increase consumption levels.
Speaker Change: and the fellow dates, strong air business outcomes.
Speaker Change: Over the last year, our ARO from this customer doubled.
Speaker Change: from 5.3 million dollars at the end of Q2 last year.
Speaker Change: to 10.7mm dogs at the end of the street 2 this year.
Speaker Change: Our customers are at different stages of their AI journey.
Speaker Change: and the Q2 we continue to announce winning large deals.
Speaker Change: including the Fortune 25 Brands.
Speaker Change: The Warding Variance at 13 Minutes of Deal
Speaker Change: The top 10 U.S. Public Utility Company
Speaker Change: Awarding very to 6.5 min a dog deal.
Speaker Change: and the leading insurance company.
Speaker Change: and Warding variant to five in the dog view.
Speaker Change: Now, let's take a closer look at this insurance deal.
Speaker Change: This existing very customer just started their very anti-Journey.
Speaker Change: with one of their business units.
Speaker Change: The initial goal was to increase education capacity in this business unit.
Speaker Change: using five variants AI powered boards.
Speaker Change: They chose these five specific bots over many other bots available in the very open platform.
Speaker Change: Based on the business outcomes they wanted to achieve first.
Speaker Change: Initially purchased licenses to cover 600 agents.
Speaker Change: which is approximately 20% of their overall contact center capacity of 3000 nations.
Speaker Change: Similar to my earlier healthcare example
Speaker Change: We believe there is a large growth opportunity for us with this insurance customer
Speaker Change: is the expense consumption level of during the firebots.
Speaker Change: and the Chloe additional boards.
Speaker Change: Over time.
Speaker Change: i
Speaker Change: As you can see from this example
Grant Highlander: Grant is low positions for contact center AI leadership.
Grant Highlander: Due to our ability to deliver tangible AI business outcomes that are stronger and faster than the competition.
Grant Highlander: Stonger archives are imported.
Grant Highlander: because they represent higher ROI for customers.
Speaker Change: With deliver stronger AI outcomes, due to our open platform designed with data and AI at the core, based on deep contact center domain expertise.
Speaker Change: and anticipating AI trends early by working closely with the world's living companies.
Speaker Change: Pastor Alcams are important because customers need to reduce labor costs and elevate the X now
Speaker Change: With the liver faster AI outcomes due to our hybrid cloud design
Speaker Change: and AI Confunction Moral.
Speaker Change: which enabled customers to quickly deploy AI in their existing ecosystems.
Speaker Change: and increase AI consumption over time.
Speaker Change: A voting long and disruptive week in a new place problems.
Speaker Change: Our AI Business Actions are not only stronger and faster than the competition.
Speaker Change: but also more cost effective than internal development.
Speaker Change: In some companies, we see IT departments, purchase, genetic technology, and look for use cases across the enterprise, including the conduct center.
Speaker Change: We are able to demonstrate to IT, that's for the chronic center of Plaston Demiser's stronger, faster and more cost effective solutions.
Speaker Change: Over all with the live our ability to deliver AI business outcomes now is a unique and sustainable differentiator.
Speaker Change: Do we catch?
Speaker Change: We had a strong AI bookings and bundle sounds revenue growth in Q2
Speaker Change: We entered H.U. with a strong bundle-sat pipeline
Speaker Change: and expect AI bookings and bundle such revenue momentum to continue in the second half of the year.
Speaker Change: We are maintaining our guidance for the year for 5% and just as remedy growth.
Speaker Change: and 10% of Justin's EB.gov.
Operator: at this time all participants are in a listen only mode.
Speaker Change: Finally, consistent with a real 40-year-old previously discussed.
Operator: Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To with the dryer question, please press star 1-1 again.
Speaker Change: We target 10% revenue growth.
Speaker Change: and 30% adjusted EBW margin.
Speaker Change: in our fiscal 27th.
Speaker Change: With that, I'll third over to Grant to discuss a financial result in more details.
Matthew Frankel: I would not like to hand a conference over to your speaker today, Matthew Frankel, investor relations and corporate development director. Thank you, operator.
Speaker Change: 12.
Grant Highlander: Thanks Dan, good afternoon everyone.
Grant Highlander: Our discussion today will include non-gap financial measures. A reconciliation between our gap and non-gap financial measures is available as map mentioned in our earnings release and in the IR section of our website.
Dan Bodner: Good afternoon, and thank you for joining our conference call today. I'm here with Dan Bodner, Barron CEO, Grant Highlander, Barron TFO, and Alan Roden, Barron Chief Corporate Development Officer. 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 down in the call, please visit the IRF section of our website at berns.com. Click on the Industrial Relations tab and then click on the webcast link and select today's conference call.
Grant Highlander: Differences between our gap and non-gap financial measures include adjustments related to acquisitions and divestitures.
Grant Highlander: including Fair Value Revenue Adjustments, Amortization of Acquisition Related Intangibles, certain other acquisition and divest that you're related expenses.
Dan Bodner: I would also like to draw your attention to the fact that certain matters discussed in this call may contain forward looking statements within the meaning of the private security litigation reform act in 1995, and other provisions of the federal security laws. These forward looking statements are based on management's current expectations and are not guaranteed that future performance. Actual results could differ materially from those expressed in or implied by these forward and statements.
Grant Highlander: Stock-based compensation expenses.
Grant Highlander: Accelerated lease costs, IT facilities and infrastructure realignment, as well as certain other items that can vary significantly in amount in frequency from period to period.
Grant Highlander: Day, I will cover three topics.
Grant Highlander: First, I will review our Q2 results in our strong AI momentum.
Dan Bodner: The forward looking statements are made as a date of this call and as accepted as required by law, Barron assumes no obligation to update or revise them. Investors are cautioning not to place under the lines on these forward looking statements. For more detailed discussion on how these and other risks and uncertainties could cause current actual results to differ materially from those indicated in these forward looking statements. Please see our form 10K for the fiscal year ended January 31, 2024, our form 10K for the quarter ended equal 30th, 2024. Our form 10K for the quarter ended July 31, 2024, one filed and other filings we made to the SEC.
Grant Highlander: Second, I will do a midyear review and discuss progression of the remainder of the year.
Grant Highlander: Finally, I will discuss how demand for AI will benefit our financial model longer term.
Grant Highlander: Let me start with an overview of our Q2 results.
Grant Highlander: Non-Gap revenue increase, 3% year over year, to 210 million adjusted for our divestiture.
Grant Highlander: Fundal-Cast revenue came in as expected with strong sequential and year-over-year growth driven by market AI adoption.
Dan Bodner: The financial measures discussed today include non-gap measures as we believe investors focus on those measures and comparing results between periods and among our peer companies. Please see today's five presentations, our earnings release and the investor relations section of a website at Barron.com for a reconciliation of non-gap financial measures to gap measures. Non-gap financial information should not be considered in isolation from as a substitute for or superior to gap financial information. But it's included because management believes it provides meaningful supplemental information regarding our operating results when assessing a business and it's useful to investors for informational and comparative purposes. Non-gap financial measures, the company uses type limitations and may differ from those used by other companies.
Grant Highlander: Unbundled fast revenue came in a bit lower than our expectations due to deal timing, which does not change our annual guidance.
Grant Highlander: Non-Gapgroice margins came in strong in Q2 with non-Gap margins at 71.2% up 170 basis points year over year.
Grant Highlander: We are pleased with our gross margin expansion and believe our ability to increase gross margins reflects the strength of the AI business outcomes we deliver to our customers.
Grant Highlander: Adjusted EBITDA was up 7% year due to our margin expansion.
Dan Bodner: Now I'd like to turn the call over to Dan. Thank you, Matt. The police reports another quarter of continued AI momentum including strong AI bookings and AI business outcomes reported by customers. New AI bookings increased over 40% in Q2 year-over-year. Bundle SaaS revenue driven by AI increased 15% year-over-year and acceleration compared to approximately 10% growth in Q1. We expect our AI momentum to continue and drive strong AI bookings and bundle SaaS revenue growth in the second half of the year.
