Q2 2025 Cognyte Software Ltd Earnings Call
[music].
Good day, ladies and gentlemen, thank you for standing by welcome to the Cognex second quarter fiscal year 2025 earnings Conference call.
At this time, all participants listen only mode.
After the Speakers' presentation, we will conduct a question answer session and instructions will be given at that time. Please.
Please note that today's conference maybe recorded.
I would like to hand, the conference over to your Speaker host Dean Ridlon head of Investor Relations. Please go ahead.
Dean Ridlon: Thank you operator Hello, everyone.
Dean Ridlon: Dean Ridlon Cognex head of Investor Relations.
Speaker Change: Thank you for joining us today.
Here with a large strong cognate CEO and David a body Cognize CFO.
Speaker Change: Before getting started I would like to mention that accompanying our call today is a presentation.
If you'd like to view these slides in real time during the call. Please visit the investors section of our website at Cognex Dot com.
Speaker Change: Click on upcoming events.
Then the webcast link for today's conference call.
Speaker Change: I would 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 1095, and other provisions of the federal Securities laws.
Speaker Change: These forward looking statements are based on management's current expectations.
Speaker Change: And are not guarantees of future performance.
Speaker Change: Actual results could differ materially from those expressed in or implied by these forward looking statements.
Speaker Change: The forward looking statements are made as of the date of this call and except as required by law cognate assumes no obligation to update or revise them.
Speaker Change: Investors are cautioned not to place undue reliance on these forward looking statements.
Speaker Change: For a more detailed discussion of how these and other risks and uncertainties could cause cognex actual results to differ materially from those indicated in these forward looking statements.
Speaker Change: Please see our annual report on form 20-F for the fiscal year ended January 31 2024.
Speaker Change: And other filings, we make with the SEC.
Speaker Change: The financial measures discussed today include non-GAAP measures we.
Speaker Change: We believe investors focus on non-GAAP financial measures and comparing results between periods and among our peer companies that publish similar non-GAAP measures.
Speaker Change: Please see todays presentation slides, our earnings release and the investors section of our website at Cognex Dot com.
Speaker Change: For a reconciliation of non-GAAP financial measures to GAAP measures.
Speaker Change: non-GAAP financial information should not be considered in isolation from.
As a substitute for or superior to GAAP financial information, but is included because management believes it provides meaningful information about the financial performance of our business and.
Speaker Change: And it is useful to investors for informational and comparative purposes.
Speaker Change: The non-GAAP financial measures that the company uses have limitations and may differ from those used by other companies.
Speaker Change: Now I'd like to turn the call over to allot.
Speaker Change: Thank you again welcome everyone to our second quarter conference call.
Allot: This was another strong quarter for ignite.
Leverage on our business plan executing our strategy and generating improved profitability as we leverage our financial model.
Speaker Change: We delivered another quarter of double digit revenue growth with gross margin and adjusted EBITDA expanding more rapidly than revenue.
Speaker Change: This year to date performance solid visibility and healthy demand have given us the confidence to increase our full year outlook.
Speaker Change: During Q2, we delivered revenue of $34 million.
Speaker Change: Up approximately 10% year over year non-GAAP gross profit increased 13% year over year growing faster than revenue consistent with our focus on margin expansion.
Speaker Change: We also generated $8 million of positive adjusted EBITDA in the quarter more than three times the amount that we generated in Q2 of last year.
And we remain focused on delivering sustainable and profitable growth.
Speaker Change: A central component of our growth strategy is to deepen and broaden our engagements with existing customers by expanding their use of our solutions and introducing them to additional offerings.
Continued success in this area underscores the significant value, we deliver and the strength of our customer relationships.
Speaker Change: In Q2, we secured three substantial follow on orders each valued at over $10 million.
Speaker Change: These orders came from two national security agencies and law enforcement agency.
Each of these customers has realized significant value for our solutions over the years.
Speaker Change: We believe our solutions are proven to be indispensable, providing our customers the quality reliability and power needed to talk any volume challenges effectively.
Speaker Change: In North America, we continue to make progress.
Speaker Change: During the first half of the fiscal year, we won't deal with eight new customers.
Speaker Change: In each case the customers replace an incumbent with recognized solution.
Speaker Change: Many of these new customers were referred to us by existing customers, who have experienced the highest value and superiority of our technology firsthand.
Speaker Change: We are encouraged by the progress we are making.
Speaker Change: I want to shed some light on the evolving world of threats and the intelligence the imperative of our customers face.
Speaker Change: The investigation challenges faced by law enforcement and security agencies are becoming increasingly complex over time across various activities such as organized crime counterterrorism drug smuggling human trafficking financial crimes in illegal immigration.
