- Earnings call transcript Q3 2023

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Operator

Good day. Thank you for standing by. Welcome to Cognyte’s Third Quarter Fiscal Year 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Dean Ridlon, Head of Investor Relations. sir. ahead, go Please

Dean Ridlon

David Hello, Relations. am us Thank with CEO am operator. Head today. Ridlon, of here and Cognyte’s Sharon, Investor you Elad Cognyte’s everyone. you, CFO. Dean I Cognyte’s I Abadi, Thank for joining

like started, accompanying our mention getting is Before to presentation. today a that would I call

reliance on the and view federal management’s on on these future our materially would fact also are of implied Act statements of Private in of laws. current guarantees on Cognyte website the These law, Actual today’s may and these or as like not to expectations from call results cognyte.com, click I If the the to draw to in forward-looking except Reform forward-looking during that this XXXX section date these attention are or your place and this statements. of statements you would them. contain of forward-looking statements not by cautioned link to the within undue the of as Litigation Investors discussed differ real-time the Investors to other the meaning certain tab, conference call. statements. provisions click the slides The matters could expressed Securities forward-looking select Investors no performance. like call, required webcast please visit revise are obligation assumes made based securities update on are those forward-looking at and call of by

indicated January annual the Form please to differ for uncertainties fiscal on these in other those and results cause discussion periods XX-F measures. presentation year see could make Cognyte’s we how of between focus believe a from statements, slides, investors report in actual XXXX ended among see non-GAAP that publish these forward-looking detailed XX, and more For measures. our materially non-GAAP We with financial Please our today’s filings non-GAAP include similar comparing companies other financial the results measures and peer included discussed on Investors The today measures SEC. risks it reconciliation measures of should website performance our to other financial differ but meaningful from Non-GAAP as the about by earnings company in the information a financial comparative section because is our or non-GAAP to for cognyte.com companies. financial management purposes. and for, business and considered be GAAP limitations of substitute superior for from, at information, The our uses measures isolation believes not financial informational is release used provides financial non-GAAP investors and a to GAAP useful have and information measures. of the those and may

to I’d over turn Now, to like Elad. call the

Elad Sharon

Welcome third you, orders. conference to we continued call. win Thank quarter the to Dean. large QX, In everyone

higher backlog a came we resume expect the revenue QX We revenue drove growth. than be believe will backlog sequentially, decline. booking conversion time to increased sequential at and Our slow turning same our a sequential point and revenue

losses. driving a also to current ‘XX in Revenue We significant year-to-date decline I to compared approximately X% growth will by fiscal outlook minutes. grow trends discuss the few expect drove revenue our year.

result, targeting year. next actions and we we we took about and reduce to the Operationally, burn cash our which divestiture December are improved SIS. as Intelligence period a QX for flow regard, As cash a on of to focus the successfully and Solutions, in operations announced breakeven conditions. from achieve we previously Situational company we X, of during of to our refer macroeconomic In the that as tough completed losses

customer us strong believe differentiated technology Looking position profitability. for growth our relations long-term well forward, and and we

despite countries quarters, macroeconomic trends. QX a operate me same more time, challenges. won QX. significantly in challenges give many improve see we countries to in With multiple would new At In now large our visibility saw these conversion and We continue little customers to deals that bit approximately some about to have the currently schedule. operate to having previous the are with customers some continue XXX up color to business We to been countries and readiness. there related firming across countries. environment, closely to storm challenging let with QX, budgets different operational I in navigating of the the drive by deals. disrupted not dynamics by large temporary we the in that are current love backlog win view continue during business and you the we engage demand that, We like

across address cases national a security security, variety Our cyber of national customers security investigative enforcement, and solutions law use intelligence analytic help agencies.

over The first customer threats. agency with new This government for Cognyte. is combat million deal security a $XX a for to is cyber

solutions view, to customer selected superior enrich threats. to to investigate were enable the Our We our analyze, data domain cyber and will technology due expertise.

and an deal solution from National selected of technology is million second The for $X is customer investigate the activities. combat based The customer. with relationship We using organized strength deep existing approximately this our and Intelligence on the our to Agency. were criminal

anti-terror we The based order million value our adding border the now approximately were The present is on new and for security. from third Agency. an customer selected follow-on also is We existing the capabilities to $X and deal National solution Security address generates.