Grant Highlander: Non-Gap they looted EPS came in at 49 cents, consistent with our adjusted revenue in the quarter, and up to 3% year over year.
Grant Highlander: Now let's look at our AI growth metrics more closely.
Grant Highlander: As we have discussed in past calls, 100% of our AI innovations deployed in bundle sass and the following two bundle sass metrics are shared to help investors understand our AI growth.
Grant Highlander: In Q2, Bundle-Fast Revenue Growth accelerated to 15% year over year, up from approximately 10% in Q1.
Grant Highlander: New Bundle Fast ACVM bookings from New Deal increased 37% year over year, and I will discuss their positive bookings trends in more detail in a moment.
Dan Bodner: Beyond our AI momentum is our ability to deliver AI business outcomes now. Today, we have many customers, including some of the world's leading brands, reporting strong AI business outcomes from variants AI-powered bots. We believe our ability to deliver a measurable AI business outcomes now is a significant differentiator.
Grant Highlander: Another SAS metric that relates to AI adoption is term-length.
Grant Highlander: I am pleased to report that in Q2 are term links on SAS Renewal contracts was about 20% longer than a year ago.
Grant Highlander: We believe these longer-term lengths reflect growing customer confidence in our platform and commitment to their AI journey was fair.
Dan Bodner: Turning to our fiscal 25 outlook, we are on track to achieve our guidance for the year. Due to revenue came in at $210 million within our guidance range and for the full year, we are maintaining our guidance of 5% growth adjusted for the investiture. For non-gap diluted EPS, we are also maintaining our full year guidance of $2.90. We expect another year of margin expansion and adjusted EBDA going faster than revenue with 10% EBDA growth for the full year.
Grant Highlander: Additionally, a key leading indicator of our AI momentum is our bundle fast pipeline.
Grant Highlander: As of the end of Q2, our advanced stage pipeline for the remainder of the year was up around 20% year over year driven by AI demand.
Grant Highlander: But would also like to note that the AI market is in its early stage, and we see a growing number of customers with initial deployment of bots.
Dan Bodner: is Dan discussed earlier, looking at our largest customers with greater than 1 million of ARR, more than half have already deployed at least one bot from there.
Barrett: Many of our customers have already started their AI journey with Barrett, typically with an initial low level of consumption, which represents a large revenue growth opportunity for Barrett over time.
Dan Bodner: We believe the AI opportunity in the context and the market is very large. The CX industry is spending about $2 trillion annually on labor costs and brands are seeking AI-powered bots that can deliver tangible business outcomes. We are addressing this very large time with a differentiated open platform delivering tangible results to our customers. AI reduction in our market is currently in its early stages and we are pleased to report many data points that demonstrate a competitive differentiation.
Barrett: i
Speaker Change: Given we are halfway through the year, I would like to review our bundle-sask booking trends in the first half of the year and our expectations for the second half.
Speaker Change: Bond of Fast Bookings is comprised of two types of deals.
Speaker Change: New deals, which include new functionality.
Speaker Change: and conversion deals, which include light for light, conversions of on-premise deployments to the Veracloud.
Speaker Change: Bookings from New Deals and H1 increase 39% year over year, and we expect a similar level of growth in the second half of the year.
Dan Bodner: There is significant AI noise in the markets and brands seek vendors that have proven capabilities that can increase agent capacity, elevate CX and automate workflows within their existing ecosystems. Our ability to demonstrate tangible AI business outcomes now for some of the world's leading brands is resonating well within our customer base and new levels. In Q2, we continue to win large contracts based on our AI business outcome differentiation. As discussed on prior early calls, the very open platform quickly transforms the latest AI technology into tangible AI business outcomes better than any other complex and eventful.
Speaker Change: We are pleased with the strong growth of new deals driven by market AI adoption.
Speaker Change: The large majority of the bundle fast-booking from new deals included AI powered box.
Speaker Change: and these AI bookings and Q2 increase more than 40% year earlier.
Speaker Change: Bookings from conversion deals in H1 decreased year-over-year consistent with our expectations that customers would adopt AI powered bots first and do conversion second.
Dan Bodner: His Dan explained, customers are looking for AI business outcomes now, without disrupting their existing ecosystems.
Speaker Change: Barrett Open Platform is highly differentiated, enabling customers to get access to our new AI innovation and a hybrid cloud deployment without the prerequisite of having to convert existing applications first.
Dan Bodner: Behind our differentiation is the unique design of our platform with behavioral data and Verntavinci AI at the platform core. Verntavinci X is the factory for our bots leveraging the latest AI technology available today in the market. As Vernt bots emerge from the bots factory, they train continuously in the bots gym on relevant behavioral data. Data is critical to building powerful AI bots and we believe the data is available in the very platform data hub, is another significant differentiator driving stronger AI business outcomes. And finally, the very bots are embedded in the same workflows our customers use every day enabling brands to quickly deploy bots and benefit from outcomes now.
Speaker Change: Near-term, we believe customers will remain focused on AI adoption, and therefore we expect the small amount of conversions in H2.
Speaker Change: Longer term, weakspects are customers to convert to the very cloud after they have deployed a number of our AI powered box.
Speaker Change: A historical breakdown of bookings has been added to our IR dashboard on our website.
Speaker Change: Next, I would like to review bundled and unbundled SAS revenue trends in the first half of the year and what we expect in the second half.
Speaker Change: In Q2, we had strong sequential growth in Bundle-Sash revenue, and we expect this trend to continue in Q3 and Q4 driven by AI adoption.
Speaker Change: As we have discussed in the past, unbundled revenue each quarter is heavily influenced by the timing of renewals.
Speaker Change: For Q3, we expect a similar amount of unbundled SaaS revenue as in Q2.
Dan Bodner: Our comparators are generally unable to show strong proven results. They require disruptive changes to the customer ecosystem and take long before any outcomes can be demonstrated. Our competitive advantage comes from the strong and proven AI business outcomes that we can very quickly deliver into existing customer ecosystems for some of the largest brands in the world.
Speaker Change: And in Q4, we expect a large sequential increase to around 115 million, similar to the dynamics we saw in Q4 of last year.
Speaker Change: I would like to mention that it is possible that about 20 million of our expected unbundled SaaS revenue may shift left and move forward to Q3 as a large contract up to renewal Q4 may be renewed earlier.
Speaker Change: At this time, however, this revenue was included in our Q4 guidance.
Dan Bodner: As a reminder, we launched our open platform with 40 AI-powered bots one year ago. Since that time, customers that have purchased the bots typically started with low consumption to validate the AI business outcomes the bots can deliver. I'm pleased to share that many of these customers are now reporting very strong AI business outcomes. They're also starting to increase consumption levels of the bots that have already purchased and add more bots to generate additional AI business outcomes.
Speaker Change: Turning to our guidance for fiscal 25, we are maintaining our revenue and non-gaped a looted EPS guidance for the full year.
Speaker Change: On a non-gap basis, a revenue outlook for fiscal 25 is 933 million, plus or minus 2%. Reflecting a bit more than 5% growth compared to fiscal 24 adjusted revenue.
Speaker Change: We expect Rose margin increase again this year and expect at least 150 basis points of expansion year over year.
Speaker Change: The combination of revenue growth and continued margin expansion is expected to increase adjusted e-biddle growth to approximately 10% for the year.
Dan Bodner: We're tracking AI adoption across our customer base. Looking at the cohorts of our largest customers, those generating at least one million dollars AR, we see more than half of already purchased at least one AI-powered bots. And very pleased with the progress we are making in our customer base, and our ability to demonstrate strong AI business outcomes. You can find many examples of customer reported AI business outcomes on our website. Here are a few examples.