Speaker Change: The growing challenges stem from the fact that the bad actors are continually evolving adopting more sophisticated upticks and exploiting the latest technologies to conceal their activities.
Speaker Change: The leverage encrypted communications Douglas networks and in other words payment methods to evade detection, while increasing using Gan machine learning dominik legitimate behavior and upskill their operations.
Speaker Change: This construct adoption exit significantly harder for security agencies, the thread activities uncover networks and stop illegal operations before they take place.
Speaker Change: To empower customers to stay ahead of this constantly evolving threat, we deliver cutting edge innovation, followed by adding advanced analytics.
Speaker Change: Our technology eclipse agencies to detect patterns relationships and hidden insights that would otherwise be impossible to uncover.
Speaker Change: By partnering with and learning from hundreds of agencies worldwide, we continuously incorporate advanced intelligence methodologies, ensuring that our broad base of customers as the best tools to remain many steps ahead of <unk>.
In an effort to give you a clear understanding of our solutions are deployed and the impact they deliver I would like to focus this quarter and human trafficking, which remains a critical challenge for law enforcement agencies globally.
Speaker Change: We can only imagine demand suffering of the victims of human trafficking, making it is imperative to identify and resolve these cases as quickly as possible.
Speaker Change: This illegal activity is highly sophisticated and organized with criminal networks operating across international borders using complex financial transactions and communicating in multiple languages.
Speaker Change: These groups also leverage the latest communication technologies to conceal their identities and evade detection.
Speaker Change: One of the key challenges law enforcement faces internally and human trafficking is extracting actionable insights from the vast amount of digital and traditional data sources.
Speaker Change: By deploying the Koch Knight platform Allstate agencies can uncover digital traces reveal hidden identities chegg financial transactions and assess intense and risks.
Speaker Change: Relative measures driven by decision intelligence not only enable faster resolution, but also help prevent future crimes.
Speaker Change: Another highlight of this quarter relates to our cyber threat solution aluminum.
Speaker Change: Recently cognate was recognized for ILUVIEN, our AI insights one of our AI driven threat intelligence solutions in an August 2020 for Goldman report emerging tech the future of cyber threat intelligence research.
Speaker Change: In this report Gartner assesses trends impacting the threat intelligence domain predicting that Gen. AI based capabilities will become key is this technology will support faster mean time to respond by more quickly providing indicators about threats and the surrounding context.
Speaker Change: As generative AI technologies advanced and reshape cybersecurity cognitively integrated these technologies into alumina solution and continues to develop even more advanced capabilities, making lumina one of the only solutions with these cutting edge offering.
Speaker Change: In summary, we are making a meaningful difference for our customers empowering them to address significant growing and evolving threat.
Speaker Change: Our mission to make the world a safer place drives everything we do.
Speaker Change: Our cutting edge solutions accelerate investigations enable faster decision, making and helped mitigate a wide range of threats.
Speaker Change: We are continuing to grow we're introducing new advanced capabilities deepening our relationships with existing customers as well as expanding our reach with new ones.
Speaker Change: These accomplishments are strengthening our ability to deliver sustained profitable growth.
Speaker Change: We had a strong first half of fiscal 'twenty, five and solid visibility into our revenue for the upcoming quarters. We are once again, raising our full year outlook.
Speaker Change: We are now expecting revenue to be approximately $347 million plus.
Plus or minus 2%, representing about 11% year over year growth at the midpoint.
Speaker Change: Given the leverage in our financial model, we increased our adjusted EBITDA guidance and we now expect it to be about $25 million at the midpoint of the revenue range almost three times, what we generated in fiscal 'twenty four.
David: Now, let me turn the call over to David to provide more details about our Q2 results and updated fiscal 'twenty five outlook.
Speaker Change: David.
David: Thank you allowed and Hello, everyone.
David: Continued to deliver strong results that reflect our solid execution and the leverage we have in our financial model.
David: Q2 revenue was $84 $4 million in it.
Speaker Change: Increase of approximately 10% year over year.
Speaker Change: The majority of the revenue growth was driven by an increase in software revenue.
Speaker Change: Recurring revenues strong <unk>.
Continued to grow our recurring revenue and in Q2, we generated $46 $6 million of recurring revenue.
Speaker Change: We were able to drive gross profit growth faster than revenue.
Speaker Change: non-GAAP gross margin for the quarter was 71, 3%.
Speaker Change: Our non-GAAP gross profit for the quarter was $62 million, an increase of $6 9 million or 12, 9% year over year growth.
Speaker Change: Okay.
Speaker Change: The margin expansion demonstrates the leverage we have built into our business model.
