Verint Techniques Inc. (NASDAQ:VRNT) Q3 2023 Earnings Name Transcript December 7, 2022
Verint Techniques Inc. beats earnings expectations. Reported EPS is $0.69, expectations had been $0.59.
Operator: Good day and thanks for standing by. Welcome to the Verint Third Quarter Convention Name. At the moment, all members are in a listen-only mode. After the audio system’ presentation, there shall be a question-and-answer session. Please be suggested that right this moment’s convention is being recorded. I might now like handy the convention over to your speaker right this moment Matthew Frankel. Please go forward.
Matthew Frankel: Thanks, operator. Good afternoon, and thanks for becoming a member of our convention name right this moment. I am right here with Dan Bodner, Verint’s CEO; Doug Robinson, Verint’s CFO; and Alan Roden, Verint’s Chief Company Improvement Officer. Earlier than getting began, I might like to say that accompanying our name right this moment is a Slide presentation. If you would like to view these slides in real-time in the course of the name, please go to the IR part of our web site at verint.com, click on on the Investor Relations tab and click on on the Webcast hyperlink and choose right this moment’s convention name. I might additionally like to attract your consideration to the truth that sure issues mentioned on this name could include forward-looking statements inside the that means of the Personal Securities Litigation Reform Act of 1995 and different provisions of federal securities legal guidelines.
These forward-looking statements are based mostly on administration’s present expectations that aren’t ensures of future efficiency. Precise outcomes might differ materially from these expressed in or implied by these forward-looking statements. The forward-looking statements are made as of the date of this name, and as besides as required by legislation, Verint has no obligation to replace or revise them. Traders are cautioned to not place undue reliance on these forward-looking statements. For extra detailed dialogue on how these and different dangers and uncertainties might trigger Verint’s precise outcomes to vary materially from these indicated in these forward-looking statements, please see our Type 10-Okay for the fiscal 12 months ended Jan 31, 2022. Our Type 10-Q for the quarter ended October 31, 2022, when filed and different filings we make with the SEC.
The monetary measures mentioned right this moment embody non-GAAP measures as we imagine traders deal with these measures in evaluating outcomes between durations and amongst our peer corporations. Please see right this moment’s slide presentation, our earnings launch within the Investor Relations part of our web site at verint.com for a reconciliation of non-GAAP monetary measures to GAAP measures. Non-GAAP monetary data shouldn’t be thought-about in isolation from, as an alternative to or superior to GAAP monetary data, however is included as a result of administration believes it gives significant supplemental data relating to our working outcomes when assessing our enterprise and is beneficial to traders for informational and comparative functions. The non-GAAP monetary measures the corporate makes use of have limitations and should differ from these utilized by different corporations.
Now I might like to show the decision over to Dan. Dan?
Dan Bodner: Thanks, Matt. I am happy to report one other quarter with continued sturdy gross sales momentum throughout key metrics pushed by manufacturers trying to shut the engagement capability hole. Verint cloud’s platform is differentiated particularly for organizations trying to elevate buyer expertise with the identical assets and budgets. Ongoing modifications in workforce dynamics make it extra compelling for manufacturers to deploy AI-driven options to extend their workforce effectiveness. All through this 12 months, we have now skilled sturdy gross sales progress with our cloud platform driving elevated recurring income and sequential gross margin growth. As we speak, we’ll evaluate our Q3 and year-to-date monetary outcomes and supply an replace on latest market developments.
We can even talk about our steering for this 12 months and introduce our outlook for subsequent 12 months. We anticipate continued SaaS income progress, perpetual income decline and gross margin growth driving sturdy earnings progress. Let’s take a better take a look at our Q3 outcomes. Beginning with income, in Q3, we delivered income in keeping with our prior steering. Our gross margins have elevated all year long monitoring forward of plan and our non-GAAP diluted EPS got here in considerably forward of our steering. We’re happy with our total outcomes and particularly with our gross sales progress metrics. Cloud income elevated 35% in Q3 with the SaaS portion of cloud income rising over 40% on a continuing foreign money foundation versus final 12 months. Cloud bookings additionally got here in sturdy with new SaaS ACV bookings rising in Q3 over 50% year-over-year on a continuing foreign money foundation.