Speaker Change: For diluted EPS, we expect $2.90 at the midpoint of our revenue guidance.
Speaker Change: Regarding below the line of assumptions for the full year, we expect interest in other expense net, a little over $2 million.
Speaker Change: net income from a non-controlling interest of around $1 million.
Speaker Change: The cash tax rate of around 12% and approximately 72.5 million fully diluted shares.
Speaker Change: Let me also discuss how we see the second half of the year progressing.
Dan Bodner: A leading bank created a 10 million dollars in agent capacity by containing 80% of its interactions in self-service. A top BPO avoided $6 million of self-service fraud attempts in a single month. A financial services company created $5 million in agent capacity by cutting 20 seconds per call on average. And an insurance company, they've 4.5 million dollars by reducing agent nutrition by 30%.
Speaker Change: In the first half of the year, we delivered 4% revenue growth adjusted for the divestature, with an 8% increase in the adjusted EBITDA year over year.
Speaker Change: In the second half of the year, we expect around 6% adjusted revenue growth, with an approximate 11% increase in adjusted EBITDA year over year.
Speaker Change: For Outlook for H2 Reflex Continued Bundle Sash Revenue Growth, driven by our AI Momentum.
Speaker Change: as well as unbundled SaaS revenue growth driven by a large amount of renewals that we expect in Q4.
Dan Bodner: Let's look at the case study from a healthcare customer in more details. One of the largest healthcare providers in the US has been deploying multiple variant bots. Let me walk you through their AI journey starting with one of their variant bots. The specific bots is designed to automate the rep up portion of the call, and reduced average calduration by 30 seconds. In January 2024, the customer deployed these bots for 300 agents in a hybrid cloud model.
Speaker Change: For modeling purposes, for Q3, we expect 210 million revenue, plus or minus 2% similar to Q2.
Speaker Change: But like to mention that due to timing, gross margin will be a little lower in Q3 than Q2, and operating expenses will be higher in Q3 than Q2, and we expect a loaded EPS coming in around 43 cents.
Speaker Change: For Q4, we expect around 291 million of revenue, very strong gross margins.
Speaker Change: Operating expenses in a similar range to Q3 and $1.40 of diluted EPS.
Dan Bodner: This was a quick deployment in the Verint cloud connected to the customer on-prem existing ecosystem. Our differentiated hybrid cloud architecture enabled the customer to deploy our latest AI innovation without the need for cloud conversion first. In just few months, the Verint bot delivered tangible AI business outcomes. And in July 2024, these AI outcomes led the customer to dramatically expand their board deployment from 300 agents to 30,000 agents. To help you understand the ROI of these specific bots, reducing calduration by 30 seconds across 30,000 agents increases agent capacity equivalent to 17 million dollars annually.
Speaker Change: The health better understand the step up of revenue we expect in Q4, I would like to bridge our adjusted revenue from Q4 last year to our projected Q4 revenue this year.
Speaker Change: Revenue is expected to increase around 30 million dollars a year over year in Q4.
Speaker Change: Approximately 10 million of the increase is from bundle-sash revenue reflecting steady sequential revenue growth throughout this year.
Speaker Change: Approximately 10 million of the increases from unbundled SaaS revenue, reflecting the value of renewable contracts coming up for a new only Q4 this year compared to Q4 of last year.
Speaker Change: and approximately 10 million of the increase is from non-referring revenue, which relates to existing contracts that have a revenue component that will be recognized in Q4.
Speaker Change: Overall, the quarterly progression of this year is similar to last year.
Speaker Change: Turning Door Balochie
Dan Bodner: The AI journey for this customer includes the deployment of multiple bots at initial consumption levels and a platform enables them to quickly increase consumption levels and they validate strong AI business outcomes. Over the last year, our AIR from each customer doubled from $5.3 million at the end of Q2 last year to $10.7 million at the end of Q2 this year.
Speaker Change: We continue to be in a very good financial position.
Speaker Change: Our net debt remains well under one time's last 12-month EBITDA, and is further supported by our strong cash flow.
Speaker Change: With regard to cash flow, we're targeting about a 40% increase in free cash flow to approximately 3,180 million for the full year.
Speaker Change: With regard to stock buybacks, and Q2, we completed our previously announced $200 million share buyback program.
Speaker Change: Going forward, we plan to use around half of our free cash flow to buy back stock.
Speaker Change: and today we are announcing a new 200 million by-back program over two years.
Dan Bodner: Our customers are at different stages of their AI journey.
Dan Bodner: And in Q2, we continue to announce winning large deals including a Fortune 25 brand awarding variant at $13 million deal, a top 10 US public utility company awarding variant at $6.5 million deal, and a leading insurance company awarding variant at $5 million deal.
Speaker Change: Before wrapping up, I'd like to talk about how market AI adoption is benefiting our financial model and how we expect it will help us achieve a rule of 40 target.
Speaker Change: Bowers.
Bowers: AI has significantly increased our time.
Bowers: There are very few industries as a right for automation as the context center market and we are very well positioned to capture this opportunity.
Dan Bodner: Now let's take a closer look at this insurance deal. This existing variant customer just started their variant AI journey with one of their business units. Their initial goal was to increase agent capacity in this business unit using five variant AI powered bots. They chose these five specific bots over many other bots available in the very open platform based on the business outcomes they wanted to achieve first. They initially purchased licenses to cover 600 agents, which is approximately 20% of their overall contact center capacity of 3000 agents.
Bowers: Second.
Speaker Change: The AI opportunity is in its early stages, and as customers experience strong AI business outcomes, we expect adoption to increase, driving more consumption of robots and accelerating revenue for parents.
Speaker Change: Third, we expect a gross margin to continue to expand over time, driven by our strong AI innovation, and the high value we deliver to our customers.
Speaker Change: and Fourth, we expect operating leverage from increased sales productivity as early stage markets take more education and sales effort.
Speaker Change: Many of our largest customers have already started the AI journey with parents, and lead spec sales productivity to increase as the market matures.
Dan Bodner: Similar to my earlier healthcare example, we believe there is a large growth opportunity for us with the expense consumption level of there is five bots, and Deploy additional bots over time. As you can see from these examples, Verint is low positions for contact center AI leadership due to ability to deliver tangible AI business outcomes that are stronger and faster than the competition. Stronger outcomes are important because they represent higher ROI for customers.
Speaker Change: Overall, we are pleased with our AI momentum and believe that market AI adoption will have a positive impact on our revenue growth rate margins and cash flows as we work towards a rule of 40 target in fiscal 27.
Speaker Change: With that operator, please open the line for questions.
Speaker Change: Thank you. As a reminder to ask a question, please press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. One moment for questions.
Speaker Change: i
Speaker Change: Our first question comes from Joshua Riley with Needham, you may proceed.
Joshua Riley: Alright, thanks for taking my questions. Maybe just starting off on the unbungled deal here that pushed in the quarter. Maybe just some additional information that would be helpful with the driven by the macro, competitive issues, or customers just considering how many seats.
Dan Bodner: We deliver stronger AI outcomes due to our open platform designed with data and AI at the core based on deep compact center domain expertise and anticipating AI trends early by working closely with the world's living companies. Faster outcomes are important because customers need to reduce labor costs and elevate the X now. We deliver faster AI outcomes due to our hybrid cloud design and AI consumption models which enable customers to quickly deploy AI in their existing ecosystems and increase AI consumption over time, avoiding long and disruptive meeting place problems.
Speaker Change: that they may need on renewal, and that's kind of having them try to figure out what is the impact of AI on the seat count that they need on these renewals, just maybe some additional info there would be helpful.
Dan Bodner: Our AI business outcomes are not only stronger and faster than the competition but also more cost effective than internal development. In some companies we see IT departments purchase Genai technology and look for use cases across the enterprise including the contact center. We are able to demonstrate to IT that for the contact center our platform delivers stronger faster and more cost effective solutions.