Speaker Change: This is largely driven by higher software revenue and improved cost structure of our professional services organization.
Speaker Change: Our strong gross margin reflects the value of our customer recognize in our innovative technology and our competitive differentiation.
non-GAAP operating income and adjusted EBITDA grew meaningfully faster than revenue, reflecting the strength of our financial model.
We ended Q2 with non-GAAP operating income of $4 4 million and adjusted EBITDA of $8 $3 million, resulting in positive non-GAAP EPS of <unk>.
Speaker Change: Looking at our <unk> results, our revenue was $167 $1 million and grew by 11% year over year and our non-GAAP gross profit grew significantly faster by 15% year over year.
Speaker Change: The leverage we have in our model helped us generate meaningful improvement in profitability year over year.
Speaker Change: Our etch one non-GAAP operating income was $6 3 million versus an operating loss of six <unk> million dollars. During the first half of last fiscal year and our H, one adjusted EBITDA was $13 $3 million versus above.
Speaker Change: Breakeven in each one of the previous year.
Speaker Change: Our balance sheet is strong.
Speaker Change: Our short and long term contract liabilities.
Also known as deferred revenue.
Speaker Change: Strong and were $111 $4 million at the end of Q2.
Speaker Change: Contract liabilities balances are impacted by multiple factors.
Speaker Change: Renewal timing of support and subscription contracts.
Advanced payments.
Speaker Change: Revenue cognition timing, including contracts recognized under percentage of completion methodology.
Speaker Change: As a result quantity liabilities balances.
Speaker Change: Fluctuate between quarters.
Speaker Change: Okay.
Speaker Change: Our cash position is strong.
Speaker Change: With almost $100 million of cash.
Speaker Change: $16 million.
Speaker Change: Year end and no debt.
Speaker Change: The increase in our cash balance was primarily due to cash flow from operations, we generated during the first half of the year.
Speaker Change: Over the past few quarters, we have shared new kpis to help show how our business is progressing.
Speaker Change: One more nuclear we are now sharing its quarterly billings.
Speaker Change: Q2, billings was $77 $8 million.
Speaker Change: Representing 11% year over year growth.
Speaker Change: Billings defined as revenue plus the change in contract liabilities contract assets and Unbilled balances.
Speaker Change: Let me share with you how we performed against each of our other major kpis.
Speaker Change: Our appeal all remaining performance obligations represent contracted revenue that is expected to be recognized as revenue in future periods.
Speaker Change: As a reminder, a few factors primarily impact our apio in a given period.
Speaker Change: Sales cycle deployment cycle.
Speaker Change: A contract renewal timing and seasonality.
Speaker Change: Total IPO was 567 $7 million at the end of Q2.
Speaker Change: Short term arc deal at the end of Q2 increased to $326 million, providing solid visibility into revenue over the next 12 months. We believe this level of IPO.
Speaker Change: Our healthy and support our growth.
Speaker Change: Okay.
Speaker Change: Firstly the ability we are providing additional disclosure and we breakdown our IPO bonuses between deferred revenue and backlog.
Our total our appeal of <unk>.
Speaker Change: $567 7 million in the sum of deferred revenue of $111 $4 million.
Speaker Change: And backlog of $456 3 million.
Speaker Change: Turning to revenue Q2 revenue grew by nine 6% year over year and was $84 4 million.
Speaker Change: Our software revenue was $72 3 million.
Speaker Change: An increase of $5 6 million.
Speaker Change: Recurring revenue is stronger.
Speaker Change: Continue to grow our recurring revenue and in Q2, we generated $46 6 million.
Speaker Change: Or 55% of total revenue.
Speaker Change: Recurring revenue is a contributor visibility and long term growth and represent mainly support contract revenue and some subscription offerings.
Speaker Change: The vast majority of our Q2 revenue was from repeat business similar to previous periods.
Speaker Change: This is a testament to the significant value our customers generate from our solution and the high confidence level in us for helping them succeed in their critical missions.
Speaker Change: non-GAAP gross margin continued to improve and in Q2 was 71, 3% an increase of 209 basis points year over year.
Speaker Change: Our gross profit continued to grow meaningfully faster than revenue.
Speaker Change: In Q2, non-GAAP gross profit was up 12, 9% year over year.
Speaker Change: The combination of revenue growth better margins and effective cost structure drove significantly improved profitability.
Speaker Change: During Q2, we delivered $8 3 million of adjusted EBITDA.
Speaker Change: And non-GAAP operating income of $4 4 million.
Speaker Change: Q2 was another quarter in which we demonstrated the leverage we have in our model and our financial strength.
Speaker Change: We have been focused on executing our goal to improve our financials and continue to drive margin expansion.