As a reminder, in Q2, our new SaaS ACV had single-digit progress as a result of a troublesome examine and we guided to sturdy Q3 progress, which we’re happy to have delivered. Driving our sturdy new SaaS ACV progress the place many buyer expansions and new logos. In Q3, we acquired 31 cloud orders in extra of $1 million TCV as massive enterprise clients proceed shifting to the cloud. That is a couple of 50% improve, in comparison with 21 orders in the identical quarter final 12 months and displays the pattern of huge enterprises adopting cloud. These massive cloud orders included a number of the extra recognizable organizations on the earth reminiscent of monetary companies supplier Uncover; house items retailer IKEA; and healthcare supplier Cardinal Well being. As well as, we proceed to win many new clients and in Q3 we once more added greater than 100 new logos, together with the grocery firm Kroger and meals supply firm, Grubhub.
Let’s take a better take a look at two massive seven and eight digit wins in Q3. The primary order for $13 million was from a number one monetary companies firm. This massive buyer determined to maneuver to the cloud and chosen Verint’s cloud platform. We imagine we gained this huge order as a result of our platform openness, Da Vinci AI differentiation and enterprise scalability. And the second order for $7 million was from a number one firm within the utility sector. This massive group, which serves a number of million clients throughout the U.S. can be transferring to the cloud use Verint and including new purposes throughout the Verint cloud platform. We imagine the openness and breadth of the platform, Da Vinci AI automation and differentiation and a powerful ROI had been key causes we gained this chance.
As mentioned on prior calls, the Verint cloud platform is differentiated throughout a number of backstores. First, the platform core consists of our market main engagement information hub and Verint Da Vinci AI that underpins all of the purposes operating on our platform. This information centric strategy empowers our clients with enterprise insights and drives automation throughout the enterprise. Second, our platform affords many better of breed purposes to assist manufacturers shut the engagement capability gaps and generate fast ROI. The platform strategy makes it simple for purchasers to start out anyplace and undertake extra purposes over time. And third, our platform is open and agnostic to a model selection of telephony answer, CRM answer and information lakes, the place it makes it simple for manufacturers to deploy our platform into their present ecosystem.
Subsequent, I wish to talk about the SaaS income and SaaS bookings developments we have now seen this 12 months and our expectations for the rest of fiscal 23. Our SaaS income has persistently elevated over the previous few years, and this 12 months, we anticipate over 35% progress on a continuing foreign money foundation. All through this 12 months, our SaaS income has elevated each quarter, and we anticipate to complete this 12 months sturdy with non-GAAP SaaS income approaching $130 million in This fall. With respect to bookings, we anticipate sturdy new SaaS ACV progress in This fall following our sturdy progress in Q3. Total, the second half, we anticipate round 40% progress year-over-year, an acceleration over the 15% progress we noticed within the first half on a continuing foreign money foundation. SaaS bookings speed up in H2 we see the alternative pattern in perpetual license bookings, which I’ll talk about subsequent.
In Q3, we noticed a change in conduct from perpetual license clients. Our perpetual income in Q3 was considerably decrease than in Q1 and Q2. We anticipate this pattern to proceed in This fall. Trying on the second half of the present 12 months, we anticipate perpetual income to drop to $46 million, which is a quicker decline than beforehand anticipated. For the full-year, we now anticipate $110 million of perpetual income. Because the market shifts away from perpetual to SaaS, our recurring income metrics proceed to be sturdy. For the 12 months, we anticipate non-GAAP recurring income to extend round 10% on a continuing foreign money foundation. For This fall, given the perpetual developments we simply mentioned, we anticipate near 90% of our non-GAAP software program income to come back from recurring sources. As a larger portion of our income is recurring, visibility has improved and we additionally profit from gross margin growth, as I’ll clarify subsequent.
All through this 12 months, we have now skilled a sequential enchancment in gross margins. Our recurring income generates a lot greater gross margins than our non-recurring income and recurring income progress has been driving gross margin growth. Total, we anticipate round 100 factors of growth this 12 months with a non-GAAP annual gross margin reaching 70% for the primary time in our SaaS transition. Turning to steering for the present 12 months. In This fall, as SaaS income continues to develop, we anticipate perpetual income to say no quicker than we beforehand anticipated and are adjusting our annual income outlook accordingly to five% progress on a continuing foreign money foundation. Relating to EPS, we’re sustaining our steering for 10% diluted EPS year-over-year progress. Subsequent 12 months’s steering is pushed by the developments and market surroundings we’re seeing right this moment.