Speaker Change: Sure, happy to address
Speaker Change: So, Grant said, we came with the bundle, so as we have a new, we're strong, 15% growth and basically exactly where we expected them. So obviously bundle, so that's more predictable and it's growing nicely, linearly heavy quarter.
Speaker Change: with unbanzless us. There was a deal that was pushed. It's nothing to do with the idea. There is no AI in unbanzless us. There's only unbanzless us deals.
Speaker Change: And you know, on Bung Saas we still in the past can move towards quarter. We Grant also mentioned that there's a 20 minute dog deal that's currently with guiding to Q4, but actually may come into you three.
Speaker Change: So it could be some movement in timeings. These are large deals from very large customers.
Speaker Change: and this one deal that we came 1.5 million dollars in unballow, below expectations. And that's one deal is from a very large customer who is spending much more money with very much money.
Dan Bodner: Overall we believe our ability to deliver AI business outcomes now is a unique and sustainable differentiator.
Speaker Change: This is nothing to do with AI. It's also nothing to do with age and counts.
Dan Bodner: To recap we had a strong AI bookings and bundles such revenue growth in Q2. We entered H2 with a strong bundles such pipeline and expect AI bookings and bundles such revenue momentum to continue in the second half of the year. We are maintaining our guidance for the year for 5% adjusted revenue growth and 10% adjusted EBDA growth.
Speaker Change: As we discussed before, we see customers that are starting to get some very strong AI business outcomes and then reporting back to us.
Speaker Change: and we launched a platform year ago. There was like the end of the summer last year, then we had customers starting with the initial AI purchases.
Speaker Change: and as they validated the business outcomes that we promised, they increased the AI consumption. And now we think more and more customers...
Dan Bodner: Finally consistent with our rule of 40 gold previously discussed we target 10% revenue growth and 30% adjusted EBDA margin in our fiscal 27.
Speaker Change: Reporting Strong Business Outguns, including very strong increase in agent capacity.
Grant Highlander: With that I'll turn it over to Grant to discuss our financial results in more details. Thanks Dan.
Speaker Change: But we looked at our overall customer base, we do not see a change in the age of pounds.
Speaker Change: So it's about the same.
Grant Highlander: Good afternoon everyone. Our discussion today will include non-gap financial measures. A reconciliation between our gap and non-gap financial measures is available as Matt mentioned in our earnings release and in the IR section of her website. Differences between our gap and non-gap financial measures include adjustments related to acquisitions and divestitures, including fair value revenue adjustments, amortization of acquisition related intangibles, certain other acquisition and divestiture related expenses, stock-based compensation 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.
Speaker Change: At the same time, we were in a very early stage of a journey and we have some customers that are...
Speaker Change: Early in Arizona, June and all ready.
Speaker Change: Achieving increased age of capacity and reducing number of age. So, if you're very beginning of AI impacting the capacity.
Speaker Change: It's also interesting that from those customers that now have the capacity increase.
Speaker Change: They're not just choosing to reduce edging count, some of them are choosing to dedicate edging to improve customer attention.
Speaker Change: and some of them are actually a dedication agent to increase self.
Speaker Change: So we see really an interesting trend, AI can turn the conxener from a service center to a customer to the revenue generating center, so just...
Grant Highlander: Today, I will cover three topics. First, I will review our Q2 results and our strong AI momentum. Second, I will do a mid-year review and discuss progression of the remainder of the year. Finally, I will discuss how demand for AI will benefit our financial model longer term.
Speaker Change: More Asian capacity available and also the box that we deliver today like the coaching box, our coaching agents how to become better salespeople and how to identify the right time during the call in real time.
Speaker Change: to propose some upsell products to their customers.
Grant Highlander: Let me start with an overview of our Q2 results. Non-gap revenue increased 3% year-over-year to 210 million adjusted for our divestiture. Bundled SaaS revenue came in as expected with strong sequential and year-over-year growth driven by market AI adoption. Unbundled SaaS revenue came in a bit lower than our expectations due to deal timing, which does not change our annual guidance. Non-gap growth margins came in strong in Q2 with non-gap margins at 71.2% up 170 basis points year-over-year.
Speaker Change: So, to address your question about age and capacity, again, we don't see that across the days, but we start to see some customer reporting very strong increase in capacity.
Speaker Change: God, it, that's super helpful because I think if you look at the actual...
Speaker Change: Saff Air, the Net News Saff Air, adding the quarter is actually pretty strong. So I think that that's probably the more important data point to be focused on here. And if you look at it, it was nearly up by 19 million sequentially.
Speaker Change: and if I look at the new staff's ACV in the quarter was 21.06 million that tells me that actually your customer retention actually improved.
Grant Highlander: We are pleased with our gross margin expansion and believe our ability to increase gross margins reflects the strength of the AI business outcomes we deliver to our customers. Adjusted EBITDA was up 7% year-over-year due to our margin expansion. Non-gap diluted EPS came in at 49 cents consistent with our adjusted revenue in the quarter and up 3% year-over-year.
Speaker Change: Over the last couple quarters, is that what you're seeing internally and maybe you can just talk about what you're seeing with customer turn and retention here on overall renewals. Thank you.
Speaker Change: Yeah, that's very true, so you know, started with booking, that AI booking, more than 40% that's very strong, then booking obviously converts to a bundle set revenue and that's 15%
Grant Highlander: Now let's look at our AI growth metrics more closely. As we have discussed in past calls, 100% of our AI innovations deployed in Bundled SaaS and the following two Bundled SaaS metrics are shared to help investors understand our AI growth. In Q2, Bundled SaaS revenue growth accelerated to 15% year-over-year up from approximately 10% in Q1. New Bundled SaaS ACV bookings from Newdeals increased 37% year-over-year and I will discuss our positive bookings trends in more detail in a moment.
Speaker Change: reported in Q2, 50% growth, and then the SACRR improving, which is a result of booking and better retention.
Speaker Change: is a combination of the tools. All those metrics that are affected by are actually improving because the AI business outcomes are reports.
Speaker Change: and not only strong, but the person was paying attention.
Speaker Change: There's a lot of noise in the market with AI and customers really look for, not just the promise of the Genie I, but can you actually turn Genie into business outcomes now in my context center, in my existing ecosystem?
Grant Highlander: Another SaaS metric that relates to AI adoption is term link. I am pleased to report that in Q2, our term link on SaaS renewal contracts was about 20% longer than a year ago. We believe these longer term links reflect growing customer confidence in our platform and commitment to their AI journey with parents.
Speaker Change: and of course, that's what we talk as we can do.
Speaker Change: But we were also like any other company just promising the future.
Speaker Change: and over the last year, as customers started with initial consumption and to prove.
Speaker Change: and you know, this, help the company that started with 300 agents.
Grant Highlander: Additionally, the key leading indicator of our AI momentum is our Bundled SaaS pipeline. As of the end of Q2, our advanced stage pipeline for the remainder of the year was up around 20% year-over-year driven by AI demand.
Speaker Change: Obviously, they have 30,000, it was just an initial conception, but once they sort of results, they expanded 100x.
Speaker Change: and this is the kind of reaction we're getting from customers we actually see the results and of course now we can use
Grant Highlander: I would also like to note that the AI market is in its early stage and we see a growing number of customers with initial deployment of bots. As Dan discussed earlier, looking at our largest customers with greater than 1 million of ARR, more than half have already deployed at least one bot from Verint. Many of our customers have already started their AI journey with Verint, typically with an initial low level of consumption which represents a large revenue growth opportunity for Verint over time.
Speaker Change: the stories to tell to other customers and we get their attention. You can find on our website you can find 30 case studies of AI business outcomes that were reported by customers.
Speaker Change: and of course a year ago we had nothing.