Speaker Change: Turning to guidance.
Speaker Change: Given Q2 market conditions, our momentum and visibility we are sharing and increased outlook for the year.
Speaker Change: The fiscal 'twenty five.
Speaker Change: We now expect full year revenue to be approximately $347 million plus or minus 2%.
Speaker Change: This outlook represents <unk>.
Similarly, 11% year over year growth at the midpoint of the revenue range.
Speaker Change: We believe that our strong short term, our apio of $326 million and the demand environment support this outlook.
Speaker Change: We also believe that the seasonality of our revenue will be similar to historical patterns.
Speaker Change: Expect Q2 revenue to be slightly above the Q2 levels and ending the year with a strong Q4.
Because of the leverage we have in our model. We now expect adjusted EBITDA to be about $25 million at the midpoint of the revenue range compared to $9 million last year.
As a result of our increased outlook, we now expect annual non-GAAP EPS loss to come in at three <unk> at the midpoint of the revenue range.
Speaker Change: We continue to expect to generate about $37 million of cash from operations for this year.
Speaker Change: To summarize we have started the year with a strong H, one and we have been executing consistently well and producing strong results.
Speaker Change: We continue to add capabilities and increase the value our advanced solutions delivered to new and existing customers.
Speaker Change: By leveraging the latest technologies, including AI.
Speaker Change: We increased our revenue and profitability outlook for the current year and expect fiscal 'twenty five to be a year of continued both significant profitability improvement and strong cash flow from operations.
We believe we are well positioned for sustainable growth and they have leverage in our model. So we can generate additional improvement and profitability in future years.
Speaker Change: With that I would like to hand, the call over to the operator to open the line for questions operator.
Speaker Change: Thank you if you'd like to ask a question. Please press star one one.
Speaker Change: Your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Mike <unk>: Our first question comes from Mike <unk> with Needham Your line is open.
Mike <unk>: Hey, guys. Thanks for taking the questions here.
Just wanted to cycle back to the revenue composition when we're looking at it today.
Speaker Change: So the software and software service declined 5% sequentially, which I think was the first time that we've seen this revenue stream decrease since.
Speaker Change: <unk> fiscal 'twenty three so just trying to get a sense of the software and software service revenue to understand what caused that decline or was that in line with how you guys had expected.
Speaker Change: Yes, Hi, Mike.
Speaker Change: So the vast majority of our offering.
Speaker Change: Operating perpetual license.
As you remember, we do offer certain elements of our portfolio in a subscription model.
Speaker Change: And also Eric we found revenue this quarter grew sequentially and year over year.
Speaker Change: In Q2, the recurring revenue came at $46 6 million.
Speaker Change: Versus $41 $2 million in Q2 last year.
Speaker Change: Representing about 48%.
Speaker Change: Increase.
Speaker Change: In a related related to incremental subscription revenue. So if you look at the overall software revenue increased by $5.
Speaker Change: $5 million, so actually it's a conversion of perpetual license to some offerings that is.
Speaker Change: Subscription.
Speaker Change: Got it got it and if I think about the guidance that we have here for the rest of the year now.
Speaker Change: Can you help us.
Speaker Change: Better think through I guess, the split you're expecting between software and software service versus the professional services just again because that professional services was so strong this past quarter.
David: Yes, Mike it's David.
Speaker Change: So in general our guidance baked in there.
David: The subscription revenue that we're seeing that is growing you can see the trend that on overall recurring revenue that is growing and it's becoming more than 55% of the total revenue, which is good it would give us visibility and you could see that between the growth in the recurring revenue the portion of the subscription is higher.
David: Now if you will think about governmental agencies and their purchasing behavior is remained the same their preference is to steal and buy in our demand on a capex.
Speaker Change: Model, which means net awards perpetual we do encourage the customer to do this transition and we are very pleased that we were able to do it. This.
David: This year.
David: From a focus perspective, our 11% is taking position everything.
David: And.
Speaker Change: We believe that you know in the long term there will be more impact related to subscription.
Speaker Change: Got it. Thank you very much I'll leave it there and turn it over to my colleagues.
Speaker Change: Thank you as a reminder, if you'd like to ask a question. Please press star one one.
Speaker Change: I'm showing no further questions at this time I'd like to turn the call back over to Dave for any closing remarks.
Speaker Change: Thank you Michelle and thank you everyone for joining us on today's call are logged David and I will be traveling to Chicago, Milwaukee and Minneapolis in early October to meet with investors and hope to see some of you then and.
Dave: In the meantime, please feel free to reach out to me should you have any questions and we look forward to speaking with you again next quarter.
Speaker Change: Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Thanks.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: [music].
Okay.
Speaker Change: Alright.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Right.