exist. activity, we and by with than We budgets booking customers a basis, geographic quarter ourselves book-to-bill focus the our operational areas ratio pleased these country best an greater country are in make another on focus decisions X. of with on We increased of opportunities and have believe the readiness

like dynamics we would discuss the I to our conversion. in see backlog Next,

deployments. have this As year, know, customers been has been you while our growing delaying backlog some

evolving backlog delivery to visibility We positions the report a as security to understanding our better done We customers next confidence their and threats. am the I to that believe have us budget to address deployments. schedule. as commitment into urgent all result timing QX firm pleased and The year. of discuss been has conversion for planning have our of to in our provide the improved engaged visibility provides with needs as guidance for work technology improved customers backlog due actively with us more innovative we the deploy with customers’ to the well backlog to progress with prioritizing

for in $XX other with cost selling these cost million. in actions structure, over OpEx we marketing with to excluding R&D, actions These will structure gradually our across year believe line to cost our outlook necessary to of outlook. support next OpEx of quarters to two continue the OpEx in G&A. took $XX our this million environment end saving and started actions We with months, and our level non-GAAP and about expenses to QX are reduce year expect current SIS the the the few the We last QX growth. Turning with and in reduce our

forma outlook, to results, QX SIS, Turning will our discuss are later. providing excluding we divestiture SIS, of pro which David given the

On million million. higher improved January revenue, revenue year $XX combination the non-GAAP XXXX expenses million, are QX. million $XX QX and in expecting ending expected of expect up to basis, SIS of Excluding is revenue QX currently to revenue lower we million for from to to be the profitability. range we $XXX in $XX the The in $XXX of this range in result

operations from breakeven. above is for flow cash be Our expected to QX

year-over-year we For to year. fiscal grow X% ‘XX, approximately expect revenue

next the Our we year view demand environment year. timing with is and our for next have on based discussions expectations similar deployment of on customers current for backlog

been this not While better the our backlog macro next of and supports for year conversion growing outlook our has environment conditions, backlog revenue year. this assuming we are growth

Turning this reduction will to next actions benefit cost profitability margins, our year outlook. year

to are next guidance. a pleased In from flow As regain visibility a targeting in provide be operations above are summary, year. position we result, we breakeven and to cash to

growth revenue year to the with growth in actions these flow. and cash significantly in sequential QX We believe and position us costs year-over-year growth that improved focus profitability next fiscal ‘XX. expect We we the the for took and business

would address believe our leading threats. and their security like our also growing threats success. for employees We customers pervasive strong are dedication to customer thank to market the solutions to I need

We to growth. forward look current managing and the returning are profitable company the to to storm

turn David? David call to let more to over the details. provide Now, me

David Abadi

hello Thank you, Elad and everyone.

non-GAAP Our as our measures measures. will in release GAAP discussion Dean include financial earnings in available, is mentioned, and financial of and section Investors the between A our reconciliation website. non-GAAP today our

excluding details in results, $XX.X Situational dashboard for came at website tab Revenue Our divested QX includes Intelligence historical a Solutions. that a with million. financial recently the our

Looking services at impacted at a $XX in $XX at as decline revenue software reflecting Elad and came our by in revenue came $X.X Total software in million last mix, at million, rates. the year, explained. services revenue million other from conversion strong came significant delays renewal revenue level. Professional backlog reflecting

our a in divestiture, SIS. at SIS QX result I results revenue $XX.X million. for current of As will came for without the year Non-GAAP discuss the

QX. $XXX was revenue reported increase million XX came approximately end QX from reflects The higher an for QX, million. During million, our next RPO of RPO backlog. our booking activity in to the RPO in obligations. an the our $XXX of adjustments contractual and $XX all our drove increase months is than

to basis, Turning margin professional was a XX.X% due on QX non-GAAP margin, services. primarily a gross gross loss of to

initiative better professional due result margin to deployment to on improved improve services the a cost our expect as and We of reduction visibility. efficiency

EBITDA million Our QX QX operation million the cost non-GAAP QX operating lower loss Cash in in of for level loss an OpEx, reflecting non-GAAP million level lower operating lower control used in Despite million, of resulted our mainly QX and and a activities. the inventory. by driven in than than improvement $X.X revenue the expense was $X.X was $XX.X $XX increased quarter.

net $XX Turning to ended the the quarter of balance million. about cash sheet, we with

cash million. of our Following SIS, the divestiture current $XX about to increased net

the Next, detail of I consolidated non-GAAP about would more on provide XX% divestiture. SIS to like Historically, SIS revenue. Cognyte’s was

revenue SIS $XX revenue the During and $XX months first ‘XX generated FY million. non-GAAP of million ‘XX, about X of SIS non-GAAP generated about during of FY