Speaker Change: and then over the year, we just start to sell bots and we waited on T-Blood's bots created real outcomes, which are now...
Speaker Change: Being reported on website publicly and of course we share those customers' references and so on as we continue to
Speaker Change: and that helps retention that helps new bookings, that the future of AI for various is increasing our time and a much better growth opportunity.
Grant Highlander: Given we are halfway through the year, I would like to review our Bundeltzast booking trends in the first half of the year and our expectations for the second half. Bundeltzast bookings is comprised of two types of deals, new deals which include new functionality and conversion deals which include like for like conversions of on-premise deployments to the vera cloud. Bookings from new deals and H1 increase 39% year over year and we expect a similar level of growth in the second half of the year.
Speaker Change: God, very helpful. Thank you. I'll get back in the queue.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Shao Yao with Tiri Kao and New April Seed.
Grant Highlander: We are pleased with the strong growth of new deals driven by market AI adoption. The large majority of the Bundeltzast bookings from new deals included AI-powered bots and these AI bookings in Q2 increase more than 40% year over year. Bookings from conversion deals in H1 decreased year over year consistent with our expectations that customers would adopt AI-powered bots first and do conversion second. As Dan explained, customers are looking for AI business outcomes now without disrupting their existing ecosystems.
Shao Yao: I'm getting some...
Speaker Change: Investors asking me as the cold progress in what are Dan or Grant, you've seen any change on the competitive landscape. So, on the one hand, totally understand the fact that the annual guidance has been reiterated.
Speaker Change: Second Quarter probably fight you more a timing flash. Nick's aggressive dress that I think in your recent reply to the prior analyst.
Grant Highlander: Verrant open platform is highly differentiated enabling customers to get access to our new AI innovation and a hybrid cloud deployment without the prerequisite of having to convert existing applications first. Near term, we believe customers will remain focused on AI adoption and therefore we expect the small amount of conversions in H2. Longer term, we expect our customers to convert to the vera cloud after they have deployed a number of our AI-powered bots.
Speaker Change: but anything that might have changed over the course of the past quarter or so.
Ara: Go, Ara!
Speaker Change: It's a competitive market, but you know, growing the working from year of deals 40% is very strong. So I would say the demand is there and we're working through the competitive process and we're winning our first share.
Speaker Change: I can say that if you answer the question by what change in the market, I believe that our Switzerland approach
Speaker Change: It's actually even more attractive now to a customer than it was before.
Grant Highlander: A historical breakdown of bookings has been added to our IR dashboard on our website.
Speaker Change: because cash was really looking to achieve the AI business outcomes now.
Grant Highlander: Next, I would like to review Bundeltzast revenue trends in the first half of the year and what we expect in the second half. In Q2, we had strong sequential growth in Bundeltzast revenue and we expect this trend to continue in Q3 and Q4 driven by AI adoption.
Speaker Change: and they don't want to wait for their telephony to move to the cloud.
Speaker Change: So being able to lead with AI and do with infrastructure later isn't important.
Speaker Change: and Slytherland really ensures that they can start with friends that they are now and then whatever they choose later for their telephony infrastructure.
Grant Highlander: As we have discussed in the past, unbundled revenue each quarter is heavily influenced by the timing of renewals. For Q3, we expect a similar amount of unbundledzast revenue as in Q2. And in Q4, we expect a large sequential increase to around 115 million similar to the dynamics we saw in Q4 of last year. I would like to mention that it is possible that about 20 million of our expected unbundledzast revenue may shift left and move forward to Q3 as a large contract up for renewal in Q4 may be renewed early, at this time, however, this revenue was included in our Q4 guidance.
Speaker Change: We will be compatible. They're not going to have to disrupt the AI journey that they are on.
Speaker Change: So I think that that's changed of course we we're able to deliver AI first, there is no need for a written replace program
Speaker Change: There is no need to wait a year or two to make an infrastructure change.
Speaker Change: because we designed this hybrid cloud that you can deliver AI now into your existing ecosystem.
Speaker Change: So that resonates well and so for example that that help to again help the company example that I gave before.
Speaker Change: where we increased our ALR from five million.
Grant Highlander: Turning to our guidance for Fiscal 25, we are maintaining our revenue and non-gap diluted EPS guidance for the full year. On a non-gap basis, a revenue outlook for Fiscal 25 is 933 million plus or minus 2%, reflecting a bit more than 5% growth compared to Fiscal 24 adjusted revenue. We expect growth's margin increase again this year and expect at least 150 basis points of expansion year over year. The combination of revenue growth and continued margin expansion is expected to increase adjusted EBITDA growth to approximately 10% for the year.
Speaker Change: to 10 million over one year, they still did not change their stick of telephony to the club. They still on prep, but they are consuming more and more AI very, very quickly.
Speaker Change: So they can turn their energy, budget, and they're internal teams, all we'll focus on.
Speaker Change: and they will convert to the jobs, their infrastructure at some point, and they know that that's going to be...
Speaker Change: Something that they can rely on there and that will be compatible with whatever they choose to do.
Speaker Change: So, we see that as a change and then one more change is, you know, there's a lot of companies there.
Grant Highlander: For diluted EPS, we expect $2.90 at the midpoint of our revenue guidance. Regarding below-the-line assumptions for the full year, we expect interest and other expense net a little over $2 million. Net income from a non-controlling interest of around $1 million. It cash tax rate of around 12% and approximately 72.5 million fully diluted shares.
Speaker Change: Now, it's structured to the context in our market because obviously there's a going to come and it looks like a great opportunity for more automation based on Jenny I. But we see companies coming from the market with Jenny I.
Speaker Change: and then IT is struggling to really take that genetic knowledge and create real business outcomes. And that's true for the hyperscalers, but also for smaller companies who just want to deliver
Grant Highlander: Let me also discuss how we see the second half of the year progressing. In the first half of the year, we delivered 4% revenue growth adjusted for the divestiture with an 8% increase in adjusted EBITDA year over year. In the second half of the year, we expect around 6% adjusted revenue growth with an approximate 11% increase in adjusted EBITDA year over year. Our outlook for H2 reflects continued bundled SaaS revenue growth driven by our AI momentum as well as unbundled SaaS revenue growth driven by a large amount of renewals that we expect in Q4.
Speaker Change: and there's a big distance between, you know, a generic genie, I'm model.
Speaker Change: and the ability to train the models, to embed the model into existing work flow based on the conducts and expertise that we have. We're working with some of the largest companies in the world.
Speaker Change: to learn how to deliver real outcomes in this market. So I think this is a competitive threat that once we are able to demonstrate the business outcomes that we can deliver.
Grant Highlander: For modeling purposes, for Q3, we expect 210 million revenue plus or minus 2% similar to Q2. But like the mention that due to timing, gross margin will be a little lower in Q3 than Q2, and operating expenses will be higher in Q3 than Q2. And we expect diluted EPS coming in around 43 cents. For Q4, we expect around 291 million of revenue, very strong gross margins, operating expenses in a similar range to Q3, and $1.40 of diluted EPS.
Speaker Change: and not that difficult for the customers to make that distinction with when AI Promise is huge, but what it can do for me now in my existing ecosystems and I think the great differentiation in this regard.
Speaker Change: Garret.
Dan Bodner: and my following question, maybe say to you more from a product perspective, Dan.
Dan Bodner: On the business outcomes, think in the context of your AI.
Dan Bodner: Pertfolio, have you seen customers coming and asking about some new outcomes, new use cases that you haven't seen, let's say, over the course of the past six months or so?
Grant Highlander: To help better understand the step up of revenue we expect in Q4, I would like to bridge our adjusted revenue from Q4 last year to our projected Q4 revenue this year. Revenue is expected to increase around $30 million year over year in Q4. Approximately 10 million of the increase is from bundled SaaS revenue reflecting steady sequential revenue growth throughout this year. Approximately 10 million of the increase is from unbundled SaaS revenue reflecting the value of renewal contracts coming up for renewal in Q4 this year compared to Q4 of last year, last year.