Speaker Change: [music].
Speaker Change: Good day, ladies and gentlemen, thank you for standing by welcome to the Cognex second quarter fiscal year 2025 earnings Conference call. At this time, all participants are in a listen only mode.
Speaker Change: After the Speakers' presentation, we will conduct a question and answer session and instructions will be given at that time.
Speaker Change: Please note that today's conference maybe recorded.
I would now like to hand, the conference over to your Speaker host Jean <unk> <unk> head of Investor Relations. Please go ahead.
Thank you operator, Hello, everyone and Dean Ridlon Cognex head of Investor Relations. Thank you for joining us today.
Speaker Change: Here with a lot of strong cognate CEO and David body Cognize CFO.
Speaker Change: We're getting started I would like to mention that accompanying our call today is a presentation.
Dean Ridlon: If you'd like to view these slides in real time during the call. Please visit the investors section of our website at Cognex Dot com click.
Speaker Change: Click on upcoming events.
Speaker Change: Then the webcast link for today's conference call.
Speaker Change: I would 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 1095, and other provisions of the federal Securities laws.
Speaker Change: These forward looking statements are based on management's current expectations.
And are not guarantees of future performance.
Speaker Change: Actual results could differ materially from those expressed in or implied by these forward looking statements.
Speaker Change: The forward looking statements are made as of the date of this call and except as required by law cognizance, no obligation to update or revise them.
Speaker Change: Investors are cautioned not to place undue reliance on these forward looking statements.
For a more detailed discussion of how these and other risks and uncertainties could cause cognex actual results to differ materially from those indicated in these forward looking statements.
Speaker Change: Please see our annual report on form 20-F for the fiscal year ended January 31 2024.
Speaker Change: Other filings, we make with the SEC.
Speaker Change: The financial measures discussed today include non-GAAP measures we.
Speaker Change: We believe investors focus on non-GAAP financial measures and comparing results between periods and among our peer companies to publish similar non-GAAP measures.
Speaker Change: Please see todays presentation slides, our earnings release and the investors section of our website at Cognex Dot com.
Speaker Change: For a reconciliation of non-GAAP financial measures to GAAP measures.
Speaker Change: non-GAAP financial information should not be considered in isolation from as.
Speaker Change: As a substitute for or superior to GAAP financial information, but is included because management believes it provides meaningful information about the financial performance of our business.
And it is useful to investors for informational and comparative purposes.
Speaker Change: The non-GAAP financial measures that the company uses have limitations and may differ from those used by other companies.
Speaker Change: Now I'd like to turn the call over to allot.
Speaker Change: Thank you, Dan and welcome everyone to our second quarter Conference call.
Speaker Change: This was another strong quarter for coke, neither while delivering on our business plan executing our strategy and generating improved profitability as we leverage our financial model.
Speaker Change: We delivered another quarter of double digit revenue growth with gross margin and adjusted EBITDA expanding more rapidly than on revenue.
Speaker Change: This year to date performance solid visibility and healthy demand.
Given us the confidence to increase our full year outlook.
Speaker Change: During Q2, we delivered revenue of $34 million.
Speaker Change: Approximately 10% year over year non-GAAP gross profit increased 13% year over year growing faster than revenue consistent with our focus on margin expansion.
Speaker Change: We also generated $8 million of positive adjusted EBITDA in the quarter more than three times the amount that we generated in Q2 last year, and we remain focused on delivering sustainable and profitable growth.
Speaker Change: A central component of our growth strategy is to deepen and broaden our engagements with existing customers by expanding their use of our solutions and introducing them to additional offerings.
Speaker Change: Our continued success in this area underscores the significant value, we deliver and the strength of our customer relationships.
Speaker Change: In Q2, we secured three substantial follow on orders each valued at over $10 million.
Speaker Change: These orders came from two national security agencies, and a low phosphate agency.
Speaker Change: Each of these customers has realized significant value for our solutions over the years.
Speaker Change: We believe our solutions are proven to be indispensable, providing our customers the quality reliability and power needed to tackle the volume challenges effectively.
Speaker Change: In North America, we continue to make progress.
Speaker Change: During the first half of the fiscal year, we won't deal with eight new customers.
Speaker Change: In each case the customers replace an incumbent with a recognized solution.
Speaker Change: Many of these new customers, who are referred to us by existing customers was experienced the high value and superiority of our technology firsthand.
We are encouraged by the progress we are making.
Speaker Change: I want to shed some light on the evolving world of threats and the intelligence comparative our customers face.
Speaker Change: The investigation challenges faced by law enforcement and security agencies are becoming increasingly complex over time across various activities such as organized crime counterterrorism drug smuggling human trafficking financial crimes in illegal immigration.