SIS. on results, information further Cognyte’s provides dashboard excluding Our

fourth of result $XX.X cash. in As during divestiture this we million the received quarter,

next dollars We expect the extent received. to additional to eventually years this and an price At million and there few earn-out over other be time, earn-out. Also, a related will to receive be payment future is next related what any an earn year adjustments. X we certain cannot whether holdback the to to potential

revenue $XX be QX, $XX.X to million Turning QX $XX range to to we in and QX. from the currently of in million are expecting increase in million

Our our the QX are to in expected in result cost efforts reduction further expenses operating level. decrease for

in lower improved QX result $XX of about to The be expect higher is operating we expected SIS, result, excluding a expenses, and million. profitability. As QX to revenue expenses combination

month $X of As X OpEx. a also approximately include $X.X about reminder, million will of SIS and contribution of of revenue QX incremental million of

QX cash operations. flow to turn Let’s from

cash ‘XX due our profitability outlook. reduced more from also expect about color capital breakeven like working better and sequential and activity We This about will collection add operation. flow to FY improved level. improved in result to would I inventory

‘XX approximately increase FY next throughout in and expect you modest year. model X% We can sequential level year will assume from the revenue grow your

of view backlog schedule current Our for our year is deployment revenue outlook dialogues. customers’ next driven by best

Our will to QX cost into from continue next the level improve structure year.

earnings next our more FY provide During expectation on call, detail our I profitability will ‘XX. for

next to year revenue our structure. projected operation cash primarily breakeven, We by be about driven lower expect from growth cost flow and

million We believe offset receipts addition, $XX trends. expect innovative for In of our security threats customers to and we CapEx divestiture. from our by other need about additional SIS solutions pervasive evolving partially the payment are

a in We customers and world. with record market investigative leader around track are analytics have the strong a

that, We hand line have questions. to profitability. through like Operator? to growth managing and the the operator to we business opportunity over long-term environment call the of front to I current for return With the in us to the open are and would

Operator

Needham the comes with line you. Company. Thank of & Mike Our Instructions] from Cikos [Operator question first

line open. Your is now

Mike Cikos

Hey, the guys. for taking Thanks question.

Cikos have the You here. on line Mike

out So customers color? that with I know can on us guidance guys appreciate visibility provide this been that time? that’s to in can you better maybe understanding little what a have. at of you been have additional working this calling far just guidance details But But more the you you can management backlog gave reinstate this the the you as deployment year. provide as building confidence you

Elad Sharon

Yes.

Mike, Elad. turning Yes, hi, is So, are this point. in the we

and confirm RPO and with we grow expect to schedule. sequentially We quarter few able the quarters, working Remember, customers our QX to each are to year. increase and next year. this past every very were deployment in we backlog In the

delays of However, readiness related customers experienced conversion to backlog some we budgets.

going behind a it remember So that the meetings better time, going they also and intensive plan spent we this try to budgets them of then also understand prioritize And we time forward. and then discussions the also reasons deployments to usually with at have what be lot with customers’ and our to are the helpful forward.

in So, the – and confidence resumed that actually have the the level discussions level confidence towards year. reason deployment schedule for we were a with visibility outlook of the high with the for next provides results us the we today And next and quarters this that’s guidance.

customers, look of an short-term we the bit about of RPO, year. about our XX% of you discussion of so a if or million our less. which $XXX more total you had more or RPO Just the less reflects RPO And RPO also more look – $XXX the little if after but the than at with at XX% RPO, it total on outlook million, stands for next more is color,

the time. guidance to this confidence us in order provide gives this So, we that have

Mike Cikos

just That’s fair more seen because just great. the backlog convert year, that. just conversion have could just have customers delays I trying respect question behaving confidence I I guys me. you about in to year, guidance of have to or that I appreciate – to Like next think this interesting understand if the to more differently ask is am backlog why here. given some And that that obviously experienced in to that It’s now, one year with it know delays differently that conversion, we we would that this have are confidence maybe backlog year? we for why thinking next that

Elad Sharon

Yes.

macroeconomic also customers. into affected it our readiness. again. So environment now plan to the digest took and that they budgets them, to remember for looked and time we have They availability their the Also

with schedule And level be the that short-term have confidence for will discussions that the now the us Our we is deployment we realistic. that converted. believe baseline RPO that’s more gave the actually them

them discussions the affected some over backlog schedule affected deployment not countries to at that some by have that together And not also the it’s prioritize and combination all. So strong it. reconfirm more, are a all less, increased many with we remember to There were of countries with that affected were year, were certain affected that.