Speaker Change: Yes, we do, and you know, the most common use cases today for the customers are asking for our, you know, I want to improve myself service.
Speaker Change: So, that my customers will talk to a boss rather than an agent and I own a buy some agent co-pilot that are going to help my agents in real time. So, these are the two most common use cases and we have obviously very differentiated outcomes in those two areas.
Grant Highlander: And the approximately 10 million of the increase is from non-recurring revenue, which relates to existing contracts that have a revenue component that will be recognized in Q4. Overall, the quarterly progression of this year is similar to last year.
Speaker Change: But in addition, you know, we automate all the workflows around the Connect Center and we see Cassas are looking at reducing attrition.
Speaker Change: Looking at better coaching and training for the agents, better knowledge for the agents and more automated knowledge because knowledge has been a big struggle and AI.
Speaker Change: is a great opportunity for pushing the right knowledge of the agent so they don't have to go and search.
Grant Highlander: Turning door balance sheet, we continue to be in a very good financial position. Our 10 times last 12 month EBITDA, and is further supported by our strong cash flow. With regard to cash flow, we are targeting about a 40% increase in pre-cash flow to approximately 180 million for the full year.
Speaker Change: We see a lot of companies interested in fraud and using AI to avoid fraud and we report them very strong outcomes, you know, one company Avoid six million dollars of self-service fraud attempts in just one month
Speaker Change: So, depending on what you know the industry, we see different focus areas, but more and more customers realize that AI is a lot of potential and they actually come into various and say, you know, what are the business outcomes that you think we need?
Grant Highlander: With regard to stock buybacks, in Q2, we completed our previously announced $200 million share buyback program. Going forward, we plan to use around half of our free cash flow to buyback stock.
Grant Highlander: And today, we are announcing a new 200 million buyback program over two years. Before wrapping up, I'd like to talk about how market AI adoption is benefiting our financial model and how we expect it will help us achieve a rule of 40 target. First, AI has significantly increased their tam. There are very few industries as a right for automation as the contact center market, and we are very well positioned to capture this opportunity.
Speaker Change: and we're happy to share our experience that we have now. We've got a lot of experience over the last year.
Grant Highlander: Second, the AI opportunity is in its early stages, and as customers experience strong AI business outcomes, we expect adoption to increase, driving more consumption of our bots, and accelerating revenue for Baron. Third, we expect our gross margin to continue to expand over time, driven by our strong AI innovation and the high value we deliver to our customers. And fourth, we expect operating leverage from increased sales productivity as early stage markets take more education and sales effort.
Speaker Change: and we share that with customers and help them to decide. I mentioned insurance company that started with 20% of their kind of SNS and 600 agents.
Speaker Change: of Toronto 3,000, they start with five bucks.
Speaker Change: You can see those boats are doing different things, but they conclude that this is where they want to start, so they started only with 5 and only with 20% of the total volume.
Speaker Change: and we believe that as they prove the outcomes that we let out for them, they will expand.
Speaker Change: and that's the basis of AI is not just one time deal. It's a journey.
Speaker Change: and as the Catholic Goat of the Journey and violates the outcomes, the increased consumption which create huge ROI for them but also increased time and growth for various.
Speaker Change: Thank you.
Speaker Change: Thank you and other reminder to ask a question, please press star 1-1 on your telephone. One moment for our next question.
Grant Highlander: Many of our largest customers have already started the AI journey with Baron, and we expect sales productivity to increase as the market matures. Overall, we are pleased with our AI momentum and believe that market AI adoption will have a positive impact on our revenue growth rate margins and cash flows as we work towards a rule of 40 target in fiscal 27.
Billy: Our next question comes from Samad Samano, Jeffree, see you May proceed. Hey guys, this is Billy, sit to sit and sit for Samad. Appreciate the color and disclosure on the breakdown of a bundle of 16th of the mix between new deals and conversions.
Speaker Change: and Grant from the prepare to remarks. You talked about this.
Speaker Change: A little bit, obviously, conversions for a strong last year, sell this year.
Matthew Frankel: With that asking a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions.
Speaker Change: Bundled SAS ACV from New Deal's for 37% year of a year. Maybe going kind of a step further. How is that mix maybe differed from what you would have expected when targets were given at the December 2020-23 investor day. We talked about how customers are adopting AI powered bots first in doing conversion second.
Dan Bodner: Our first question comes from Joshua Riley with Needham, you may proceed. All right, thanks for taking my questions. Maybe just starting off on the unbundled deal here that pushed in the quarter. Maybe just some additional information there would be helpful. Was it driven by the macro competitive issues or customers just considering how many seats that they may need on renewal and that's kind of, you know, having them try to figure out, you know, what is the impact of AI on the seat count that they need on these renewals? Just maybe some additional info there would be helpful.
Speaker Change: but trying to get at is the magnitude of either of those different than maybe what you would have expected a couple quarters ago and is that causing any changes, maybe they're in the...
Speaker Change: ACV line and in bikes at the revenue line relative to some of your expectations that's served here.
Speaker Change: Yeah, I'd be happy to address it because you got the numbers correct. So, relative to what we discussed in the investor day, our AI booking, which is the bundle size from new deals, is actually had a hard expectation.
Dan Bodner: Sure, healthy to address. So, as Grant said, we came with the bandal sauce, we have a newer strong 15% growth and basically exactly where we expected them. So obviously, bandal sauce is more predictable and is growing nicely, linearly every quarter. With unbandal sauce, there was a deal that was pushed. It's nothing to do with AI. There is no AI in unbandal sauce, it's only in unbandal sauce deals. And unbandal sauce as we saw in the past can move quarter.
Speaker Change: We expect it to grow, but we are exceeding it with 37% and we are projecting around 40% looking growth in H2 as well.
Speaker Change: The conversion we expected will be flat, so we didn't expect growth, because all the reasons that we discussed, like you know, classes don't have to convert, they can go AI first.
Speaker Change: So, we expect that it will be flat over here, but actually, that Dan.
Speaker Change: which is not affecting revenue because if they don't convert, they stay in unbalvelsas and they spend in unbalvelsas. So they're a convert later and we know that when they convert, there is two acts up, please stop the tuning in.
Dan Bodner: Grant also mentioned that there's a 20-minute deal that currently we're guiding to Q4, but actually may come in Q3. So, there could be some movement in timing. There's a large deal from very large customers. And, you know, this one deal that was, you know, we came 1.5 million dollars in unbandal below expectations. And that's one deal is from a very large customer. We're spending much more money with Verint. This is nothing to do with AI.
Speaker Change: but we give them the opportunity to get to it all quickly and that's what they want.
Speaker Change: and they don't want to slow down this conversion, so that's where we see conversion down this year. There will be coming later, but it's a question, how does it impact?
Speaker Change: Our guidance, we, we, not netted, doesn't because if they don't convert, they stay in unbent of slots and they do something there.
Dan Bodner: It's also nothing to do with agent counts. As we discussed before, we see customers that are starting to get some very strong AI business outcomes and they're reporting back to us. And, you know, we launched a platform a year ago. There was like the end of the summer last year. Then we had customers starting with initial AI purchases. And as they validated the business outcomes that we have promised, they increased the AI consumption.
Dan Bodner: And now we think more and more customers reporting strong business outcomes, including very strong increase in agent capacity. But we looked at our overall customer base. We do not see a change in the agent count. So, it's about about the same. At the same time, we are in a very early stage of maturity. And we have some customers that are early in their AI journey and already achieving increased agent capacity and reducing number of agents.
Speaker Change: God, it's super helpful and if I could sneak in the second one, it's just more general and long-term.