Speaker Change: They are going to challenge us stem from the fact that the bad actors are continually evolving adopting more sophisticated upticks and exploiting the latest technologies to conceal their activities.
Speaker Change: Deliverers encrypted communications, Doug with networks, and anonymous payment methods to evade detection, while increasing using data and machine learning to mimic legitimate behavior and obscure the operation.
Speaker Change: This construct adoption exit significantly harder for security agencies, the threat activities uncover networks and stop illegal operations before they take place.
To empower our customers to stay ahead of this constantly evolving threat, we deliver cutting edge innovation, followed by air and advanced analytics.
Speaker Change: Our technology eclipse agencies to detect patterns relationships and hidden insights that would otherwise be impossible to uncover.
Speaker Change: By partnering with and learning from onwards of agencies worldwide, we continuously incorporate advanced intelligence methodologies, ensuring that our broad base of customers as the best tools to remain many steps ahead of <unk>.
Speaker Change: In an effort to give you a clear understanding of our solutions are deployed and the impact they deliver I would like to focus this quarter and human trafficking, which remains a critical challenge for law enforcement agencies globally.
Speaker Change: We can only imagine demand suffering of the victims of feelings Rafi King make it is imperative to identify and resolve these cases as quickly as possible.
Speaker Change: This illegal activity is highly sophisticated and organized with giving the network's operating across international borders using complex financial transactions and communicating in multiple languages.
Speaker Change: These groups also leverage the latest communication technologies to conceal their identities and evade detection.
Speaker Change: One of the key challenges law enforcement faces and tucking in human trafficking is extracting gutzmer insights from the vast amount of digital and traditional data sources.
Speaker Change: By deploying recognized platform law enforcement agencies can uncover digital traces reveal hidden identities drug financial transactions and assessing Tencent risks.
Speaker Change: Welcome measures driven by decision intelligence, not only enable faster resolution, but also help prevent future crime.
Speaker Change: Another highlight of this quarter relates to our cyber threat solution Illumina.
Recently <unk> was recognized for alumina, our AI insights one of our AI driven threat intelligence solution in an August 2020 for Gartner report emerging tech the future of cyber threat intelligence research.
Speaker Change: In this report Gartner assess trends impacting the threat intelligence domain predicting that Gen. AI based capabilities will become key is this technology will support faster mean time to respond by more quickly providing indicators about threats and the surrounding context.
Speaker Change: As generative AI technologies advanced and reshape cyber security <unk> integrated these technologies into aluminum solution and continues to develop even more advanced capabilities, making lumina one of the only solutions with these cutting edge offering.
Speaker Change: In summary, we are making a meaningful difference for our customers and empowering them to address significant growing and evolving threats.
Speaker Change: Our mission to make the world a safer place drives everything we do.
Speaker Change: Our cutting edge solutions accelerate investigations enable faster decision, making and helped mitigate a wide range of spreads.
We are continuing to grow by introducing new advanced capabilities deepening our relationships with existing customers as well as expanding our reach with new ones.
Speaker Change: These accomplishments are strengthening our ability to deliver sustained profitable growth.
Speaker Change: We had a strong first half of fiscal 'twenty, five and solid visibility into our revenue for the upcoming quarters. We are once again, raising our full year outlook.
Speaker Change: We are now expecting revenue to be approximately $347 million, plus or minus 2% representing about 11% year over year growth at the midpoint.
Given the leverage in our financial model, we increased our adjusted EBITDA guidance and we now expect it to be about $25 million at the midpoint of the revenue range almost three times, what we generated in fiscal 'twenty four.
Now, let me turn the call over to David to provide more details about our Q2 results and updated fiscal 'twenty five outlook.
Speaker Change: Great.
David: Thank you allowed and Hello, everyone.
David: We continue to deliver strong results that reflect our solid execution and the leverage we have in our financial model.
David: Q2 revenue was $84 4 million.
David: An increase of approximately 10% year over year.
The majority of the revenue growth was driven by an increase in software revenue.
David: Recurring revenues strong we continue to grow our recurring revenue and in Q2, we generated $46 $6 million of recurring revenue.
David: We were able to drive gross profit growth faster than revenue.
David: non-GAAP gross margin for the quarter was 71, 3%.
David: Our non-GAAP gross profit for the quarter was $62 million, an increase of $6 9 million.
David: Or 12, 9% year over year growth.
David: The margin expansion demonstrates the leverage we have built into our business model.
Speaker Change: This is largely driven by higher software revenue and the improved cost structure of our professional services organization.
Speaker Change: Our strong gross margin reflects the value our customer recognize in our innovative technology and our competitive differentiation.