We anticipate one other 12 months of sturdy sales momentum with 30% SaaS income progress on a continuing foreign money foundation, whereas potential income declines to roughly $100 million. Total, this drives our whole income progress to six% on a continuing foreign money foundation, up from 5% we now anticipate for this 12 months. We anticipate one other 12 months of gross margin growth as we proceed our shift in the direction of recurring income. And relating to EPS, we anticipate 8% year-over-year progress leading to diluted EPS of $2.70. Earlier than handing the decision over to Doug, let me conclude with our long-term targets and new buyback program. We imagine that serving to manufacturers shut the engagement capability hole is a progress alternative that may assist sturdy SaaS income progress for a few years. As well as, we imagine our gross margins will proceed to increase as we shift to SaaS, which can allow us to drive sturdy double-digit earnings progress long run.
We’re assured in our long-term prospects and are happy to announce a brand new $200 million inventory buyback program over the following two years. And earlier than I flip over the decision to Doug, I wish to remind you of the beforehand introduced CFO transition in This fall. That is the final earnings name that Doug joins as our CFO, and an excellent alternative for me to thank Doug with great contribution to Verint over the past 16 years and for the flawless execution of our complicated spinoff virtually two years in the past. Now let me flip the decision over to Doug.
Doug Robinson: Thanks, Dan. Good afternoon, everybody. Our dialogue right this moment will embody non-GAAP monetary measures. A reconciliation between our GAAP and non-GAAP monetary measures is out there, as Matt talked about, in our earnings launch and within the IR part of our web site. Variations between our GAAP and non-GAAP monetary measures embody changes associated to acquisitions, together with honest worth income changes, amortization of acquisition-related intangibles, sure different acquisition-related bills, stock-based compensation bills, separation-related bills, accelerated lease prices, IT amenities and infrastructure realignment, in addition to sure different gadgets that may differ considerably in a mountain frequency from interval to interval.
For sure metrics, it additionally consists of changes associated to international trade charges. Just like final quarter, given the numerous appreciation of the U.S. greenback this 12 months, I will be discussing sure outcomes on a continuing foreign money foundation right this moment to higher perceive our enterprise efficiency. Income got here in at $232 million on each a GAAP and non-GAAP foundation, in keeping with our prior steering, reflecting 2% year-over-year progress on a non-GAAP foreign money foundation. Yr-to-date non-GAAP income elevated 6% on a continuing foreign money foundation. Recurring income got here in at $175 million on each the GAAP and non-GAAP foundation, reflecting 12% year-over-year progress on a non-GAAP fixed foreign money foundation. Yr-to-date, non-GAAP recurring income elevated 11% on a continuing foreign money foundation.
As Dan mentioned earlier, as we shift to a extra recurring income mannequin, we’re seeing an enchancment in our gross margins. And our non-GAAP gross margin got here in sturdy at 71.2% in Q3. Our sturdy gross margins enabled us to considerably overachieve on the underside line and non-GAAP diluted EPS got here in at $0.69. Turning to our sturdy cloud KPIs. We’re more than happy with our Q3 and year-to-date efficiency. Cloud income on a continuing foreign money foundation elevated 37% on a GAAP foundation and 35% on a non-GAAP foundation year-over-year in Q3, barely quicker progress than the primary half of the 12 months. Non-GAAP SaaS income on a continuing foreign money foundation elevated 41% year-over-year in Q3 or 44% on a GAAP fixed foreign money foundation. Each metrics grew strongly in Q3 with a rising quicker than cloud.
As we beforehand mentioned, cloud consists of elective managed companies, which is a low-margin enterprise that we’re not concentrating on for progress. New SaaS ACV bookings represents annualized contract worth of all new SaaS contracts booked within the quarter. In Q3, new SaaS ACV was up sturdy at 51% year-over-year on a continuing foreign money foundation, as we proceed to see sturdy demand throughout industries and geographies in addition to new and present clients for the Verint Cloud platform. As Dan mentioned earlier, in Q3, perpetual income declined greater than anticipated, which resulted in new PLE bookings being down 4% year-over-year on a continuing foreign money foundation. Yr-to-date, new PLE bookings elevated 11% on a continuing foreign money foundation. Given the developments we mentioned right this moment, I might like to say that it is helpful to have a look at two parts in PLE, perpetual and SaaS, which display totally different behaviors.