Speaker Change: Just in terms of a bot billing, obviously the revenue base today is pretty small relative to your total revenue, but we're kind of getting some questions on the mechanics of that and how it flows through the model relative to kind of the historic pricing.
Speaker Change: How do we kind of think about the floor or minimum for consumption-based pricing for first overviews? Just trying to get a sense of the impact on the model as that consumption element grows.
Speaker Change: Yes, now this is very, very important question relative to AI consumption because that's going to drive
Speaker Change: Great economic surveillance over time that the way we build with the eye.
Speaker Change: Obviously, it's not sick-based, it's all based on AI and it's a volume metric.
Speaker Change: and we work with large enterprise customers, so there's always a minimum commit.
Dan Bodner: So, it's a very beginning of AI impacting the capacity. It's also interesting that from those customers that now have the capacity increased, they're not just choosing to reduce agent count. Some of them are choosing to dedicate agent to improve customer attention. And some of them are actually dedicating agents to increased sales. So, we see really an interesting trend. AI can turn the customer from a service center to revenue generating center. So, there's more agent capacity available.
Grant Highlander: and they committed to a certain term one year, three or five years, whatever. Grant's soul mentioned before that actually the term of commitment is getting longer by 20%.
Grant Highlander: and I think that's a great sign, that Christmas just could constable, that...
Speaker Change: They want to sign a little bit there. But more importantly, the way the Minimum commits work is when they exceed the Minimum commit to F2 options, they can go on and consume more and pay coverage.
Speaker Change: Or they can step off the commits by just giving us a piece of paper.
Speaker Change: A simple purchase order and will increase the commits in the cloud.
Speaker Change: Then we'll always prefer to increase commit versus off-rage because it's going to be more expensive today, to pay off-rage.
Dan Bodner: And also the bots that we deliver today, like the coaching bots, are coaching agents how to become better self-people. And how to identify the right time during the call in real time to propose some upsell products to their customers. So, to address your question about ancient capacity, again, we don't see that across the base, but we starting to see some customer reporting very strong increase in capacity.
Speaker Change: When they step up the command, they get out to a higher level volume and obviously to a better price in.
Speaker Change: So, over it is not important for us because we expect customers to plan, once we validate the consumption is actually getting them the AI business outcomes that they expected.
Speaker Change #100: They are just up in the commit through a person's order and not through overage. And they can up the commit anytime during the term. So they don't have to extend the term, they can just within the term, increase commit.
Joshua Reilly: Got it, that's super helpful because I think if you look at the actual, you know, SaaS AR, the net new SaaS AR at in the quarter is actually pretty strong. So I think that that's probably the more important data point to be focused on here. And if you look at it, it was nearly up by 19 million sequentially. And if I look at the new SaaS ACV in the quarter was 21.06 million, that that tells me that actually your customer retention actually improved over the last couple quarters.
Speaker Change #100: and the design of this parking wall to make it really easy for customers to do two things, first to validate the results so they don't have to take a work for it, so they can start small, but they can easily increase within this center, it doesn't require negotiation, it's all pre-negotiating.
Speaker Change #100: and obviously a fake Chris.
Speaker Change #101: We just need to work.
Joshua Reilly: Is that what you're seeing internally? And maybe you can just talk about what you're seeing with customer's turn and retention here on, on overall renewals. Thank you. Yeah, that's very true. So, you know, we started with booking, AI booking, more than 40% that's very strong. Then booking obviously converts to bundles such revenue and that's 15% reported in Q2, 15% growth. And then the SaaS AR are improving, which is a result of booking and better retention.
Speaker Change #101: the Corps, those extra licenses in the clouds.
Speaker Change #101: So that's easy for them and easy for us.
Speaker Change #101: and that's what we've seen over the last year, we've seen basically customers starting at initial volume and then at their own pace, you know
Speaker Change #101: And by the way, they're increasing those established, multiple bots are not necessarily increasing all bots at the same time. So one bot for this healthcare company, they increased one bot from 300 to 30,000, but other bots.
Speaker Change #101: where at different consumption levels. So there's a total flexibility for each of the bars, because this bar is doing one thing and creating value for that one thing they automate and they don't have to make decisions across the entire platform that are beautiful.
Joshua Reilly: It's a combination of the two. So all those metrics that are affected by AI are actually improving because the AI business outcomes, the reports are not only strong, but you know, they, the customers are paying attention. There's a lot of noise in the market with AI and customers really look for not just the promise of the Gen AI, but can you actually turn Gen AI into business outcomes now in my context center, in my existing ecosystem?
Speaker Change #101: So they can try AI with different purposes, a different pace.
Speaker Change #101: It's really very, very flexible model and obviously the platform design supported and the pricing model is designed based on this open and modular platform.
Joshua Reilly: And of course, that's what we told customers we can do, but we were also like any other company just promising the future. And over the last year, as customers started with initial consumption to prove, and you know, this helped their company that started with 300 agents. Obviously, they have 30,000, so it was just an initial consumption, but once they saw the results, they, they expanded 100 X. And this is the kind of reaction we're getting from customers who actually see the results.
Speaker Change #101: This is that answer to the question and...
Speaker Change #101: [inaudible]
Speaker Change #101: i
Speaker Change #101: Thank you. I would not like to turn the call back over to Matthew Frankel for any closing remarks.
Matthew Frankel: Thanks Josh and thank you everyone for joining us today. Of course if you have any questions please feel free to reach out.
Speaker Change #102: and we'll talk to you soon, have a good night everyone.
Speaker Change #103: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Joshua Reilly: And of course, now we can use the stories to tell to other customers and we get their attention. And you can find on a website, you can find 30 case studies of AI business outcomes that were reported by customers. And of course, a year ago, we had nothing. And then over the year, we just started to sell bots. And we waited until those bots created real outcomes, which are now being reported on the website publicly.
Joshua Reilly: And of course, we shared those customers' references. And so on as we continue to, and that helps retention, that helps, you know, new booking, that's the future of AI for variant is increasing our time and a much better growth opportunity. Got it very helpful. Thank you. I'll get back in the queue.
Unknown Attendee: Thank you.
Shaul Eyal: Our next question comes from Shaoliol with TD Cowan. You may proceed. Thank you. Hi, good afternoon, guys. Two quick questions on on on my end. I'm getting some investors asking me as the cold is progressing, whether Dan or Grant, you're seeing any change on the competitive landscape. So on the one hand totally understand the fact that the annual guidance has been reiterated. Second quarter probably slightly more a, you know, timing, flash, mix, just address it.
Shaul Eyal: I think in your recent reply to the prior analyst, but but but anything that might have changed over the course of the past quarter. Well, it's a competitive market, but, you know, growing the, looking from new deals 40% is very strong. So I would say the demand is there and we're working through the competitive process and we're winning our first share. I can say that, you know, if you answer the questions, but we'll change in the market, I believe that our Switzerland approach is actually even more attractive now to our customers than it was before.
Shaul Eyal: Because customers are really looking to achieve the AI business outcomes now and they don't want to wait for their telephony to move to the cloud. So being able to lead with AI and deal with infrastructure later is important and Switzerland really ensures that they can start with their answers AI now and then whatever they choose later for their telephony infrastructure, we will be compatible. They're not going to have to disrupt the AI journey that they own.
Shaul Eyal: So I think that that's changed. Of course, we were able to deliver AI first. There is no need for rip and replace programs. There is no need to wait a year or two to make an infrastructure change because we designed this hybrid cloud that you can deliver AI now into your existing ecosystem. So that resonates well and so for example, that helped again, helped a company example that I gave before where we increased our ARR from 5 million to 10 million over one year.
Shaul Eyal: They still did not change their ecosystem telephony to the cloud. They're still on prep, but they're consuming more and more AI very, very quickly. So they can turn their energy, budget and internal teams are all focused on celebrating the AI journey. And they will convert to the cloud their infrastructure at some point and they know that that's going to be something that they can rely on very and that will be compatible with whatever they choose to do.