Speaker Change: non-GAAP operating income and adjusted EBITDA.
Speaker Change: Grew meaningfully faster than revenue, reflecting the strength of our financial model.
Speaker Change: We ended Q2 with non-GAAP operating income of $4 4 million.
Speaker Change: And adjusted EBITDA of $8 $3 million, resulting in positive non-GAAP EPS of five.
Looking at our <unk> results, our revenue was $167 $1 million and grew by 11% year over year and our non-GAAP gross profit grew significantly faster by 15% year over year.
Speaker Change: The leverage we have in our model help us generate meaningful improvement in profitability year over year.
Speaker Change: Our etch one non-GAAP operating income was $6 3 million.
Speaker Change: <unk>, an operating loss of $6 $5 million during the first half of last fiscal year and our H. One adjusted EBITDA was $13 $3 million versus about breakeven in each one of the previous year.
Speaker Change: Our balance sheet is strong.
Speaker Change: Our short and long term contract liabilities.
Known as deferred revenue.
Speaker Change: <unk> and were $111 $4 million.
Speaker Change: At the end of Q2.
Speaker Change: Contract liabilities balances are impacted by multiple factors.
Speaker Change: Timing of support and subscription contracts.
Speaker Change: Advanced payments.
Speaker Change: Revenue cognition timing, including contracts recognized under percentage of completion methodology.
Speaker Change: As a result contract liabilities balances may fluctuate between quarters.
Speaker Change: Okay.
Speaker Change: Our cash position is strong.
Speaker Change: With almost $100 million of cash.
Speaker Change: Over $60 million.
Speaker Change: From year end and no debt.
Speaker Change: The increase in our cash balance was primarily due to cash flow from operations, we generated during the first half of the year.
Speaker Change: Over the past two quarters, we have shared new kpis to help show how our business is progressing.
Speaker Change: One more new Kpis, we are now sharing is quarterly billings.
Q2, billings was $77 $8 million, representing 11% year over year growth.
Speaker Change: Billings defined as revenue plus the change in contract liabilities contract assets and Unbilled balances.
Speaker Change: Let me share with you how we performed against each of our other major kpis.
Speaker Change: Our appeal all remaining performance obligations represent contracted revenue that is expected to be recognized as revenue in future periods.
Speaker Change: As a reminder, a few factors primarily impact our apio in a given period.
Sales cycle deployment cycle length of contract renewal timing and seasonality.
Speaker Change: Total IPO was $567 $7 million at the end of Q2.
Speaker Change: Short term our appeal at the end of Q2 increased to $326 million, providing solid visibility into revenue over the next 12 months. We believe this level of IPO are healthy and support our growth.
Speaker Change: Okay.
Speaker Change: Okay perfect ability, we are providing additional disclosure and we breakdown our IPO balances between deferred revenue and backlog.
Speaker Change: Our total our appeal.
Speaker Change: $567 $7 million in the sum of deferred revenue of $111 4 million.
Speaker Change: And backlog of $456 3 million.
Speaker Change: Turning to revenue Q2 revenue grew by nine 6% year over year and was $84 4 million.
Speaker Change: Our software revenue was $72 3 million.
Speaker Change: An increase of $5 6 million.
Speaker Change: Recurring revenue is stronger.
Speaker Change: Continued to grow our recurring revenue and in Q2, we generated $46 6 million.
Speaker Change: Or 55% of total revenue.
Speaker Change: Recurring revenue is a contributor visibility and long term growth and represent.
Speaker Change: Mainly support contract revenue and some subscription offerings.
Speaker Change: The vast majority of our Q2 revenue was from repeat business.
Speaker Change: Similar to previous periods.
Speaker Change: This is a testament to the significant value our customers generate from our solution and the high confidence level in us for helping them succeed in their critical missions.
Speaker Change: non-GAAP gross margin continued to improve and in Q2 was 71, 3% an increase of 290 basis points year over year.
Speaker Change: Our gross profit continue to grow meaningfully faster than revenue.
Speaker Change: In Q2, non-GAAP gross profit was up 12, 9% year over year.
The combination of revenue growth better margins and effective cost structure drove significantly improved profitability.
Speaker Change: During Q2, we delivered $8 3 million of adjusted EBITDA and.
Speaker Change: non-GAAP operating income of $4 4 million.
Speaker Change: Q2 was another quarter in which we demonstrated the leverage we have in our model and our financial strength.
Speaker Change: We have been focused on executing our goal to improve our financials and continue to drive margin expansion.
Speaker Change: Turning to guidance.
Speaker Change: Given Q2 market conditions, our momentum and visibility we are sharing and increased outlook for the year.