this market will very view is would the when and deployment hopefully behind rate So go about storm and also revenue obviously, the expect margins, have schedule. I once and expand. given good to increase the we overall, now And the a to software us growth turns up, margins high

I it is I hope this answered. So in nutshell. a

Mike Cikos

gross that You I just our on forecasting but side. great. my other, colleagues, did. it I services think wanted And clear to below was make had and the That’s margins. That’s was what final great. before I I over on Obviously, sure saw question professional to turn we a been we

then as about should think this to contracting can expect services QX to is similar gross you you, have So the historically led all. think margins? wanted margin And comment I about other guys. the compressed. Thank us margins we QX from professional help what QX pattern gross just quarter? gross we And that’s And see, to a

David Abadi

Okay. Mike, David. it’s Hi,

things. by the gross QX, mainly revenue, gross the and you driver which ability margin, is with when it services affect our So, margin, was that years. for and the at two software over margin improve negative had we driven look to professional main the actually margin the the at gross our gross look When we

allow of visibility that already them schedule cost And better with over much other that improve we – the And a structure I from in revenue. are that improvement that the current were professional associated now will that the gross it able assume When will level overall, overall would reduction low gross the time. we to about of the as have right end, Giving software is planning. the the some the made, time believe perspective, level gross XX%. to because us and so now. to look the is of and on question future return that margin QX at we cost you period, one software take margin seeing deployment the like that the recovering, One from back to be on we of we do long-term, your level the services margin for we of will slight

Mike Cikos

you Thank very Okay. much guys.

Operator

you. [Operator comes Peter question our Instructions] ISI. And Evercore next Thank with from Levine

Your line now is open.

Peter Levine

on the guys. some year. have can what what’s in have like in this understand headwinds I worse, terms steps kind But gets of of next the Maybe built is, here. companies pocket cards back you you recession just to us other seen of face to dial taking might have the you just Obviously, the you that question help economy back. some Obviously, offset, you guys we playbook like Like, kind kind what’s employees Thanks take if recession question think in my of efficiencies to for follow-up playbook? obviously, of your additional Great. it call kind that prior willing for year?

Elad Sharon

Yes.

are year I you our the So, asking, to are next just environment assumptions you question? what the assume are I terms macro understand want I assume asking make of Peter. the question, that’s sure I in for

Peter Levine

are to do guide for have the Yes. like, hitting next knows one no I of happen. still numbers? But what’s going as terms you But see to what right. risk? year. You right, you may not the am risk what’s the you obviously, offset in is think then those the And perhaps I assuming, that, where

Elad Sharon

Yes.

we similar this So, when our year. we assumed built conditions environment guidance, as macro

So, we didn’t the will situation be that better. assume

don’t We have any that it signs worse. will also be

So, it commitments growth preserve to to we cost when second, was and was sure Obviously, from the behind actions the improve. Ops. our that resume aligning And organization be it year. to the to thinking we conditions assumption stand the market This outlook cash some have opportunity that And generate flow goal. customers. to first, was the the that, behind we this to the that we related similar make breakeven to are structure will took

is assumption as So, overall, similar this the year. environment macro a

Peter Levine

I you what are your you get maybe companies are are completely, of kind budgets Are maybe And their sense of a their elsewhere? the and back appetite you the customers customers sense landscape? just your pulling more touch are Can in kind from can customers budget you RFPs? us is allocation kind maybe in seeing of give just these then or like heading deferred, that compete a terms today? doing deals they towards? And think allocating competitive of that Okay. of that getting upon the where

Elad Sharon

Yes. Sure.

year, So, not but at it we main actually problem conversion, increasing. backlog the backlog bookings, still demand The was RPO, you if was the issue was and was it also not the the conversion. bookings – look the mainly this

give and customers customers their that when POs a us, So, to that solution they need a they bills, when product they that actually have gave need and because it the they customers do challenges. – address

is that confidence differentiation. gives this the So, run very product company something do macro the that in terms good tough that, leadership situation We customers. We having environment, we demand relationship with our the there. in market of have maintain said is –

We are XXX global, work in countries. more than

So, position leadership overall, remains. the

competitors Of we and they that believe are some backlog on. to either slowdown to budget or having what the we delay are And face address push cases. challenges issues, that them the in to course, have the and tend of I will market, competitors, use About different have portfolio competitor conversion. all the same many not we do parts that do. that’s of focusing rich customers operating or Different buying

for consider of struggling competitor to is of depends and will M&A it in it storm, some will serving. go – be believe what be the the by end will us I do he competitors and future. this be the on it to interesting though that maybe So, area macroeconomic what

Peter Levine

about top? three when in is, the Are Okay. today at can funnel six what versus months it coming meaning backlog months convergence. ago? activity net seeing can you or on are funnel you the talked ago, new even RFPs But at about the call like uptick we squeeze looking maybe That’s of last an today, talk one seeing very top one you helpful. I in

Elad Sharon

Yes.

you right? I – you asking if are about funnel, So, the assume

Peter Levine

Yes.