Shaul Eyal: So we see that as a change. And then one more change is, you know, there's a lot of companies that are now attracted to the context in the market because obviously there's a growing term and it looks like a great opportunity for more automation based on Jenny-I. But we see companies coming to the market with Jenny-I. Thank you very much, and then IT is struggling to really take that generic technology and create real business outcomes.
Shaul Eyal: And that's true for the hyperscalers, but also for smaller companies who just want to deliver genie tools. And there's a big difference between a generic genie model and the ability to train the model into existing workflow based on the conduct center expertise that we have. We're working with some of the largest companies in the world to learn how to deliver real outcomes in this market. So I think this is a competitive threat that once we are able to demonstrate the business outcomes that we can deliver.
Shaul Eyal: It's also, you know, not not that difficult for the customers to make that distinction with when air promise is huge. But what can it, what can do for me now in my existing ecosystems and I think Verint is a great differentiation in this regard? Got it.
Dan Bodner: And my follow on question, maybe slightly more from a product perspective than on the business outcomes think in the context of your AI portfolio. Have you seen customers coming and asking about some new outcomes, new use cases that you haven't seen? Let's say over the course of the past six months or so. Yes, we do. And you know, there was common use cases today for the customers are asking for our, you know, I want to improve my self service so that my customers will talk to bots rather than an agent.
Dan Bodner: And I want to buy some agent co pilots that are going to help my agent in real time. So these are the two most common use cases and we have obviously very differentiated outcomes in those two areas. But in addition, you know, we automate all the workflows around the Connox Center and we see customers are looking at reducing attrition, looking at better coaching and training for the agents, better knowledge for the agents and more automated knowledge because knowledge has been a big struggle.
Dan Bodner: And AI is a great opportunity for pushing the right knowledge to the agents so they don't have to go and search. We see a lot of companies interested in fraud and using AI to avoid fraud. And we report some very strong outcomes, you know, one company avoided six million dollars of self service, self service fraud attempts in just one month. So it depends on what, you know, the industry, we see different focus areas.
Dan Bodner: But more and more customers realize that AI is a lot of potential and they actually come into variant and say, you know, what other business outcomes do you think we need? And we help you to share our experience that we have now. We got a lot of experience over the last year and we share those with customers and help them to decide. I mentioned insurance company that started with 20% of their Connox Center, so 600 agents, of total of 3,000.
Dan Bodner: They started with five bots. You can see those bots are doing different things but they concluded that this is where they want to start. So they started only with five and only with 20% of the total volume. And we believe that as they proved outcomes that we let out for them, they will expand. And that's the basis of, you know, AI is not just one time deal. It's a, it's a journey.
Dan Bodner: And as the customers go through the journey and validate the outcomes, the increased consumption, which creates you, JRI for them, but also increased time and growth for very. Thank you. And as a reminder to ask a question, please press star one on your telephone. One moment for our next question.
Unknown Attendee: Our next question comes from Samad Samano with Jeffrey. You may proceed.
Unknown Attendee: Hey guys, this is Billy. It's Simmons. I'm for Samad. I appreciate the color and disclosure on the breakdown of bundled SAS ACV mix between new deals and conversions. And Grant and the prepared remarks you talked about this a little bit. It's obviously conversions for a strong last year, sell this year, bundled SAS ACV from new deals with 37% year by year, maybe going kind of a step further. How is that mix maybe differed from what you would have expected when targets were given at the December 2023 investor day.
Unknown Attendee: We talked about how customers are adopting AI power bonds first and doing conversions second, but trying to get at is the magnitude of either of those different than maybe what you would have expected a couple quarters ago and is that causing any changes maybe either in the ACV line and by extent the revenue line relative to some of your expectations at the start of the year. Yeah, I'd be happy to address it because you got the numbers correct.
Unknown Attendee: So relative to what we discussed in investor day, our AI booking, which is the bundled SAS from new deals is actually ahead of our expectations. We expected growth, but we are exceeding it with 37% and we are projecting around 40% booking growth in H2 as well. The conversion we expected will be flat. So we didn't expect growth because all the reasons that we discussed like customers don't have to convert they can go AI first.
Unknown Attendee: So we expected that will be flat year, but actually they're down, which is not affecting revenue because if they don't convert, they stay in unbundled SAS and they expand in unbundled SAS. So they're convert later and we know that when they convert there's a 2x uplift opportunity, but we give them the opportunity to get to AI quickly and that's what they want. And they don't want to slow down with conversion. So that's where we see conversion down this year. But our guidance, we, we, we, net net it doesn't because if they don't convert, they stay in unbuttoned sluts and they do something there.
Dan Bodner: Yeah, it's super helpful. And if I could sneak in a second one, it's just more general and long term. Just in terms of about billing, obviously the revenue base today is, is pretty small, relative to your total revenue, but we're, we're kind of getting some questions on the, on the mechanics of that and how it flows through the model relative to, to kind of the historic pricing. How do we kind of think about the, the floor or minimum for, for consumption-based pricing for, first, overages, just trying to get a sense of the impact on the model as, as that consumption element grows?
Dan Bodner: Yes, now this is very, very important question relative to, you know, AI consumption because that's going to drive great economics of Verint over time. The, the way we deal with AI, obviously it's not sit-based. It's all based on AI and, and, and it's a volume metric. And we, we, we work with large enterprise customers. So there's always a minimum commit and they committed to a certain term, one year, three year, five years, whatever.
Dan Bodner: Grants so mentioned before that actually the term of commitment is getting longer by 20%. And I think that's a great sign that customers just get comfortable that they, they want to sign longer term. But, but more importantly, the way the minimum commit work is when they exceed the minimum commit, they have two options. They can go on a consumer and pay average, or they can step up the commit by just giving us a piece of paper, a simple petri-soder and will increase the commit in the cloud.
Dan Bodner: They will always prefer to increase commit versus average because it's going to be more expensive for them to pay average. When they step up the commit, they get out to a higher level volume and obviously to a better pricing. So, overage is not important for us because we, we expect customers to, to plan. Once we validate the consumption is actually giving them the AI business outcomes that they expected, they are just upping the commit through a purchase order and not through overage.
Dan Bodner: And they can up the commit anytime during the term. So they don't have to extend the term. They can just within the term increase commit. And we designed this pricing model to make it really easy for customers to do two things. First, to validate the results so they don't have to take a word for it. So they can start small, but they can easily increase. Within the same term, doesn't require negotiation, it's all pre-negotiated.
Dan Bodner: And obviously, as they increase, we, we just need to, you know, deploy those extra licenses in the cloud. So that's easy for them and easy, easy for us. And that's what we've seen over the last year. We've seen basically customers starting at initial volume and then at their own pace, you know, increasing. And by the way, they're increasing those startups multiple bots and not necessarily increasing all bots at the same time.
Dan Bodner: So one bot, for this healthcare company, they increased one bot from 300 to 30,000, but other bots were at different consumption levels. So there's a total flexibility for each of the bots, because each bot is doing one thing and creating value for that one thing they automate. And they don't have to make decisions across the entire platform that are unique. So they can try AI with different purposes, different pace. It's really very, very flexible model and obviously the platform design supported and the pricing model is designed based on this open and modular platform. Does that answer the question? It's very helpful. Should I answer the question, Dan? No, no, that was helpful and we can forward to Verint Engage in a few weeks.
Unknown Attendee: Thanks, guys. Thank you.
Matthew Frankel: I would not like to turn the call back over to Matthew Frankel for any closing remarks. Thanks, Josh. And thank you, everyone, for joining us today.
Matthew Frankel: Of course, if you have any questions, please feel free to reach out and we'll talk to you soon. Happy good night, everyone. Thank you.
Operator: This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Thank you.