Speaker Change: For fiscal 'twenty five.
Speaker Change: We now expect full year revenue to be approximately $347 million plus or minus 2%.
This outlook represents approximately 11% year over year growth at the midpoint of the revenue range.
Speaker Change: We believe that our strong short term, our apio of $326 million and the demand environment support this outlook.
Speaker Change: We also believe that the seasonality of our revenue will be similar to historical patterns.
Speaker Change: We expect Q2 revenue to be slightly above the Q2 levels and ending the year with a strong Q4.
Speaker Change: Because of the leverage we have in our model. We now expect adjusted EBITDA to be about $25 million at the midpoint of the revenue range compared to $9 million last year.
Speaker Change: As a result of our increased outlook, we now expect annual non-GAAP EPS loss to come in at three <unk> at the midpoint of the revenue range.
Speaker Change: We continue to expect to generate about $37 million of cash from operations for this year.
Speaker Change: To summarize we have started the year with a strong H, one and we have been executing consistently well and producing strong results.
We continue to add capabilities and increase the value of our advanced solutions delivered to new and existing customers.
Speaker Change: By leveraging the latest technologies, including AI.
Speaker Change: We increased our revenue and profitability outlook for the current year and expect fiscal 'twenty five to be a year of continued both significant profitability improvement and strong cash flow from operations.
Speaker Change: We believe we are well positioned for sustainable growth and have leverage in our model. So we can generate additional improvement in profitability in future years.
With that I would like to end the call over to the operator to open the line for questions.
Speaker Change: Operator.
Speaker Change: Thank you if you'd like to ask a question. Please press star one one.
Your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Speaker Change: Our first question comes from Mike <unk> with Needham Your line is open.
Speaker Change: Hey, guys. Thanks for taking the questions here.
Speaker Change: Just wanted to cycle back to the revenue composition when we're looking at it today.
Speaker Change: So the software and software service declined 5% sequentially, which I think was the first time that we've seen this revenue stream decrease since.
Speaker Change: <unk> fiscal 'twenty three so just trying to get a sense of the software and software service revenue to understand what caused that decline or was that in line with how you guys had expected.
Speaker Change: Yes, Hi, Mike.
Speaker Change: So the vast majority of our offering.
Speaker Change: Operating perpetual license.
Speaker Change: As you remember, we do offer certain elements of our portfolio in a subscription model.
Speaker Change: And also Eric recurring revenue this quarter grew sequentially and year over year.
Speaker Change #100: In Q2, the recurring revenue came at $46 $6 million.
Speaker Change #101: Versus $41 2 million in Q2 last year.
Speaker Change #102: Representing about 48%.
Speaker Change #101: Increase.
Speaker Change #101: In a related related to incremental subscription revenue. So if you look at the overall software revenue increased over here by $5 five.
Speaker Change #101: $5 million, so actually it's a conversion of perpetual license to some offerings that is.
Speaker Change #101: Subscription.
Speaker Change #101: Got it got it and if I think about the guidance that we have here for the rest of the year now.
Speaker Change #101: Can you help us.
Speaker Change #103: Better think through I guess, the split you're expecting between software and software service versus the professional services.
Speaker Change #101: Again because of that professional services was so strong this past quarter.
David: Yes, Mike it's David.
Speaker Change #104: So in general our guidance baked in there.
The subscription revenue that we're seeing that is growing you can see the trend that on that overall recurring revenue that is growing and it is becoming more than 55% of the total revenue, which is good that give us visibility and <unk>.
Speaker Change #105: You could see that between the growth in the recurring revenue the portion of the subscription is higher now if you will think about governmental agencies and their purchasing behavior is remained the same their preference is to steal and buy in our demand on a capex.
Speaker Change #106: Model, which means net awards perpetual we do encourage the customer to do this transition and that we are very pleased that we were able to do it. This.
Speaker Change #106: This year.
Speaker Change #106: From a focus perspective, our 11% sticking position everything.
We believe that you know in the long term there will be more impact related to subscription.
Speaker Change #106: Got it. Thank you very much I'll leave it there and turn it over to my colleagues.
Speaker Change #106: Thank you.
Speaker Change #107: Wonder if you'd like to ask a question. Please press star one one.
Dave <unk>: I'm showing no further questions at this time I'd like to turn the call back over to Dave <unk> for any closing remarks.
Speaker Change #109: Thank you Michelle and thank you everyone for joining us on today's call.
Speaker Change #109: David and I will be traveling to Chicago, Milwaukee and Minneapolis in early October to meet with investors and hope to see some of you then.
The meantime, please feel free to reach out to me should you have any questions and we look forward to speaking with you again next quarter.
Speaker Change #110: Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.