In Q3, the SaaS part elevated 42%, whereas the perpetual part declined 43%. And year-to-date, we skilled 41% progress within the SaaS part, whereas the perpetual part declined 20%. I might now like to debate our present steering for This fall and the 12 months ending January 31, 2023. We anticipate one other quarter of SaaS progress in This fall, driving greater than 35% SaaS income progress and 10% recurring income progress for the 12 months, each on a continuing foreign money foundation. We anticipate income to extend sequentially by round $6 million in This fall and are adjusting our outlook for whole income for the 12 months to $900 million or 5% year-over-year progress on a continuing foreign money foundation. Our present outlook displays the developments we mentioned right this moment, together with sturdy SaaS progress, coupled with faster-than-expected perpetual decline.
Our present outlook for perpetual income is roughly $110 million. With respect to EPS, we’re sustaining our steering for 10% diluted EPS progress year-over-year. In This fall, under the road, we anticipate curiosity and different expense internet must be round $1 million. Internet earnings from a non-controlling curiosity we have now within the small three way partnership must be round $200,000. Our money tax charge must be about 12%, and we anticipate round 76 million absolutely diluted shares excellent. Earlier than transferring to our outlook for subsequent 12 months, let me take a minute to evaluate the place we’re in our cloud transition throughout three areas and talk about how we’re modeling subsequent 12 months’s SaaS progress. Beginning with the cloud combine. Over the following a number of years, our income and bookings have steadily shifted to SaaS.
This 12 months, we anticipate cloud income to characterize 64% of our cloud software program income. Relating to bookings, we anticipate 67% of latest PLE bookings to come back from SaaS. We’re happy with our continued progress with our combine change in the direction of SaaS. Subsequent, I might like to debate SaaS income. As we take a look at our anticipated 35% SaaS income progress. We anticipate round 60% of our progress to come back from new enterprise and 40% to come back from conversions. On the finish of this 12 months, we anticipate to have $180 million of assist income remaining, which we anticipate to transform to SaaS over time. Third, our recurring mixture of income continues to extend and we anticipate round 86% of our software program income to come back from recurring sources this 12 months, pushed by new SaaS ACV bookings and robust renewal charges.
Total, I imagine we’re nicely positioned going to subsequent 12 months for continued SaaS progress. Now let’s flip to our steering for subsequent 12 months. Our fiscal 24 steering displays the developments we mentioned right this moment, together with sturdy SaaS bookings, declining perpetual, in addition to the present macro surroundings, which can be impacting buyer and companion shopping for choices. For whole income, we anticipate 6% year-over-year progress on a continuing foreign money foundation, leading to $945 million of reported income, plus or minus 2%. We anticipate recurring income to develop near 10% year-over-year on a continuing foreign money foundation with perpetual income coming in round $100 million. We anticipate gross margins and working margins to proceed to increase and ship 8% absolutely diluted EPS progress.
Now let’s talk about some below-the-line assumptions. We anticipate round $750,000 per quarter of curiosity and different expense internet. We anticipate about $200,000 per quarter of internet earnings from a non-controlling curiosity we have now in a small three way partnership. We anticipate the money tax charge of roughly 11% for every quarter and for the 12 months. And our steering assumes 75 million absolutely diluted shares, down barely from the 12 months because of the new buyback program. The precise share depend will rely on the tempo of the buyback. In abstract, we’re happy with our Q3 and year-to-date outcomes and are nicely positioned for a powerful end to the 12 months. We anticipate the sturdy SaaS momentum we skilled this 12 months to proceed into subsequent 12 months, driving one other 12 months of sturdy earnings progress.
Long run, we’re working in a positive market that helps sustainable SaaS progress from which we anticipate to drive double-digit whole income progress, continued margin growth and double-digit earnings progress. Our new $200 million share buyback program, which at present costs might enable us to repurchase roughly 7% of our excellent shares displays the boldness we have now in our outlook. And at last, as that is my final earnings name as CFO of Verint, I might wish to share that I could not be extra assured in grant in our workforce and sit up for appearing as an adviser to remain within the firm for a time frame. And with that, operator, let’s open up the road for questions.
To proceed studying the Q&A session, please click here.