Elad Sharon

on So, constraints we countries, territory etcetera. as efforts in budget decision not maximize to our we certain suffering they and part that areas know – of opportunities ready, can our focus where are because certain

of the maximize year. And this alternative, focus funnel funnel the are have greater are was to enough are the on decisions that and generate we book-to-bill And is subset one to the ROI. highest this year, potential the where for our focusing one now do than we today business So, will support the on greater big than that way book-to-bill what opportunities is it us. we was

the to expect We same year. next be

Peter Levine

and you New questions taking Great. Year. for enjoy Thank my and the holidays

Elad Sharon

Peter. you, Thank

Operator

you. [Operator question our Imperial Instructions] Ruttenbur from Brian And comes with Capital. Thank next

line now open. Your is

Brian Ruttenbur

and revenue? back number, Great. terms of ballpark growth million questions of if about ‘XX about Thank follow-up of the you that’s million for to a divestiture total you Couple much. envelope, right along guidance, talking very lines to I $XXX the fiscal the with with $XXX up come in of thinking are the be X%

David Abadi

a we the QX, give for So, to $XX which million. share you guidance $XX range million between

will If you be midpoint $XXX take around million. from the you X%,

this number So, get. be you should the that should like around

Brian Ruttenbur

you. Thank Okay.

So, seasonality it’s things didn’t ebb roughly flow and $XXX million, know there. in how certain I quarter-to-quarter, ballpark will because

why that’s was that. I So, trying clarity to on get

number So, in margins catch what on the the I million revenue, previous should margin? be roughly $XXX up was from low-XXs. gross it be didn’t in should high-XXs, gross

David Abadi

separate let’s gross discussion about, the margin. So, overall

margin is increase margin a at in profitability. we we to revenue the as due our driven grow, dollars software QX the higher more top gross model. improvement look be And gross slight with will year, to So, and will on drive expect the next we line. the When able by

for So, like low-XXs, I perspective. modeling say would

Brian Ruttenbur

is You said low-XXs correct? instead that of,

David Abadi

low-XXs. correct, That’s

Brian Ruttenbur

SG&A trying that SG&A completed and breakdown of we should just from expense, those second the a And be a decrease, to Okay. R&D the looking R&D moving operating then kind and levels and quarter of just in are of you trying third I now what drop in going forward? understand to I there R&D, divestiture, terms understand am saw forward, at have quarter. to

David Abadi

more next we around to will structure we from during that, do our and on cost earning provide million, initiative saving OpEx cost will $XX our continue our think year. We will calls. general, QX next benefit be the in color So, much overall, over

Brian Ruttenbur

just And I versus it $XX little to that’s of how bit that that put breakdown? percentage historically to XX-XX, It’s SG&A a there historical? weighted, trying R&D? buckets. how am should Is but still million, Is higher a like be roughly in Okay. – close

David Abadi

the be similar. You should trends say would like

Brian Ruttenbur

a Perfect. kind And XXXX. breakeven of guidance fourth be specific, then is, all going it in those half lines? XXXX there along second of you also quarter, Is or any said is cash flow to

David Abadi

in cash this next also well, flow operation, it and So, year expect QX for year. breakeven from be we to

look at we you next the As throughout growth year, be also there during year. will that, think And sequential benefit the OpEx year. the we enjoy revenue will on

be expect So, giving you trend, this that from better than HX flow cash HX should will from operation.

Brian Ruttenbur

Great. Thank you very much.

David Abadi

Thank you.

Operator

Thank At am for closing further to showing you. I back would conference I Mr. And to no the questions. hand comments. this like any time, over Ridlon

Dean Ridlon

out Thank quarter. you, me next Should please any operator and joining we on with call. thank have additional free reach for again you speaking look to us forward and questions, you everyone feel to today’s you to

Operator

today’s Thank for your participation. conference call. concludes This you

a You wonderful may day. Everyone now have disconnect.

Cognyte Software (CGNT) 20 Dec 222023 Q3 Earnings call transcript